A Project Report

On

Expenditure Analysis and Control in Warehouse (Spare Parts)

At

ROSHAN MOTORS PVT. LTD - JAIPUR

Under the guidance of

ANKITA SHARMA

Submitted to

Accman Institute of Management

Submitted By:
Mohd.Arish
 ACKNOWLEDGEMENT

I would like to express my profound gratitude to Mr. M. P. MISHRA

(External Guide, Assistant general Manager, TATA Motors ltd.), under whose guidance;
I gained deeper insights into the subject matter. His constant support provided the right
direction to my analysis and helped me understand the nuances of the subject.

I express my heartfelt gratitude to Mr. DEVENDRA KUMAR SAHRMA

(Senior accountant, ROSHAN MOTORS PVT. LTD. JAIPUR) for his support and
guidance and provided me valuable advice during my project.

I feel immense pleasure to express my sincere gratitude to Mr. RAVI

SHARMA (Assistant manager, Finance), for giving me an opportunity to work with Tata
Motors as a project trainee.

A special thanks goes to my internal guide Mrs. JYOTI JAIN (Coordinator of

the Department), who is most responsible for helping me complete the writing of this
report as well as the challenging research that lies behind it. Without their encouragement
and constant guidance I could not have finished this report.
I would like to deeply thank the various people who, during the 2 months in
which this endeavor lasted, provided us with useful and helpful assistance. Without their
care and consideration, this project report would likely not have matured.
Last but not least; I would like to express my sincere gratitude to all friends and
operators working in ROSHAN MOTORS PVT. LTD.,JAIPUR, who aided me during
the duration of my whole project in various direct and indirect ways.
 PRAFACE

• In classroom studies main concentration is on theoretical

portion while the main objective of this project is to impart
practical knowledge to collage going professional students. so
that whenever in future they get opportunity to work in
companies, they can can work with full confidence, also they
can become familier with such kind of atmosphere.

• In today’s competitive scenario, Expenditure control plays a

major role. I have chosen Expenditure analysis and control in
warehkouse in order to get practical experience i.e. to know
about various expenditure and how they can can be control,
explain them the motto behind the survey and convince them
to chat with me and give information about quality and brand
image of Tata motors in market. the project was assigned to
me by Mrs. Jyoti jain. my topic is “ expenditure analysis and
control in warehouse ( spare parts ).” my area of survey is :-
JAIPUR at Roshan motors pvt. limited, V.K.I.

sandeep shyam sharma

Sr.No Content Page No.

1 Executive Summary

2 Title, objective & scope of Project

3 Company Profile

4 Theoretical Background

5 Research Methodology

6 Data Analysis

7 Findings

8 Limitations

9 Recommendations

10 Conclusion

11 Bibliography
 1. Executive Summary (introduction of topic)

Gradual changes have been occurring in the warehousing and transporting sector as
companies are mainly concentrating to set up heavy supportive warehouses.

Trends have been changing in this sector for last seven years. After the expansion of
telecom and communication systems, it has become a major problem of transporting
because the finished goods like phone and other equipments have to be stored in good
condition.

The growth of the logistics industry has a direct correlation to the growth of overall GDP.
Logistics as a percentage of GDP is about 13 per cent. However, that is for the overall
GDP.

Spare-parts logistics is frequently viewed as a showcase field. Despite the growing

variety of products and their individual parts, spare parts must frequently be provided in
after-sales service on a short-notice and flexible basis. In the process, special demands
are placed on both the supplier and the recipient of spare parts.

The spare-parts service is becoming increasingly important to companies because a large

share of after-sales revenues is generated with spare parts and services related to spare-
parts logistics. In addition to spare parts in the current primary product Primary product
line, this business also includes spare parts for out-of-date products that must remain
available as a result of guarantees and maintenance contracts.

A crucial competitive factor is that the primary product Primary product and the
provision of spare parts to customers should not be perceived as being separate entities.
Rather, the customer demands a full range of services that also include maintenance and
technical assistance to go along with the provision of spare parts.
2.
Title: Expenditure Analysis and Control in Warehouse (Spare Parts)

Objective:
1. To study in detail all the expenses and costs that are incurred in the
operations of the warehouse activities.

2. To find the various ways in which these costs/expenses can be reduced or

controlled.

Scope:
1. To genrate new ways to control the expanditure.

changE
3. COMPANY PROFILE

TATA MOTORS PROFILE

Tata Motors Limited is India's largest automobile company, with revenues of Rs.
35651.48 crores (USD 8.8 billion) in 2007-08. It is the leader in commercial vehicles in
each segment, and the third largest in the passenger vehicles market with winning
products in the compact, midsize car and utility vehicle segments. The company is the
world's fourth largest truck manufacturer, and the world's second largest bus
manufacturer.

The company's 22,000 employees are guided by the vision to be "best in the
manner in which we operate best in the products we deliver and best in our value
system and ethics."

Established in 1945, Tata Motors' presence indeed cuts across the length and
breadth of India. Over 4 million Tata vehicles ply on Indian roads, since the first rolled
out in 1954. The company's manufacturing base in India is spread across Jamshedpur
(Jharkhand), Pune (Maharashtra), Lucknow (Uttar Pradesh) and Pantnagar (Uttarakhand).
Following a strategic alliance with Fiat in 2005, it has set up an industrial joint venture
with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and Tata
cars and Fiat power trains. The company is establishing two new plants at Dharwad
(Karnataka) and Singur (West Bengal). The nation-wide dealership, sales, services and
spare parts network comprises over 3500 touch points; Tata Motors also distributes and
markets Fiat branded cars in India.

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano, which
India and the world have been looking forward to. A development, which signifies a first
for the global automobile industry, the Nano brings the comfort and safety of a car within
the reach of thousands of families. When launched in India later in 2008, the car will be
available in both standard and deluxe versions. The standard version has been priced at
Rs.100, 000 (excluding VAT and transportation cost).
Designed with a family in mind, it has a roomy passenger compartment with generous leg
space and head room. It can comfortably seat four persons. Its mono-volume design will
set a new benchmark among small cars. Its safety performance exceeds regulatory
requirements in India. In terms of overall pollutants, it has a lower pollution level than
two-wheelers being manufactured in India today. The lean design strategy has helped
minimise weight, which helps maximise performance per unit of energy consumed and
delivers high fuel efficiency. The high fuel efficiency also ensures that the car has low
carbon dioxide emissions, thereby providing the twin benefits of an affordable
transportation solution with a low carbon footprint.

Besides product development, R&D is also focussing on environment-friendly

technologies in emissions and alternative fuels. Through its subsidiaries, the company is
engaged in engineering and automotive solutions, construction equipment manufacturing,
automotive vehicle components manufacturing and supply chain activities, machine tools
and factory automation solutions, high-precision tooling and plastic and electronic
components for automotive and computer applications, and automotive retailing and
service operations.

True to the tradition of the Tata Group, Tata Motors is committed in letter and
spirit to Corporate Social Responsibility. It is a signatory to the United Nations Global
Compact, and is engaged in community and social initiatives on labour and environment
standards in compliance with the principles of the Global Compact. In accordance with
this, it plays an active role in community development, serving rural communities
adjacent to its manufacturing locations. With the foundation of its rich heritage, Tata
Motors today is etching a refulgent future.
 PRODUCTS

PASSENGER AND UTILITY VEHICLES

INDIGO
INDICA

SUMO
GRANDE

PASSENGER CARS SEGMENT ALSO INCLUDE

1. Indigo XL 2. Indica V2 3. Indica Xeta 4. Indica Turbo

5. Fiat Cars 6. SAFARI 7. SAFARI
DICOR 8. SUMO VICTA
BUSES
1. Star bus 2. Globus

Military vehicle
1. Tata 407 Troop Carrier, available in hard top, soft top, 4x4, and 4x2 versions

2. Tata LPTA 713 TC (4x4) 3.Tata LPT 709 E

4. Tata SD 1015 TC (4x4) 5.Tata LPTA 1615 TC (4x4)

6. Tata LPTA 1621 TC (6x6) 7.Tata LPTA 1615 TC (4x2)

COMMERCIAL VEHICLES

1. Tata Ace 2. Tata Ace Magic

3. Tata TL/Telcoline/207 DI Truck
5.Tata 709 E
7. Tata 1510/1512 (Medium bus)
9.Tata 1613/1615 (Medium truck)
13.Tata Novus (Heavy truck)
4.Tata 407
6.Tata 1109 (Intermediate truck)
8.Tata 1610/1616 (Heavy bus)
10.Tata 2515/2516 (Medium truck)
14.Tata Winger
Concept vehicles

1. 2000 Aria Roadster 2. 2001 Aria Coupe

3. 2002 Tata Indiva 4. 2004 Tata Indigo Advent

5. 2005 Tata Xover 6. 2006 Tata Cliffrider

7. 2007 Tata Elegante

THE MOST AWAITED PEOPLE’S CAR

NAINO(LAKHTAKIA)
MILE STONES

1945 • Tata Engineering and Locomotive Co. Ltd. was established to manufacture
locomotives and other engineering products.
1948 • Steam road roller introduced in collaboration with Marshall Sons (UK).
1954 • Collaboration with Daimler Benz AG, West Germany, for manufacture of

medium commercial vehicles. The first vehicle rolled out within 6 months of
the contract.
1959 • Research and Development Centre set up at Jamshedpur.
1961 • Exports begin with the first truck being shipped to Ceylon, now Sri Lanka.
1966 • Setting up of the Engineering Research Centre at Pune to provide impetus to
automobile Research and Development.
1977 • First commercial vehicle manufactured in Pune.
1985 • First hydraulic excavator produced with Hitachi collaboration.
1993 • Joint venture agreement signed with Cummins Engine Co. Inc. for the
manufacture of high horsepower and emission friendly diesel engines.
1998 • Tata Safari - India's first sports utility vehicle launched.
• 2 millionth vehicle rolled out.

• Indica, India's first fully indigenous passenger car launched.

2003 • On 29th July, J. R. D. Tata's birth anniversary, Tata Engineering becomes
Tata Motors Limited.

• 3 millionth vehicles produced.

2004 • Tata Motors and Daewoo Commercial Vehicle Co. Ltd. sign investment
agreement
• Tata Motors completes acquisition of Daewoo Commercial Vehicle
Company

• Tata Motors lists on the NYSE

2005 • Tata Motors rolls out the 500,000th Passenger Car from its Car Plant Facility
in Pune
• Branded buses and coaches - Starbus and Globus - launched
• Tata Ace, India's first mini truck launched

• Tata Motors wins JRD QV award for business excellence.

2006 • Tata Motors vehicle sales in India cross four million mark
 • Tata Motors first plant for small car to come up in West Bengal
2007 • Tata Motors' integrated Customer Relationship Management (CRM)- Dealer
Management System (DMS) initiative crosses the significant milestone of
covering 1000 locations in India and abroad.

• Tata Motors introduces Magic & Winger - creates new segments in urban
and rural passenger transportation.
Organisational structure: -

CHAIRMAN

BOARD OF DIRECTORS
EXECUTIVE DIRECTOR

VICE-PRESIDENT

GENERAL MANAGER

DEPUTY GENERAL MANAGER

ASSISTANT GENERAL MANAGER

EXECUTIVE
GRADE
DIVISIONAL MANGER

SENIOR MANAGER

MANAGER

DEPUTY MANAGER MANAGEMENT GRADE

ASSISTANT

ENGINEER

SUPERVISOR

OPERATOR

TATA MOTORS: ORGANIZATIONAL STRUCTURE

 JAIPUR PLANT: -

ROSHAN Motors began its operations in the JAIPUR- V.K.I. industrial area in
1996, when the company acquired the Investa Machine Tool Company in Chinchwad and
simultaneously set-up a Press Tool Division in VKI .

Tata Motors, jaipur acquired 376 acres of lease land in Vishwa karma industrial,
126 acres free hold land in Chinchwad industrial area and 387 acres free hold land as
residential area in Pimpri. The Pune plant has successfully carried out the challenging
task of designing, manufacturing and assembling indigenously the new heavy vehicles
that enable to service much larger market. Many of the aggregates of the commercial
vehicles are also made in Pune. The company also entered in the MUV’s market; TATA
Sumo, TATA Mobile, TATA Safari, TATA Sierra, TATA Estate.

Tata Motors has also launched the first all indigenous passenger car in the small
car section viz. 'Indica'. This is its first experiment in passenger car manufacturing. It is
currently involved in the development of a car for the entry-level segment as promised by
Mr.Ratan Tata. The car aspires to be the first car in India in the price range of Rs.1.5
lakhs.

• JAIPUR PLANT

Sr No. Location Area (acres)

1 Pimpri Industrial Area MIDC 380.44
2 Chinchwad Industrial Area MIDC 126.08
3 Pimpri Residential Area 396.72
4 Maval Foundry Industrial Area 19.48
5 Chikhli Industrial Area (K-Block) 188.06
TOTAL AREA OCCUPIED 1110.78
 Products Of TATA Motors

PASSENGER CARS: -

Tata Indica Tata Indigo

COMMERCIAL AND SPORT UTILITY VEHICLES: -

Tata Safari Tata Sumo Tata 207DI

LIGHT COMMERCIAL VEHICLES:

Tata 407SFC
Tata 709SFC

MEDIUM COMMERCIAL VEHICLES: -

Tata 1615LPT Tata 1613cTurbo Tata 2516cLPT

HEAVY COMMERCIAL VEHICLES: -

Tata 3015c LP Tata 3516cTurbo Tata 4021cTurbo

1.2 BLOCKS:
The TATA Motors Pune plant has been divided into different blocks to achieve the
proper sequencing in the production. The blocks are divided as given below:
• HR: Human Resource department
• ERC: Engineering Research Center
• A Block: Training division
• B Block: Production Engineering
• C Block: Transmission shop
• D Block: Truck chassis and Engine shop
• E Block: Press, Paint, Frame assembly shop
• H Block: Special production shop, assembly for 407/709
• I Block: Administration Centre
• J Block: MLJV, SUV and Pick-up vehicle factory
• K Block: Passenger car plant

MISSION SATAEMENT OF TATA MOTORS LTD.:

 Providing superior value in all products & gaining customer loyalty by
measuring, creating & maintaining relation with customer.

 Achieving significant presence in passenger car market with range of

products, which will include a low cost small car having diesel option to
meet need of Indian consumer.

 Achieving increased market shares in all segments of commercial vehicles

though the introduction of wider range of vehicle of high quality & enhance
features resulting in lower operation cost.
  Partnering to elevate supplier vision & also that of dealers to see Telco’s
consumer as, their own, to share the goal of higher quality.

 Being caring & supporting corporate criteria, paying attention to create that
quality of life required developing strong communities in which we operate.

3.4 VISION & Logo OF TATA MOTORS LTD.:

VISION, COMMITMENT AND FORTITUDE:

As much an institution as it is a business conglomerate, the Tata group is unique in more

ways than one. Established by Jamsetji Tata in the second half of the 19th century, the
group has grown into one of India’s biggest and most respected business organizations,
thanks in no small part to its entrepreneurial vision, its commitment to ideals that put
people before profits, and its fortitude in the face of adversity.

Logo of TATA MOTORS LTD.:

Introduction to Shared Services

The market in which multinational companies operate is characterised by globalisation

merges, acquisitions, and consolidation requiring companies to standardize operations to
stay competitive. An effective way of keeping costs down and improving efficiency is by
moving certain functions to one central location.
Centralisation is only half the story. An increasingly popular an effective way to meet this
challenge and achieve sustainable benefits is for companies to set up a Shared Service
Centre.

‘Shared Services is a collaborative strategy in which a subset of existing business

functions are concentrated into a new, semiautonomous business unit that has a
management structure designed to promote efficiency, value generation, cost savings and
improved service for internal customers of the parent corporation, like a business
competing in the open market.’ - By Bryan Bergeron.

Shared Service Centres (SSCs) began life in the 1980s, typically to process high volume,
low value transactions for the finance functions. They are referred to as Shared Services,
because their activities are shared by units across entire organizations, instead of similar
services being duplicated in each unit.

Aims of Shared Services are to

 Enhance corporate value;
 Focus on partner service and support;
 Lower costs and raise service levels;
 Make the best use of investment in technology;
 Focus on continuous improvement;
 Harmonize and standardize common business processes to reduce
Duplications;
 Transfers business units non-core activities in to shared service units.

The Potential Benefits of Shared Services are numerous and can potentially
benefit every type of Business. From the parent corporation’s perspective, Shared
Services promises are:
 Reduced Cost: There is constant pressure from internal corporate clients to
provide cost effective products and services.
 Improved Service: The Shared business unit’s customer-oriented focus should
result in better service to internal customers, than typical in-house services.
 Fewer distractions from core competencies activities: With back office and
other non-critical activities handled by Shared Services, the management of the parent
company is free to focus the company on its core competencies.
 A potential for creating an externally focused profit center: At one end of the
spectrum, a business unit is following the Shared Services model can be operated as a
nearly autonomous entity, with other paying outside clients.

From the perspective of Shared Business unit, the shared services model promises:
 Increased efficiencies: Standardization of processes and applying
technologies where appropriate can provide improved quality of services at
comparable or lower prices.
 Decreased personnel requirements: With the ability to concentrate and
focus resources for a particular purpose in a shared business unit, fewer
employees generally needed to provide same results.
 Improved economies of Scale: Like a traditional centralised approach,
shared services concentrates purchasing and other formerly dispersed
business activities, resulting in greater buying power and greater
concentration of specialised resources, such as specialist in certain aspects
of accounting. This concentratio0n allows for increased economies of scale,
compared to the original corporate structure.

Major limitations of Shared Services:

 Need to create a base line: In order to determine if the shared services model is
working, its necessary to establish a base line, in terms of current cost, customer
service & efficiency as well as detail specification of what is currently done &
what needs to be delivered.
 Inevitable corporate culture shock: The loss of co-workers through downsizing,
the new focus on customer service & new reward & reporting structure will take
their toll on corporate culture, often resulting initially in a drop in efficiency.
  There is a minimum Company size: The larger the company, the more
distributed & diffuse the processes & the more duplication of effort, the more
likely the shared services model is applicable to the company.
 Loss of Control: Moving to a shared services model means that management of
the parent organisation has to give some control. Employees of the shared
business unit must become customer focussed as well as responsive to the
business units needs.
 New training requirements: Retained employees of the shared business unit will
likely need training in the nuances of customer service & total quality
measurement principles.
 Legal implications: Detail service level agreements & strong performance audits
are required to keep the shared services model on track.
 Need for new accounting practices: Chargeback practices that details how the
shared business unit is to be reimbursed for services rendered have to be
established.

Use of SAP in TATA MOTORS

Before implementing the SAP ERP Solution, there were several homegrown applications
that managed all of the company’s IT requirements. Since they were developed over long
periods of time, they were on multiple platforms and hence difficult to merge. The
biggest drawback of the legacy applications was that they were function and location
specific and were built on local and individual perception of needs. Common and
rationalized processes and practices across all organizational units were not enforced.

Therefore, managing functions like HR, sales and finance across three manufacturing
units spread across the country and their corporate office was tedious and time
consuming. Integrated functions like materials management and payment processing
were separate entities, causing delays in individual transactions. This led to unnecessary
increase in overhead costs and duplicated efforts at each unit. Tata Motors soon
understood that the need of the hour was a unified real time database that gave up-to-date
information to all their stakeholders - both internal and external. They had to move from
their legacy decentralized platforms into a consolidated enterprise platform and
rationalize the business processes across the various units. This would give them an
enterprise perspective both across process and IT infrastructure. The company could then
serve their customers much better and faster, even while reducing operational costs and
cutting manufacturing cycle times.

They decided to go in for the SAP ERP Solution, which provided them all the
answers and much more. The SAP Solution would enable them to improve business
Continuity by unifying the database and functions across the country into one single
entity. It would no longer require any location-specific expertise and thus be much
easier to maintain.

With the SAP solution, customization and upgradation costs could be lowered. Risks,
which emanate from attrition or change of guard in the company, would also be
minimized.

Implementation of the SAP ERP Solution.

Tata Motors outsources their IT to Tata Technologies, which is their 100% subsidiary
company. So Tata Technologies became their implementation partner. SAP India also
organized some consulting for them, which had consultants from both India and abroad.
In 1997, when the seed of implementation was sown, the WAN infrastructure in India did
not permit a single server implementation. Hence a distributed server implementation was
done in stages over a period of two years between 1998 and 2000. The version used was
3.1H. In August 2003, they moved over from SAP 3.1H to SAP 4.6C on a single server
platform. There are 3500 users across the country. Once SAP was implemented,
rationalization of several processes was done extensively. Various business processes like
materials, finance, logistics, etc. were stripped down to their basic components and a lot
of re-engineering had to be done, as all these processes became location-independent.
Tata Motors also opted for the standard cost functionality, which was a significant
business process change for them.
Benefits
With the SAP ERP Solution in place, Tata Motors has experienced significant benefits in
productivity and cost control. The number of servers as well as the number of different
applications run on them has been greatly reduced. The disaster recovery management is
being done only for one entity rather than for every application. Non-value-add activities
have been lowered. The implementation of a single SAP instance forced a much required
change in the organization. A BPR to achieve uniform processes with business users
talking the same language was the outcome.There is a significant reduction in inventories
and better control over receivables and other credit control. A shared services platform
has also been created for IT and shared financial services.

Currently, they are exploring the possibility of a shared services platform for HR too.
There has been a reduction of almost 2 weeks time in financial consolidation. The
statutory compliance of quarterly closing of books and audit has been very largely
facilitated by SAP. Compliance has thus now become more structured and easier to
manage. The speed and granularity of cost data availability is a big improvement. The
richness of analytical data using BW has provided enormous benefits. SAP® SRM has
provided a seamless integration with vendors.The biggest benefit has been the large
unified database for the entire enterprise. “Now anyone across the enterprise can just look
in and find out what customers we have, who are our suppliers and vendors, what prices
we offer, etc. very easily. It brought a synergy in purchasing by strategically sourcing
critical components for the entire organization. This resulted in strategic partnering with
vendors with volume discounts,” says Mitra.

“With the Company being listed in the New York stock exchange, SOX compliance
becomes mandatory. Without SAP, SOX compliance would have been extremely
difficult with the large and fragmented spread of legacyapplication.” adds Probir
Mitra.

SAP Solution has helped Tata Motors serve their customers better and meet all their
needs. Since informationis now on a real-time mode, they are able to quickly respond to
their customers, vendors and suppliers demands. “Previously, we had to pick up data
from four different locations and then consolidate them before you could update your
customer. Now, we have up-to-date information about the customer right up to his last
transaction,” says Mitra.

Future Plans
Tata Motors is now a satisfied customer of SAP - they have the largest deployment of the
SAP Solution in the automotive industry, considering the spread of functionalities they
use. They are keeping abreast of all the new developments and ensure that the
applications they run commiserates with the SAP enhancements. They would definitely
choose SAP for their future plans too.
“Our experience with SAP has been very good. We are consistently looking to add new
functionalities to our existing suite of coverage,” says Mitra. Tata Motors has been able
to achieve enterprise integration, a high productivity gain and also build a stronger,
enduring relationship with its customers, thanks to the SAP ERP implementation. Thus,
the company has not only retained its leadership in India but has also been able to enlarge
its footprint in the global automotive industry.
 4. Theoretical Background

Introduction to 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 running
logistics 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, without the 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 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.

Modern warehouses are also used at large by exporters/manufacturers as a point of

developing retail outlets in a particular region or country. This concept reduces the end
cost of the product to the consumer and thus enhance the production sale ratio.
Warehousing is an age old concept which can be used as sharp tool by original
manufacturers to reach out directly to consumers leaving aside or bypassing importers or
any other middle agencies or person.

Warehousing
The warehousing function is a vital part of many organizations: industrial concerns,
public and private utility undertakings, agricultural enterprises, municipal authorities,
Armed Services and Government department. The relative importance of the function
-depends on the nature and the size of industry or activity concerned and in all cases it
must be designed to suit the particular needs of the organization it serves.

Purpose of warehouse functions

The warehouse function is set up in any concern to assist in the production of goods and
services and no industrial unit or public undertaking of substantial size can be efficiently
managed without it.

The primary objective is to provide a service to the operating functions and this must be
fully appreciated. All other warehouse activities although they have their own relative
importance are subordinate to this main responsibility.
The service given can be analyzed into four parts as follows-
• To make available a balanced flow of raw materials, components, tools,
equipment and any other commodities necessary to meet operational
requirements.
• To provide maintenance materials, spare parts and general stores required.
• To receive and issue finished goods.
• To accept and store scrap and other discarded material as it arises.

In today’s context, the warehouse is used as a switching facility rather than as a switching
facility rather than as a long-term storage house. Attention is paid to higher inventory
turnover, lower operating cost, and shorter cycle time. Warehouse performance is judged
by its productivity and cost performance, while trying to achieve the two polemic goals
of customer satisfaction and lower cost of operation. Today, it is possible to redesign
warehouses, using simulation models, for maximum space utilization and increased
material flow, by automation, to achieve productivity gains and cost reduction.

An important step in logistics network selection is deciding on the centralized and

decentralized warehouse system. The warehouse can act as a mother warehouse or
distribution warehouse, depending on the distribution system adopted by the company.
The centralized warehouse ensures tight control on inventories and can operate on
economies of scale, resulting in lower operating cost. Decentralize warehouse operations
with multiple distribution centres ensure the best services to customers. Site selection for
locating the warehouse is the next step, which depends on the type of product,
consumption centres, transportation cost, customer service needs etc. focusing on
warehouse objectives of profit improvement through cost reduction and enhancement of
customer service level for gaining competitive edge, the following needs to be taken care
of:

• Maximum utilization of storage space (floor and cubic space)

• Higher labour productivity.
• Maximum asset utilization.
• Reduction and material handling
• Reduction in operating cost
• Increased inventory turnover
• Reduced order filling time

Semi automated Storage/Retrieval

In the above semi-automatic system, the storage and retrieval machine is designed to
carry out the warehousemen to the storage location, rather than to bring products to him
automatically.
 Carousel

The carousel automated storage retrieval system, is sometimes useful for small items of
relatively low consumption.

Spare Parts Logistics

An efficient design of spare-parts logistics Spare-parts logistics creates special demands
on the delivery service Delivery service :
• To eliminate downtime, fast delivery of spare parts is necessary.
• When maintenance measures for the customer can be performed only at particular
times like weekends or only when needed and not at regular intervals as part of
upkeep programs, delivery reliability becomes especially important.
• The sale of spare parts is usually preceded by a negative event like the breakdown
of a primary product. For this reason, the delivered goods should not have any defects
in order to prevent a negative experience from becoming even worse.
• Spare-parts orders are frequently emergency orders that require tremendous
delivery flexibility in terms of order transmittal, shipment routes and means of
transport.
For suppliers of spare parts, the availability of these items at the time when the customer
needs them is a critically important factor. Naturally, the costs of spare-parts provision
must be taken into consideration - particularly warehousing and transport costs [4].

WAREHOUSING FUNCTIONS
The warehouse is the integral part of the logistical system and the effectiveness of
customer service depends to a great extent, on the way the warehouse operations are
carried out. Broadly speaking, the warehouse is a service function in the supply chain of
the company and it performs the following functions:

Material Storage Function

The primary task of a warehouse is to store material till it is delivered to the customer or
end user. As the manufacturing and consumption never match, manufactured materials
have to be stored somewhere till the demand for the same is generated and delivery is
confirmed. In fact, storage is designed to accommodate the following four functions:

HOLD
Holding is the most primary function of the warehouse for finished products ready for
market delivery. Depending on demand or order booking pattern and the delivery
schedule promised to the customer by the marketing department, goods are dispatched
from the warehouse. At the warehouse there is a continuous inflow and outflow of
materials. A proper record of the material which goes in and out, has to be maintained for
information on inventory levels at any given point of time. The area allocations for
materials at different points of time is necessary to retrieve the material as and when
required for further delivery to a particular customer or markets. Hence the material
holding function has to be carefully planned considering variables like product
categories, product mix, product characteristics, shipment arrival time, expiry dates etc.

Manufacturing Warehouse Customer

plant

Consolidation
If supplies are originating from various sources in small quantities, it maybe economical
to collect these small shipments at one centre, to combine them, and make them, in a
large shipment to send it to the customer. Consolidation will ensure cost saving on
freight.
For import or export of goods for large buyers, whose requirement does not warrant large
volumes for shipment from each source, consolidated shipments ensure potential cost
savings. In such cases planning a warehouse for shipment consolidation maybe the ideal
proposition. The cost savings will offset the cost of setting up a place for consolidation.
 Source 1 Buyer 1

Consolidation
Source 2 Buyer 2
Warehouse

Source 3 Buyer 3

Break bulk
The function of this facility is directly opposed to that of the consolidation warehouse.
Here, material that has arrived in bulk is divided into small shipments to deliver to the
end customer. Bulk cargo of fertilizers, oils and chemicals coming from the manufacturer
is broken into small consignments as par the requirements of the buyer.

Customer 1

Manufacturin
Break-Bulk
g Customer 2
Warehouse
Plant

Customer 3
Distribution warehouses of manufacturing firms routinely break bulk. The firm saves
substantially on freight by dispatching bulk shipments to its regional distribution centres,
where they are divided into small packets for further dispatch to the end user, as per
quantity requirements.

Cross Docking
This is similar to the break bulk activity, except that it involves multiple suppliers. The
usage of warehouse is for a short period of time. The material arriving in bulk or in fully
loaded trucks is broken into smaller consignments for further dispatch to customers. The
material stays in the warehouse for a maximum of 48 hours. Cross docking is most
commonly used in retail chains wherein the mother warehouse receives different
materials from multiple suppliers, which is divided into smaller consignments or sorted
(break bulk), and consolidated (repacked in small consignment) for dispatch to various
retail stores, as per requirements.

MIXING
A warehouse s sometimes used as a product mixing point in the case of companies
having a number of plants manufacturing different components, which are combined, at a
convenient place, to make the final product.
The process involved is simple mixing. Orders can be fulfilled without mixing, by
sending the ingredients in small uneconomical volumes from individual plants to the
customer. However, transportation cost becomes prohibitive in the shipment of individual
ingredients to customers. A common mixing point permits large volume shipments of
ingredients to a single location where they are assembled and dispatched to the customer
in sizeable lots in order to economize on transportation cost.
 Plant A
Customer 1
Ingredient 1

Plant B Mixing
Warehouse Customer 2
Ingredient 2

Plant C
Customer 3
Ingredient 3

Postponement
With postponement, the anticipated risk of finished goods inventory maintenance is
reduced considerably. Parts and components are warehoused at strategic locations and
final assembly is kept on hold till other critical items required for assembly arrive at the
manufacturing plant. Thus, the postponement function of the warehouse reduces the risk
of finished good inventory and space blockage.

Packing
This is the most important function carried out in the warehouse after break-bulk
operation. The repacking of material as per the ordered quantities of the individual
customer is done at the warehouse. The packs are labeled and marked as per packaging
regulations or as per requirements of the customer.
Material Handling Function
This function is divided in following three activities:

1. Loading and Unloading: The unlading activity is performed when goods arrive
at the warehouse. The material is offloaded from the transportation vehicle.
Loading is the last function performed in the warehouse. The material packed in
boxes is loaded onto the transportation vehicle at the loading area. Loading
includes additional efforts of bracing the load to prevent damages.

2. Material Movement (to and from the storage area): these activities are carried
out either manually or with the help of material handling equipment. The
incoming material, which is unloaded, has to be moved to its assigned place in the
warehouse for temporary storage, while during order pick up the material has to
be moved from storage to the packing area and then to the loading area. For
material movement, the most common equipment in use is the trolley, crane,
conveyor and forklift.

3. Order Filling: the final material handling activity is order filling. This includes
the selection of material from various lots at various locations in the warehouse,
as per the customers order. This activity is done manually or with the help of
robots. The order cycle time, which is the most critical parameter in customer
service, is very much dependent on the speed of material packing.

Warehouse Options-A Strategic Decision

For acquiring warehouse space, the following three options are available:
• Private Warehouse
• Public Warehouse
• Contract Warehouse
Considerations for exercising these options depend on various factors such as product
characteristics, demand fluctuations, investments, costs of operation, degree of control,
scale economies etc.
The warehouse option is a strategic decision having a long term effect on system
efficiency and effectiveness. The option maybe exercised after a thorough evaluation of
the logistics system design mix. Firms invariably go in for a combination of the above
three options at different locations.

PROCEDURE FOR RECEIPT, STORAGE, ISSUE AND DELIVERY OF

MATERIALS.

Work guidelines for C & F Agents as applicable in TATA MOTORS’ Warehouse

Given below are general guidelines for C & F agents to make their own work
constructions for receipt, storage, issue and delivery of materials and to display the same
at respective activity locations.

♥GUIDELINES FOR RECEIPT OF MATERIAL AT SECURITY GATE

1. Check challan/invoice/lorry receipts of the party and direct them to warehouse in-
charge for their authorization to receive the consignment in the warehouse.
2. Do LECI transaction on SAP. Else record the following details in the
MATERIAL INWARD REGISTER after getting authorization to receive the
consignment.
a. Sl number
b. Date
c. Challan/Invoice no, date and supplier name
d. Truck Number
e. Transporter’s name
f. Time In
g. Time out
 h. Signature
i. Octroi Num and date
j. Any other information in remark column

3. Endorse material Inward Register’s Serial Number to every challan/Invoice/LR.

Note: Stamp preferably on front of the second copy of the challan/invoice
indicating the Material Inward Register’s Sl. No, Date and vehicle number
4. Allow the vehicle to proceed further to unload at the receipt area.

♦ GUIDELINES FOR RECEIVING SECTION.

1. Check security stamp for MI number and warehouse incharge/authorization

signature before unloading. Check for inbound delivery number. If the same is not
received from vendor create the same.

2. Unload the items at the receipt area. Unload bulk items at the specific locations
with receipt identification details duly marked.

3. Attach receipt identification tags to every item indicating part number,

description, quantity, supplier’s name and date at the time of unloading.

4. Create GR document (MIGO) in SAP system with reference to inbound delivery.

Remove original octroi document for record purpose. Note receipt document
numbers (inbound and MIGO) on challan/invoice.

5. Check the physical receipts with suppliers’ documents for quantity. Check
visually for surface protection quality /surface condition/damages, if any
discrepancies inform to QA.
 6. Generate MB02 transaction confirming quantity received on SAP system.
Generate GR tags.

7. In case of shop made items supplied by Pune/Jamshedpur/Lucknow works

through STO create GR with reference to outbound delivery. Check part numbers
and quantity. Attach identification tags and send the same to inning section. For
vendors receipts based on the GR tags, the items having no inspection category
are given for further pre-packing and binning. Parts have inspection category are
offered to QA for inspection along with GR tags and samples.

8. Get back inspected samples along with QA’s remarks on GR tag for receipt
record purpose.

9. After inspection confirmation, complete unit-packaging work. After unit

packaging is done the parts are binned in their respective locations.

10. In case of rejection by QA send rejected lot to designation rejection area duly
packed and marked with details like: Rejection report number, Supplier name,
supplier destination.

11. Forward the rejected material to dispatch section for onward dispatch to
respective sub-contractor.

12. File all respective suppliers’ invoice with GR tags serially in ascending order.

☻FOLLOWING ARE THE PRESERVATION MEASURES

1. Check the preservation of the items for the following before binning:-
a. Machined parts with cosmolene 945/rustolene 645.
 b. Oil/rustolene to all unpainted/unplated sheet metal parts.
c. French chalk/talc powder to rubber parts wherever applicable.
d. Do not store the fragile items on top of the racks for more than 4 feet high.

2. All material stored outside should be packed in polythene sheets/covered and

stored in a shade area to prevent direct exposure to sunlight, dust , rain, etc. the
condition of storage shall be reviewed at least once in a month and correction
carried out as required.

3. For a new item where location is not available, generate the same and maintain in
the system.

4. Carry out perpetual inventory activities for stock checking as per the guidelines
given below:

‘A’ Class items- three times per year

‘B’ Class items- Twice in a year
‘C’ Class items- once every year

1. Parts found UNSERVICEABLE e.g. rusty, damage, etc.during perpetual

inventory or at the time of picking or packing should removed aside to carry out
the rectification work viz. derusting or repair and preservatory action of the same
as per above 1.

2. Wherever rectification work is not possible or the item has been got damaged to
the extent where serviceability is not possible should be inform to warehouse in
charge for necessary action and should be offered to QA for necessary removal
from stock to quarantine area.

3. All items in a particular class must be covered by perpetual inventory within the
given period of time
4. In order to consume the perishable items such as rubber, remove the oldest stock
first. For the purpose follow the First In First Out procedure.

5. Send the rubber parts, which have already completed two years of Shelf Part to
QA for re testing of its quality. The testing will be carried out by QA to confirm
the validity of the parts. Tests as applicable will be carried out with the help of
plant facilities whenever necessary.

6. Rubber items for which the extended shelf life is over should be removed from
the stock with the authorization taken from the warehouse in charge.

►GUIDELINES PICKING PACKING

1. Get the authorization in the form of pick lists issued by sales Dept to pick, pack
and dispatch the material to the customer.

2. Segregate UMRP tags and arrange pick list wise serially.

3. Segregate pick lists received from sales section on the basis of order types

4. Arrange Pick lists customer-wise and club to make substantial value and for truck
load wherever possible.

5. Prepare pick list lots after arranging UMRP tags location-wise.

6. After picking stick the UMRP tags to respective items and send the material
trolleys to packing lines along with respective pick list lots. Lay the material on
the packing line along with the pick lists.

7. Carry out preservation measures wherever required and remove rusty/damaged

parts from the lot while packing.

8. Bring cases, cartons and other packing materials as per the requirement to the
respective packing tables.

9. Use packaging carton for the parts wherever necessary.

10. Check for UMRP tags stickers on packaged items.

11. Check the part number and quantity with the UMRP tag and the pick list and
indicate the correctness by ticking in the Quantity column.

12. Give the parent pick list number as case No. on the shipping carton/case and also
record the same on the pick list along with respective case dimensions.

13. Nail/ (cello) tape and strap it.

14. Weigh the cases and put the gross weight on the carton or case along with station
name. Also record this weight on the respective pick lists.

15. After packing all the items in the pick list sign the pick lists and hand over the
cases/cartons and pick lists to the dispatch section.
 ▼AUDIT CHECK ON PACKED CASES

To confirm the correctness of packed cases/cartons, C&F representative will do audit

check on 150 cases/cartons in every month and report of its findings with the remarks of
possible causes if any, it must be made good immediately to clear that particular
consignment. The report will be forwarded to warehouse in-charge. Corrective action will
be taken by C&F agent to eliminate recurrence.

GUIDELINES FOR DISPATCH SECTION

1. Receive the pick lists from packing section and send the pick lists to office for
preparing Dispatch Notes and printing deliveries.

2. Receive the dispatch note from office and segregate the dispatch note and arrange
transporter wise.

3. Check the Road Permit position wherever necessary and follow up with Sales
Section for obtaining Road Permits wherever not available.

4. Evaluate the load to be transported and call the respective transporters.

5. Prepare the loading list for the cases to be dispatched indicating case numbers and
no. of cases in the system.

6. Check the case numbers and destinations before physical loading and also check
in the presence of Security the total no. of cases loaded.

7. Prepare the Gate Pass. Take signature of the transporters, Security, checking and
authorized personnel. Also obtain the G.C. notes against the respective dispatches.
 8. Enter the G.C. notes in the dispatch note online in the computer and forward the
consignee copy of the G.C. notes to invoicing section along with original copy of
delivery.

9. In case of collection from warehouse consignments, obtain delivery order from

sales before physically handing over the consignments.

GUIDELINES FOR SECURITY AT THE TIME OF DESPATCH

1. Count all the cases/loose items being dispatched and loaded in the truck/vehicle.

2. Prepare loading slip for total quantity of cases/loose material loaded.

3. After completion of, tally the figure with the gate pass prepared and signed by the
authorized person. Check the signature with the ‘Specimen Sign Card’ writes
vehicle number, date and transporter’s name on the loading slip and sign.

4. Accompany the vehicles to the main gate and inform the main gate guard.

5. Whenever the transporter’s vehicles moves to other locations in the premises for
loading of vehicle spares, ensure that no loading is done without dispatch staff
and security personnel from the warehouse.

6. In case of the quantities not tallying, the matter is reported to the C & F agent in-
charge.
Warehouse Options:

Private Public Contract

Investment High None Very little
Flexibility in Material handling, storage and Location Location
Throughput planning.
Cost Per Unit Sold Inversely related to volumes Low Inversely related to
volumes
Level of Control High Low Medium
Adequacy of goods High Low High
Stored
Risk Due to change in market demand or Minimal Minimal
consumption centres

Material Handling Systems

Material handling equipment is used in loading and unloading operations, for movement
of goods over short distances. The handling of materials in warehouses is restricted to
unitized forms, which require smaller size equipment. However, for bulk handling of
material at logistics nodes such as shipyards ports and airports different type of material
is used. In warehouses, material handling operations are performed at the following
stages:
Unloading the incoming material from transport vehicles
Moving the unloaded material to assigned storage places in the warehouse
Lifting the material from its storage place during order picking
Moving the material for inspection and packing
Loading packages/boxes/cartons on to transport vehicles

The efficiency of material handling equipment adds to the performance level of the
warehouse. The internal movement of the goods has a direct bearing on the order bearing
on the order picking and fulfillment cycle. The warehouse, wherein the material handling
equipment is in use, is more sensitive to labour productivity than the manufacturing
centre as material handling is more labour intensive. There is scope for reducing labour
and enhancing productivity by using emerging technologies in material handling. A good
material handling system will enhance the speed and throughput of material movement
through the supply chain.

Various material handling systems are in use, right from those that are fully manual to the
ones that are fully automatic. However, the selection of a particular system depends on
factors such as:
Volumes to be handled
Speed in handling
Productivity
Product characteristics (weight, size, shape)
Nature of the product (hazardous, perishable, crushable)

Recent trends indicate preference for systems with higher logistical productivity.
However, investments costs go up in more productive material handling using
sophisticated equipment. Hence, in majority of cases a combination of both manual and
mechanized systems is quite common.

Classification of the material handling system is based on the degree of its sophistication.
The most preferred way of material handling is manual, where volumes handled are less
and the investment in handling equipment does not ensure more benefits. In such case the
idle time of equipment will more and the equipment is underutilized. Handling systems
can be classified as follows:
Manual
Mechanized
Semiautomatic
Automatic
Information guided

The major criteria for selection of the right system are: units moved per hour, and the
distance it is moved. Higher volumes over large distances call for more sophisticated
systems, which attract higher investment. Sophisticated systems enhance the speed of
material handling, ensuring the speed of material handling, ensuring reliability and
productivity.
Material Storage Systems
The concept of unit load is quite important from the viewpoint of storage and movement
of goods in convenient lots. Unit load is constructed by bringing together a number of
individual items of identical configuration so as to make a large load, which ensures
convenience during storage and transportation.

There are many ways to unitise goods for better storage and handling. The most
commonly practiced method is to build load on a raised platform. This platform is called
a pallet. Another method is to construct a platform to fit the load. This is called ‘skid’.
The load should be in the most acceptable lot size for convenience of storage, handling
and movement, depending on the physical characteristics of the product. The pallets are
of standard size and are used for load standards. However skids used for non-standard
loads such as long metal components or in compressor/generator assembly. Other
common methods of unitizing are slip-sheet and clamp load. The slip-sheet is a platform
on which the load is assembled while the clamp is load assembly on the floor with clamps
on four sides of the load for facilitating its movement using material handling equipment.

The storage system in a warehouse has an important role to play in the total cost and
success of warehousing operations. Firms give more importance to the way inventories
are handled rather than how they are stored. Invariably, in the industry, investment
planning is done on the basis of handling equipment is possible provided the storage
system allows easy access of storage and retrieval of inventory. A well designed
inventory storage system is a compromise between the maximum utilization of the
available space and the need for easy and quick access to stored goods. In general, the
following rules are followed in designing effective storage systems.

Maximization of travel distance

Maximizing utilization of available space
Providing easy and quick access to stored goods
Facilitation of easy tracking of material
Provision of security against fire, damage and theft
Prevention of contamination and deterioration of goods

The criteria for selecting a storage system for a particular application depend on the
following factors:

Product characteristics
Products with contamination risk require storage facility that will isolate them from other
groups. For example, flowers pose great risk of odour contamination and similarly
hazardous chemicals pose risk of damage to other products or human life. Hence, the
design consideration for these types of products needs special attention.

Configuration
Products that are uniform in shape and size maybe stored in stacks or put in an enclosure,
while odd shaped products may require open space. For example, steel sheets, billets,
rods, angles, pipes etc are stored in the open in a steel yard.

Shelf life
The storage system designed is based on first-in-first-out considerations, that is,
perishable products are stacked such that consignments stored earlier are distributed first.

Product variety
The system needs to segregate products for ease in identification during storage and
retrieval.

BENEFITS OF STORAGE DESIGN

Proper planning of storage systems help in improving the efficiency of the entire logistics
system, which helps in the speedy movement of goods across the supply chain, resulting
in improved productivity.
Space economies
Proper design of a storage scheme can result in substantial savings on the available space,
which helps in planning for additional storage load without investment in space.

Enhance throughput
A well designed storage scheme will reduce the movement of material handling
equipment and idle time, resulting in significant improvement in the systems
productivity.

Ease in material location and tracking

A proper storage scheme helps in quick location and tracking of inventory items during
the material pick up operation, resulting in compressed order cycle time.

Security, safety and housekeeping

A well designed will bar unauthorized access to the inventory, ensuring security against
theft and pilferage. The system will also reduce accidents due to fatigue, strain and
collapse of the equipment. As the number of product handlings is reduced, the risk of
damage to products is greatly minimized.

Location Control
In the random location example on the left, receipts can be placed in any available
location. Thus, any item can be stocked in any partially occupied location. In the above
figure, location 20, containing item numbers 11 and 91, represents the near-100-percent
utilization of space that can be achieved when demand is relatively constant and random
storage location control is used. In the fixed location example, part numbers 11 and 91
are assigned permanent locations and, as a result, the average stock location utilization is
only 50 percent (not considering safety stock).

Item Number Sequence

The informal stock locating scheme and sequence within the logical groupings is often
approximate item number sequence, an alternative that combines the advantages of
random and fixed location methods. E.g. the storage bin above shows how part numbers
1,2,3 and 4 would initially be organized within one storage bay contains some planned
empty space, a provision that acknowledges that stock levels do vary over time. Soon
after the initial organization, the perfect part number sequence starts to deteriorate as
items are received and issued.
 Storage waste

Pipe end protectors

In the above example storage bins for plastic caps of various sizes were designed and
constructed to store loose, unpackaged caps. Caps received in containers would be
emptied into the open front bins. While this eliminated opening and closing containers
each time an order was filled, the open face construction made it impossible to fill the bin
space to its cubic capacity since caps would spill out of the open face. In fact, the amount
of caps stored averaged well under one-half of the space occupied by the rack.
A new storage rack with smaller drawers enabled the company to reduce the floor space
occupied to less than one-half the previous area and cubic space utilization to one-quarter
of the old bins. The smaller area cut the walking time and it became easy to place
standard-size containers in the drawers of the same size, further reducing waste labour.
Inventory-Asset or Liability
Inventory generally constitutes the second largest item after fixed assets in the financial
balance sheet of the manufacturing company. From the financial perspective, this current
asset is worth maximizing to add value to the firm and it seems that there is no
disadvantage in carrying excess inventory. However investments in inventory carry cost.
The funds invested in inventory cost the firm by way of interest on working capital
borrowings from the bank at current bank interest rates. Hence reduction in inventory will
reduce inventory handling and carrying costs. The benefits of inventory reduction will be
reflected in terms of increase in profit margins, Return on investment (ROI) and
economic value addition (EVA).

Inventory Related Cost

Inventory
Cost

Carrying Ordering
Cost Cost

Inventory
Related
Costs

Damage,
Loss,
Warehouse
Pilferage
Cost
Cost
Traps logi: key to slashing inventory
A long-term vision from which shorter-term strategies for revising transport logistics
will emerge, will be one key to companies’ drives to slash inventories in the logistics
distribution and supple pipeline directly. Depending on the size of transport vehicles now
in use and frequency of trips between supplier and customer, revised transport logistics
has the potential to reduce pipeline inventory by as much as 90%.
The size and frequency of trucks (and other forms of transport) traveling between links
in the logistics chain has a direct impact on the amount on the inventory in the pipeline
and the speed with which the average item travels.
E.g. take a hypothesis in which every truckload received contains a supply of every item
stocks equal to the demand until the next truckload is received. The average theoretical
inventory of both supplier and user can be no less than one-half truckload plus safety
stock for each in this.
Hence the pipeline inventory for a single user and supplier combination would be one
truckload plus the average number of truckloads in transit and safety stock of each. If the
frequency of delivery can be changed from weekly to daily the pipeline inventory would
therefore be cut by 80%. Further reducing the size of the daily truckload to one-half of
its former volume (by using smaller trucks) makes it possible to change deliveries from
daily to twice daily. This increased inventory reduction to 90% level. Thus an important
part of every company’s vision and strategy should be to strive to find ways to increase
delivery frequency and reduce the size of loads.

Inventory reduction: the ultimate solution

The pipeline of supply between producer and consumer would be shortest and least
costly and would require the lowest investment if only it were feasible to deliver
production directly to consumers, with fewer intervening tiers of warehouses. However,
most products are burdened by market and production realities that dictate warehousing.
Thus, although most companies will find it impossible to eliminate warehousing, all
must realize that through better control and by moderating the circumstances that
necessitate distribution inventories, they can drastically reduce the inventory while
maintaining or improving customer service.
Certain market conditions force companies to stockpile. E.g. seasonal peaks and valleys
of such great magnitude that producing to demand is impractical. In that case companies
must produce to inventory (warehouse) in advance of the seasonal sales surge. Products
of moderate seasonality are sometimes almost as difficult to produce when demand
occurs as those of radical peak sales. Virtually no product exists for which there is no
variation in sales from period to period.
Further the variation in demand from one period to another is virtually impossible to
forecast with any reasonable degree of accuracy. Companies meet the uncertainty of
forecast demand by providing for safety cushion known as ‘safety stock’. Scientifically
managed inventories correlate the amount of safety stock and the amount of time
between the re-ordering and subsequent receipt. The reason is that the longer the time
required replenishing low stock levels, the more severe the deterioration of customer
service is likely to be over that period. Equipment and manpower capacity limits and
capacity variation are the most common production conditions that force the use of
warehousing to meet sales demand as it occurs.
Because lead-time and safety stock quantity should correlate slashing lead time should
be accompanied by drastic reductions in the lead time portions of safety stock.

Inventory Record Accuracy

Despite technological advances in computer software and hardware too little progress
has been made in solving one of the most persistent problems to plague companies’
inventory record accuracy. When faulty inventory balance information is combined with
high-speed computers, the result is erroneous replenishment orders that are spewed out
faster than clerical staff can process them, let alone detect and correct errors.

However, the surprise inventory shrinkage problem is but one of an avalanche of

headaches that will bury ‘Mr. President’ when his organization acts on the shaky
foundation of inaccurate inventory balances. Others include poor customer service,
disruptions stemming from shortages costly cycle counting, and annual or semi-annual
physical inventory taking as well as higher than necessary obsolete and surplus
inventory. These latter excess inventories arise from high levels of safety stocks,
provided to cushion the effects of stockout stemming from inaccurate inventory
balances. Yet when the causal source problems are finally identified they are almost
always basic and simple. Therefore simple failsafe solutions can be developed to
eliminate the possibility of error permanently.

Common accuracy source problems originate when storage locations and/or item
numbers are improperly written or simply not reported at all. When random storage
location systems are used in warehouse that employ conventional racks and shelves, lost
receipts might never be found were it not for the taking of a complete annual physical
inventory. Modern technology has contributed tools that can be used to attack accuracy
problems. E.g. a computer controlled automated storage and retrieval system (AS/RS)
eliminates the possibility of these error sources. The computer does this by keeping track
of where things are retrieved. Bar coding, another technological tool can also help by
eliminating the possibility of errors in writing down such data as stock item and location
numbers.

Not all companies have volume high enough to warrant fully automated equipment and
other technological tools to handle all types of products and components stocked. (In fact
they cannot afford it for any type regardless of volume). Such businesses can sharply
reduce mistakes by using low cost equipment reduce mistakes by using low cost
equipment and procedures designed to minimize the possibility of human error.

Fully automated storage and retrieval systems can also eliminate many other human
errors. The most common error of all is mathematic miscalculation. Eg a storekeeper
might issue a partial quantity from a container and make a counting or arithmetic error in
counting the balance in the container. He perpetuates and compounds the error by
writing the wrong quantity remaining on the outside of the container. When such
mistakes occur the quantities marked on container are likely to be used, without
verification, the next time an issue or cycle count is made. From that point forward, the
inventory record balance would be wrong. In fully automated storage and retrieval
systems, only full containers are stocked and issued, each container holding the same
standard quantity for given item. This completely eliminates the incidence of arithmetic
errors stemming from partial issues.

Transportation Infrastructure
In the movement of raw materials or products from their place of production to their
place of production to their place of consumption, transportation is the most important
component of the logistical system. Transportation serves two purposes, one is product
movement and the other is the in-transit product storage. The movement of product can
be achieved through various modes such as road, rail, air and sea subject to the
availability and access to infrastructure. The other function of transportation, i.e., in-
transit storage is not cost effective for a long period. The guiding principle for choosing a
mode of transportation is the least cost per unit weight/volume of the product moved over
a unit distance. However, selection of a particular mode is dependent on the availability
of transportation infrastructure in the region.

Transportation Modes-Comparison of Characteristics

Characteristics Road Rail Water Air Pipeline

Speed 2 3 4 1 5

Investment 1 2 3 4 5

Freight Cost 4 3 1 5 2

Reliability 2 3 4 5 1

Frequency 2 3 4 5 1

Capability 4 3 2 5 1

Note: Lowest rank is the best

Transportation is the barometer that measures the economic, social and commercial
progress of a country. It has transformed the entire world into one organization and
contributed greatly to the evolution of our civilization. Transportation is the most visible
element of logistics operation. It has a significant share in the overall logistical cost of the
firm and needs a great level of planning to control it. Transportation is the exciting and
dynamic part of the supply chain and managing transportation presents several
opportunities and challenges.

Logistical Packaging
In these days of cost optimization, every stage of physical distribution has considerable
significance. The significance is further augmented by variations in distribution channels,
handling methods, modes of transport and trans-shipments, storage conditions and
extremes of environment. As the distribution aspects of the product are influenced by the
above factors, the design of logistical packaging should interface effectively with all the
concerned functional areas and adapt itself to the material handling system available to
provide optimum cubic capacity utilization of warehouse and carrier area, convenience of
inventory keeping and meeting the basic needs to minimize the vulnerability to product
damage. Logistical packaging is appropriately identified as an aid in the distribution
network. It has to qualitatively and quantitatively fulfill the required expectations and
also be environmentally responsible.

Logistical Packaging Requirement

Distribution Needs
-Unitization
-Storage
-Handling
-Transportation

Product
Environment Cost Implications
-Type Logistical -Design
-Characteristics Packaging -Material
-Physical -Reusability
Dimensions

Regulations
-Design
-Communication
-Waste Disposal
Pallet Material Comparison

Wood Plastic Corrugated Board Metal

Advantages
Readily Available More durable Easy to fabricate Most Durable
than wooden
pallets
Easy to Make Cleaner than Cheapest Very Strong
wooden pallets Alternative
Can be repaired in-house Can be Machine Light Weight High
Moulded Reparability
Takes Loads up to 200 No Dimensional Easy to handle Designed For
kgs Variations Capacities up to
4000 kgs
Waste Can be Can be machine
Recycled Fabricated
Disadvantages
Dimensional Variations Not Disposable Prone to easy Most expensive
due to manual fabrication damage
Prone to attack by insects Strength lower Cannot take more
than wood loads compared to
plastic and metal
Nailing may cause Cannot be
wooden planking to split, Repaired
leading to reduction of
pallet strength
Wood fibre structure can Costlier than
affect strength wooden pallets
A common thread to all warehouse operations is the quest to manage expenses. The most
critical and manageable expense item on your P&L statement is labour. Managing labour
efficiently will generate immediate results in your quest to manage expenses.

This begins with capturing daily man-hours used by department or activity in categories
such as receiving, put-away, replenishment, pick/pack/ship, inventory management,
supervision, etc. Capturing the man-hours used can be done with sophisticated
warehouse-management system software or a more manual approach. But no matter the
method used, you must know how many man-hours are used each day, in each activity.

Once you’ve successfully determined man-hours used by activity, begin relating them to
a volume measurement (units, lines, orders, cases, pallets) for the activity by day. If you
don’t have a sophisticated system to do the calculation, create a spreadsheet for each
activity with weeks down the side margin and days of the week across the top heading.
Include subheadings for each day:

* volume;

* man-hours; and

* volume per man-hour.

Total up the horizontal subheadings for the week and calculate the total week’s average
performance. Charting this data cumulatively by day and week not only creates a
management tool to begin monitoring and controlling labor expense, but it also develops
a historical planning tool for budgeting.

Now that you’ve captured the core data of man-hours used and volume by activity,
establish metrics of performance for each activity. Again, the level of sophistication for
developing performance metrics varies from industrially engineered labor standards to
simply establishing reasonable expectations by making three to six observations of
employees performing a task, averaging units per time and deriving an expected
performance level of units per man-hour.

Acceptable performance levels might include work-pace averaging, performance rating,

fatigue and delay allowance, control start and stop time, assessing the skill level of the
employee performing the task, a detailed description of the activity, and identifying
order(s) and units. It’s beneficial to draw upon benchmarking information as a reference
to your own performance measurement.

The next step is to begin monitoring actual individual performance of day by activity or
at least by core activity — the point at which the employee spends the most time
working. Use the same type of spreadsheet and begin posting actual performance man-
hours and units to standard or reasonable expectations. One to three weeks accumulation
of data clearly will identify who is and who’s not performing up to expectation, as well as
confirming if your standard is valid or if it requires review and adjustment.

Your first obligation to underperforming employees is to determine if they’ve been

properly trained to perform their job effectively. Once assured they are, you can assert
management control within your company policies and guidelines to either improve their
performance or replace them.

With performance measurement and planning tools in place, you’re ready to address the
most immediate return to labor management — eliminate or reduce overtime or premium
labor hours. Premium labor hours are a crutch for poor performance.
We’ve found the best method to reducing overtime operationally is to simply bite the
bullet and advise your team there will be no overtime unless you personally approve it,
and you don’t plan to do so. Typically within a week or two following this direction,
you’ll find the same work is being done with fewer man-hours, and you’ll realize
immediate savings. The downside to prepare for is that during those two weeks, customer
service will slip until all realize you’re serious and pick up the pace. The key to success
in managing overtime is not to waver during those two weeks by approving exceptions to
your rule.

Costs justifying warehouse management

In today’s competitive marketplace, the primary focus of many organizations is on
improving customer service. To accomplish this, companies are embarking on a wide
range of process-improvement initiatives. In many cases, increasing customer service
levels involves adding personnel and increasing overall expenditures. Unfortunately,
these additional expenses can erode profitability.
One proven method for increasing customer service without incurring additional long-
term expenses is the implementation of a warehouse management system (WMS). The
WMS concept and technology are not new. These systems have matured into time tested
methods for reducing inventory costs while increasing overall efficiencies. Implementing
WMS technology within an organization already using an ERP system allows that
company to achieve a higher return on their software dollars and provide the best possible
service to their customers.
Our firm possesses a strong background in delivering distribution and warehousing
solutions. This allows us to offer a powerful, intelligent and full-featured WMS solution
to our customers. The better WMS solutions consists of three integrated modules –
warehouse management with radio frequency (RF) technology, integrated shipping, and
Work-In-Process tracking. The result is a system that provides a new standard for
inventory accuracy and visibility through all phases and operations within a facility.
WMS can provide an organization with tangible benefits quickly, improving warehouse
operations and increasing efficiencies without adding headcount. By implementing a
WMS, a company achieves a number of dramatic benefits. They include:

• Directed put-away and directed order picking

• Warehouse capacity management
• Radio Frequency (RF) capability for data capture
• Load planning
• Cross docking
 • Picking optimization
• ABC stratification

• Interleaving of work
These benefits translate into direct cost savings. The extent of these savings depends on a
number of factors including existing inventory levels and accuracy, premium shipping
costs and personnel currently required for picking, packing and shipping. Our firm will
provide a quantified cost saving summary after further study and analysis.
Categories for Potential Cost Savings
The categories presented in this table are based on accepted industry standards and
represent areas for high-visibility cost reductions. Our consulting company will assign
dollar values for cost savings to each category after an on-site study of the current
warehouse situation.
Tangible Costs
CATEGORY REASON
Inventory reduction of up to 10% (one-time
Inventory visibility and accuracy.
savings).
Reduced inventory carrying costs up to 35% Lower inventory levels; higher space
(industry average). utilization.
Reduced investment based on cost of money @
Reduced inventory.
8%
Premium shipping costs Reduced shipping errors.
WMS automates the management of
Personnel handling paper - potential headcount
order and priorities, eliminating
reduction or resource redeployment*
paper.
Personnel handling order picking - potential RF based picking productivity
headcount reduction or resource redeployment* increases efficiencies.
Personnel handling shipping paperwork and Eliminate preparation work for
confirmation - potential headcount reduction or shipping documents and ERP ship
resource redeployment* confirmations.
Eliminate physical inventory Cycle counting will replace physical
 inventory requirement.
TOTAL SAVINGS: TBD
* Savings in headcount reduction will be based on the average loaded cost per person
per year.
Total net savings in tangible costs can range from $500K to well over a million dollars
in the first year. The result translates into a complete payback for the WMS within the
first year after implementation.
Intangible Benefits
In addition to the tangible costs and associated savings, there are a number of
intangibles difficult to accurately quantify, but are nonetheless valuable to any
organization as the result of implementing a WMS.
Ability to receive orders and ship same day without expediting. Consider the value of
receiving orders as late as 3:00 PM and shipping the same day. This brings a higher
level of service that helps differentiate you from your competitors.
Improved customer service levels. A WMS enhances the overall warehouse operation.
Data accuracy and inventory accuracy both improve. Mistakes are pushed to an absolute
minimum. Deliveries are timely, shipments are accurate and customers stay happy. This
results in avoiding the very costly problem of losing existing customers to the
competition. The cost of acquiring a new customer is up to five times greater than
maintaining an existing customer.
Self-managed employees. With system-directed operations available to the users,
supervisory intervention is held to a minimum. Much of the decision making required in
a typical warehouse is handled by the WMS. Workers do not need to take the manager
away from his/her primary job. Rather, the WMS directs the employee's actions based
on the user profile and location within the facility. Managers have more time to make
higher level decisions.
Redeploy excess resources to other process improvement initiatives. Rather than take on
additional personnel to increase sales volume and revenue, WMS allows better facility
management. Additional resources are usually not required to support increased
business. WMS frees up resources in many cases. These people are available for
redeployment to other areas of the business