Supply Chain Management

Supply Chain Management Kimball Bullington, Ph.D. www.supplychaindocs.com The Supply Chain Doctors

SCM Fundamentals • Introduction • Planning • Sourcing • Making • Warehousing • Transporting • Sharpening the Saw 18

Terminology • Inventory Item – Goods that are tracked as part of the financial accounting system. Will have a SKU assigned to it • Non-Inventory Item – Goods that are not part of the financial inventory record (expense items, factory supplies, office supplies). May or may not have a SKU assigned to it

Terminology • Unit of Measure - – The measurement used to buy, stock, and sale a specific item. Common units are each, pieces, box, carton, pounds, feet, rolls, packs, etc. • Common source of Inventory errors

Terminology • Inventory Adjustment – An increase or decrease made to the system inventory level of an item to make it consistent with the physical quantity on hand. The adjustment may represent a gain or a loss of inventory. • Physical Inventory • Cycle Counts

History of Warehousing …And during the seven years of plenty, when the earth bore ample crops, he (Joseph) collected all the produce of the rich years over Egypt and stored the grain within the towns …There was a famine in every country, but there was food everywhere in Egypt. And when all Egypt itself grew famished…Joseph opened all the granaries and sold grain. Genesis

Warehousing • Costs • Receiving • Inventory Locations • Shipping Containers • Tools of the Trade • Inventory Management • Inventory Performance Measures • Picking Strategies • Lean Warehouse • Warehouse Management 18

Fixed Costs Building rent Long-term equipment leases Some utilities Some insurance Depreciation Sales, General, and Administrative salaries (SG&A) Variable Costs Direct labor Shipping supplies Freight in Freight out Some utilities Warehouse Costs

Third Party Warehousing • A third party warehousing provider is a firm that provides outsourced or “third party” pick and pack, warehouse storage, and distribution services. Major services also include: • IT support, including product tracking • Transportation booking • Reverse logistics • Program management

Traditional Cost Accounting • Overhead costs are charged proportionally to direct labor costs, not the actual resources consumed • True costs for a project are not known • Individual customer money makers and money losers are not known • Economic break-even point is difficult to determine

Activity Based Costing • Customers are charged based on the amount of resources they consume • Requires detailed financial tracking • Converts many overhead costs into direct costs

Activity Based Costing • Good when overhead is high • Good when products/services are diverse (consume different amounts of overhead costs) • Good when competition is tight

Space Utilization Rate • Charges based on the number of cubic feet consumed by a customer’s product • Space utilization rate may include factors for: • Value of the space used • Value of the product housed (insurance) • Taxes • Loss & damage • Obsolescence • Material handling • Labor (upkeep)

Receiving • Obtain Purchase Order • Schedule delivery • Determine stocking locations • Obtain shippers Packing List

Receiving • Match Packing List to Purchase Order(s) • May not be one for one • Unload material into staging area • Verify product & count against Packing List

Receiving • Record short & damage notes on Packing List • Allow staging area for product inspection • Acknowledge receipt of product (receiver in software or hardcopy) Proof of Delivery • Stock in inventory locations as planned • Payment of supplier may require 3-way match of documents (Purchase Order, Invoice, Receiver)

Receiving • Receiving is the initial record of inventory management • Errors at the Receiving stage will carry forward • The gift that keeps giving • Receiving errors create • Backorders • Overpayment • Inventory loss

Receiving Errors • Sources of confusion/errors • Inconsistent Unit of Measure between Purchase Order, Packing List, and Inventory Records • Different SKU numbers used between vendor, customer and SOS inventory records • Purchasing Tolerances • Purchase Order requires 100 pieces • 10% Receiving tolerance • Packing List indicates 110 pieces • Conflicting records

Receiving Errors • Multiple purchase orders for the same SKU • Partial shipments leaving small quantities open on a PO • One shipment covering quantity for 2 purchase orders • Multiple packages to represent one unit • One gondola may be shipped in 3 separate boxes

Cross Dock Operations • Unloading material from an inbound trailer and immediately loading onto an outbound trailer. • Eliminate the need for storage • Eliminate the additional handling of put away and picking items • Requires synchronization between inbound deliveries and outbound shipments

Inventory Locations • Fixed Location • Dedicated inventory slots • Random Location • Floating inventory slots

Fixed Location Storage • Each inventory location is dedicated to a specific part number. • Simple & easy to use • Reduces errors • Employees memorize locations for common items

Fixed Location Storage • The location stays empty or partially filled until additional quantity of it’s designated part number is stocked • Results in poor space utilization – wasted space • Space is often “reserved” for unstored product

Fixed Location StorageSpace Utilization Delivery Inventory Level Time Day before delivery

Fixed Location StorageSpace Utilization Must Allow This Much Space Delivery Max Inv Level Avg Inv Level Day before delivery

Random Location Storage • Product is assigned to any available inventory location • Products may be grouped into logical families (not totally random) • Customer based (Petco, Best Buy, Eckerds) • Volume based (slow movers, fast movers) • Commodity based (shelves, standards, slotwall) • Material based (metal, wood, plastic)

Random Location Storage • Requires precise inventory accuracy • Works best when inventory move transactions are made on a real-time basis • Results in much higher space utilization

Underutilized Inventory Locations

Shipping Container • Sealed metal box of standard dimensions used for intermodal freight transportation • Can be loaded onto trucks, container ships, rail cars, and planes • Capable of being stacked multiple levels high

Container Sizes • TEU – Twenty-foot equivalent units • 20’ (length) x 8’ (width) x 8’-6” (height) • Common Container Lengths • 20 ft • 40 ft • 45 ft • 48 ft • 53 ft

Container – No Pallets Efficient space utilization. Inefficient unloading process

Container - Palletized Inefficient space utilization. Efficient unloading process

Pallet Jack • Hand-propelled, wheeled platform equipped with a lifting device for moving pallets

Powered Pallet Jack • Battery powered, wheeled platform equipped with a lifting device for moving pallets

Forklifts Electric Forklift LP-Gas Forklift

Racks • Space utilization • Handling efficiency • Damage minimization

Racks • Pallet Racks • Cantilever Racks – Arms supported at one end only • Bin Rack – similar design to pallet rack, but smaller (<30” deep, <7’tall)

Racks • Flow Rack – Bin rack on an incline. • Loaded from the back • Picking from the front • Conveyor rollers move product from back to front of rack • Efficient order picking

Racks • Rollaway Rack • Movable racks that travel on wheels and rails

Double Face Pallet • A pallet with top and bottom decks. Can be accessed from 2 opposite sides.

Four-Way Pallet • Pallet which can be accessed from all 4 sides

Block Pallet • Pallet where blocks, rather than solid stringers separate the top and bottom deck

Reversible Pallet • A pallet with the same construction for the top and bottom deck. Can be used with either side facing up.

Skid • A pallet with no bottom deck

Fumigated Pallet • ISPM 15 – Requires all solid wood packaging materials to be either heat treated or chemically fumigated to provide pest control (stamp required) • Plastic pallets are an alternative to fumigated wood pallets

Supply Chain Management