TOPIC 3

WAREHOUSING AND MATERIAL HANDLING

After studying this topic, you should be able to

 Determine facility requirements

 Identify the various concepts in SC strategy and planning
 Explain the design process for facilities
3.1 Facility requirements

 Facilities are places where products are made, stored,

consumed or sold.
 In order to manage facilities , an organisation needs to record
its facility requirements for future review and reference.
 Two main aspects which can be used to determine these
requirements and design of the facility
 What is the reason for building this storage or warehouse?
 What are the future capacity requirements?
 The organization can use these two basic questions to ensure
that the warehouse is built according the organizational needs.
Two factors to consider when doing facility planning

 Strategy and planning concept

 Growth forecast for the facility
3.1.1Strategy and planning concepts

 The organization need to plan the construction of the

warehouse around the customers and their product
requirements.
 The handling of products will also need to be considered
as it will have an effect on the storage space, as the required
equipment will need space to move around.
3.1.2 Growth forecast for the facility

 The organization should consider growth focus when building a

facility.
 The storage space should be sufficient for the next years
 Accurate forecasting is therefore necessary, which will have to
be considered at present.
3.2 Design process

 Design process is a way of figuring how the facility should be

 The design phase will need to take capability requirements into
account for the four operational processes namely:
 Storage
 Receiving
 Order picking
 Dispatch
 Factors like the sizes, safety, security and lighting are important
3.2.1 Sizing

 the organization needs to integrate the inbound and outbound

transport in order to manage the storage and distribution of
products
 the organization should consider cost-effectiveness.
 it is usually more cost-effective to expand vertically
 organization will require a greater amount of space when the
following characteristics are present:
 Customer service level increases
 Production lead times are long
 Many office-based tasks are required
 Stored products are large
 Organization has low inventory turnover rates
3.2.5 Safety

 Organizations with a warehouse will also need to comply with

the Occupational Health and Safety Act 85 of 1993
 The organization will need to comply with safety regulations to
ensure that the warehouse and its employees are protected
when a fire occurs.
 The cost of an accident in the workplace can be more costly
3.2.3 Security

 Security is needed to prevent burglaries and theft against the

expensive inventory.
 The loading and shipment of inventory will also need to be
monitored very closely in order to prevent theft.
 For example
 most organization use cameras and truck/car tracking systems
to prevent theft
3.2.4 Lighting

 Lighting can be classified into two primary factors namely

 brightness and
 colour.
 Selecting the correct brightness is also financially important as
rectifying a mistake can be a very expensive operation
 It is therefore important to get it right the first time.
3.4 Types of warehouses and facilities

 There are five different types of warehouses

 Private warehouse
 Public warehouse
 Automated warehouse
 Climate-controlled warehouse
 Distribution center
3.4.1 Private Warehouse
 The private warehouse is a storage facility that is mostly owned
by big companies or single manufacturing units.
 For example
 Edgars warehouses which stores clothing for retail stores.
3.4.2 Public warehouse
 A public warehouse is a business that provides storage to
multiple businesses on a short or long-term basis.
 The public storage warehouse typically owns its own
equipment and staff to manage the operations of the facility
 Some organizations require additional space due to its private
warehouses reaching capacity.
 These organization lease public warehouse
3.4.3 Automated warehouse

 It is a warehouse that use specialized equipment, storage and

retrieval systems to perform the tasks .
 These equipment and systems facilitates the easy movement
of stored products.
 They include conveyor belts, machinery ,moving platforms,
computer hardware and soft wares
3.4.4 Climate-controlled warehouse

 A climate-controlled warehouse is one that can maintain a

specific air temperature and humidity
 Climate-controlled warehousing is great for any products that
are sensitive to fluctuating temperatures and certain levels of
humidity.
 It is built in order to accommodate products that need special
storage
 For example
 Food (meat, fish etc.) and flowers which needs cooling,
freezing, humidity-controlled environments
3.4.5 Distribution centre
 A distribution center is a product storage and shipping building, that
stores goods a company produces, ready to be send to the
wholesalers and retailers.
 Distribution centers are a key part of the distribution chain for
products, order fulfilment, and storing produced goods prior to their
shipment to wholesale, retail or customers.
 It does not focus on storing inventory for long periods of time.
 For example
 Pick & Pay will use distribution centres for their perishable goods
 these products need to be distributed, to a large number of stores on
a daily basis
3.5 Warehouse Management Systems (WMS)

 a warehouse management system is software that helps

companies manage and control daily warehouse operations,
from the moment goods and materials enter a distribution or
fulfilment centre until the moment they leave.
 This allows the central management of warehousing to perform
its tasks, and the ability to handle complex data.
Ways in which WMS will affect an organization

 Methods of receiving goods - quick movement of goods of

which the receipt will be recorded in the WMS.
 Use and control of equipment in the warehouse - Correct
equipment needs to be chosen to transfer goods to the dispatch
area. Warehouse management system can be used for this
purpose
 Picking capability - When the facilities are designed, it must
consider that stock will need to be picked from storage.
3.5.1 Change management challenges

 A change management strategy is a plan for how to make something

differently.
 In business, a change management strategy describes specific ways
in which an organization will address such things as changes in the
supply chain, inventory requirements, scheduling or project scope.
 It can be difficult to adapt to an organisation’s warehousing and its
warehousing management systems when changes occur.
 Good change management strategy will need to be developed for
the following reasons:
 to adapt an organization's warehousing and its warehousing
management systems when changes occur.
 to offer added value to the customer, suppliers and shareholders.
3.5.2 Cross-dock operations

 Cross-docking is the practice of unloading goods from inbound

delivery vehicles (eg from the factory) and loading them directly
onto outbound vehicles (eg to the market.)
 A cross-dock is a high performance rapid transit point that does
not provide storage.
 Cross-dock operation is a distribution method used to eliminate
storage, in which the goods flow in an uninterrupted sequence
from receiving to dispatching, often referred to as flow through
distribution.
 Factors for a good idea to cross-dock are:
 A continuous flow of products exists, in the cases where suppliers
are highly reliable
 A situation where no unpredictable fluctuations in the sales of the
product moving through the cross-dock exist
 Products with the same handling methods

 Goods can be transported from upstream suppliers to downstream

customers quickly and cost-effectively if the appropriate type of
cross-dock for a supply chain is chosen , designed, staffed and
managed for effective performance.
Three potential cross-docking alternatives which can be
used
 Cross-dock Managed Load (CML)
 is where a supplier delivers goods.
 After the delivery, the Distribution Centre (DC) will verify the delivery note
and distribute the goods to the appropriate customers.
 Joint-managed load (JML)
 is where a supplier individually labels each item and delivers it to the cross
-dock.
 From here the individual items will be sorted in order to build a load which
can be shipped to the customers.
 Supplier-managed load (SML)
 is where a supplier labels and sorts items into customer groups.
 These goods are then consolidated into one load for a specific customer.
Systematic to operation

 There are two types of systematic approaches to operation

 Lean approach
 Six sigma approach
 Lean approaches
 are designed to eliminate non-value-added time
 Lean approach is a set of techniques to identify and eliminate waste
from operations.
 It is a system of organization principles to maximize value and
eliminate waste.
 Six Sigma approaches
 These are approaches designed to reduce variation from plans and
expectations,
 Six Sigma is a quality improvement methodology for businesses that counts the
number of flaws in a process and aims to systematically fix them.
 Lean Six Sigma is the combination of the lean and sigma approaches which
can provide excellent solution for the operation
 Lean Sigma uses a methodology called the DMAIC
DMAIC process

 DMAIC is a process utilised to approach and realise the supply

chain operations problems and eliminate these inefficiencies.
 This DMAIC is an acronym used for the following:
 D:Define the problems and supply chain objectives.
 M:Measure what needs to be done to improve the supply chain. analyse the gap
between the current and desired performance,identify problems and root causes
 A :Analyse the process by defining factors that have an influence.
 I: Identify and implement improvements.
 C: Control the implemented improvements and measure these to
assure sustainability
TOPIC 4:
• Logistics of work-in-progress (WIP)and finished goods inventory
After studying this topic, you should be able to :

 Understand the fundamentals of production planning

 Identify modern production planning systems
 Explain the functions of inventory
Introduction
 Inventory refers to items organization keeps for sale or material kept
to be used in the production of goods to be sold
 Any type of inventory will be classified according to the position it
holds in the supply chain
 Inventories go through different stages of processing
 Three stages/classification of inventory
 Row material
 Wok in process (semi finished)
 Finished Goods
4.1 Fundamentals of production planning

 Production planning is the act of developing a guide for the

design and production of a given product or service.
 The main objective of production planning is to coordinate the
organizational resources and synchronize (occur at the same
time) work of individuals
 The following are the requirements of production planning
 completion dates
oThe date on which something such as a production will be
finished, especially a date promised in a formal agreement: for
example estimated/projected/scheduled/target completion date
 lowering total cost
oThis is a the process of decreasing a company's expenses to maximize
profits.
o It involves identifying and removing expenditures that do not provide
added value to customers while also optimizing processes to improve
efficiency.
• Optimising the process for efficiency is the implementation of structured
methods, strategies, and tactics to improve a specific process within the
parameters / limit of an initiative
o Cost reduction typically focuses on generating short-term savings.
 improving quality
oQuality improvement is a structured approach to evaluating the
performance of systems and processes or a step in production, then
determining needed enhancement in both functional and operational
areas.
• Functional areas refer to the specialized departments or units within an
organization, each dedicated to a specific business function or
discipline. Common functional areas include finance, marketing, human
resources, production, sales, and IT. Each of these functions has its own
set of tasks and responsibilities related to their area of expertise.
• Operational areas, on the other hand, pertain to the day-to-day
activities and processes involved in the execution of an organization's
core functions. These areas are responsible for implementing the
strategies and decisions made by the functional areas. Examples of
operational areas include production operations, customer service,
supply chain management, and logistics.
Five activities of production planning

 Production plan defines the production targets,required resources

and overall schedule,together with all the steps involved in
production and their dependencies
 Below are production planning activities
 Preliminary planning: Planning in preparation. includes capacity
planning
 Aggregate scheduling: forecasts are generated and coordinated with
organizational capabilities
 Detailed production scheduling :it determine the resources and dates/times
for carrying out operations.Scheduling involves taking decisions regarding the
allocation of available capacity or resources (equipment,labor and space)to
jobs,activities,tasks or customers over time.
 Release and dispatch of orders:Dispatching is the routine of setting
productive activities in motion through the release of orders and necessary
instructions according to pre-planned times as the operating plan has been
developed
 Progress surveillance and correction: Refers to monitoring of the progress
and comparing against the production schedule.
4.2 Modern production planning systems

 Modern production planning systems refers process of creating a

plan for future production using computer and software
 Modern production planning is important for the following reasons:
 Competition in the marketplace forces organizations to increase
performance standards and improve cost-effectiveness
 Modern production planning has emerged due to inexpensive
computing capabilities.
 Soon most ORGANISATIONS will have computer-based production
planning and control systems
4.2.1 Evolution of mrp and mrp 2

 Material requirements planning (MRP)is a system that helps

manufacturers plan,schedule,and manage their inventory during the
manufacturing process.
 Evolution of mrp refers to the process by which modern production
planning system has developed from earlier form to the current form
 Early MRP
 The first real computerized MRP system was developed in the 1970s
 It was only used to generate orders for parts and material.
 Later the planning module was developed and linked to the MRP program

 MRP 2
 The last step in this revolutionary process
 This system added two capabilities that is:
o the financial
o further planning through marketing and business plan capabilities.
4.2.2 Enterprise resource planning (ERP)

 Enterprise resource planning (ERP)is a type of software that organizations

use to manage day-to-day business activities
 Enterprise resource planning (ERP)is a process used by companies to
manage and integrate the important parts of their businesses such
 purchasing,
 Supplier management,
 Goods recieving
 production and
 Sales and other supply chain
 ERP is a system where data will be input by the user
 Enterprise Resource Planning (ERP)is business management software that
allows an organization to leverage integrated applications
 In other words it allows an organization to use a suit of integrated applications
to a maximum advantage
 Enterprise resource planning enable independently designed applications to
work together.
 Advantages of ERP programme are:
 Enhanced Business Reporting:
o Better reporting tools with real-time information
o A single source of truth – one integrated database for all business processes
 Better customer service:
o Better access to customer information
o Faster response times
o Improved on-time delivery
o Improved order accuracy
 Improved Inventory Costs:
o Only carry inventory that is needed,
o avoid these common issues
• Too much inventory, and higher overhead costs
• Too little inventory, and longer customer fulfillment times
 Boosted Cash Flow:
o Better invoicing and better collections tools to bring cash in faster
o Faster cash means more cash on-hand for the business
 Cost Savings:
o Improved inventory planning
o Better procurement management
o Better customer service
o Improved vendor relationship management
 Business Process Improvements:
o Automate manual or routine tasks
o Implement smarter workflows
o Gain efficiency
 Supply Chain Management:
o Effective demand forecasting and lean inventory
o Reduce production bottlenecks
o Transparency through the business
 Disadvantages:
 Costs of an ERP Software
o Implementation costs
o Maintenance
o Initial and continuous training
 Requires thorough training
o Training needs to cover all of the ERP system’s features.
o ERP training sessions need to be in line with business processes
o IT users need to be trained for the technical aspects of the ERP System
4.2.3 Just-in-time (JIT)

 System in which materials or components are delivered

immediately before they are required in order to minimize
storage costs.
 It requires working closely with suppliers so that raw materials
arrive as production is scheduled to begin, but no sooner.
 The goal is to have the minimum amount of inventory on hand
to meet demand.
 advantage
 It is a strategy which increases efficiency and decreases waste
 Disadvantages of JIT:
 There is little room for mistakes as minimal stock is kept for re-working
faulty product
 Production is very reliant on suppliers and if stock is not delivered on time,
the whole production schedule can be delayed
 There are no spare finished product available to meet unexpected orders,
because all product is made to meet actual orders – however,JIT is a very
responsive method of production
4.3 Capacity requirement planning (CRP)

 Capacity requirements planning (CRP) is the process of

specifying the level of resources (facilities, equipment and labor
force size) that best supports the enterprise's competitive
strategy for production.
 It is the process through which a company—primarily in
manufacturing—figures out the following:
 how much product it needs to make
 determines if it has the ability to meet its production goals.
 Capacity requirement planning convert the orders produced by
MRP into scheduled workloads
 Help the organization to determine exactly what components
and human resources are required to perform each specific
task
 For example
 The dispatch list will contain order releases which are prepared by
planning which covers a number of days.
 This will go to the foreman who will schedule the machines and labor
requirements according to the requirements.
4.4 Control of production activities

 Control of production activities involves executing the master

production schedule and the material requirements plan.
 A master production schedule (MPS)describe or portray precisely
(delineates)what products a manufacturer will produce,when and in
what quantities.
 Material requirements planning (MRP)is a system for calculating the
materials and components needed to manufacture a product
 It ensure that a labor and machines is efficiently utilized ,
 it minimize work-in-process inventory,and maintain customer
service.
 The output of MRP and Capacity Requirement Planning (CRP)systems is
transmitted to manufacturing organizations in the form of,order releases and a
dispatch list.
 Before this order is released,the planner must make a final check to ensure
that:
 the priority of sequence is still valid,
 Capacity and material is still available.
4.5 Functions of inventory

 inventory refers to all the items, goods, merchandise, and

materials used to produce goods, held by a business for selling
in the market to earn a profit.
 Inventory make possible for smooth and efficient operation
 Efficiency of operation means the organisation is able to
produce desired results with little or no waste as of time
 Flow of operation is a process where all the material that is
needed to a manufacturing job is delivered consistently
 Inventory Facilitates manufacturing by decoupling (separating)
individual segments of total production, that is:
 Purchased-part inventory permit the activity of purchasing
 Inventory of parts and components produced in-house enables decoupling of
independent machines and processes
o Decoupled inventory is when inventory,or finished goods,are separated
from incoming raw materials,which are used to make those products.
o In short,it's a method of reducing risk by separating inventories.
 Inventory help balance the organisation’s supply and demand
 Contribute to effective operation of an organisation’s profit
 Guide against stock-outs and production shutdowns
4.6 Inventory analysis

 Inventory analysis is the process of examining inventory to determine the

optimum amount a business should carry.
 Optimal inventory levels are the ideal quantities of products that an
organisation should at any given time
 Inventory analysis helps to obtain a clear picture of the inventory that
keeps the company profitable so that :
 An organization can keep up with customer demand while increasing sales
 An organization can control costs.
 This analysis can be facilitated by inventory catalogues,ABC analysis and
Pareto analysis
4.6.1 Inventory catalogue

 It is a systematically (ordely) categorized , organized and often

descriptive (illustrative) collection, list or aggregation of
Inventory Items
 It can be either electronic or hardcopy in nature and
 It makes it clear where to find, retrieve and store such items,
as necessary.
 When items are listed in a catalogue the personnel need to
include the fully description and identification by part number.
 Items are usually classified generically under index purposes
4.6.2 ABC Analysis

 ABC analysis is an inventory management technique that determines the

value of inventory items based on their importance to the business.
 For example
 A – the most important
 B – second important
 C – less important
 It is is a ranking system for identifying and grouping items in terms of how
useful they are for achieving business goals..
 ABC ranks items on demand,cost and risk data
 inventory mangers group items into classes based on those criteria.
Pareto analysis
 Pareto analysis is premised on the idea that 20% of inventory make
up 80% 0f inventory cost
 20% of items make up 80% of inventory cost
 For example bakery
Barkery need flour,yeast,salt,sugar,oil to manufacture bread
80% of cost are used to purchase flower which is 20% of items needed
 It is also known as 80-20 analysis
4.7 Types of inventory control systems

 An inventory control system is a technology solution that manages

and tracks a company's goods through the supply chain.
 This technology integrates and manage purchasing,shipping,
receiving,warehousing,and returns into a single system.
 Four inventory control systems employed by organisations.
 The cyclic or fixed order interval system
 JIT approach
 MRP system
 Reorder point order quantity
 fixed order quantity system
The cyclic or fixed order interval system

 It is designed so that each inventory item is reviewed and reorders

are placed after a predetermined time interval.
 For example
i.e.every 2 weeks,every 30 days,etc..
JIT approach

 Just-in-time also known as JIT is an inventory management method

whereby labour,material and goods (to be used in manufacturing)are
re-filled or scheduled to arrive exactly when needed in the
manufacturing process.
MRP system
 A Material Requirements Planning (MRP)system is a planning and
decision-making tool used in the production process
 It analyses current inventory levels vs production capacity and
determine the needed inventory to manufacture goods,based on
forecasts.
 MRP schedules production as per bills of materials while minimizing
inventory.
 A bill of materials is an extensive list of raw materials,components,and instructions required to construct,manufacture,
or repair a product or service.
Fixed order quantity system

 The Fixed Order Quantity is the inventory control system,

wherein the maximum and minimum inventory levels are fixed,
and maximum and fixed amount of inventory can be replenished
at a time when the inventory level reaches the auto set reorder
minimum stock level.
Order point quantity

 A reorder point (ROP) is a specific level at which your stock

needs to be replenished.
 In other words, it tells you when to place an order so you won't
run out of stock.
 The reorder point is the predetermined number of units an
organisation have left on hand at which an organisation need to
reorder more inventory from its supplier or it will run out.
CYCLE VIEW OF SUPPLY CHAIN PROCESSES

 Cycle view is a perception that the processes in a supply chain

are divided into a series of phases, each performed at the
interface between two successive stages of a supply chain
 Supply chain processes can be broken down into the following
four process cycles
 Customer order cycle
 Replenishment cycle
 Manufacturing cycle
 Procurement cycle
 Each cycle occurs at the interface between two successive
stages of the supply chain.
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Customer order cycle

 The customer order cycle occurs at the customer/retailer

interface and includes all processes directly involved in
receiving and filling the customer’s order.
 These processes are:
 Customer arrival
 Customer order entry
 Customer order fulfilment
 Customer order receiving
 Customer make payment
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Replenishment cycle

 The replenishment cycle occurs at the retailer/distributor interface a

 It is initiated when a retailer places an order to replenish inventories
to meet the current or future demand.
 It includes all processes involved in replenishing retailer inventory.
 The processes involved in the replenishment cycle include:
 Retail order trigger
 Retail order entry
 Retail order fulfilment
 Retail order receiving
 Retailer make payment
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Manufacturing cycle

 The manufacturing cycle occurs at the distributor/manufacturer

interface a
 The manufacturing cycle view of supply chain is triggered by the
following:
 customer orders directly to the manufacturer
 replenishment orders from a retailer or distributor (Wal-Mart ordering
from P&G), or
 by the forecast by the manufacturer of customer demand
 current product availability in the manufacturer’s finished-goods
warehouse.
 The processes involved in the manufacturing cycle include:
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 Order arrival from the finished-goods warehouse, distributor, retailer,
or customer
 Production scheduling
 Manufacturing and shipping
 Receiving at the distributor, retailer, or customer

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Procurement cycle

 The procurement cycle occurs at the manufacturer/supplier

interface.
 This includes all processes necessary to ensure that materials are
available for the manufacturing to occur,according to schedule.
 The processes involved in the procurement cycle include:
 Component and raw material order arrival
 Production scheduling
 Manufacturing/ shipping
 Receiving at the manufacture
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