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

inventory management-nishi kantr

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