Stores ?

Stores & Inventory Management

By:S K SHARMA, Chief Mentor, Pinnacle Innovative Solutions Former National Prsident, Indian Institute of Materials Management

Inventories are stored in stores and warehouses for extended period . warehouse is functioning like distribution centre. Stores perform these functions by storing: Raw material & spares, B.O.component & work in process (WIP). semi-finished inventory and finished inventories.
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Providing Solutions Is our PASSION

Receipt Store
To receive, unload, unpack and physical counting of the material coming from outside. generate its incoming document and to arrange inspection of material. Check that material is supplied by vendor as per Purchase order. To ensure proper condition of the material and accurate quantities received matching with the invoice quantity
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Contd: To take steps to find insurance claim in case material is received in damage/ shortage /breakage / leakage and pilferage To ensure that copies of invoice to avail CENVAT under excise and VAT amount are properly received Identify the goods with appropriate stock number of your company and identification tag should be tide with the consignment
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Contd. Shifting of accepted material to main store/concerned store or user point. Shifting of rejected material to rejection store for rework or dispatch to vendors.

Stores Management
Placing the items in store in such a way that they can be found readily and correctly as and when required. Minimize the total physical efforts to reduce the cost of moving the goods into and out of storage. Proper and update accounting. To ensure proper measures to preserve the material Provide timely customer service.

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Providing Solutions Is our PASSION

Stores
Dispatch of finished goods to customers. Picking and packing the material. Goods are brought together and checking for omission or errors. Updating the order records. To ensure optimum usage of the space. Effective use of labor and material handling equipment
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Preservation
stores to ensure materials is not deteriorated and must maintain their true value and properties for fulfilling the specific purposes. Deterioration means decrease in the value of the material to meet the quality specification required for a particular purpose.

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Contd. FIRST IN, FIRST OUTFIFO principle must be followed for the materials having shelf life, while issuing/ consuming the materials. Last in first out LIFO is to follow only in those items where goods received first may have longer shelf life Do not disturb the original packaging received from the supplier Provide adequate ventilation Do not store any thing on the floor Cover stocks in the open by tarpaulins

Issues
Ask for the material requisition slip and register the same. Check the requisition whether it is sign by an authorized person. Store person should have list of authorized person along with their designation and specimen signatures. Check the stock no., description department code no. unit of measure etc. Does the quantity is matching with the requirement given by the user department. Check from the computer the availability of the stock Issue the material and fill up the quantity in the issue column and record the same in the computer for update the balances.

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Providing Solutions Is our PASSION

Issues
Handover the material to indenter or his authorized agent and take his signature. As per the company requirement, please arrange the delivery of issued material to the users point in time. If required quantity is not available in part or full, then follow up with purchase or inform the indenter. While issuing the material, implement first in first out (FIFO) First expiry , first out (FEFO). If material is to be dispatched then ensure proper packaging, documentation and transportation.

Receipts given by different modes of transport

Mode of Transport Receipt Documents Rail Railway Receipt (RR) Truck LCV,HCV Goods receipt (GR) By Air. Air Way Bill (AWB) By Ship Bill of Lading (B/L)

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Providing Solutions Is our PASSION

Records
Stock Ledger Price Ledger Stock Card/Bin Card Unmet requirement Register Stock variances record Extra issue/wastage record Record for Non-moving, slow moving and obsolete items

Physical verification
stocks are treated as cash and it is obligatory on the part of stores to ensure that what ever the stock are appearing in stock ledger must match with the physical quantities lying in the stock against that particular number. Objectives: Essential for accurate balance sheet purposes Effective planning and replenishment of inventories. To ensure that materials is matching with the description and specification as shown in the stock record. To find any fraud thrift of loss or loss or even to see the possibility there of or material is damaged, broken or spoiled during storage. To find out weakness in the system and to suggest improvements. To know any unit of All discrepancies found must be investigated, explained and accounted for.

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Providing Solutions Is our PASSION

Stock Verification
1. Periodic stock taking:
Advantages of Periodical Stock Verification: It is simple, and suitable to small warehouse. It gives accurate value of closing stocks on half yearly or yearly closing. No extra staff is required.

Disadvantages
not suitable for medium or large storehouse where inventory verification can not be completed in one or two days. Work can not be suspended for longer period to complete the exercise. Since variations are known at the end of the year, detailed reconciliation is not possible. Preparation of final accounts and balance sheet is delayed.

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Providing Solutions Is our PASSION

Perpetual stock verification

Verification of stocks is done through out the year as per a pre determined plan of action.

Advantages
Work can be independently carried out by stores/ material audit department through out the year without stopping the production. Reconciliation with regard to discrepancies are spread over the year and hence detailed analysis is possible Final accounts can be prepared expeditiously No need to close the stores operations for verification of stocks

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Providing Solutions Is our PASSION

Disadvantages
Some times there are chances for wrong verification due to store transactions are taking place at the time of inventory. Actual stock balances are not available on the closing day of financial year.

Reconciliation & finalization of accounts

Discrepancies, if any, must be discussed with stores so that any omission may be rectified. Major discrepancies may require reverification. Left out discrepancies should be reported to top management for approval for stock adjustment. After the approval, the stock records can be corrected.

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Providing Solutions Is our PASSION

Stores Management
Difference between Obsolescence, Surplus and Scrap: 1.Obsolescence: Not Usable. 2.Surplus: Not being used. 3.Scrap: generated out of process

Obsolescence And Waste Control

Resources are limited. Consumption is on increase. Storage space is a constraint. Money blocked in Non Productive Assets.

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Providing Solutions Is our PASSION

Reasons for Obsolescence:

1.Development of New Technology. 2.Design Change 3.Adoption of standardization/Variety Reduction. 4.Rationalization. 5.Wrong Forecasts

Reasons for Obsolescence

1.Fear of stoppage of line 2.Lack of Confidence in Suppliers. 3.Imported Machinery spares and lead time. 4.Insurance requirements.

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Providing Solutions Is our PASSION

Remedies for Obsolescence

Cross functional teams for: 1.Design change/process changes. 2.Develop reliable suppliers. 3.Market Information updates. 4.Disposal at fastest pace.

Waste Generation
Over Specifications: Excess scrap Under Specifications: Excess rejections Wrong Buying. Spillage/Wastage in Transportation. Misuse. Inadequate Storage Facilities. Wrong Material Handling

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Providing Solutions Is our PASSION

Reasons/Remedies
Technical and Managerial. Proper Analysis. Proper Action plan Effective Implementation. Regular Monitoring. Timely MIS.

Obsolescence and Waste Control

Disposing, salvaging and Utilization of scrap is an art by itself and no amount of theoretical inputs can replace a man who has the innate knack of converting

WEALTH FROM WASTE

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Inventory Management
Inventory is one of the most expensive assets of many companies. It represents as much as 50% to 80% of total invested capital.
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Inventory Management

Inventory Management
Inventory is any stored resource that is used to satisfy a current or future need. Raw materials, work-in-process, and finished goods are examples of inventory. (1) how much to order (or produce), and (2) when to order (or produce).

Basic Functions of Inventory

1. If product demand is high in summer, a firm might produce during winter. (Decoupling). 2. Inventory can be a hedge against price changes and inflation. 3. Another use of inventory is to take advantage of quantity discounts (when buying). (Many suppliers offer discounts for large orders)

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Providing Solutions Is our PASSION

ABC Analysis
ABC analysis divides on-hand inventory into three classifications on the basis of annual consumption value. The idea is to focus resources on the critical few and not on the trivial many.

ABC Analysis
Class A items are those on which the annual dollar volume is high. They represent 70-80% of total inventory costs, but they account for only 15% of total inventory items.

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Providing Solutions Is our PASSION

ABC Analysis
Class B items are those on which annual dollar volume is medium. They represent 15-25% of total dollar value, and they account for 30% of total inventory items on the average.

ABC Analysis
Class C items are low value volume items. They represent only the 5% of total value volume, but they include as many as 5060% of total inventory items.

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ABC Analysis

ABC Analysis
Some of the Inventory Management Policies that may be based on ABC analysis include: a) Class A items should have tighter inventory control. b) Class A items may be stored in a more secure area. c) Forecasting Class A items may warrant more care.

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Providing Solutions Is our PASSION

Cycle Counting of Inventory

Cycle counting uses inventory classifications developed by ABC analysis. That is: Class A items are counted frequently, perhaps once a month. Class B items are counted less frequently, perhaps once a quarter. Class C items are counted perhaps once every six months.
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Selective Control
V.E.D. FSN SOS GOLF XYZ

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Just-in-Time Inventory

Just-in-Time Inventory
With just in time (JIT) inventory, The exact amount of items arrive at the moment they are needed, Not a minute before OR not a minute after.

Just in Time Inventory is the minimum inventory that is necessary to keep a system perfectly running.
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Providing Solutions Is our PASSION

Just-in-Time Inventory
To achieve JIT inventory, Managers should Reduce the Variability Caused by some Internal and External Factors. (Goldratts boys scout example Apply the pace of the slowest boy). Existence of Inventory hides the variability. What causes variability?

Holding, Ordering and Setup Costs

Set-up cost is the cost to prepare a machine for manufacturing an order. Set-up cost is highly correlated with set-up time.

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Providing Solutions Is our PASSION

Holding, Ordering and Setup Costs

Machines that traditionally have taken long hours to set up Are Now being set up in less than a minute by employing FMSs or CIM systems. Reducing set up times is an excellent way to Reduce Inventory.

Inventory Models
Demand for an item is either dependent on the demand for other items or it is independent. For example, demand for refrigerator is independent of the demand for cars. But, demand for auto tyres is certainly dependent on the demand of cars.
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Providing Solutions Is our PASSION

Inventory Models
Independent Demand Situation. In the independent demand situation, we should be interested in answering: a) When to place an order for an item, and b) how much of an item to order.

Inventory Models
There are Four Basic Independent Demand Inventory Models: 1) Economic Order Quantity (EOP) Model (the most known model). 2) Production Order Quantity Model. 3) Back order inventory model. 4) Quantity discount model.
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Economic Order Quantity (EOQ) Model

EOQ model makes a number of assumptions: 1-) Demand is known and constant. 2-) Lead time (the time between placement of order and receipt of the order) is constant and known.

Economic Order Quantity (EOQ) Model

3-) Orders arrive in one batch at a time, and they arrive in one point in time. 4-) Quantity discounts are not possible. 5-) The costs include only setup cost (or ordering cost when buying) and holding cost. 6-) Orders are always placed at the right times. Therefore, stock outs (or shortages) can be completely avoided.

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Providing Solutions Is our PASSION

Economic Order Quantity (EOQ) Model

With these assumptions, the graphic of inventory usage over time is as follows:

Inventory Control Techniques

Pull/Push Milk run VMI Quick Response (Q.R.) Information sharing & SRM

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Material Control Techniques

RATIO ANALYSIS
Gross profit Ratio =

G.P. x100 Sales

Cost of Goods Sold AV. Stock AV. Working days No. of consumption days = I.T.R. Total Cost x100 Operating Ratio = Sales

Inventory Turnover Ratio =

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