1.

0 WAREHOUSE OPERATION AND ACTIVITIES

3.1 Receiving of goods
The receiving function is the starting point for inventory control in the warehouse. It is also the
function best suited for gathering information needed for keeping product details accurate and
current. The basic functions of receiving include verifying product quantity, preparing receiving
reports, and routing those reports to designated departments. Receiving also should prepare
received products for movement into the storage and picking

Receiving Objectives
 Right Product
 Right Quality
 Right Quantities
 Right Weight
 Right Condition
 Right Standards
 Right Time
3.2 Storage of goods
Storage functions are usually an extension of receiving department duties. The basic functions of
storage are the movement of products from the dock area to a holding location, the recording of
the location and quantity, and the updating of storage records so that the product can be found
easily when it is needed. Retrieval of products from holding locations may also be assigned to
storage operations and/or may be a function of picking operations.

Storage normally occupies most available warehouse space. This being so, you might find it best
to lay out the entire building for storage before you attempt to determine space needs for other
warehouse functions. Once the best storage layout is determined, simply remove parts of it to
accommodate the other functions.

3.3 Picking Operations

Picking operations is defined as the assembly of products ordered by customers. This is a simple
function, yet it is time consuming. As you evaluate and/or setup your picking operations,
efficiency should be a major goal. After all, customers expect their orders to be processed
quickly, not just accurately.

3.4 Quality Control/Verification

1. The operational techniques and activities that sustain the product or service quality to
specified requirements.
2. Operations intended for the assessment of the quality of products at any stage of
processing or distribution .
3. Part of quality assurance intended to verify that components and systems correspond to
predetermined requirements.
QC is therefore the process of ensuring that products/services required are received as is
prescribed, in a timely, cost effective and efficient manner, through the application of well
established systems and procedures.

3.4.1 Formulation of a QC Process

The evolution of a QC process, is a movement through four distinct phases with notable
characteristics:
1. Quality Control (QC). Quality control entails the basic procedural and statistical
management of quality:
o defect-free services;
o management-driven
2. Quality Assurance (QA)
Planned and systematic action that is necessary to provide adequate confidence that a product or
service will satisfy given requirements for quality.
A greater emphasis on achieving user/user satisfaction through user/user-driven quality
characterises. This is the shift from QC to QA:
o 100% satisfied user/user;
o user-driven
2. Quality Improvement:
It can be distinguished from QC in that quality improvement is the purposeful change of a
process to improve the reliability of achieving an outcome. Some terminologies that are
commonly used in relation to quality are: performance, compliance, standards, specification and
conformity.

3. Total Quality Management (TQM).

All stake holders, i.e. management, suppliers, users/users and employees all aligned and working
together towards a common goal and ensuring quality service provision. It would cover
monitoring of all aspects of management, staff, users/users satisfaction, systems implementation,
adherence to processes and procedures and supplier performance. The above characterise the
evolution to TQM.
o Significant gain for all stakeholders.
o Common goals.
4. User Value.
User value reflects the need to do things that create the best competitive net value for the user.

3.4.2 Inspection Techniques in a Warehouse

1. Quality Assurance
Quality assurance (QA) involves inspecting the final output produced by a company. In
manufacturing, a QA inspector would randomly select items to examine for compliance with
overall standards. Some QA inspections in a warehouse involve examining the products or
supplies that go into building the final product. For instance, in an automobile factory, QA
inspectors would examine separate parts stations such as engine, chassis, steering mechanism
and electrical that make up production of the finished cars.
 2. Inventory on Hand
Inventory inspections in warehouses are done to account for supplies and parts that make up the
final product. By periodically checking inventory, management determines what inventory needs
to be ordered more frequently, which parts are not used and which parts are no longer necessary.
Inventory that sits idle in a warehouse costs time and money to maintain. Inventory inspections
should be done frequently to determine the correct usage of parts and to prevent storing
unnecessary equipment and parts. Often, companies institute small internal inventory checks by
department to save the time and inconvenience of too many facility-wide audits.

3. Process Inspection
Many companies inspect the operations process to determine levels of efficiency in their
warehouses. Companies perform mock inspections on procedures to test how efficient employees
are in their jobs and how knowledgeable they are in how to do their jobs. Systems and
procedures are the heart of any daily operation and can cost a company its competitive edge in
the marketplace if not done effectively. Systems need to be reviewed, improved upon and
updated according to emerging needs in the market and newer technologies available.

4. Auditing
An audit generally involves inspecting an entire warehouse facility and normally takes a few
days or weeks. Facility-wide audits are often done before a company completes a major change
such as a merger, expansion or facility closing. In an audit, every employee is involved along
with management. Third-party companies typically perform audits by coming in and taking stock
of every aspect of operations in the warehouse. Audits involve interviewing employees,
observing processes and counting inventory. At the end, the audit company reports its findings to
the management.

3.4.3 Warehouse Auditing

Warehouse audit is an accounting procedure designed to keep track of a company's products and
merchandise.

3.4.3.1 Importance of inventory audit

i. Misstatement affect reported profit: misstatement of inventory balances has a direct effect
on reported profit.
ii. Inventories identification: some inventories can be very difficult for an auditor to identify
stock of gas reserve.
iii. Inventories difficult to establish: the quantities of inventory held at a specific given
moment may be difficult to establish. It may not be possible to cease inventory
movements during the inventory count and cut off may be hard to establish with
precision.
iv. Inventory losses: from pilferage, wastage, obsolescence, damage, dormant stock.
v. Inventories may be intangible: some very significant work in progress balances may be
intangible in nature.

3.5 Codification
It is one of the functions of stores management. Codification is a process of representing each
item by a number, the digit of which indicates the group, the sub-group, the type and the
dimension of the item. Many organizations in the public and private sectors, railways have their
own system of codification, varying from eight to thirteen digits. The first two digits represents
the major groups, such as raw materials, spare parts, sub-contracted items, hardware items,
packing material, tools, oil, stationery etc. The next two digits indicate the sub-groups, such as,
ferrous, non-ferrous etc.
Dimensional characteristics of length, width, head diameter etc. constitute further three digits
and the last digit is reserved for minor variations. Whatever may be the basis, each code should
uniquely represent one item. It should be simple and capable of being understood by all.
Codification should be compact, concise, consistent and flexible enough to accommodate new
items. The groupings should be logical, holding similar parts near to one another. Each digit
must be significant enough to represent some characteristic of the item.

3.5.1 Objectives of Codification

The objectives of a rationalized material coding system are:
i. Bringing all items together.
ii. To enable putting up of any future item in its proper place.
iii. To classify an item according to its characteristics.
iv. To give an unique code number to each item to avoid duplication and ambiguity.
v. To reveal excessive variety and promote standardization and variety reduction.
vi. To establish a common language for the identification of an item.
vii. To fix essential parameters for specifying an item.
viii. To specify item as per national and international standards.
ix. To enable data processing and analysis.
3.5.2 Advantages of Codification
i. As a result of rationalized codification, many firms have reduced the number of items.
ii. It enables systematic grouping of similar items and avoids confusion caused by long
description of items since standardization of names is achieved through codification,
iii. It serves as the starting point of simplification and standardization.
iv. It helps in avoiding duplication of items and results in the minimization of the number of
items, leading to accurate record.
v. Codification enables easy recognition of an item in stores, thereby reducing clerical
efforts to the minimum. If items are coded according to the sources

3.6 Stock Control

Stock control is defined as the means by which materials of the correct quantity and quality are
made available as and when required, with due regard to economy in storage and ordering costs,
purchase prices and working capitals.

The Primary concern in the management of stock control must be to provide the right goods in
the right condition at the right price in the right place at the right time. This means that control
procedures should:-
i. Retain stock at appropriate levels.
ii. Safeguard stock against loss or misuse
iii. Ensure that stock is properly used in business operations
iv. Ensure that stock is duly accounted for
Management must control the procedures for purchasing and controlling sock in such a way that
an optimum balance is obtained between efficient control and economy. Such a system must be
designed in the light of the individual needs of the business.
3.6.1 Objectives of adequate stock control system
An adequate system of control must aim at achieving the following objectives:
(i) Elimination of the Delivery of incorrect stock, as regards type, quantity or quality.
All deliveries of goods should be checked against the copy order, which they are received and
discrepancies noted. The person ordering the goods is responsible for certifying that they are up
to standard.

(ii) The reduction or elimination of pilfering.

The key factor here is the relationship between unit bulk and bulk. If goods are easily portable,
of small bulk and of high value then they should be more vulnerable to misappropriation.
Greater security may be exercised on the issue of goods, which fall within this category. Where
goods are of high bulk and of little value, free access to their use may be allowed. A physical
check of stock may be made at random and at irregular intervals to provide a moral check in
pilfering of stock in the same way as the audit may present pilfering of cash.
(iii)Control of movement showing sales per product.
Regular analysis of sales and purchases will indicate charges in demand. If excess stocks are
begin ordered, this can be checked. Excessive analysis should be avoided and a periodic check
made to see whether information produced is being used.

(iv) Avoiding holding slow-moving stock.

This can be obtained by marking on each of the stock record cards a minimum and a maximum
quantity. The minimum is the lowest quantity, which the particular line should be allowed to
drop if deliveries are to be maintained. On arriving at this figure the factors to be considered are
the speed at which it is used or sold, the length of time required for delivery on the part of the
suppliers and the possibility of late delivery or abnormal usage. The maximum is the figure
above which it may be considered an excessive stock is being carried, and according to the
particular business or article may represent several months’ stock. Where stock moves more
rapidly or more slowly, the store or stock keeper is responsible for reporting immediately for the
necessary action on the part of the purchasing department. If stock is moving more rapidly, the
quantity ordered or put into production can be increased to maintain the stock. Conversely, the
purchasing can be reduced and when necessary the stock disposed of as a clearance line.

3.6.2 Qualities of a Good Stock Control System

Stock control system should have the following qualities:-
(i) Accuracy and speed of reaction to stock situations.
(ii) Good channel of communications with the other major department involved.
(iii)Economy in its operation and its demand upon capital and human resources.
(iv) The ability to be run by various members of staff.

3.6.3 Stock Levels

The stock level deals with quantitative models for materials planning and control. There are four
pre-determined critical levels for each item of material in the store. These are maximum level,
minimum level, re-order level and the re-order quantity.
i. Maximum Level:
The maximum stock level is that level above which stock should not normally be allowed to rise.
It is set by:
i. The rate of consumption of material.
ii. Lead-time or time necessary to obtain new deliveries.
iii. Re-order level of the material.
iv. Re-order quantity of the material
v. The capital available and the opportunity to acquire items at low prices.
vi. The cost of storage and the availability of storage space.
vii. The risk of obsolescence and deterioration.
viii. Insurance costs.

ii. Minimum Level

This refers to the ordering point or flag point at which a new order should be placed to replenish
used stock. The minimum stock level of an item is set so that stock will not be depleted during
the lead-time required for the new order to be processed in manufacturing or with a vendor, as
the case may be. When the minimum is reached, sufficient materials are generally ordered to
bring the stock up to a maximum stock level. The minimum and maximum are usually stated in
terms of number of units, as a minimum if 30 pieces and a maximum of 100 pieces.
iii. Re-Order Level
This is the stock-level at which new order for materials should be placed. It lies between the
minimum level and the maximum level.
It is set after considering:
i. Carrying costs of the material, which include interest on capital, used cost of
deterioration and risk, insurance cost and cost of storage.
ii. Ordering costs of preparing purchase order, cost of preparing purchase order, cost of
receiving and inspecting materials and postage cost.

3.6.4 Stock control methods

There are several methods for controlling stock, all designed to provide an efficient system for
deciding what, when and how much to order.
i. Minimum stock level – you identify a minimum stock level, and re-order when stock
reaches that level. This is known as the Re-order Level.
ii. Stock review – you have regular reviews of stock. At every review you place an order to
return stocks to a predetermined level.
iii. Re-order lead time – allows for the time between placing an order and receiving it.
iv. Economic Order Quantity (EOQ) – a standard formula used to arrive at a balance
between holding too much or too little stock. It’s quite a complex calculation, so you may
find it easier to use stock control software.
v. Batch control – managing the production of goods in batches. You need to make sure that
you have the right number of components to cover your needs until the next batch.
vi. First in, first out – a system to ensure that perishable stock is used efficiently so that it
doesn’t deteriorate. Stock is identified by date received and moves on through each stage
of production in strict order.

3.6.4 Disposal of Stores

Disposal of stores is one of the most important functions of materials management in any
organization. This has become necessary as the equipment and other items tend to become
surplus/obsolete, unserviceable etc. over a period of time due to its long usage. The disposal of
this type of stores is needed to be done on periodic basis.
3.6.4.1 Reasons for Disposal
i. Expired – items, whose expiry dates have been exceeded or items that have expired
during the time they have been transported or stored in the supply chain network before
distribution.
ii. Damaged – items that have been damaged during transport and/or storage. This can
include sterile items where packaging has been damaged, items with leaking containers,
and cold chain items that have not been transported or stored within the right temperature
range.
iii. Items not meeting quality standards – items that do not meet quality standards are
likely to have problems that may be discovered after delivery in a number of ways:
 The products may be tested on receipt and found not to comply with the
specifications
 The factory may discover a problem with the product after it has been shipped
 If a delivery has been split between two recipient organizations, one may discover
a problem.
 Complaints received from users.
iv. Unidentifiable items – Especially pharmaceutical items that have incomplete or missing
labels or labels that cannot be understood or recognised.
v. Recalled items – items that are recalled by the regulatory agency, supplier, or
manufacturer.
3.6.4.2 Stages of disposal
The steps in disposal are as under:
 1. Identification of types of disposable stores

The stores for disposal are divided into the following categories:
i. Surplus Stores – Items that are in working order but are not required for use in a
particular Section/Division/Institute and stock lying in stores for more than five years
shall be deemed as surplus unless there is any good reason to treat them otherwise.
ii. Obsolete Stores – Items in working order but cannot be put into use effectively being
outdated due to change in technology/design.
iii. Unserviceable stores – Items which are not in working order, outlived its normal span of
life and are beyond economic repair.
iv. Scrap- Process waste, broken & any other item not covered above but has got resale
value.
v. Empties – Empty containers, crates, bottles, plastic jars, drums etc.

2. Categorization
The Head of section/ Division shall obtain from users of his section/ division and compile a list
of stores that have become surplus/unserviceable etc. citing reasons in the enclosed format.

3. Standing Disposal Committee

The Standing Disposal Committee may be constituted by the Director who have the knowledge
of the stores related for disposal. The functions of the Standing Disposal Committee will broadly
include the following:
i. It will inspect the materials that are proposed to be declared as Surplus, Obsolete, and
Unserviceable etc. by the Heads of the sections/divisions and decide whether the stores
are surplus or obsolete or unserviceable as the case may be.
ii. It will decide the mode of disposal.
iii. It will fix the reserve price for disposal of items and also arrange to ensure that the lifted
items are as per the disposal list.
4. Inspection
The Committee shall examine the stores to be declared as surplus/obsolete and unserviceable
taking into account the stipulated life period of each item, overall condition of the items, the
reasons for obsolesce etc., requirement of such items in future, negligence or mischief or frauds
on the part of any individual for such loss. The SDC may appoint a technical committee for the
purpose, if required.

5. Deciding mode of disposal

The standing Disposal Committee (SDC) will decide one of the following modes off disposal:
i)By gift / donation
ii)By transfer
iii)By public auction
iv)By limited tendering
v)By press tender