STORES FUNCTIONSSTORES FUNCTIONS

1.RECEIPT1.RECEIPT

2.STORAGE2.STORAGE

3.RETRIEVAL3.RETRIEVAL

4.ISSUE4.ISSUE

5.RECORD KEEPING5.RECORD KEEPING

6.HOUSE KEEPING6.HOUSE KEEPING

7.SURPLUS MANAGEMENT7.SURPLUS MANAGEMENT

8.VERIFICATION8.VERIFICATION

9.COORDINATION9.COORDINATION

TYPES OF STORESTYPES OF STORES

1.CENTRALISED1.CENTRALISED

2.DECENTRALISED2.DECENTRALISED

IDENTIFICATION OF ITEMSIDENTIFICATION OF ITEMS(CODIFICATION)(CODIFICATION)

1.ALPHABETICAL1.ALPHABETICAL

2.ALPHA-NUMERICAL2.ALPHA-NUMERICAL

3.NUMERICAL3.NUMERICAL

4.COLOUR CODES4.COLOUR CODES

5.BAR CODES5.BAR CODES

STORAGE SYSTEMSSTORAGE SYSTEMS

1.CLOSED STORE SYSTEM1.CLOSED STORE SYSTEM

2.OPEN STORE SYSTEM2.OPEN STORE SYSTEM

STORES RECORDSSTORES RECORDS

1. BIN CARDS1. BIN CARDS

2. STORES LEDGER2. STORES LEDGER

STORES ACCOUNTINGSTORES ACCOUNTING

FIFOFIFO

LIFOLIFO

AVERAGE COSTAVERAGE COST

MARKET VALUEMARKET VALUE

STANDARD COST SYSTEMSTANDARD COST SYSTEM

STOCK VERIFICATIONSTOCK VERIFICATION

ANNUAL VERIFICATIONANNUAL VERIFICATION

CONTINOUS STOCK VERIFICATIONCONTINOUS STOCK VERIFICATION

LOW POINT VERIFICATIONLOW POINT VERIFICATION

STORES EQUIPMENTSSTORES EQUIPMENTS

BINSBINSTRAYSTRAYSDRUMSDRUMSBARRELSBARRELSSHELVESSHELVESRACKSRACKSPALLETSPALLETS

MATERIAL HANDLING MATERIAL HANDLING EQUIPMENTSEQUIPMENTS

TROLLEYSTROLLEYSFORK-LIFT TRUCKSFORK-LIFT TRUCKSHOISTSHOISTSMONORAILMONORAILBELT CONVEYORBELT CONVEYORROLLER CONVEYORROLLER CONVEYORCRANESCRANES

STANDARDISATIONSTANDARDISATION

STANDARDISATION HELPS INSTANDARDISATION HELPS IN

1.REDUCING INVENTORY1.REDUCING INVENTORY

2.INTERCHANGEABILITY2.INTERCHANGEABILITY

Economic-Order-Quantity Economic-Order-Quantity Decision Model ExampleDecision Model Example

20 - 15

Rel

evan

t Tot

al C

osts

(D

olla

rs)

2,000

4,000

6,000

8,000

10,000

5,434

600 1,200 1,800 2,400988EOQ

Annual relevant carrying costs

Annual relevant total costs

Annual relevant ordering costs

Order Quantity (Units)

Reorder PointReorder Point988

494

Weeks 1 2 3 4 5 6 7 8

Reorder Point

Reorder Point

This exhibit assumes that demand and purchase-order lead time are certain:

Demand = 247 tape packages/week Purchase-order lead time = 2 weeks20 - 17

Lead Time2 weeks

Lead Time2 weeks

When to Reorder with EOQ When to Reorder with EOQ OrderingOrdering

Reorder Point Reorder Point - When the quantity on - When the quantity on hand of an item drops to this amount, hand of an item drops to this amount, the item is reorderedthe item is reordered

Safety Stock Safety Stock - - Stock that is held in Stock that is held in excess of expected demand due to excess of expected demand due to variable demand rate and/or lead time.variable demand rate and/or lead time.

Service Level Service Level - - Probability that Probability that demand will not exceed supply during demand will not exceed supply during lead time.lead time.

Determinants of the Reorder Determinants of the Reorder PointPoint

The rate of demandThe rate of demandThe lead timeThe lead timeDemand and/or lead time variabilityDemand and/or lead time variabilityStockout risk (safety stock)Stockout risk (safety stock)

Safety StockSafety Stock

LT Time

Expected demandduring lead time

Maximum probable demandduring lead time

ROP

Qu

an

tity

Safety stock

Figure 11.12

Safety stock reduces risk ofstockout during lead time

Reorder PointReorder Point

ROP

Risk ofa stockout

Service level

Probability ofno stockout

Expecteddemand Safety

stock0 z

Quantity

z-scale

Figure 11.13

The ROP based on a normalDistribution of lead time demand

Safety Stock ExampleSafety Stock Example

Safety stock is inventory held at all timesregardless of the quantity of inventory

ordered using the EOQ model.

Video’s expected demand is 247 packages per week.

Management feels that a maximum demand of350 packages per week may occur.

Safety Stock ExampleSafety Stock Example

How much safety stock should be carried?

350 Maximum demand – 247 Expected demand= 103 Excess demand per week

103 packages × 2 weeks lead time= 206 packages of safety stock.

Just-In-Time PurchasingJust-In-Time Purchasing

Just-in-time (JIT) purchasing is the purchaseof goods or materials such that a delivery

immediately precedes demand or use.

Companies moving toward JIT purchasingargue that the cost of carrying inventories(parameter C in the EOQ model) has beendramatically underestimated in the past.

JIT Purchasing and EOQJIT Purchasing and EOQModel ParametersModel Parameters

The cost of placing a purchase order(parameter P in the EOQ model) is

also being re-evaluated.

Three factors are causing sizable reductionin the cost of placing a purchase order (P).

1. Companies increasingly are establishinglong-run purchasing arrangements.

JIT Purchasing and EOQJIT Purchasing and EOQModel ParametersModel Parameters

2. Companies are using electronic links,such as the Internet, to place purchase orders.

3. Companies are increasing the use ofpurchase order cards (similar to consumercredit cards like Visa and Master Card).

Just-In-Time Production Just-In-Time Production SystemsSystems

Just-in-time (JIT) production systems take a“demand pull” approach in which goods are

only manufactured to satisfy customer orders.

Major Features of a JIT Major Features of a JIT SystemSystem

1. Organizing production in manufacturing cells

2. Hiring and retaining multi-skilled workers

3. Emphasizing total quality management

4. Reducing manufacturing lead time and setup time

5. Building strong supplier relationships