inventory management-nishi kantr
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INVENTORY MANAGEMENT
INTRODUCTION:
Inventory is a list of goods and materials , or those goods and materials themselves, held
available in stock by a business . Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than delivery delay, and also to
ease the effect of imperfections in the manufacturing process that lower production
efficiencies if production capacity stands idle for lack of materials.
The reasons for keeping stock
All these stock reasons can apply to any owner or product stage.
Buffer stock is held in individual workstations against the possibility that the upstream
workstation may be a little delayed in providing the next item for processing. Whilst some
processes carry very large buffer stocks, Toyota moved to one (or a few items) and has now
moved to eliminate this stock type.
Safety stock is held against process or machine failure in the hope/belief that the failure can
be repaired before the stock runs out. This type of stock can be eliminated by programmes
like Total Productive Maintenance
Overproduction is held because the forecast and the actual sales did not match. Making to
order and JIT eliminates this stock type.
Lot delay stock is held because a part of the process is designed to work on a batch basis
whilst only processing items individually. Therefore each item of the lot must wait for the
whole lot to be processed before moving to the next workstation. This can be eliminated by
single piece working or a lot size of one.
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Demand fluctuation stock is held where production capacity is unable to flex with demand.
Therefore a stock is built in times of lower utilisation to be supplied to customers when
demand exceeds production capacity. This can be eliminated by increasing the flexibility and
capacity of a production line or reduced by moving to item level load balancing.
Line balance stock is held because different sub-processes in a line work at different rates.
Therefore stock will accumulate after a fast sub-process or before a large lot size sub-process.
Line balancing will eliminate this stock type.
Changeover stock is held after a sub-process that has a long setup or change-over time. This
stock is then used while that change-over is happening. This stock can be eliminated by tools
like SMED .
Where these stocks contain the same or similar items it is often the work practice to hold all
these stocks mixed together before or after the sub-process to which they relate. This 'reduces'
costs. Because they are mixed-up together there is no visual reminder to operators of the
adjacent sub-processes or line management of the stock which is due to a particular cause and
should be a particular individual's responsibility with inevitable consequences. Some plants
have centralized stock holding across sub-processes which makes the situation even more
acute.
The basis of Inventory accounting
Inventory needs to be accounted where it is held across accounting period boundaries since
generally expenses should be matched against the results of that expense within the same
period. When processes were simple and short then inventories were small but with more
complex processes then inventories became larger and significant valued items on the balance
sheet. This need to value unsold and incomplete goods has driven many new behaviours into
management practise. Perhaps most significant of these are the complexities of fixed cost
recovery, transfer pricing, and the separation of direct from indirect costs. This, supposedly,
precluded "anticipating income" or "declaring dividends out of capital". It is one of the
intangible benefits of Lean and the TPS that process times shorten and stock levels decline to
the point where the importance of this activity is hugely reduced and therefore effort,
especially managerial, to achieve it can be minimized.
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Objective:
To save the cost by efficient Inventory Management.
Sub- Objective:
What are the different types of Stocks
How Supply Chain Management is helpful in managing the Inventory
Roll of logistics department in Inventory Management
How Inventory is different from Logistics
Methodology:
To start with extensive study of Inventory Management literature and its various applications.
The literature of Inventory Management sourced from magazines, eBooks, industry article
and educational websites. Taking lead from literature review we look into depth to explore
the possibility of its application in industries. Hereby we analyse its role, scope and its
benefits.
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Literature review:
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have their
own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum sales dollars conflict with
manufacturing and distribution goals. Many manufacturing operations are designed tomaximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.
The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply chainmanagement is a strategy through which such integration can be achieved.
Moreover, shortened product life cycles, increased competition, and heightened
expectations of customers have forced many leading edge companies to move from physical
logistic management towards more advanced supply chain management. Additionally, in
recent years it has become clear that many companies have reduced their manufacturing costs
as much as it is practically possible. Therefore, in many cases, the only possible way to
further reduce costs and lead times is with effective supply chain management.
In addition to cost reduction, the supply chain management approach also facilitates
customer service improvements. It enables the management of:
inventories,
transportation systems and
whole distribution networks
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so that organizations are able to meet or even exceed their customers' expectations.
SUPPLY CHAIN MANAGEMENT
A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply chains exist in
both service and manufacturing organizations, although the complexity of the chain may vary
greatly from industry to industry and firm to firm.
Supply chain management is typically viewed to lie between fully vertically
integrated firms, where the entire material flow is owned by a single firm and those where
each channel member operates independently. Therefore coordination between the various
players in the chain is key in its effective management. Cooper and Ellram [1993] compare
supply chain management to a well-balanced and well-practiced relay team. Such a team is
more competitive when each player knows how to be positioned for the hand-off. The
relationships are the strongest between players who directly pass the baton (stick), but the
entire team needs to make a coordinated effort to win the race.
Below is an example of a very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step, and then
transported to distribution centers, and ultimately, customers. Realistic supply chains have
multiple end products with shared components, facilities and capacities. The flow of
materials is not always along an arborescent network, various modes of transportation may be
considered, and the bill of materials for the end items may be both deep and large.
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To simplify the concept, supply chain management can be defined as a loop: it starts
with the customer and ends with the customer. All materials, finished products, information,
and even all transactions flow through the loop. However, supply chain management can be a
very difficult task because in the reality, the supply chain is a complex and dynamic network
of facilities and organizations with different, conflicting objectives.
Supply chains exist in both service and manufacturing organizations, although the
complexity of the chain may vary greatly from industry to industry and firm to firm.
Unlike commercial manufacturing supplies, services such as clinical supplies
planning are very dynamic and can often have last minute changes. Availability of patient kit
when patient arrives at investigator site is very important for clinical trial success. This
results in overproduction of drug products to take care of last minute change in demand.
R&D manufacturing is very expensive and overproduction of patient kits adds significant
cost to the total cost of clinical trials. An integrated supply chain can reduce the
overproduction of drug products by efficient demand management, planning, and inventory
management.
Many manufacturing operations are designed to maximize throughput and lower costs
with little consideration for the impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little information beyond historical
buying patterns. The result of these factors is that there is not a single, integrated plan for the
organization---there were as many plans as businesses. Clearly, there is a need for a
mechanism through which these different functions can be integrated together. Supply chain
management is a strategy through which such integration can be achieved.
Supply Chain Management (SCM) is the process of planning, implementing, and controlling
the operations of the supply chain with the purpose to satisfy customer requirements as
efficiently as possible. Supply chain management spans all movement and storage of raw
materials , work-in-process inventory, and finished goods from point-of-origin to point-of-
consumption.
According to the Council of Supply Chain Management Professionals (CSCMP),
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a professional association that developed a definition in 2004, Supply Chain Management
encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across companies.
According to Cohen & Lee (1988)
Supply Chain Management is The network of organizations that are having linkages, both
upstream and downstream, in different processes and activities that produces and delivers the
value in form of products and services in the hands of ultimate consumer. Thus a shirt
manufacturer is a part of supply chain that extends up stream through the weaves of fabrics to
the spinners and the manufacturers of fibers, and down stream through distributions and
retailers to the final consumer. Though each of these organizations are dependent on each
other yet traditionally do not closely cooperate with each other. An integrated supply chain
management streamlines processes and increases profitability by delivering the right product
to the right place, at the right time, and at the lowest possible cost.
According to Ganeshan & Harrison (2001)
Supply Chain Management is a systems approach to managing the entire flow of
information, materials, and services from raw materials suppliers through factories and
warehouses to the end customer.
Supply chain event management (abbreviated as SCEM) is a consideration of all possible
occurring events and factors that can cause a disruption in a supply chain. With SCEM
possible scenarios can be created and solutions can be planned.
Some experts distinguish supply chain management and logistics management ,
while others consider the terms to be interchangeable. From the point of view of an
enterprise, the scope of supply chain management is usually bounded on the supply side by
your supplier's suppliers and on the customer side by your customer's customers.
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Supply chain management is also a category of software products.
2. SIEMENS
SIEMENS is one of the world's largest companies and Europe's largest engineering firm.
Siemens has six major business divisions: Communication and Information; Automation and
Control; Power; Transportation; Medical; and Lighting. Siemens' international headquarters
are located in Berlin and Munich , Germany . Siemens AG is listed on the Frankfurt Stock
Exchange, and has been listed on the New York Stock Exchange since March 12 , 2001 .Worldwide, Siemens and its subsidiaries employ 480,000 people in 190 countries and
reported global sales of 87.325 billion in fiscal year 2006
HISTORY
Siemens was founded by Werner von Siemens on October 1 , 1847 , based on the telegraph he
had invented that used a needle to point to the sequence of letters , instead of using Morse
code . The company then called Telegraphen-Bauanstalt von Siemens & Halske opened its
first workshop on October 12.
In 1848 , the company built the first long-distance telegraph line in Europe ; 500 km from
Berlin to Frankfurt am Main . In 1850 the founder's younger brother, Sir William Siemens
(born Carl Wilhelm Siemens ), started to represent the company in London . In the 1850s, the
company was involved in building long distance telegraph networks in Russia . In 1855, a
company branch headed by another brother, Carl von Siemens , opened in St Petersburg . In
1867, Siemens completed the monumental Indo-European ( Calcutta to London) telegraphline
In 1881, a Siemens AC Alternator driven by a watermill was used to power the world's first
electric street lighting in the town of Godalming , United Kingdom . The company continued
to grow and diversified into electric trains and light bulbs. In 1890 , the founder retired and
left the company to his brother Carl and sons Arnold and Wilhelm. Siemens & Halske (S&H)
was incorporated in 1897 .
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In 1919 , S&H and two other companies jointly formed the Osram lightbulb company. A
Japanese subsidiary was established in 1923.
During the 1920s and 1930s, S&H started to manufacture radios, television sets, and electron
microscopes.
Before World War II Siemens was involved in the secret rearmament of Germany. During the
Second World War, like most big companies in Germany at the time, Siemens supported the
Hitler regime, contributed to the war effort and participated in the "Nazification" of the
economy. Siemens had many factories in and around famous extermination camps such as
Auschwitz and used slave labor from concentration camps to build electric switches for
military uses. In one example, almost 100,000 men and women from Auschwitz worked in aSiemens factory inside the extermination camp, supplying the electricity to the camp
In the 1950s and from their new base in Bavaria , S&H started to manufacture computers ,
semiconductor devices, laundry machines, and pacemakers . Siemens AG was incorporated in
1966. The company's first digital telephone exchange was produced in 1980. In 1988
Siemens and GEC acquired the UK defense and technology company Plessey . Plessey's
holdings were split, and Siemens took over the avionics, radar and traffic control businesses
as Siemens Plessey .
In 1991, Siemens acquired Nixdorf Computer AG and renamed it Siemens Nixdorf
Informationssysteme AG. In 1997 Siemens introduced the first GSM cellular phone with
colour display. Also in 1997 Siemens agreed to sell the defence arm of Siemens Plessey to
British Aerospace (BAe) and a UK government agency, the Defence Analytical Services
Agency (DASA). BAe and DASA acquired the British and German divisions of the operation
respectively
In 1999, Siemens' semiconductor operations were spun off into a new company known as
Infineon Technologies. Also, Siemens Nixdorf Informationssysteme AG formed part of
Fujitsu Siemens Computers AG in that year. The retail banking technology group became
Wincor Nixdorf .
In February 2003, Siemens reopened its office in Kabul .[3]
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In 2004, Siemens took over the mantle of official Formula One timekeeper, replacing TAG
Heuer.
In November, 2005, Siemens signed a 12 year agreement with the Walt Disney Company to
sponsor attractions in its Florida and California parks.
In 2006, Siemens announced the purchase of Bayer Diagnostics, which was incorporated into
the Medical Solutions Diagnostics division officially on 1 January 2007.
In March 2007 a Siemens board member was temporarily arrested and accused of illegally
financing a business-friendly labour association which competes against the union IG Metall .
He has been released on bail. Offices of the labour union and of Siemens have been searched.
Siemens denies any wrongdoing.
In April 2007, the Fixed Networks, Mobile Networks and Carrier Services divisions of
Siemens merged with Nokia s Network Business Group in a 50/50 joint venture, creating a
fixed and mobile network company called Nokia Siemens Networks . Nokia delayed the
merger due to bribery investigations against Siemens.
Through an American sub-organisation known as the Siemens Foundation , Siemens also
devotes funds to rewarding students and AP teachers. One of its main programs is the
Siemens Westinghouse Competition in maths , science, and technology, which annually
grants scholarships up to US$100,000 to both individual and team entrants. According to the
foundation website, Siemens awards a total of nearly US$2 million in scholarship money
every year.
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MAJOR CLIENTS OF SIEMENS
KCR
Novartis
Edmonton Transit System
Calgary Transit
Deutsche Bahn AG ( German rail transport company)
METRORail (Houston, Texas )
Sacramento Regional Transit District
Regional Transportation District TheRide (Denver, Colorado )
LACMTA (Los Angeles County, California )
Pittsburgh Light Rail
San Diego Trolley
MAX Light Rail (Portland, Oregon )
Nederlandse Spoorwegen (the Dutch railways) ( The Netherlands )
Port of Rotterdam (Rotterdam , The Netherlands)
Balkim Muh. Elk. Ltd. Sti.
BBC
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Indian Railways
Airtel
Powergrid Corporation of India
Products
Industrial Instrumentation (Sensors and Controls)
Telecommunication Service Platform, the TSP 7000
Combino , ULF , and Avanto trams
Siemens-Duwag U2 LRV
ER20 locomotive - MTR
LHB/Siemens M1/M2/M3 Metro Mar. Pair
Siemens-Adtranz LRV
Duewag/Siemens 1435 mm Combino Low Flr LRV
MX3000 Metro car for Oslo (SGP Wien works)
S4000 metro
Schindler/Siemens ABB Be 4/8 Low Floor LRV
Metro 5001
SWBSiemensr NGT 6D LRV
Eurosprinter locomotive
Desiro , ICE, and Transrapid trains
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Gigaset, Home entertainment products, including Gigaset M740 AV, a set-top box to receive
TDT and integrate it in a domestic network (using WLAN or cable ), i.e. for home streaming
media.
Hicom Trading E
Hicom 300
HiPath
HiQ 8000 Softswitch
MSR32R
EWSD telephone exchanges
SPX 2000 small digital telephone exchange (rural)
Siemens Gigaset cordless telephones
Siemens Mobile Phones - divested to BenQ in 2005
Siemens SPPA-T2000 Control System (formerly Teleperm XP)
Siemens SPPA-T3000 Control System (For Electrical Power Generation Control)
SIMATIC PCS 7 Process Automation System for Process and Hybrid industries
Radio and core products for 2G and 3G Mobile Networks (GSM, UMTS, ...)
Gas & Steam Turbines
Industrial programmable controls (including Simatic PLC, and Logo! microcontrollers)
The Siemens Servo life support ventilator line
MAGNETOM(TM) Espree
SOMATOM(R) Definition CT
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SOMATOM(R) Sensation CT
SOMATOM(R) Emotion CT
AXIOM Artis
AXIOM Sensis
E.Cam Signature Series Gamma Camera
Symbia TruePoint SPECT-CT
Biograph TruePoint PET.CT
Magnetom C!, a low field open MRI
Magnetom Avanto, a Tim system MRI
Magnetom Espree, a Tim system, open bore MRI
Magnetom Trio, A Tim System, ultra high field MRI
Windturbines, 1.3 MW, 2.3 MW, 3.6 MW
Sinorix(TM)
Sistore(TM)
Main competitors of Siemens are:
ABB
Alcatel-Lucent
Alstom
Automated Logic
Bombardier
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Cisco Systems
Computrols
Eaton
Ericsson
General Electric
Honeywell
Johnson Controls
Lantronix
Nortel
Philips
Reliable Controls
Rockwell Automation
Samsung
Schneider Electric
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3. OBJECTIVES AND NEED OF SUPPLY CHAIN MANAGEMENT
The major objective of supply chain management is to reduce or eliminate the
buffers of inventory that exists between originations in chain through the sharing of
information on demand and current stock levels.
Broadly, an organization needs an efficient and proper supply chain management
system so that the following strategic and competitive areas can be used to their full
advantage if a supply chain management system is properly implemented.
1. Fulfillment of raw materials:
Ensuring the right quantity of parts for production or products for sale arrive at the
right time. This is enabled through efficient communication, ensuring that orders are placed
with the appropriate amount of time available to be filled. The supply chain management
system also allows a company to constantly see what is on stock and making sure that the
right quantities are ordered to replace stock.
2. Logistics:
The cost of transporting materials as low as possible consistent with safe and reliable
delivery. Here the supply chain management system enables a company to have constant
contact with its distribution team, which could consist of trucks, trains, or any other mode of
transportation. The system can allow the company to track where the required materials are at
all times. As well, it may be cost effective to share transportation costs with a partner
company if shipments are not large enough to fill a whole truck and this again, allows the
company to make this decision.
3. Smooth Production:
Ensuring production lines function smoothly because high-quality parts are available
when needed. Production can run smoothly as a result of fulfillment and logistics being
implemented correctly. If the correct quantity is not ordered and delivered at the requested
time, production will be halted, but having an effective supply chain management system in
place will ensure that production can always run smoothly without delays due to ordering and
transportation.
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4. Increase in Revenue & profit:
Ensuring no sales is lost because shelves are empty. Managing the supply chain
improves a company flexibility to respond to unforeseen changes in demand and supply.
Because of this, a company has the ability to produce goods at lower prices and distribute
them to consumers quicker then companies without supply chain management thus increasing
the overall profit.
5. Reduction in Costs:
Keeping the cost of purchased parts and products at acceptable levels. Supply chain
management reduces costs by increasing inventory turnover on the shop floor and in the
warehouse controlling the quality of goods thus reducing internal and external failure costs
and working with suppliers to produce the most cost efficient means of manufacturing a
product.
6. Mutual Success:
Among supply chain partners ensures mutual success. Collaborative planning,
forecasting and replenishment (CPFR) is a longer-term commitment, joint work on quality,
and support by the buyer of the suppliers managerial, technological, and capacity
development. This relationship allows a company to have access to current, reliable
information, obtain lower inventory levels, cut lead times, enhance product quality, improve
forecasting accuracy and ultimately improve customer service and overall profits. The
suppliers also benefit from the cooperative relationship through increased buyer input from
suggestions on improving the quality and costs and though shared savings. Consumers can
benefit as well through higher quality goods provided at a lower cost.
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4. ACTIVITIES/FUNCTIONS OF SCM IN SIEMENS
Supply chain management is a cross-functional approach to managing the movement
of raw materials into an organization and the movement of finished goods out of the
organization toward the end-consumer. As corporations strive to focus on core competencies
and become more flexible, they have reduced their ownership of raw materials sources and
distribution channels. These functions are increasingly being outsourced to other corporations
that can perform the activities better or more cost effectively. The effect has been to increase
the number of companies involved in satisfying consumer demand, while reducing
management control of daily logistics operations. Less control and more supply chain
partners led to the creation of supply chain management concepts. The purpose of supply
chain management is to improve trust and collaboration among supply chain partners, thusimproving inventory visibility and improving inventory velocity.
Several models have been proposed for understanding the activities required
managing material movements across organizational and functional boundaries. SCOR is a
supply chain management model promoted by the Supply-Chain Council . Another model is
the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain
activities can be grouped into strategic, tactical, and operational levels of activities.
a) Strategic:-
Strategic network optimization, including the number, location, and size of
warehouses, distribution centers and facilities.
Strategic partnership with suppliers, distributors, and customers, creating
communication channels for critical information and operational improvements such
as cross docking, direct shipping, and third-party logistics.
Products design coordination, so that new and existing products can be optimally
integrated into the supply chain.
Information Technology infrastructure, to support supply chain operations.
Where to make and what to make or buy decisions.
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(b) Tactical:-
Sourcing contracts and other purchasing decisions.
Production decisions, including contracting, locations, scheduling, and planning
process definition.
Inventory decisions, including quantity, location, and quality of inventory.
Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of best
practices throughout the enterprise.
c) Operational:-
Daily production and distribution planning, including all nodes in the supply chain.
Production scheduling for each manufacturing facility in the supply chain (minute by
minute).
Demand planning and forecasting, coordinating the demand forecast of all customers
and sharing the forecast with all suppliers.
Sourcing planning, including current inventory and forecast demand, in collaboration
with all suppliers. Inbound operations, including transportation from suppliers and
receiving inventory.
Production operations, including the consumption of materials and flow of finished
goods.
Outbound operations, including all fulfillment activities and transportation to
customers.
Order promising, accounting for all constraints in the supply chain, including all
suppliers, manufacturing facilities, distribution centers, and other customers.
Performance tracking of all activities.
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A natural extension of stage two, leading to establishment and implementation of end- to-end
integration. A concept of linkage and coordination is achieved.
STAGE 4:
The linkage achieved in stage three is extended upstream to suppliers and down stream to
customers. It represents true supply chain integration. This concept is also called co-
managed inventory (CMI).
Force of supply chain management is on trust and cooperation and the recognition that is
properly managed the whole cane be greater then the sum of its part.
Inventory Decisions :
These refer to means by which inventories are managed. Inventories exist at every
stage of the supply chain as either raw material, semi-finished or finished goods. They can
also be in-process between locations. Their primary purpose to buffer against any uncertainty
that might exist in the supply chain. Since holding of inventories can cost anywhere between
20 to 40 percent of their value, their efficient management is critical in supply chain
operations. It is long term in the sense that top management sets goals. However, most
researchers have approached the management of inventory from short term perspective.
These include deployment strategies (push versus pull), control policies --- the determination
of the optimal levels of order quantities and reorder points, and setting safety stock levels, at
each stocking location. These levels are critical, since they are primary determinants of
customer service levels.
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5. INVENTORY CONTROL MANAGEMENT
Inventory Database
An important component of inventory planning involves access to an inventory database. It is
a structured framework that contains the information needed to effectively manage all itemsof inventory, from raw materials to finished goods. This information includes the
Classification and amount of inventories, demand for the items, cost to the firm for each item,
Ordering cost carrying cost.
The task of inventory planning can be highly complex. At the same time it rests on
fundamental principles. In doing so we must understand and determine the optimal lot size
that has to be ordered. The EOQ (economic order quantity) refers to the optimal order sizethat will result in the lowest total of order and carrying costs and ordering costs. By
calculating the economic order quantity the firm attempts to determine the order size that will
minimize the total inventory costs. In examination of the two curves reveals that the carrying
cost curve is linear i.e. more the inventory held in any period, greater will be the cost of
holding it. Ordering cost curve on the other hand is different. The ordering costs decrease
with an increase in order sizes. The point where the holding cost curve i.e. the carrying cost
curve and the ordering cost curve meet, represent the least total cost which is incidentally the
economic order quantity or optimum quantity.
PRODUCTIVITY
In the industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable
fixed costs to spread over a greater volume but more particularly to the impact of the
experience curve.
It is possible to identify and predict improvements in the rate of output of workers as they
become more skilled in the processes and tasks on which they work. Bruce Henderson
extended this concept by demonstrating that all costs, not just production costs, would decline
at a given rate as volume increased. This cost decline applies only to value added, i.e. costs
other than bought in supplies. Traditionally it has been suggested that the main route to cost
reduction was by gaining greater sales volume and there can be no doubt about the close
linkage between relative market share and relative costs. However it must also be recognized
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that logistics management can provide a multitude of ways to increase efficiency and
productivity and hence contribute significantly to reduced unit costs.
In todays more turbulent environment there is no longer any possibility of manufacturing
and marketing acting independently of each other. It is now generally accepted that the need
to understand and meet customer requirements is a prerequisite for survival. At the same
time, in the search for improved cost competitiveness, manufacturing management has been
the subject of massive renaissance. The last decade has seen the rapid introduction of flexible
manufacturing systems, of new approaches to inventory based on materials requirement
planning (MRP) and just in time (JIT) methods, a sustained emphasis on quality.
Equally there has been a growing recognition of the critical role that procurement plays in
creating and sustaining competitive advantage as part of an integrated logistics process.
In this scheme of things, logistics is therefore essentially an integrative concept that seeks to
develop a system wide view of the firm. It is fundamentally a planning concept that seeks to
create a framework through which the needs of the manufacturing strategy and plan, which in
turn link into a strategy and plan for procurement.
Inventory Flow:
The management of logistics is concerned with the movement and storage of materials and
finished products. Logistical operations start with the initial shipment of a material or
component part from a supplier and are finalized when a manufactured or processed product
is delivered to a customer. From the initial purchase of a material or component, the logistical
process adds value. By moving inventory when and where needed. Thus the material gains
value at each step. For a large manufacturer, logistical operations may consist of thousands of
movements, which ultimately culminate in the delivery of the product to an industrial user,
wholesaler, dealer or customer. Similarly for a retailer, logistical operations may commence
with the procurement of products for resale and may terminate with consumer pickup or
delivery.
The significant point is that regardless of the size or type of the enterprise, logistics is useful
and requires continuous management attention.
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INVENTORY- related costs
Inventory carrying cost (ICC):
Tax
Storage
Capital
Insurance
Obsolescence
Ordering:
Communication
Processing, including material
handling and packaging
Update activities, including
receiving and date-processing
BASIC INVENTORY DECISIONS
There are two basic decisions that must be made for every item that is maintained in
inventory. These decisions have to do with the timing of orders for the item and the size of
orders for the item.
Basic Inventory Decisions
How much? When?
Lot sizing decision
Determination of the quantityto be ordered.
Lot timing decision
Determination of the timingfor the orders.
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RELEVANT INVENTORY COSTS
Relevant Inventory Costs
Item Costs Holding Costs Ordering Costs Shortage CostsDirect cost for getting an item.Purchase cost for outside orders,manufacturing costfor internal orders.
Costs associatedwith carrying itemsin inventory.Storage and other related costs.
Fixed costsassociated with
placing an order (either a purchasecost for outsideorders, or a setup
cost for internalorders).
Costs associatedwith not havingenough inventory tomeet demand.
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EOQ:
The EOQ can be calculated with the help of a mathematical formula. Following assumptions
are implied in the calculation:
1. Constant or uniform demand- although the EOQ model assumes constant demand, demand
may vary from day to day. If demand is not known in advance- the model must be modified
through the inclusion of safe stock.
2. Constant unit price- the EOQ model assumes that the purchase price per unit of material
will remain unaltered irrespective of the order offered by the suppliers to include variable
costs resulting from quantity discounts, the total costs in the EOQ model can be redefined.
3. Constant carrying costs- unit carrying costs may very substantially as the size of the
inventory rises, perhaps decreasing because of economies of scale or storage efficiency or
increasing as storage space runs out and new warehouses have to be rented.
4. Constant ordering cost- this assumption is generally valid. However any violation in this
respect can be accommodated by modifying the EOQ model in a manner similar to the one
used for variable unit price.
5. Instantaneous delivery- if delivery is not instantaneous, which is generally the case; the
original EOQ model must be modified through the inclusion of a safe stock.
6. Independent orders- if multiple orders result in cost saving by reducing paper work and the
transportation cost, the original EOQ model must be further modified. While this
modification is somewhat complicated, special EOQ models have been developed to deal
with it.
These assumptions have been pointed out to illustrate the limitations of the basic EOQ model
and the ways in which it can be easily modified to compensate for them.
The formula for the EOQ model is:
2 M Co
S Cc
Where M = is the annual demand
Co is the cost of ordering
Cc is the inventory carrying costS = is the unit price of an item.
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Limitations of the EOQ formula-
1. Erratic changes usages- the formula presumes the usage of materials is both predictable
and evenly distributed. When this is not the case, the formula becomes useless.
2. Faulty basic information- order cost varies from commodity to commodity and the carrying
cost can vary with the companys opportunity cost of capital. Thus the assumption that the
ordering cost and the carrying cost remains constant is faulty and hence EOQ calculations are
not correct.
3. Costly calculations: the calculation required to find out EOQ is extremely time consuming.
More elaborate formulae are even more expensive. In many cases, the cost of estimating the
cost of possession and acquisition and calculating EOQ exceeds the savings made by buying
that quantity.
4. No formula is a substitute for common sense- sometimes the EOQ may suggest that we
order a particular commodity every week (six-year supply) based on the assumption that we
need it at the same rate for the next six years. However we have to order it in the quantities
according to our judgment. Some items can be ordered every week; some can be ordered
monthly, depends on how feasible it is for the firm.
5. EOQ ordering must be tempered with judgment- Sometimes guidelines provide a conflict
in ordering. Where an order strategy conflicts with an operational goal, order strategy
restrictions should be developed to permit honoring the goal.
Quantity discounts: In the EOQ analysis, it has been assumed that material prices and
transportation costs were constant factors for the range of order quantities considered. In
practice, some situations occur in which the delivered unit cost of a material decreases
significantly if a slightly larger quantity than the originally computed EOQ is purchased.
Quantity discounts, freight rate schedules and price increases may create such situations.
These additional variables can also be included in the formula.
Cost of carrying inventory:
Carrying material in inventory is expensive. A number of studies indicated that the annual
cost of carrying a production inventory averaged approximately 25% of the value of the
inventory. The escalating and volatile cost of money has escalated the annual inventory
carrying cost to a figure between 25% - 35% of the value of the inventory. The following five
elements make up this cost:
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1) Opportunity cost (12% -20%)
2) Insurance cost (2% 4%)
3) Property taxes (1% - 3%)
4) Storage costs (1%- 3%)
5) Obsolescence and deterioration (4% - 10%)
Total carrying cost (20% - 40%)
Let us briefly look into these costs:
Opportunity cost of invested funds
When a firm uses money to buy production material and keeps it in the inventory, it simply
has this much less cash to spend for other purposes. Money invested in external securities or
in productive equipment earns a return for the company. Thus it is logical to charge all
money invested in inventory an amount equal to that it could earn elsewhere in the company.
This is the opportunity cost associated with inventory investment.
Insurance cost
Most firms insure the assets against possible losses from fire and other forms of damage.
Property taxes
This is levied on the assessed value of a firms assets, the greater the inventory value, the
greater the asset value and consequently the higher the firms tax bill.
Storage costs
The warehouse is depreciated every year over the length of its life. This cost can be charged
against the inventory occupying the space.
Obsolescence and deterioration
In most inventory operations, a certain percentage of the stock spoils, is damaged, is pilfered,
or eventually becomes obsolete. A certain number always takes place even if they are
handled with utmost care.
Generally speaking, this group of carrying costs rises and falls nearly proportionately to the
rise and fall of the inventory level.
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The ABC Classification:
Indicators that classifies a material as an A,B or C part according to its consumption value
.The classification process is known as the ABC analysis.
The three indictors have the following meanings:
A-important part , high consumption value
B-less important , medium consumption value
C-relatively unimportant part , low consumption value
The ABC classification system is to grouping items according to annual sales volume, in an
attempt to identify the small number of items that will account for most of the sales volume
and that are the most important ones to control for effective inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D =
demand rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new
stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care
on unexpected events. It is often called buffer stock. The absence of inventory is called a
shortage.
ABC Inventory Classification
The ABC classification process is an analysis of a range of items, such as finished products
or customers into three categories: A - outstandingly important; B - of average importance; C
- relatively unimportant as a basis for a control scheme. Each category can and sometimes
should be handled in a different way, with more attention being devoted to category A, less to
B, and less to C.
Inventory Control Application: The ABC classification system is to grouping items accordingto annual sales volume, in an attempt to identify the small number of items that will account
for most of the sales volume and that are the most important ones to control for effective
inventory management.
Break-even analysis depends on the following variables:
1. Selling Price per Unit: The amount of money charged to the customer for each unit of
a product or service.
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2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product.
This amount does not vary as production increases or decreases, until new capital
expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the production of one additional unit.
Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected
unit sales times the variable unit cost.
4. Forecasted Net Profit: Total revenue minus total cost. Enter Zero (0) if you wish to
find out the number of units that must be sold in order to produce a profit of zero (but
will recover all associated costs)
Break-Even Point in siemens: Number of units that must be sold in order to produce a profit
of zero (but will recover all associated costs). In other words, the break-even point is the
point at which your product stops costing you money to produce and sell, and starts to
generate a profit for your company.
where:
Q = Break-even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,
Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)
Stock control and inventory
Stock control, otherwise known as inventory control, is used to show how much stock you
have at any one time, and how you keep track of it.
It applies to every item you use to produce a product or service, from raw materials tofinished goods. It covers stock at every stage of the production process, from purchase and
delivery to using and re-ordering the stock.
Efficient stock control allows you to have the right amount of stock in the right place at the
right time. It ensures that capital is not tied up unnecessarily, and protects production if
problems arise with the supply chain.
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Supply chain vendor management inventory:
Allows supply chain partners to share critical order, demand and inventory information in
real-time and uses both integrated and web based applications to reduce administration costs,
shortening cycle times and help lower inventory levels. Our unique, managed supply hubrequires little upfront investment, yet quickly starts delivering high performance in real time
Inventory Control Overview
Normal Inventory
As it sounds, this type of inventory item will be used for the majority of your parts. It will
correctly track the inventory received and sold on a first in first out basis, will handle cost of
sales, and will warn you when you're out of stock.
Non-Inventory Type
This is used for selling things that are not really inventory items. For example, you could be
selling warranty, but because you don't have warranty in a box to sell, and you'll never run
out of stock, you won't need to keep inventory control on it. As well, there is no cost of sale
adjustments with non-stock items. The system will not calculate how much you paid for the
item, and therefore will not try to remove that value from inventory in the general ledger. If
you are selling something that does cost you money, you will have to handle these details
manually.
Labor Parts
You (probably) don't have technicians hanging from hooks in your back room, so like non-
inventory items, the system will not try to remove them from inventory when you sell a labor
item. The two differences between Non-Inventory items an Labor items are that you can
optionally have the system ask you for the technician code that did the work so that you can
print reports showing who did what work. As well, the system will optionally ask for a
comment to explain what was done so that the description of the service work can be printed
on the invoice.
Note too that you can optionally keep track of how much time was spent and how much time
was billed for on a per job basis. At the end of the month, you can then print technician
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productivity reports to compare total time spent compared to billable hours. In the automotive
industry, some mechanics can do the work faster than is what is billed because the billing is
based on industry standards.
Consignment Items
Consignments can be used to keep track of inventory that you don't own, but at the time you
sell it, you must pay for it. You'll be able to generate several reports, including a list of
inventory that is on consignment but not sold and a list of inventory sold on consignment, but
not yet paid for.
Floor Plan Inventory
Floor planning is very similar to consignment, except that you take possession and own the
inventory when you receive it, but you don't have to pay for it until it's sold, or until it's been
in the store for a negotiated period of time. However, you do own the inventory and do have
to pay for it sometime.
Some floor planning companies want the ability to check the inventory serial number by
serial number for the larger items, and others may just want to count the number of each
model number on hand. Regardless, Windward System Five can handle it.
On the accounts payable side, you will be able to keep track of who you owe the money too
(Floor Planning Company) and who you actually bought the inventory from (Supplier) and
generate proper histories of each.
Tire Inventory
Windward System Five has the ability to sort and categorize tires by their size, aspect ratio
and rim size. In addition, you will also be able to search for the tires by just entering in some
of the search criteria and having the system bring up a window of all matches.
When the list brings up a list of tires that can all fit the vehicle, the system can sort the list to
show the items with the highest quantity in stock at the top of the list and the items that are
out of stock at the bottom of the list. This will help you sell what you actually have to sellinstead of creating special orders.
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Product Inventory
Products are items such as vehicles that you might service or repair after selling them to the
customer. That is, they are an item in the database that can be sold, and when sold, are
automatically added to the customer's list of products that can be worked on.
Examples are vehicles, trucks, recreational vehicles, fridges, air conditioners, and chainsaws.
The system will let you keep additional information on these products, such as make, model,
year, and other comments, and will also be able to list all the work or repairs performed
between two dates.
Windward System Five can also track whole goods such as recreational vehicles by keeping
track of the cost of the item before the sale, add ones and pre-delivery inspection items. In
addition, the system can generate a "wash out" report one level deep to show the costs and
income associated with the trade in.
Serialized Inventory
Those items that need to be tracked by their serial numbers can be marked as serialized
inventory. For example, fridges, stoves, computers, and chainsaws might all be serialized.
Note that if you plan on servicing these items in the future and keeping track of all work you
do on them, they should be entered as products instead of serial numbers.
TYPES OF INVENTORY
Several different types of inventories are conducted, depending upon the type of
materiel involved and type of information needed. Bulkhead-to-Bulkhead Inventory
A bulkhead-to-bulkhead inventory is a physical count of all stock materiel within the
ship or within a specific storeroom. . A bulkhead-to-bulkhead inventory of a specific
storeroom is taken when a random sampling inventory of that storeroom fails to meet
the inventory accuracy rate of 90 percent when directed as a result of a supply
management inspection (SMI). It is also taken when directed by the commanding
officer or when circumstances clearly indicate that it is essential to effective inventory
control.
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Specific Commodity Inventory
The specific commodity inventory is a physical count of all items under the same
cognizance symbol, FSC, or that support the same operational function, such as-
boat spares, electron tubes, boiler tubes, or fire brick. This inventory is taken under the
same conditions as a bulkhead- to-bulkhead inventory; however, prior knowledge of specific
stock numbers and item location is required to conduct a specific commodity inventory
Special Materiel Inventory
A special materiel inventory requires the physical count of all items that, because of
their physical characteristics, costs, mission essentiality, and criticality, are specifically
designated for separate identification and inventory control. Special materiel
inventories include, but are not limited to, stocked items designated as classified or
hazardous. Special materiel inventories also include controlled equipage and
presentation silver
Advantage Inventory Control
The Inventory Control gives you the ability to handle your inventory your way. As one of the
most flexible and comprehensive modules in the Advantage, you can choose the level of
control that best suits your specific business needs. Your inventory can be valued on a LIFO,
FIFO or Average cost basis. You can choose to use parts explosions, serialized inventory,
parts allocations, vendors, warehouses and an audit trail. The system can also track the
quantity sold for each item for the last 12 months and, using this data, provides a sales
analysis report to help you better manage your stock. Financing is aided by the serialized
aged report that shows which serialized items have been in your inventory the longest and
how much you have outstanding. Pricing can be standardized by rounding to a given factor or
by being set to a specific suffix. With the Below Minimum report, reordering stock is
automatic and accurate. Inventory Control is a standalone module that can also be integrated
with Purchase Orders, Point of Sale, Billing/Order Entry, Job Cost, Time Billing and Quick
Sale.
21character alphanumeric item number field
Lookup on item number, item description (21 characters) and group (15 character) fields
Tracks serialized itemsAllows for superseded, preceded and substitute items
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Unlimited additional descriptions can be added to items
Handles markup and gross profit cost basis
Can automatically update item pricing and discounts
Handles core pricing
Produces a reorder report based on minimum stock quantities
Tracks unlimited vendors per item and recommends a best vendor
Tracks allocations including explosion allocations
Up to 254 discounts per item, including quantity break discounts
Unit conversions can be defined for each item for both buying and selling quantities
Allows for warehouse transfers and other quantity adjustments
Set up special sale dates for item discounting
Produces physical inventory forms
Imports physical inventory and received quantities from data collected with hand-held
computers
Provides up to 255 levels of parts explosion to allow you to identify all components of your
assembled stock
Automatically updates cost and price on explosion items based on subassembly changes
Reports the best and worst selling items in each of eight different categories
Tracks items by location or quantity in multiple warehouses
Can automatically generate items based on a template item
Utilizes Rapid Entry to facilitate entry of item data
Disadvantages:
conveyor needs to be slightly declined for carton movement (one way);
may require addition of powered booster units in some applications;
cannot be used for inter-floor movement except for down travel;
goods need to be manually pushed when horizontal;
no positive control over moving carton;
produces line pressure when accumulating.
Require efficiency of land
We propose a method for valuing new, recoverable, and recovered assemblies (products,components, parts, etc.) in production systems with reverse logistics. Values of assemblies
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influence their opportunity holding cost rates and are hence essential for comparing inventory
strategies in average cost models. We argue that the proposed method is 'correct' from a
discounted cash flow (DCF) point of view. We refer to some previous results on valuing
assemblies in systems without disassembly of returned products that seem to confirm this.
Furthermore, we test the method for a specific example with disassembly of returned
products. The simulation results indicate that the method indeed leads to (nearly) DCF
optimal inventory strategies.
Packaging
In siemens, with its large product volumes, low margins and fierce competition, is constantly
seeking efficiency improvements in its supply chain. The grocery retail industry uses an
immense amount of packaging and is directly affected by packaging logistics activities. There
is, therefore, a potential for efficiency improvements in the grocery retail supply chain
through the integration and development of new systems of packaging and logistics.
Packaging handling is identified as one of the main activities that has a strong impact on the
overall logistical cost of chain. This research article investigates packaging handling
evaluation methods and discusses how these are employed to benefit the industry from the
industry, have been used to evaluate packaging and logistics activities. This work, together
with a literature review, was used to identify the need for evaluative methods and the present
availability of such methods. The results indicated a lack of sufficient and usable packaging
handling evaluation methods in today's grocery and packaging industry especially from a
logistical point of view. The paper also highlights the lack of systematization among the few
methods used and discusses how these can be used to build a systematic and multifunctional
evaluation model in order to utilize the information from different studies to build a
knowledge base for the future
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6. WAREHOUSE
A warehouse is a commercial building for storage of goods . Warehouses are used by
manufacturers , importers , exporters , wholesalers , transport businesses, customs , etc. They are
usually large plain buildings in industrial areas of cities and towns. They come equipped with
loading docks to load and unload trucks; or sometimes are loaded directly from railways,
airports , or seaports . They also often have cranes and forklifts for moving goods, which are
usually placed on ISO standard pallets loaded into pallet racks .
Some warehouses are completely automated, with no workers working inside. The pallets and
product are moved with a system of automated conveyors and automated storage and
retrieval machines coordinated by programmable logic controllers and computers runninglogistics automation software. These systems are often installed in refrigerated warehouses
where temperatures are kept very cold to keep the product from spoiling, and also where land
is expensive, as automated storage systems can use vertical space efficiently. These high-bay
storage areas are often more than 10 meters high, with some over 20 meters high.
The direction and tracking of materials in the warehouse is coordinated by the WMS, or
Warehouse Management System , a database driven computer program. The WMS is used by
logistics personnel to improve the efficiency of the warehouse by directing putaways and to
maintain accurate inventory by recording warehouse transactions.
Traditional warehousing has been declining since the last decades of the 20th century with
the gradual introduction of Just In Time (JIT) techniques designed to improve the return on
investment of a business by reducing in-process inventory . The JIT system promotes the
delivery of product directly from the factory to the retail merchant, or from parts
manufacturers directly to a large scale factory such as an automobile assembly plant, withoutthe use of warehouses. However, with the gradual implementation of offshore outsourcing
and offshoring in about the same time period, the distance between the manufacturer and the
retailer (or the parts manufacturer and the industrial plant) grew considerably in many
domains, necessitating at least one warehouse per country or per region in any typical supply
chain for a given range of products.
Recent developments in marketing have also led to the development of warehouse-style retail
stores with extremely high ceilings where decorative shelving is replaced by tall heavy duty
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industrial racks, with the items ready for sale being placed in the bottom parts of the racks
and the crated or palletized and wrapped inventory items being usually placed in the top
parts. In this way the same building is used both as a retail store and a warehouse.
IN INDIA SIEMENS HAVE THEIR WAREHOUSES AT DELHI, MUMBAI,
KARNATAKA, CHENNAI, BANGLORE, WEST BENGAL, NASHIK, AURANGABAD,
GOA, PUNE, HYDERABAD, VADODRA
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7. TRANSPORTATION
Transport or transportation is the movement of people and goods from one place to
another. The term is derived from the Latin trans ("across") and portare ("to carry").
Industries which have the business of providing equipment, actual transport, transport of
people or goods and services used in transport of goods or people make up a large broad and
important sector of most national economies , and are collectively referred to as transport
industries .
MODES OF TRANSPORT USED FOR TRANFER OF INVENTORY INSIEMENS
Air transport
Cable transport
Conveyor transport
Human-powered transport
Hybrid transport
New Mobility Agenda
Rail transport
Road transport , including human-powered transport such as walking and cycling
Ship transport
Space transport
Sustainable transportation
Transport on other planets
Proposed future transport
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Transport is a major use of energy , and transport burns most of the world's petroleum.
Transportation accounts for 2/3 of all U.S. petroleum consumption. [3]
The transportation sector generates 82 percent of carbon monoxide and 56 percent of NOx
emissions and over one-quarter of total US greenhouse gas emissions. [4] Hydrocarbon fuels
also produce carbon dioxide , a greenhouse gas widely thought to be the chief cause of global
climate change , and petroleum-powered engines, especially inefficient ones, create air
pollution, including nitrous oxides and particulates (soot). Although vehicles in developed
countries have been getting cleaner because of environmental regulations , this has been offset
by an increase in the number of vehicles and more use of each vehicle.
Other environmental impacts of transport systems include traffic congestion and automobile-oriented urban sprawl, which can consume natural habitat and agricultural lands.
Toxic runoff from roads and parking lots that can also pollute water supplies and aquatic
ecosystems.
Alternative propulsion can reduce pollution. Low pollution fuels may have a reduced carbon
content, and thereby contribute less in the way of carbon dioxide emissions, and generally
have reduced sulfur , since sulfur exhaust is a cause of acid rain . The most popular low- pollution fuels at this time are biofuels: gasoline-ethanol blends and biodiesel . Hydrogen is an
even lower-pollution fuel that produces no carbon dioxide, but producing and storing it
economically is currently not feasible. Plug-in hybrids are energy-efficient vehicles that are
going to be in the mass-production.
Another strategy is to make vehicles more efficient, which reduces pollution and waste by
reducing the energy use. Electric vehicles use efficient electric motors, but their range is
limited by either the extent of the electric transmission system or by the storage capacity of
batteries . Electrified public transport generally uses overhead wires or third rails to transmit
electricity to vehicles, and is used for both rail and bus transport. Battery electric vehicles
store their electric fuel onboard in a battery pack. Another method is to generate energy using
fuel cells , which may eventually be two to five times as efficient as the internal combustion
engines currently used in most vehicles. Another effective method is to streamlin