How to manage material in a warehouse?
According to the Lean Manufacturing philosophy, storage is not a value-adding process. It means that the client is not willing to pay for any associated costs. However, this is a key process in generating the final product, the sale of which is the basis for the maintenance of manufacturing companies.
The result is a conflict of interest between stock levels – frozen financial resources, and production security – raw material security. For the flow of processes, it is necessary to identify critical indexes and how to manage them.
For this purpose, the storage materials are divided, then the decision is made regarding the group of indexes treated as critical to the safety of the process. This article aims to bring the issue of material management in a warehouse.
The first of these can be application. Guided by this criterion, we have consumables and used directly for production. The basis for qualifying the material may be, for example, the method of calling from the warehouse. If this is done through a production order, then we treat the material as production.
As a different distinguishing feature, we can adopt material standards. According to this material indexed by the standard, eg DIN 127 – standard spring washers, we treat as standard (standardized purchasing element). In addition, treating the material as a standard may determine a large amount used in various orders.
Another of the criteria may be the shape of the supplied raw material. In this situation, we distinguish among others: sheets (eg sheets), pipes, rods, rollers, profiles.
The key criterion from the point of view of inventory is the method of obtaining the inventory index. Taking into consideration the criterion as the dominant one, we can distinguish shopping materials and semi-finished products. Semi-finished products treating all raw materials for further production made on their own or in the form of external cooperation. Such a division will have a significant impact on the manner of determining stock levels.
The choice of the most important division is an individual matter of a given enterprise as well as depends on the specifics of the branch of operation of a given economic entity. An example is the food industry, where the expiration date is a key factor. It determines to a large extent the rotation time in the warehouse.
Method for determining stock levels – min / max.
Regardless of the demand for current production, indices exist in the warehouse, which we must store and track their consumption. For process safety, this consumption should be within a defined framework called minimum and maximum states. They are defined both taking into account forecasts / orders and historical consumption.
There are several ways to determine the level of stocks on individual material indices. Guided by the value of stocks in terms of value, we can determine the maximum possible capital frozen in the material that gives us the safety of both production and is acceptable in financial terms. This approach can be used in the case of materials with a high unit purchase value, or in the case of the need to purchase a significant amount of raw material. The next criterion is the index rotation time, and the time to rebuild the maximum state. As mentioned earlier, the rotation time is important especially for stock items with a short shelf-life.
The time of reconstruction of stock levels
Considering purchasing materials, the key to the time of rebuilding stocks is the so-called lead time, ie the period from placing the order to delivery by the supplier. If we consider that the material is subject to the supply control process, then it should also be included in determining the total time of availability for production.
The situation is different when the material index is created as an intermediate. Then we take into account not only the time of order processing for raw materials, but also the technological time needed to manufacture this intermediate. It is also worth considering the average availability of resources involved in the process, especially if specialist positions are at stake.
Managed indexes by inventory
In the case of a large number of material indexes, the process of maintaining the inventory levels of min / max can be both time-consuming and freeze capital. This is not justified in every case. An example of such a material may be standard metallurgical materials available, e.g. within 2-3 days. However, there are materials / semi-finished products with specific properties or production processes that are characterized by a long rebuilt time of stocks. If they are considered strategic for processes / clients, then we can apply management for them through inventory.
A separate group is raw materials, semi-finished products and products for which wearability dates are set. Because the time criterion is very important outside stock levels, FIFO strategy is usually additionally used for using such indexes.
Correlation of inventory and planned demand
Determining the management of warehouse stocks should not be permanent. It is worth considering, for example, the seasonality of orders in the context of planned demand. It will look different in the production of Christmas decorations during the whole year, and otherwise at the beginning of the “season”. The forecasted higher sales should be reflected in inventory. A similar effect on some industries is also found in prevailing fashions, as can be seen in the furniture industry, for example. The planned or conducted advertising campaign is also to some extent determining the level of inventories.
Obtaining historical data on raw material consumption
A factor that is also worth considering when managing stock levels is historical data describing the actual consumption in the assumed time period. Similarly to the planned demand, the information obtained in this way should be only help in determining the min / max states. Similarly, pay attention if the offer includes seasonal products. A significant facilitation for the analysis of historical data is the use of information systems. Thanks to them, we have access not only to the actual material consumption, but there is also a chance to analyze the amount of material that was created to cover the quality deficiencies.
Seasonality of purchases of raw materials
The concept of seasonality does not only apply to sales. It can also occur
in the case of raw materials, such as in the food industry for the production of salads. Once we can use products of Polish origin, in the off-season the producer can use imported raw materials.
In summary, material management in a warehouse is a complicated process. The main problem here is the conflict of interests between the warehouse / logistics area and the production and sales department. On the one hand, the goal of the warehouse is to have the smallest stock levels in terms of both value and quantity, on the other, the sale requires timely execution of orders, and production expects the safety of raw materials / semi-products from the warehouse. The number of factors affecting the choice of the right values supports decision-making. In this case, it is mainly the logistics department that has the task of determining the optimal quantities. Considering materials that are semi-finished, it is also important to work with the technology department in the use of correct, technology-compliant technologies. In terms of comprehensive data, the IT system is irreplaceable, allowing for the optimal collection of this data.