2-C-2 Develop/implement a warehouse and inventory management system

1) Physical tracking systems

The supply management professional needs to understand the benefits and limitations of various physical tracking systems as well as the costs and procedures associated with using them. Physical tracking systems are a necessity for locating inventory items, and linking those items to an inventory or warehouse management system (WMS) that provides accurate and timely information for supply management decisions as well as others. Customers such as the U.S. government and large retailers are placing stringent. requirements on their suppliers to provide products that can be easily identified and tracked.

A) RFID (radio frequency identification devices) - Radio frequency identification devices/ systems are becoming more prevalent and are being implemented by many organizations in a variety of ways. The primary components are the host computer, reader, interface transmitter and tag device. A passive (read only) or active (may be read and updated) radio data chip is attached to products to allow retailers to track, access and compile data as part of the supply chain flow process (ISM Glossary, 2006). Tagless systems are being developed that will allow the "tag" to be printed directly on an item. This lowers costs. RFID may be used for individual items, entire cartons and containers as large as those used in ocean shipping. RFID systems are emerging as a strong tool for use with security information systems. RFID tags may be used to provide the manifest for shipping containers sealed at the factory, whose contents have been verified. This verification and electronic manifest may allow the container to pass through customs security inspections at many ports with greater ease and speed than those containers that are not so identified. (For more information on port security see http:/ I ntl.bts.gov/faq/portsecurity.html, a website maintained by the National Transportation Library of the Research and Innovation Technology Administration, a branch of the U. S .. Department of Transportation) RFID tags are used in animal identification, media centers and libraries, hospitals, prepaid toll road passes and countless other applications. New applications are being proposed daily wherever information pertinent to a single item needs to be available or trackable.

The key benefit to RFID is that it maintains real-time communications on all inventory encompassed in the inventory system within range of the readers for the RFID system. This range may be from a few inches or centimeters to a much longer range. As the technology develops, the ranges will increase. The RFID reader's function is to capture information remotely and transmit the data to the warehouse or inventory-management system where it may be used for order and production planning, customer order fulfillment, replenishment decisions, order tracking or other purposes.

The initial cost to invest in all of the components needed for an RFID system is high but the cost is dropping as more systems are manufactured and used. Tagless systems will reduce the cost and make wider use more feasible. Other areas of concern are data security, invasion of privacy and lack of current (2007) agreement on a single standard ..

B) Bar code - Bar coding is an inventory-control system that employs the use of codes that are machine readable. It allows for the easy identification of an organization's inventory and other assets such as equipment and furniture. The bar codes used are a pattern of parallel bars and spaces that represent specific characters and numbers. When a bar code is read by a device called a scanner, it interfaces with computerized records and allows for automatic updating of inventory records. The use of bar codes in the retail industry has been common for many years. Its use reduces data-entry errors, thus improving processing speed arid inventory accuracy. The Universal Product Code (UPC) is a popular form of bar coding used extensively by retailers and the food and grocery industries. Bar coding has made those industries more efficient in receiving, inventory, warehouse management and reordering for replenishment, as well as sales management. One con1ffion application ofbar codes is an intelligent shipping label. Within a small space, information can be stored and accessed, including purchase information, carrier code and freight-sort code. Bar codes have had an impact on supply-chain management for more than three decades, increasing efficiency as well as the accuracy of records. A challenge with bar codes is that many industries have different standards. (Stanley and Matthews, 2008).

C) Unique Identification Device (UID) and Item Unique Identification Device (IUID), (Department of Defense (DoD) initiative) -The Department of Defense, the U.S. Food and Drug Administration, the U.S. Patent Agency, other U.S. Government agencies and several industries use a unique identification system which consists of a reader device (UID I IUID) to retrieve data encoded on machine-readable media. These systems are also known as Moveable Object Accountability Systems and are designed to identify and track unique objects. A UID or IUID system encodes data on an object. That data is typically in the form of an encoded data matrix and contains a unique identifier. It is a one-of-a-kind item identifier system of labeling objects. The best known application is by the Department of Defense (DoD). Any organization contracting with the U.S. Government must be prepared to become familiar with an UID or IUID system. (http:// www.infosight.com/ uidtags.htm?gclid=CIPQ20 cx48CFQ sEiwodcFA1zA, November 2007) .

Markings on items are labeled with an encoded data matrix. The data environment contains either a unique item identifier or a DoD recognized IUID corresponding identifier. Goods that are encompassed in the system are items of interest to national security, classified and sensitive items, items costing .more than $5,000, and items furnished to a third party such as a contractor, or any item over which tight control is necessary. The Food and Drug Administration is interested in applying a _ UID system to drugs and medical devices, and the U.S. Patent Agency is interested in applying the system to patented items, which are, by definition, unique. (http:/ /www.fda.gov/cdrh/ ocd/udi/, November 2007).

2) Overall project plan

As information technology and material handling technology have improved, and security issues related to physical assets and data have increased, the need to manage inventories and warehouses well has become increasingly important. The need to provide high levels of customer service in order to remain competitive and to be a good customer to suppliers has driven enhancements in inventory and warehouse management systems. The supply management professional should be aware of how ever-changing technology can help the warehouse and inventory management systems add value for their internal and external customers.

A) Plan for business continuity -Business continuity and disaster recovery plans are strategic guiding principles of how to ensure that an organization can maintain and continue operations in the face of unexpected crisis or disaster. Crises or disasters may range from those caused by humans, such as arson, robbery or terrorist attack, to a force of nature, such as tsunami, hurricane or earthquake. Organizations rely on continued generated revenue to survive. When operations are disrupted, recovery should be quicker if a plan for an approach to recovery is in place.

Business continuity is the sustaining of business operations in support of customer needs. Capabilities, communications and data .must be maintained so that the finished product can get to the customer in order for a business to remain viable and profitable. Disaster recovery is being properly prepared for when a crisis seriously affects an organization. Both are action plans that are enforced when a situation occurs that could affect the continuation of the business. The better an organization is prepared in this type of situation the better the results will be in minimizing the risk of loss of life, assets and supply chain effectiveness.

Supply continuity is the provision for the continued receipt of supplies in the event of a disruption of normal supply chain channels, or a plan to prevent such disruption from • occurring .. Such a plan might include multiple production facilities, multiple suppliers, effective production and quality systems, as well as disaster recovery plans. Supply may be disrupted for reasons other than those generated by the organization receiving the supply, and may be caused by the failure of another, organization to engage in disaster or business continuity planning.

Example of internal and external supply chain business continuity plan and recovery plans for warehouse and inventory management supply interruptions typically include:

• Plans for employees' safety and escape from dangerous situations.

• Methods of communicating with and locating employees during and after the disaster.

• Communications for all stakeholders, including employees, customers, suppliers, shareholders.

• Plans for communicating with. the press. A good recommendation is to have a designated spokesperson who tells the truth about what is known about the situation as it develops.

• Regularly backing up data so that databases can be restored to a point just before the crisis or disaster, if necessary.

• Contingent shipping methods.

• Contingency plan for labor interruption.

• Plans for safeguarding equipment, computer systems and other assets.

• Action plans for escape paths.

• Having well-developed supplier relationships.

• Knowledge of alternative sources of supply.

• Training for disasters that are likely to occur in the area in which the organization is located. Earthquake training for employees if the business is in an area where earthquakes are common, or response to a robbery for bank employees are examples.

• Generic disaster drills.

• Maintaining safety stock level.

When a major business interruption or disaster occurs, it is helpful to have a defined strategy in place, as well as plans for contingencies. The cost to plan is generally less than the cost of prolonged disruption.

B) Implementation plan -When planning an inventory management system, typical objectives include minimizing inventory-related risks and ensuring smooth operations as the costs of ordering and carrying inventory are balanced against the costs of stock outs. Key considerations for a warehouse management system plan include meeting customer requirements, cost considerations and the technologies available for warehouse management systems. Both plans should fit within the overall strategy of an organization and should be integrated with each other. The two are not identical but should be thought of as overlapping circles. While it would be unlikely that an organization would need a warehouse if it had no inventory, it is quite possible to have inventory without having a physical warehouse. The overriding goal of either of these systems should be to add value for the customers, both internal and external.

When planning a change to inventory or warehouse management, or both, a good starting point is to describe the current state of affairs. One of the most powerful ways to perform this activity is to make a set of detailed process flow diagrams describing the current flows of materials and services into, through and out of the systems under consideration. Process flow diagrams will include quantities and timing of flows, when possible. The more details that are included, the better it is to understand the system and where improvements can and should be made. Users of the current systems should be consulted as well as independent observers. Recorded data should be compiled to support the process flow diagrams and verification should be made that the resulting set of diagrams is a good representation of the processes under review.

Once the current states of the inventory and warehouse management systems are understood, it is usually easy to see where changes should be made, and what the priorities should be. During the process of collecting data about the system, many will have shared objectives for what they hope a new system will do, so those objectives must be prioritized. Once that has been done, a system can be designed that will accommodate as many of those objectives as is feasible.

A transition plan to move from the current system to the new• system must be designed, and a team put in place to lead the transition. Transition milestones should be determined, and performance objectives set for the new systems such as product availability, inventory turnovers, throughput, order fill rate, stock outs, mishandled items, number of items received in a given time period, inventory accuracy, order filling accuracy and length of time to fill orders from their receipt. Determination of training needs and a plan for continuity of the business during the switch over are also important. It is important that there be a budget for the plan. The funding available for the project will have a strong influence on what can be accomplished.

Overall measures at a strategic level should be set because some of the goals may relate to serving a larger geographic area, or more facilities or more customers. The overriding goal of adding value for the customers should be kept in mind at all times, and the elimination of non-value-added steps from the processes should be a major objective.

C) Manpower and equipment requirements - Labor and equipment are the largest operating cost items in the warehouse budget. Floor space and cube warehouse space are the largest capital costs because of the investment in facilities. Electronic and computer systems and material handling systems are other large investments.

If labor rates are high, it may be possible to justify the cost of automated equipn1ent. Having• a warehousing system that is efficient and effective can be challenging if commodities being stored are constantly changing and equipment and/ or training cost are always a variable cost. Flexibility of a system to switch some portion of its operations between human resources and equipment is highly desirable.

D) Facility design - The objective of the facility design is to make sure the activities performed in the warehouse are adding value for one's customer, and are minimizing the non-value-added activities. A high level of efficiency and high utilization of labor, equipment and space are all desirable. Warehouses are usually divided into areas that perform different functions and processes. These areas are likely to include receiving, storage and shipping. Some warehouses are operated so that the dock area is a receiving area during one part of the day and a shipping area during another part of the day. There may be an area for cross-docking, inspection of goods, breaking bulk, special-order pallet assembly, problem resolution, other assembly processes, and sometimes even production lines, depending upon what services the warehouse performs to add value for customers.

The size of the warehouse will depend on its location relative to other warehouses, and whether it is a general purpose warehouse, or has special requirements. Examples of special requirements are refrigeration or temperature control, a high level of security for items of high value or of a sensitive nature, storage of highly flammable items, or storage of hazardous or corrosive materials. Warehouses also might store fast moving goods in convenient locations. If items have expiration dates and must be stored so that they can be retrieved on a first-in, first-out basis, this requirement must be considered in the design, as well. Sometimes shelves are designed so that new items are added from one side and picked from the other.

The design of the warehouse must facilitate how goods are received, stored and issued. Materials handling equipment and personnel needed are key factors influencing how the facility is designed. How the movement of materials is performed is another design consideration, including patterns_ needed for group picking, zone picking and con1modity picking. Designers of a new facility must consider all of the activities in each of the process areas.

Organizations may choose to expand a facility vertically, otherwise kn9wn as build up, or horizontally, referred to as build out. The height of the building will dictate how high shelving can be assembled, which is a key consideration in warehouse design. The higher the shelve racking, the better the space utilization, so in addition to square footage (SF), it is important to consider cubage (Cubage is the cubic volume of space being used or available for shipping or storage.) Vertical capacity requirements relate directly to the type of equipment that will be needed.

E) Physical constraints -The characteristics of the goods stored create the physical constraints. These considerations . are very similar to the cost considerations that need to be identified:

• Type of goods.

• Size and weight of the product stored.

• Special equipment requirements.

• Danger level of an accident.

• Value of the goods stored.

• Security requirements.

F) Fixed or random storage locations -Within a facility, the two types of storage systems are typically used: fixed and random. A fixed-location system is one that stores the inventory item in a set physical location. If an item is stored on a given shelf and bin location, it can always be found there. This method of storage usually has lower space utilization and higher accuracy. It also simplifies storing and record keeping.

Random location systems store inventory in any available space. As a rule, the use of random locations results in a higher utilization of space, but lower accuracy. More analysis of real-time data is required to know if spaces are empty or can be consolidated. However, there is a higher utilization of cubic space than with the fixed system.

In either system, the warehouse location of material is identified in the perpetual inventory record. Ultimately, supply management must ensure that the needed materials get to the customer. Therefore; supply management professionals need to be aware of how materials can be stored and how quickly they can be accessed. Wider implementation of RFID will increase advantages• of random storage because • accuracy of the information system will be improved.

3) Customer requirements

Adding value for customers, both internal and external, should be the driving force in the development and implementation of inventory management and warehouse management systems. Customer requirements• may vary widely based on:

• Frequency of Order placement.

• Size of orders in terms of quantity and in monetary terms.

• Variety of items in an order.

• Methods by which the order may be shipped or delivered.

• Amount of processing needed to prepare the order.

• Special requirements or handling of some or all of the items in the order (temperature, fragility or partial assembly).

• Packaging requirements (small carton that may be placed directly on the shelf, small individualized portions, large carton that will be broken down by the customer or formation of special pallets with a variety of items).

• Security requirements (controlled substances, hazardous materials, items of high value).

For example, a hospital pharmacy may deliver medications from its inventory to patients' rooms several times a day. Each patient is likely to have a unique set of medications prescribed. Mistakes in product identification, quantity, timing of delivery or labeling can be fatal. The pharmacist acts as the inventory manager and may place frequent orders with the hospital's drug representatives so as to have the correct drugs on hand, in small packages, but not an oversupply. The pharmacist also supervises the dispensing of the medications. In a sense, a pharmacist is a supply management professional who may not even be aware of it.

At the other end of the spectrum, larger retailers such as Target or Wal-Mart may require truckload deliveries of single or a few items from their 8uppliers at some regular frequency or at a pre-assigned time. As the contents are unloaded, they are immediately moved across the dock, broken down into specific smaller quantities, often in packaging that can go directly onto .the shelves. These items are grouped with other items that came in by truckload that have been similarly reduced in bulk. New pallets with a variety of products may be built, and identical pallets are loaded onto several trucks; each of which is going to a specific store. If a retailer purchases a variety of items from one supplier (for example Wal-Mart may purchase an assortment of personal-care items from Procter & Gamble (P&G) that come out of a single P&G warehouse. Wal-Mart will ask P&G to form the pallets with the pre-assigned variety at a P&G location which makes Wal-Mart's cross-docking procedure even quicker and easier.

Many large organizations that ship to customers daily have out:.. sourced part or all of their inventory management or warehouse management systems to organizations that describe themselves as third-party logistics suppliers (3PL). By outsourcing this function, the organization may save on labor and facilities costs and can use the leveraging capabilities of the 3PL provider to possibly reduce transportation costs. There are also organizations called 4 PLs that manage groups of3PLs for organizations.

Many businesses have arrangements with suppliers in which items that are needed by many departments, such as office suppliers, may be ordered by individual departments, charged to the corporate account, and delivered by the supplier within a specified, usually short, time frame. Son1e customers require that the supplier always hold other types of inventory that can be delivered within a designated time frame.

The supply management professional is challenged to be ev~r more creative and flexible in determining how value can be added for the customer while balancing the need to make a profit.

4) Cost considerations

Customers today want their goods stored, physically managed and delivered with a minimal cost and a high level of service. Some warehouse contracts are based on floor -space cost only. If a warehouse can perform services that add value for the customer, those services should be more attractive to the customer and may allow the warehouse to earn a higher margin on such services. For example, a warehouse may add value by unpacking a container and repackaging the goods in a configuration that is used directly at the production line or on the store shelf. The activity should be accepted by the warehouse (and the customer) only if both can increase profits by the change, that is, the customer can reduce operating costs enough to cover the warehouse costs and a marginal profit for providing the service.

There are numerous costs involved in warehouse management that should be considered by supply management professionals. Some relate to the customer requirements, the nature of the customers, the products stored, the warehouse design, layout and structure, the equipment used and the personnel required. Examples of characteristics that can affect cost:

• Type of products stored.

• Variety of the products stored.

• Specific requirements for safety, security, temperature, shelf life.

• Size and weight of the products stored.

• Special equipment requirements.

• Special requirements related to the products (may relate to temperature, flammability, legal requirements such as controlled substances, safety and security).

• Safety, security and training requirements for warehouse personnel. • Value of the products stored. • State of automation of the warehouse.

• Size of the warehouse.

• Location of the warehouse.

• Physical structure of the warehouse.

• Ownership arrangement Oeased or owned, wholly or in part).

• Communications systems available.

• Flexibility, availability, skill set and location of the labor pool.

• Customer expectations.

• Quality standards enforced or required.

There are others, for example those based on level of service or location.

Considering these characteristics can assist in managing the costs by implementing process changes and improvements.

5) Available technology for warehouse management system (WMS)

A) SWOT analysis -Analyzing the strengths, weaknesses, opportunities and threats (SWOT) of a warehouse management system (WMS) is similar to performing a SWOT analysis on the decision to acquire, enhance or upgrade any information management system for an organization. A SWOT analysis is among many tools that may be used in the strategic planning process. A SWOT analysis might be particularly useful in warehouse decisions, such as• questions about whether to lease or own, how many warehouses are needed, where to locate the warehouses, what product variety to manage in each, or what value-added services to offer. There are several commercially available software tools that will assist in performing a SWOT analysis. Such an analysis may be performed without computer assistance by brainstorming with a group of knowledgeable supply management professionals and other appropriate team members. The concept is to reach consensus on the strengths, opportunities, weaknesses and threats for a given organization under certain circumstances, The results are examined and a list of alternative courses of action are proposed regarding how to capitalize on strengths, shore up weaknesses, take advantage of opportunities and thwart threats. Ultimately a set of recommendations is proposed by those performing the SWOT analysis that may or may not be the final decision-makers.

There are specific tools in some WMS software solutions that analyze and help identify a focus for the core competencies of a given business. In order to perform a SWOT analysis using WMS software (or any software), it is necessary to input the internal strengths and weakness and the external opportl;1nities and threats for the situation so the human element is not eliminated. However, the software in some circumstances can help with the analysis, point out tradeoffs that may not be obvious, and propose a list of alternatives, and perhaps a feasible solution. It is unlikely that the SWOT analysis module of a warehouse management system is the strength of the WMS.

Warehouse management systems have evolved over the years from the initial focus on management of flows into and out of a warehouse, as well as storage locations. However, as with all information management technology over the past several decades, warehouse management systems have morphed into performing a wide variety of tasks, while maintaining their basic abilities. Here are some of the features and functionality that a supply management professional should look for in a warehouse management system:

• A flexible location assignment system.

• The ability for the user to define parameters for the tasks at hand (such as use of FIFO or LIFO for picking).

• Easy-to-use integration with data collection devices, including bar code scanners and RFID technology.

• Reasonable logic in determining locations and put-away or picking sequences.

• Various order-picking choices such as wave, batch or zone picking.

• The ability to interleave tasks (such as put-away and pick).

• Automated data collection.

• Cycle counting.

• Labor tracking and capacity planning.

• Integration with accounting and enterprise resource planning systems.

• The ability to communicate with WMS at other locations belonging to the organization itself, or its .customers or suppliers.

A SWOT analysis with affected parties will help define the most important features to consider.

6) Warehouse management

A) Structures - One important warehouse management goal is to minimize the cost associated with the storing, movement and transportation of goods into and out of the warehouse stores location. This cost minimization must be accomplished while providing the best possible customer service and making the best use of space, labor and equipment.

There are two primary types of warehouse structures. One is characterized by private ownership, and the other by leased or outsourced warehousing services, typically called public warehousing. One organization may choose to use both types of structures for its warehousing needs, depending on the location, volume, product characteristics and services desired. For example, an organization may choose privately owned warehousing, but also lease public warehouse space at peak times, or in areas where the organization's product volume does not warrant its own warehouse.

A manufacturing company or a large retail organization may. chose to own -its own warehouses or distribution centers (D.Cs). Such a choice creates a fixed cost on the income statement (depreciation expense) and a fixed asset on the balance sheet. For an organization for which warehouse or DC management is not a core competency, high labor costs and lower efficiencies may result. A possible tradeoff is better control and better customer service. Organizations such as Target and Wal-Mart, that have become experts at managing large distribution centers, have found the tradeoffs in favor of ownership to be positive. Many distribution center innovations, such as cross-docking and use of RFID, over the past two decades have come from these two retail giants.

Public warehousing has numerous sub-structures. Short-term or long-term leases of warehouses and related services that are owned and operated by other than the contracting organization are referred to as outside service. It has become common to hire a separate organization that specializes in warehousing and transportation services to manage those functions for an organization for which warehousing and transportation management are not core competencies. Organizations that manage a variety of logistics services for other organizations are called third-party logistics organizations, which are often abbreviated as 3PL services. 3PL organizations offer a menu of items from which their customers may choose. Some 3PL organizations own their own assets, and others lease the services and assets of yet another layer of suppliers. The latter structure allows the 3PL organization great flexibility in meeting its customers' needs. 'For an organization that uses public warehousing or 3PL services, these costs now become pre-tax expenses in the income statement. Depending upon the type of leasing arrangement, these arrangements are likely to have no effect on the asset and liability sections of the balance sheet of the leasing organization.

Customer service is a key performance indicator in the performance measurements for private or public warehousing and use of3PL services.

In a global environment, organizations may contract with 3PLs not only to fill their warehouses needs but also to perform supplier managed inventory functions for them. A 3PL may be held responsible for inventory replenishment, and may take the inventory on consignment so that it is on the balance sheet of the 3PL. When the goods are sold, the 3PL will forward payment from the customer to the manufacturer. Centralized and decentralized structures may be utilized in both the private and public warehousing environments.

In a centralized warehouse system, order replenishment decisions are made in one location. The requirements of the entire distribution and warehouse network are combined. A major benefit is that total customer service and demand needs are balanced through the system. Another advantage of centralized replenishment decision-making is that volume purchasing can be used to create larger cost savings. Disadvantages are that decisions are sometimes delayed and do not always take into consideration the individual needs of one separate location. If the inventory must be transshipped to other locations, transportation costs may be higher than in a decentralized system.

In a decentralized warehouse system, each location functions independently from all others in the system. Advantages of a decentralized system are that decisions can be made faster and are more closely matched to the customers' demand from a given site. Disadvantages are the higher costs associated with smaller orders and more overall inventory in the system.

B) Storage location-Warehouse management systems (WMS) frequently have computer programs that will attempt to optimize stocking locations for incoming goods. These programs are usually based on multiple objectives in which some of the goals are:

• Minimize stocking costs.

• Minimize picking costs.

• Maximize space usage.

• Group similar items as closely together as possible.

• Ensure that all constraints with respect to safety, temperature, and security are met.

• Put away and pick on a timely basis.

• Provide good customer service.

In spite of many computer and mathematical models, there is no perfect stocking location method. If optimum efficiency is ever achieved, it is disturbed every time there is a new receipt of goods, or an order is picked. Since these events happen with great regularity, there are algorithms that attempt to achieve these objectives, but there are many variables. Each type of commodity or good has unique characteristics and must be configured according to its characteristics and the projected needs for the item.

Examples of locations:

• Fixed items are stored at permanent location(s) dedicated to hold only that item. Fixed location(s) can be reassigned if the part stored becomes obsolete or the demand shifts significantly and more or less space is needed. These locations are usually chosen with a goal of minimizing the put away, storage and picking costs, as well as meeting the other physical constraints for the goods. However, the space utilization may not be as high as with a random system.

• Random/floating locations are for goods that must be stored at multiple locations. These goods usually have a high inventory turn, thus the locations can be temporarily assigned for different items in high demand. The benefit of this type of location is cube utilization and warehouse efficiency.

• Overflow locations are used when more inventories come into the warehouse than expected. Overflow locations are always considered temporary. Goods should be pulled from these overflow location on a last in, first out basis to be able to free up space for the storage of other goods. Items in overflow locations may be moved to regular random or fixed locations within the warehouse when the overflow need has subsided.

• Point-of-use locations within the warehouse are usually managed by a visual Kanban method. Point-of-use locations are used to store goods close to the consumption area and replaced on a pull signal only when demand is required. Point-of-use locations are likely to be used _when the warehouse provides assembly services.

C) Replenishment systems - Distribution requirements planning (DRP) is a time-based demand from the distribution center to balance the customer fill rate against inventory investment. It uses a time-phased order point to determine when a quantity of goods must be planned and received. It is the primary method of planning goods in a warehouse management system. DRP is an information system that takes individual customer demands upon a set of warehouses or distribution centers projected over the next several periods of time, and uses that information to predict demand across the warehouses. This information, along with information about current warehouse inventory, is sent back to the manufacturing information system, specifically to the master production schedule, to determine when items must be replenished. Thus, a DRP system links customers, distribution centers, warehouses and manufacturing plans to help an organization plan its flows of materials.

Kanban replenishment is a "lean" concept approach to warehouse management. Lean concepts focus on minimization of inventory while maximizing product flow. The Kanban concept is to replace inventory or materials only when there is a demand for those goods. Kanban is a Japanese term meaning "signal." It is usually a printed card that contains specific information such as part name, description and quantity that signals a cycle of replenishment for production and materials. It is an order-release mechanism and among the primary tools of a just-in-time (JIT) manufacturing system. (ISM Glossary, 2006.)

D) Inventory classification systems- Inventory is frequently classified based on cost and demand patterns in which high value items in high demand receive the highest rating and require the most attention in terms of management. At the opposite end of the spectrum are items with low value and low demand that do not require as much attention from the supply management professional. A very common inventory classification system that has been in use for many years is the ABC inventory classification system. (Please note this form of inventory classification is NOT related to Activity Based Costing used in accounting systems.) The ABC inventory classification system is based on. the .premise that 20 percent of the items held in inventory for resale will generate 80 percent of the sales revenue. If the inventory items being analyzed are being held for use in production or assembly, then approximately 20 percent of the items will generate 80 percent of the cost of items being used. The inventory items are sorted as to sales revenue generated (or value of items used) and the top 20 percent are called "A'' items. The next 30 percent of the items are classified as "B" items, and will usually generate about 15 percent of the revenue (or cost), and the last 50 percent of the items will generate about 5 percent of the sales or cost. After items are classified, the "A" items should receive tight control as it is critical not to run out of these items. Forecasts should be carefully done, and safety stock levels should be analyzed to make certain that they are not too high or too low. Special attention should be paid to lead time. Inventory accuracy is very important for these items. Classification is of interest to supply management professionals as it may be advantageous to set up supplier managed inventory (SMI), easy replenishment methods, centralized purchasing or quantity discounts with frequent delivery; "B" items are important but probably do not need to be reviewed as frequently. "C" items may be •more loosely controlled. One of the criticisms of this method is that a "B" or "C" items may be a critical part that is not often needed but will stop operations if it is out of stock. One method to manage such a situation is to identify those items and either manage the spares carefully or have rapid replenishment plans in place. This classification method and how to manage items in "B" and "C" categories is further discussed in Stanley and Matthews, Effective Supply Management Performance, ISM Professional Series, 2008.

Other ways that inventory can be classified are based on the type of materials, the characteristics of the items, size or shelf life, as well as methods of receiving, storing and issuing the goods. Any goods that have an associated hazard must be handled, stored and managed by specially trained personnel. Goods that require any special method of movement, storing and handling must be segregated and may require special attention from the supply management professional.

E) Cycle counting - Cycle counting as described in the ISM Glossary is a physical stock-checking system in which the inventory is divided into groups that are physically counted at predetermined intervals, depending-on their ABC classification. Thus, the physical inventory counting goes on continuously without interrupting operations or storeroom activities. It is common practice to take physical inventory at least once a year, but taking a physical inventory count and rectifying inaccuracies only once a year often leads to highly inaccurate inventory records during the rest of the year. Such a practice is not good warehouse or inventory management. The cycle counting will divide inventory items into groups which are counted at predetermined intervals depending on the classification of the items to be counted. For example, "A" items discussed in the previous section may be counted every week or every month. In a more sophisticated classification system, items in high demand with a high value may be counted with even greater frequency. It is important to verify the amount of physical stock available, available for use and in good condition, not only to correct inventory record inaccuracies but to determine if record keeping and security methods are effective. Cycle counting can help determine the cause of inventory discrepancies and problems can be corrected on a more timely basis.

It should be noted that bar coding has made the taking of physical inventory a much faster task. The use of RFID tags has the potential to make inventory discrepancies a thing of the past. However, RFID tags do not eliminate the need for physical inventory and looking at the items on the shelf• RFID may make it easier to catch the culprits, when there is theft or pilferage, but obsolescence, spoilage or other damage is not easy to find without physical inventories. Cycle counting can help identify why theft, pilferage, obsolescence, spoilage or other damage may be occurring, and provide dues to the supply management professional in working to eliminate the problems. To determine the overall value of physical-inventory, the number of items in the classification being counted is multiplied by the annual usage, then by the standard cost of each item. Computer programs make this a relatively easy task.

Cycle counting is useful in the service sector as a deterrent to theft. In food and beverages establishments, it is not unusual to take physical inventory of food items and beverage levels at the dose of daily business. The inventory on hand is then compared to the inventory the day before, plus receipts, to determine if revenue matches the units sold.

F) Perpetual - Perpetual inventory review system is an inventory control record system that requires immediate recording of transactions (receipts and withdrawals) for each item in inventory. If posted accurately, the inventory records are up-to-date and should agree with the actual stock count in the warehouse. (ISM Glossary, 2006.) The perpetual system is sometimes called continuous-review system because the status of inventory is checked after every transaction. In theory, the inventory records are updated with every transaction. For example, daily receipts may be hatched and recorded at one time daily. If posted accurately, the inventory records are always up-to-date and should agree with the actual stock count in the warehouse. The use of a perpetual inventory system does not negate the need for physical inventory counts. However if employees are well trained, good. control procedures are in effect, transactions are convenient to record, updating of the data base is automatic, and computer failures are few, then the data should be accurate and should very closely match the stock level in the warehouse. In terms of reordering iten1s, a perpetual inventory system checks the status of inventory after each transaction to see if the level has fallen below the reorder point. If so, an order of a pre-determined size is placed. One of the functions of supply management professionals using this type of system is to set the reorq.er parameters and the order quantity so that holding and order costs are minimized, and stock-outs do not occur during lead time. In a perpetual system, the order quantity is of a fixed size, but the time between orders varies with the rate of usage of the item.

Accurate inventory information is important for advance planning to numerous departments that include purchasing, production planning, customer service, transportation and finance.

An alternative system called the periodic inventory review system records completed transactions in batches. The ISM Glossary defines the periodic system as a fixed-order interval inventory control system in which an item's inventory position is reviewed on a scheduled periodic basis, rather than continuously. An order is placed at the end of each review, if appropriate, and the order quantity usually varies. This system is different from a fixed-order quantity system in which the order quantity typically is fixed and the time between orders varies. The system is updated on a certain established date or time. For example, it may be updated every night at midnight, or once a week on Sunday morning, or at the end of every month, or some. other established time period. There are few non-computerized inventory systems in the developed world, although some small businesses may still operate with inventory records kept by hand.

The role of the supply management professional is to set the parameters for the time between reviews, and the "order-up-to" level. In other words, if the "order-up-to" level is set at 500 and the inventory position is 325 when the periodic review takes place, an order for 175 units will be placed. The" order-up- to" level determination takes into account the lead time I for the item, and the amount of safety stock desired.

Another use of a periodic system is when parts are not considered issued from inventory into production until the product has reached a certain point in the process. At that point, all parts in the product are considered as removed from. inventory, arid the system is periodically updated to include those parts that have become part of finished or partially finished products.

7) Inventory accuracy and inventory integrity

Many supply management professionals and others must know inventory levels so that purchases, production and distribution can be planned. Accurate knowledge of inventory levels and rates of usage improve forecast accuracy and are helpful in sharing information with suppliers about what orders might be expected over the next month, quarter• or year.

Inventory integrity is equally important, as users of the inventory items must know that those items that appear to be available are in shape to be used, have not been damaged or become obsolete. The importance of physical counts are discussed earlier in this section, but one of the purposes of doing physical tallies of inventory is tp ensure that shrinkage is not occurring at an unexpected rate, and to take steps to stop such shrinkage if it is happening.

A) SKU establishment - Stock keeping units (SKU) are items that are kept in inventory at a specific location. A unique number or bar code differentiates each SKU. At some point, each SKU or individual item may have its own RFID tag which will also act as a unique identifier in differentiating each item. All organizations must determine which items, or SKU's, are to be kept in inventory. This determination should be made after reviewing a number of factors that include customer preferences, industry trends, product cost, sales forecasts, profitability and storage capacity.

Creating SKU's for individual items is the initial step in identifying and controlling inventory. Some SKU's have meaningful numbers that will help personnel identify the items. Example 1 shows a part number that a trained inventory manager would find meaningful

Example 1: PHW-125-2303

PHW- Purchased Commodity-Hardware

125 - Supplier identification

2303 - Supplier part number

In a non-meaningful SKU classification, the number assigned to the part does not have any relationship to the physical characteristics of the part. In Example 2, a number such as S1274043725 might be assigned to a part.

For example, an airline may assign reservation confirmation numbers that later become the passenger's unique boarding pass number. These identifiers, which may consist of letters and numbers, are assigned randomly, but no two passengers have the same number.

Debit and charge cards have unique identifiers that are in essence an SKU. The numbers on these cards may describe the issuing organization and have numbers unique to the cardholder.

RFID tags are used in many situations where unique identification is necessary. There are applications in animal science, health care and passports. There will continue to be RFID developments in any industry where accuracy and quick processing time are highly desirable.

B) Physical inventory -Warehouse inventory for a manufacturing organization is categorized as if it were held in a manufacturing plant or other environment. Physical inventory is classified as raw material, work in process, finished goods and inventory held for maintenance, repairs and operations (MRO items). There are sub-classifications, such as repair parts or spares, excessive items, obsolete items and possible non inventory items like office and building supplies.

In a retail distribution center, most inventory is held as finished goods. In some cases, inventory may require final assembly, or need to be kitted before sending to the customer. For example, Avnet will make complete kits of individual computers and their peripherals such as central processing units (CPU), monitors, printers, keyboards, wireless devices, modems and any other equipment requested by the customer. RFID technology, when available, has made it easier to track physical inventory and has improved inventory accuracy.

C) Cycle counting -•Cycle counting as defined in the ISM Glossary is a physical stock checking system in which the inventory. is divided into groups that are physically counted at predetermined intervals, depending on their ABC classification. Thus, the physical inventory counting goes on continuously without interrupting operations or storeroom activities. The primary goal in cycle counting is to identify error causing effects on inventory inaccuracies. It is an effective method of measuring the level of inventory accuracy. The process for cycle counting is to count certain part numbers or categories of items on a frequency equal to the level of importance of the item. This process is done by trained supply management personnel, usually the same people who are storing and issuing the goods. Most of the time-cycle counting is scheduled during off shifts or slower work periods.

Goods may be classified using the ABC classification described in the previous section. This classification, based on annual usage multiplied by the item's value, is used to determine the frequency of physical counting.

The entire inventory may be classified into three classes:

• "A" Items: 20 percent of the items accounting for 80 percent of the total dollar usage; counting once a month.

• "B" Items: 30 percent of the items accounting for 15 percent of the total dollar usage; counting four times a year.

• "C" Items: 50 percent of the items accounting for 5 percent of the total dollar usage; counting once a year.

Inventory corrections are achieved through the cycle counting function but this should be an outcome of the function, not the objective. The primary objective is to identify the reasons, find the cause of any inaccuracies and correct the cause. If proper training and discipline are in place, high inventory accuracy should be achievable.

Cycle counting and the ABC inventory classification system are also discussed in the previous section.

D) Reconciliation- Once an inventory item has been counted and compared against the perpetual records, there may be a discrepancy. These variances are normally noted on discrepancy reports. Significant variances that are noted will warrant attention and often result in a re-check of the item and its quantity. Settling and resolving these variances is known as reconciliation. In order to reconcile the inventory records, an adjustment will be required. These reports will also serve as an audit trail for the warehouse. (Stanley and Matthews, 2008.)

Another form of reconciliation is to compare open orders at suppliers with released orders from customers, both external and internal. These open orders should match~ If they do not, discrepancies must be resolved. This function may be known as record management. The purpose of record management is to -systematically control the records of orders from the creation of the documentation or receipt of the order through the processes of production, assembly, distribution, maintenance and -retrieval to disposition.

E) Shrinkage - Shrinkage is the reduction in inventory that occurs when items are lost, stolen or misplaced. It may occur naturally through evaporation, age or expiration of shelf-life. During certain production processes there may be a loss of materials due to the nature of the process. For example, in cutting, burring, sawing or drilling processes, material is removed from parts by design. It is incumbent upon the product design and engineering team to make every attempt to keep that type of shrinkage to a minimum. However, it is often. unavoidable. It may fall to supply management to find alternative uses for the scrap resulting from these processes.

Yield loss is a form of shrinkage. Yield may be defined as the ratio of usable output to input, when measured in the same terms. Yield loss occurs in processes, especially those in which a batch of items are processed together, in which not all output may be perfect, or function at the highest desirable level. This is especially true in the manufacturing of microchips. For example, a wafer may have the capacity to have 300 chips created on its surface, but perhaps only 240 of those chips meet the standards for performance that is desired. This result would be referred to as a yield of 80 percent. Another example is from the dairy industry. Raw milk may start with inputs measuring 500 gallons, but as it passes through the processes of pasteurization, fat removal, and homogenizacion, the output may measure 300 gallons. Thus, the yield would be 60 percent.

Yield losses of materials or inventory may be calculated and planned in the process, and should be carefully accounted for. Enterprising supply management •professionals often find uses for scrap resulting from yield losses.

F) Issue/return - A common term used in conjunction with "issue and return" is "store." The term "store" refers to keeping the item in a given location until there is a request for its use. The steps involved with storing inventory are receiving, issuing a paper or electronic record, determining a storage location and putting the item away in the designated location.

The terms "issue" and "return" refer to inventory going out of or coming into the warehouse.

The steps normally involved with issuing inventory are picking, staging and delivery. Upon a request from an internal user, say the sales department, a paper or electronic pick ticket is generated in the warehouse identifying the materials needed. The item is then retrieved, or picked, from wherever it resides in the warehouse and staged for the customer. Staging can be a separate area of the warehouse where materials are housed until they are delivered or picked up.

Returns can occur for a variety of reasons. Perhaps more material was received than was needed or an incorrect item was received. If a customer returns material to the warehouse, proper procedures must be in place to inspect the item to ensure its condition and to adjust the inventory count. Since a return generates additional costs in labor time and handling, many organizations require a restocking fee. It is not unusual for a customer to pay 20 percent of the original purchase price to return an item. The customer may return damaged or unusable stock and will expect credit for the item. These items should not be returned to stock but should be properly disposed of and removed from the accounting and inventory records. Sometimes it is not easy to determine when and where in the supply chain the damage occurred, and contentious litigation may result. To accept a return and issue credit for it often requires a returning materials authorization (RMA).

These activities can occur at all stages of a production or assembly process and at all levels of inventory, including raw materials, work-in-process and finished goods.

In a pull environn1ent, such as a just-in-time inventory system, materials are not issued until there is a demand requesting the materials. In a push environment, the materials are delivered to the next operation regardless of the demand for the item. A push environment occurs when goods are made to stock, as well as other situations.

All store, issue and return transactions must be recorded properly to assure that inventory accuracy is maintained.

G) Recoup- In inventory management practice "recoup" describes a strategy that supply management professionals should have in place to recover losses in inventory and other assets when disposal is necessary due to obsolescence or damage. Inventory investment loss and recoupment of as much of the loss as possible are part of a strategic risk management plan. Organizations sometimes sell a new product at a price that does not cover all marginal costs because sale of the product will lead to sales of a supporting product at a full and profitable price. For example, printers may be sold at very low prices, because the manufacturers of the printers know that the users will have to buy printer cartridges at full price in order to keep using the printer. Sometimes the cartridges must be purchased at a cost to the consumer that is higher then the original cost of the printer. When marketing new products, forecasting an inventory investment loss can be calculated based on the offset of the cost associated with the total financial return of the sales. For example, when electronic game manufacturers market and sell a new product, they may sell it for less then the target cost of break-even operating cost. It is not unusual for electronic console makers to lose money on the game console itself, expecting to make up for the loss by selling multiple games to the end user later. Many organizations have used this type of strategy to introduce new products and recover their cost by selling the supporting goods.

Recouping the loss of as much as possible of excessive and obsolete inventory is a standard inventory management practice. Most organizations examine demand for items in the previous 12 months and study the forecast for demand in the next 12 months. If there is no demand for a specific item or class of items, then any inventory on hand for those items will be classified as surplus, excessive or obsolete. Some of the methods of recouping inventory losses are:

• Sell excessive inventory back to the supplier.

• Re-engineer the component for use elsewhere in the product's bill of material (BOM).

• Rework the item as an alternative part that is useable.

• Send it to a spare parts distribution center or another division if it is useful as a spare part or still needed elsewhere .. This action will result in a transaction in the inventory management system although it will not change the immediate ownership of the unneeded parts in terms of the overall organization.

• Donate the items to a non-profit organization that can use them and obtain a possible tax deduction.

• Sell the items at scrap value.

• Scrap at no value. Sometimes there is a cost to scrap an item or dispose of it properly, so this action may result in negative cash outflow. to the organization.

The objective of elimination of the items is to obtain as much value as possible from the transaction. Any of these methods will remove the items from the financial assets on the balance sheet and avoid the carrying cost associated with holding the inventory. Supply management professionals are likely to find themselves involved in these decisions, gathering information arid performing analyses of tradeoffs between options, and may also be in charge of executing the final plan.

H) Inventory consolidation - In recent years, private and public organizations have worked toward maintaining a leaner inventory. These efforts include reducing the amount and types of inventory on hand, as well as consolidating inventories at multiple locations. Another way that organizations save is in the reduction of their safety stock. Inventory usage may be consistent, but fewer sites means less overall safety stock. (Stanley and Matthews, 2008.)

With multiple locations, lead times for each facility can vary, even for the same product. This type of decentralization can make forecasting requirements challenging. According to Evers and Beier (1998), when selecting the appropriate facility for consolidating inventory, a key consideration includes which site has the lowest average lead time. (Stanley and Matthews, 2008.)

Consolidation of inventory occurs when considering location, freight, and staging or kitting of materials. The transactions associated with these movements are the key to inventory . accuracy and integrity. Accurate inventory transactions and continuously checking for accuracy at each of the locations is essential.

Global logistics and the transportation of goods internationally are costly. Containerization is the primary mode of transporting. It is highly desirable to work with international suppliers to pack containers in such a way that space is used as wisely as possible, that no more containers must be shipped by vessel than necessary, and that freight is consolidated to minimize logistics costs. Containerized goods are then moved from suppliers to a shipping terminal, where they sometimes are combined with similar shipments from other suppliers and prepared for shipment.

Sometimes a manufacturing site purchases goods from local suppliers and will use what is called a "milk run" to pick up goods. A truck that is owned by the purchaser or is a joint venture among the suppliers is used to pick up goods from several suppliers and deliver them to the customer. If the same group of suppliers has several common customers, the process may be expanded to include not only pick up from several suppliers but delivery to several customers.

These types of strategic consolidations are classified as freight consolidation.

Staging or kitting is another form of consolidation. The physical movements of materials from the storing area to a staging area and then to the consumption or shipping area are detailed in the sequencing and routing function. Goods are picked from one area, consolidated with other goods and. then moved to the appropriate area. Sometimes these activities are carried out inside the stockroom by picking parts and staging then1 for production or shipping orders.

Location consolidation occurs when items with similar characteristics are received, stored and issued together. An example of location consolidation would be a reduction in distribution centers from one in every state in the contiguous United States and one in every European country, to two which serve the western United States and the eastern United States, and two which serve all of the European Union.

I) Security -Access to inventory must be limited to ensure that inventory items and materials do not get lost, stolen misplaced or damaged. Anyone not responsible for the handling and movement of goods stored should not have access to those goods, The warehouse, storage locations and any location in which goods are stored, should be off limits to all personnel except those who work in that area.

Procedures must be established for placing new items into inventory, for receiving goods, for requesting materials, and for picking and releasing materials to the requestors or to the factory floor. These procedures must be recorded at each step using the appropriate tools in the inventory management systems. It is important to keep track of where materials are and to whom they have been released for further processing, or movement or shipment elsewhere. Records must be updated, automatically or by hand. Bar coding or RFID tags can be very useful in the updating process. A high level of inventory accuracy goes hand-in-hand with good security. Order placement systems are often linked directly to inventory management systems so that all related systems can be updated at the same time. These systems may be linked to customers and suppliers for ease of managing several stages of inventory, and projecting completion dates for orders. If items are removed from inventory to be used by employees, such as research or design engineers or oth~rs, it remains equally important to record the destination and responsible party for the check out of the materials. When iten1s are returned to inventory, no matter the source of the return, it is important to inspect the items for completeness before returning them to stock.

C-TPAT, the Customs Trade-Partnership Against Terrorism, was discussed in Task 2-B-3, 7. Through this initiative, the U.S. Customs and Border Protection Service asks that businesses ensure the integrity of their security practices and communicate their security guidelines to their business partners (importers, carriers, brokers, warehouse operators, manufacturers) within the supply chain. Many other countries are imposing similar requirements, such as the United Kingdom and Canada. In addition, the International Organization for Standardization (ISO) has issued ISO 2800 series which is a series of standards on supply chain security management systems.

Another security requirement that may change terms and conditions for many shippers is the requirement that an organization importing goods in containers' from a country outside the United States will be responsible for the goods from the time the container leaves the factory where the goods are produced. In the past, organizations often would not take responsibility for containers of goods until they passed ship's rail. RFID can be a useful tool in meeting this requirement. A representative of the buying organization for the goods leaving the factory can use RFID to attest to the manifest, which is an itemization of the items included in a particular shipment, plus related details, for a particular container.

As cartons, pallets or other units of inventory are loaded, an exact description of the volume and weight of each carton or pallet can be made. The dimensions and weight of items placed in the shipping container can be compared with the dimensions and weight of the container to eliminate the possibility of false ends or floors or ceilings in the container that might be carrying contraband (drugs, weapons, other illegal cargo, even human beings). With use of RFID, the weight and other dimensions of the prescribed contents can be accurately recorded and compared with what they are expected to be. After it is determined that there is no contraband, the container can be sealed until it reaches its destination. Containers that meet these requirements of pre-inspection can move through customs and inspections at many locations more quickly.

J) Inventory policies/procedures -The efficient and effective operation of any business function requires sound policies and procedures. Inventory management is no exception. The supply management professional must play a key role in the development of an organization's inventory policies, which must have the support and buy-in of senior management. Policies should be easily understood by customers and staff, and should be reviewed and updated periodically. (Stanley and Matthews, 2008.)

The importance of a well developed policy manual for the warehouse should not be underestimated. It provides a blueprint for the entire organization on its supply management practices and reflects the value of the warehouse operation. World-class organizations inevitably have sound policies and procedures regarding inventory management. While each operation is unique, there are certain areas that must be addressed in warehouse policies and procedures or inventory management manual. These include safety, recycling, standardization, security and access to inventory. Policies should be in place and employees educated in proper procedures for inventory issuance, product returns, surplus property, inventory counting, and requests for new inventory items. Distribution and delivery policies, procedures, and targets should be set and understood, as well. (Stanley and Matthews, 2008.)

Inventory accuracy and inventory integrity are best controlled by performing regular and routine training for all supply management personnel involved with handling the inventory. Establishing strict policies, holding people accountable for their errors and taking disciplinary action when errors are identified are essential.

Inventory policies and procedures should be periodically evaluated for effectiveness and cost. The tradeoff between the two should be analyzed to ensure that the. effectiveness of a policy is worth the return on investment of implementation and ongoing costs.

Examples of some of these policies are:

• Safety and security -This has become of utmost concern. Periodic checks of the effectiveness of training of warehouse and inventory management personnel in safety and security procedures, as well as drills and reviews of concepts and procedures, may be necessary to maintain good safety and security records. Employees should be recognized and rewarded for longstanding safety and security records. The tradeoffs for these costs of training, drills, review and recognition are the cost of one or more breaches of safety or security.

• Inventory accuracy in cycle counting procedures -This is used when cycle• counters are performing the function and come across a discrepancy in a transaction. The policy regarding inventory accuracy should clarify the monetary value above which supervisory approval is required in order to make the correction. For high value items, adjustn1ents, either positive or negative, should be checked by supervisory personnel for all possible options for resolution.

• Allowable tolerance for adjusting low-level C items during cycle counting - If the items are within 1 to 2 percent of the count, the system may be set to not record the adjustment. If large quantities of very inexpensive parts are being stored, it may be difficult and cost prohibitive to count out exact amounts when issuing and storing such items. However, accuracy may be improved by use of weight for the issuance of such items.

• Procurement policies- Economic Order Quantity (ECO), lot size multiplier, minimum buys, level of spend and other similar policies are procurement policies put in place to assure that the inventory items are purchased at the best possible cost benefit. However, in the last few decades, price has been only one factor taken into consideration and may not be the overriding issue. Policies today are as likely to exist for quality, and delivery timeliness, as for price.

K) Location of materials (for example, secure storeroom, outside yard storage, etc.) -Physical location and the storage of materials are important. A few of the major considerations of how and where items are stored depends on the method of movement needed and the items' characteristics. The availability and location of facilities internationally will most certainly vary depending on the country. The organization may need to make long-term investment decisions to establish international storage facilities. If a decision is made to use existing international facilities, then the warehouse condition must be closely analyzed to ensure the products and storage containers will fit with the facility.

Any items that are considered at high rise for pilferage must be kept in a secure location. If the- usage of certain items is to be charged to a particular department, these items may require special security arrangements, as well.

Hazardous goods should be stored in an area that has special structures, such as flammable resistant cabinets, or rooms with sprinkler systems. Some hazardous items cannot be stored together and must be separated by containn1ent walls and ceilings. While mint would not normally be considered a hazardous material, the odor and flavor of mint will permeate all other materials in close proximity. For this reason, a maker of many flavors of tea may store its mint in a room separated from all other materials.

If movable trailers or containers are used for inventory storage, the inventory system should include location codes for trailer numbers, yard locations and other necessary information. A good inventory storage system will include location codes even if the inventory items are not required to be movable.

Satellite systems, coupled with RFID scanning and reading systems have made possible the global tracking of inventory items as they are shipped almost anywhere in the world. Items can be tracked by the minute and scheduled receipts may be based on the known location of the goods. Containers coming from an international source can be offloaded at a port and then transported to a 3PL warehouse. Sophisticated systems can record all of these movements, and the buyer of the materials, or other persons with need to know, can track the location at any time. At any time during the shipment, the goods will be tracked to a location, vessel, port, rail car, highway trailer, third-party warehouse or other location with scanning• and recording equipment.