CIPs L4M7 Whole Life Asset Management

Whole Life Asset Management

Stores Vs Warehouses

Store = are small, local storage facilities for immediate use items

Warehouses = are larger storage facilities and could be

Standalone = not connected to the manufacturing, assembly or retailing

Integrated = for example on the same site that materials or products are used by or sold to external users

Stores and warehouses contain

Raw Materials

Partly processed materials

Part or fully assembled components

Spare Parts

Items returned from customers or users (reverse logistics)

Items used as part of processing and manufacturing

Equipment stored for hire or used by an organisations various sites

Stock Yards

Open or semi covered operations

Storing bulk loose or packaged items (think builders yard)

Bulky or oversized items

Materials that may require specialised handling (loading/unloading)

Equipment suitable for outside storage (example earth moving equipment)

Purpose of stores/warehouses

To make stock available to internal/external customers in alignment with stocking decisions of the organisation

To maintain a safe environment for worker in the environment

To maintain a secure environment to reduce/avoid stock loss

To maintain a suitable environment for minimising stock loss/damage or deterioration

To fulfil the purpose of the a store/warehouse managers/staff need to complete the following

Receive and inspect stock

Retrieve, record and release stock to authorised persons providing documentation and packaging

Report and liaise internally/externally on stock availability, re-ordering and future stock levels

Minimise stock losses and damaged stock

Manage and account for returned stock inwards and stock returned to supplier

Types of storage and distribution structures

Centralised warehouse - single location covering the whole country

Regional Warehouse - used to supply areas within a country

Local Warehousing/stores - many locations situated close to users/customers

Warehousing in another country - useful when servicing multiple countries

Outsources warehousing - storage maybe outsourced to a specialist

Partnering - warehousing achieve through partnerships for same industries or other

Typical supply chain for a supermarket

Raw Materials - manufacturing - finished goods stored - supermarket regional warehouse - supermarket/retails stores

Factors for when assessing warehouse/stock locations - some will conflict

Cost of location

Availability and suitability of the Building

Availability and suitability of the staff

Nature of the items stored

Access to transport infrastructure

Qualitative Analysis

Analysis based on opinions and statements (which are often non quantifiable) rather than numerical or statistical evidence.

Quantitative Analysis

Analysis based on numerical or statistical based information rather than opinions or statements -

This may include Cost analysis of current premises and future predictions which could include cost such as costs per cubic metre or cost per order.

Cost analysis for routine operations, they are not based on premises but costs per product, or costs of operating by the hour

But can also involve current inventory performance measures such as lead times, service levels, rate of stock turn, stock outs over a set time frame.

warehousing common structural design features include

Single floor design/layout

Multiple floors design/layout

Light, temperature, humidity and ventilation

Warehouse equipment requirements

Getting goods in and out

Stock yard design

Health and safety

Security

Zoning

An arrangement in a stock yard warehouse or stores facility where areas are determined based on requirements for different access or the characteristics of different types of equipment or stock

Solutions to high irregular or seasonal demand problems

Creating flexibility in the design of the building and layout to allow for seasonal additional storage

Eliminating unused and unwanted stock to free up space

Acquiring temporary additional storage

Getting a supplier to hold additional stock for short notice delivery

Getting a supplier to deliver to customers or usage point

Getting a specialist logistics company to support the additional demand

Waste handling space needs to be considered in a warehouse design and may be needed to facilitate the following

Unpacking of bulk items

Adding additional labels

Grouping products that need to be sold together e.g. desktop computer which will also require a screen

Kitting - this involves preparing a wide range of items into a single unit for example a maintenance kit requiring springs, seals, lubricants

Return (reverse) logistics - processing of customer returns and payments

What types of warehouse layout did Gue and Meller (2009) design instead of opting for ‘straight rows’?

Fan shaped layout

Herring bone shaped layout

Warehouse Aisle widths

Typical range 2.5 to 4.5 M

Narrow Aisle design 2M

Very Narrow design 1.4M

For non equipment access widths can be a narrow as 1M

Flexibility to meet additional peek demand solutions

Temporary storage on site (example containers placed in the yard)

Temporary storage in other buildings, either rented or owned

Adopting flexible warehousing example a shared facility or very short term warehousing where space is made available online and is bid for (this is an emerging market from 2013)

Suppliers holding stock with arrangements for short notice deliveries or collections

Use of third party logistics company storage facilities

‘Early’ delivery of stock or supply on a consignment basis by negotiation with customers

Consignment Stocking

A facility offered by a supplier to a buyer to allow a delivery of stock to a buyer with payment only after it is used or sold to a customer

Product Coding structures can be

Numerical

Alphabetical

Alpha-numeric

Random generated or created

Sequential

Structured

OEM

HS

WCO

PAR

B2B

B2C

IAN

GTIN

EAN

Original Equipment Manufacturer

Harmonised System

World Customs Organisation

Planed All Round

Business to Business

Business to consumer

International Article Number

Global Trade Item Number

European Article Number

Product documentation that can be available by entering a product code into a suppliers website

Installation Instructions

Operational Instructions

Guarantee and warranty

Technical specifications inc temperature tolerances

Safety Instructions inc disposal guidelines

Electrical certification documents

Packaging certification documentation

Spare parts list, servicing requirements

Product recall notices

Product Code usage links

Technical Specifications

Pricing Detail

Costing Analysis

Sales Analysis

Safety Instructions

Handling Instructions

Picking Instructions

Packing Instructions

Despatch Instructions

Invoicing Detail

Order Confirmation Detail

Order Detail

Links to suppliers and manufacturers

Location Finding

Stock Control

Stock Availability

Product Catalogue and descriptions

GTIN

Global Trade Item Number, system is controlled by a ‘non for profit’ organisation known as GS1. GS1 specialises in standards for specific industries and membership is required to use the standards.

EAN-13

European Article Number is compatible with electronic codes used in radio frequency identification.

EAN standard is an 8 digit code (used in small items) but most firms use an EAN13

Bar codes can be used for many different operations such as..

Identifying individual products, groups of products including outer packaging and pallets, content of a purchased order or delivery, batch that the item comes from, original producer, routing of a delivery, production date, delivery date, used by date, specific item being produced to a one off specification, arrival or departure of a product location,

Allowing for effective return or refunds of products

RFID

Radio Frequency Identification,

Two types - Passive = does nothing until asked what it is, Active = periodically announces what it is. - Both can be tracked where it is.

Size 2mm squared by 2mm thick and can hold upto 2000 characters

RFID’s can be used to do the following

Track individual items

Track Boxes of products, cages of products and pallets

Track containers with multiple loads

Locate equipment in a particular building

Trigger alarms should equipment or stock be removed without authorisation

Types of Material handling equipment

Dollies

Sack Trucks

Trolleys

Turntable trucks / Articulating narrow-aisle trucks

Roll Cages

Order Pickers

Pallet Trucks

Pallet stackers

Grabs

Drum Lifters/Loaders

Counterbalance forklift trucks

Reach Trucks

Vacuum Lifters (moving glass sheets examples)

Roller Systems

Conveyor systems

Cranes

Carousels

Stacker Cranes

Types of warehousing weighing measures

Weighbridges

Floor Scales / Platform scales

Conveyor belt scales

Forklift/pallet truck scales

Load Cells

Suspended balance / Crane scales

Counting Scales

European Pallet Association standard specification

UCI1435-2 they measure 800mm x 1200mm

UK Pallet Standard Specification

1200mm x 1000mm

Objectives of packing and packaging

Protect the product from damage in transit

Protect the product itself from damage

Protect handlers and product from harm

Comply with transport or legal requirements

Meet and organisations image and marketing objective

Meet an organisations environmental commitment

Meet a cost target in order to maintain profitability

Standard Box Terms

BDCM = Bulk Distribution Carton Metric

BDC = Bulk Distribution Carton

Void Filling options

Polystyrene Chips (not good for the environment)

Chip of a maize base (bio-degradable)

Vermiculite - light absorbent material in small pieces plus fire resistant

Shredded Paper or shredded wood based material or wool wool is a lightweight solution

Cardboard Chips and shredded cardboard more environmentally friendly

Paper and cardboard rolls - made into ball to fill the void

Bubble Wrap

Air-filled cushions

Self-expanding foam

ISO

International Organization for Standardisation

ISO objectives were to provide a set of procedures which aim to do the following

Reduce Environmental impact

Support Innovation in products, packaging and the supply chain

Avoid undue restrictions on the use of packaging

Prevent barriers and restrictions to trade

ISO 18601

General requirements for the use of ISO standards in the field of packaging and the environment

(this concept of supplier responsibility encourages the supply chain approach v’s ‘not my problem’)

(this standard introduces the theme of selecting system packaging that considers the whole life approach)

ISO 18602

Packaging and the environment - Optimizationof the packaging system

(Primary packaging - packaging which touches the product)

(Secondary or group packaging - the packaging which is designed to contain one or more primary packaging together with any protective materials)

(Tertiary, distribution or transport packaging - the packaging of items for specifically for distribution/transport)

ISO 18603

Packaging and the environment - Reuse

(this standard specifies the requirements for a packaging to be classified as reusable and sets out procedures for assessments of meeting the requirements, inc associated systems)

\

ISO 18604

Packaging and the environment - Material Recycling

(This standard uses definitions which clarify expectations of packaging recycling. This includes a broader definition of the recycling process which excludes energy recovery and fuse use)

ISO 18605

Packaging and the environment -Energy Recovery

( This standard specifies the requirements and assessment procedures for packaging to be classified as recoverable in the form of energy recovery)

(the standard reflects the interest and practice of burning waste to create hot water, steam or electricity)

ISO 18606

Packaging and the environment - Organic recycling

(this standard uses technical definitions of the processes and expectations of organic recycling, this involves biological waste treatment processes applied to use packaging to produce compost)

(The standard reflects the interest and practice of commercial operators and this is not related to landfill type operations)

GRN

Goods Received Note

AGVs

Automated Guided Vehicles = Ocardo grid system robots Minimum human intervention

Stock held by a business can be categorised or classified. With the following key distinctions -

Opening stock , work in progress, safety stock and finished goods.

Obsolescent and redundant stock

Direct and indirect supplies

ABC classifications of stock that may apply

Dependant demand and independent demand items of stock.

Work in progress (WIP)

In inventory management the expression relates to stock part-way through a manufacturing process, in the services sectors the term is also used for anything in between order and delivery.

Classification of stock within the manufacturing process

Raw Materials

Components

Work in progress

Finished goods

Value Chain

Raw materials and components

Work in progress

Finished goods

Stock holdings which must be avoided

Obsolescent - means no longer used or practised, outmoded, out of date = unfinished goods, demand must reach zero think out of date food

Redundant - means superfluous, excessive, surplus, unnecessary = stock which is used somewhere by someone, demand for the product would come from other parties not current customers

Causes of obsolescence stock holding

Technological change

Cultural Change

Legislation

Causes for redundancy

Poor forecasting and demand

Week customer relationships leading to cancelled orders

Overstocking/poor stock control

Change in internal poliy

Way to avoid redundant or obsolete stock

Good market knowledge and accurate forecasting

Good stock control techniques inc regular stock audits

Good inter departmental communication

Just in time supply chains

Reduced batch sizes in production

Good sales and operating planning (S&OP)

Summary of costs associated with redundant or obsolescent stock

The loss of manufacturing capacity

The stock holding costs - warehousing space, insurance,security,auditing

Loss of profit on unsold goods

wasted inputs (raw materials)

The loss of working capital

Disposal cost especially if to landfill

Direct supplies

Supplies that are integrated into finished products, examples of raw materials or components which require processing into finished goods. They may not be completed consumer goods which are sold directly to the end user.

Indirect supplies

Supplies not incorporated in the finished product but which keep the business and factory operating. They can be spare machinery, tools, oils and lubricants, stationary

Pareto Principle (80/20) Rule

The theory that 80% of outcomes results from 20% of inputs, example 80% of sales are to top 20% of customers, 80% of inventory spend is accounted for by the top 20% of stock items.

Inventory type by part numbers and value

A - % of part numbers 20% - % of total cost 80%

B - % of part numbers 30% - % of total cost 15%

C - % of part numbers 50% - % of total cost 5%

Stock Profile

The description of stock items in terms of value, rate of turnover, storage characteristics etc.

Dependent Demand

The requirement for a stock item which is directly related to and therefore dependant upon the rate of production (examples are raw materials, components, energy.

Independent Demand

The requirement for a stock item which is not directly related to and is therefore independent of the rate of production examples machinery spares, office equipment, and consumables.

GAAP

General Accepted Accounting Practice

Liquidity

The ease with which assets can be converted into cash.A firm with a high value asset base but low liquidity may struggles to meet its debts on time.

Ordering/acquisition costs include some or all of the following

Preparing the requisition

Supplier selection and approvals

The times and costs of the procurement process

The IT ordering platform

Other EDI links to suppliers (EDI= Electronic data interchnge)

Preparing the purchase order

The cost of the ERP system time - (ERP = Enterprise Resource Planning)

Printed stationary

Progressing or chasing the order

Receiving or receipting of goods

The cost of materials or goods

Handling

Inspection or part approval and management of sub-standard goods

Dealing with mismatch receipts & wrong invoices

Approval and payments of invoices

Ordering/acquisition costs three main groups

1. Preliminary costs - costs associated with actions before the raising of purchase orders
2. Placement costs - the cost of raising the purchase order and ensuring the supplier has received it
3. Post-placement costs - the costs post purchase order in receiving of the goods to requesting payments to be made to the supplier

Purchasing Card (procurement card)

Essentially a credit card owned by the company that enables an officer to make low value purchased without the need for formal requisition and purchase orders

P2P

Procure to Pay

Two types of holding costs

Costs related to the value of the goods


1. Financial costs (tied up working capital)


2. Cost of insurance
3. Losses due product deterioration
4. Losses due to obsolescence and redundancy of inventory
5. Losses due to theft, accidental damage

Costs related to the physical characteristics of this inventory


1. Storage space - rent, rates, racking, IT systems, maintenance or repair of the building
2. Power, heat & light of the building
3. Movement equipment - forklift, scissor lift, pallet trucks
4. Labour costs - to run, handle, inspect, audit and issue inventory reports
5. Administration costs - maintaining of the store records,

Costs associated to a stockout

Loss of production output

Costs of machine downtime

Costs of the action required to deal with the stockout which could include buying from a more expensive supplier, paying for an urgent delivery, switching to another form of production, using alternate parts

Options to reduce costs whilst mitigating negative impact on service levels

Using lead times and costs of holding as part of the price evaluation

Strategically placed safety stock

Vendor owned stock

Increased overall inventory levels

Understanding demands such as seasonal or adhoc fluctuations

Sourcing decisions based on supplier performance

Using KPIs to improve supplier performance and eliminate bottlenecks

Robust supplier relationship management using agreed KPIs to drive continuous improvement

Cost benefit analysis for each type of stock - questions are

What is the probability of a stockout occuring?

What are the cost impacts if this was to happen?

What are the costs of holding safety stock at different levels, in different locations?

Risk Management approach to stockouts

Assess the risk, which is the combination of likelihood and severity of impact

Assess the cost of mitigating the risk (in stockout = cost of holding safety stock)

The difference between the expected demand inventory levels and the point at which the likely and potential cost of stockouts falls below the cost of holding additional inventory defines stock safety

Lysons and Farrington state that forecasting should involve six basic questions -

1. What is the purpose of the forecast?
2. What is the time horizon?
3. What techniques are most appropriate?
4. On what data must the forecast be based and how should it be analysed?
5. In what form shall the completed forecast be presented?
6. How accurate is the forecast?

Subjective Forecasting

Qualitative forecasting

Based on human opinion and insights that are not shown in hard data.

Uses expert opinion, market research, surveys and structured questioning methods such as the Delphi method.

Objective Forecasting

Quantitative forecasting

Based on hard data, facts and figures

The principle is that information from the past can predict the future, five elements are used to do this -


1. The average, mean, medium point of observations
2. Trends - an increase/decrease in average over time
3. Short term cyclical movements (seasonal influences)
4. Long-term cycles - these maybe unpredictable or unexplained
5. Random Errors - variations which cannot be explained

Two main statistical techniques used in inventory forecasts

Moving Average - a calculation to analyse data by creating a series of averages of different subsets of the full data. Commonly used with time-series data to smooth out short term fluctuations

Weighted Average - a calculation which attaches more importance to some elements of the data than others

Exponentially Weighted Average Method (EWAM)

A statistical methodology which can be used give more importance to the most recent data

Examples of things that can distort demand

Unplanned sales promotions

Sales team incentive

Over- ordering by a customer (due to historical poor delivery)

Cancelling of these over orders

Changes to bulk freight volumes, masking true demand

Bull Whip Effect / Forrester Affect

Distorted demand increasing up the supply chain

Three widely expected reorder ways used for independent demand

Fixed Quantities

Economic Quantities

Time or periodic review

Fixed Quantity Orders

Fixed quantity orders are those with a predetermined quantity every time.

Systems can be used to set a minimum stock level once this level is breached this will send a automatic replacement orders to a supplier

Economic Order Quantities (EOQ)

EOQ is a decision tool used in cost accounting. Its formula allows you to calculate the ideal quantity of inventory to order for a given product. The calculation is designed to minimise ordering and holding cost.

The EOQ formula makes a number of assumptions

The same quantity is ordered at each reorder point

Customer/user demand for the stock item is known

The relevant ordering and holding costs are certain

The purchase order lead time is known.

The cost per unit is fixed.

Inventory levels and customer/user demand is monitored carefully and sufficient inventory is held to ensure not stockout occur.

There is no quality costs

The EOQ formula uses the following 3 variables

1. Demand
2. Ordering cost (calculated per order)
3. Holding cost (calculated per unit)

Square Root ((Q=2x demand x ordering cost) /carrying costs)

Lysons and Farrington suggest the following mathematical formula to determine the maximum stock level

M=W(T+L)+S

M = Maximum stock levels

W= average rate of stock usage

T = Review period

L = stock item order lead time

S = Safety stock

MRP

Materials Requirements Planning is defined as a method of provisioning which depends upon the master manufacturing schedule as a distinct from statistical predictions, The schedule defines when finished batches and items are needed in production.

MRP was developed in the 1960’s

MRP systems answer the following questions

What items (stock) is required?

How many of them?

When?

MRP Process

1. Using known customer orders and forecast demand a master production schedule is created. Allowing for seasonal fluctuations. This will set the scale and rate of production needed to meet demand at the right time.


2. The next stage is to look at what is needed to produce option 1. How much stock do you hold, do you manufacture yourself or purchase externally. Creation of a bill of materials is required to understand the requirements of each product
3. Using the MRP system, BOM and inventory levels it will work out the net requirements of what to purchase and produce and when.

MRP Benefit

The main benefit of the system is the production of exception reports which sows deviations from normal planning and performance

MRP summary

In summary, materials requirements planning is an electronic system combining the following

Known demand

Forecast demand

Bill of materials for final product

Inventory records

Most beneficial in the following areas

Dependant demand items

Non-uniform / lumpy demand (non continuous demand)

Job, batch or flow production or where all are used together because of its flexibility

MRP ll Compton and Jessop definition

a development from ‘materials requirement planning’ which encompasses the planning and scheduling activities associated with production resources to match output needed and supplies available

MRP ll process driven by a master production schedule but encompasses the additional inputs

Production Control

The supply chain

Engineering and technical teams

Finance teams

HR

Facilities - buildings, energy and other utilities requirements

This expansion to MRP is only possible through the expansion of computing capabilities. These capabilities now include the ability to work through ‘what if’ scenarios

ERP

Enterprise Resource Planning

Developed in the 1990 by Gartner Group (IT Company)

ERP Compton and Jessop definition

‘A system for the coordination of planning and execution of business on a wide basis, between links in the supply chain involving more than coordination’

Key Business links to ERP

Account Receivable

Accounts Payable

Human Resource

General Ledger

Work in progress

Sales and Distribution

Inventory

Organisations

ERP ll

Launched in 2000

Introduced the capability for collaboration across whole supply chains

Widening of the basic applications to move beyond manufacturing to now be used in both public and private sectors

Functionality has become more user focused - making reporting more accessible to all departments and not just business analysis

A move to more open protocol permits the integration with other proprietary software that means that businesses do not need to overhaul their computer systems

Advantages of ERP v’s MRP ll include

Improved customer service levels

Reduced inventory levels

Better inventory accuracy

Improved cash flow and revenue collections

Increased factories efficiencies - achieved by better resource locations and capacity planning.

Rework and scrap in the manufacturing processes are reduced

Better business visibility

Disadvantages to ERP systems

ERP is perceived to be difficult and expensive to implement

Tendency to customise which adds costs and complexity and should be avoided

Hidden costs can be high- Implementation is time consuming and requires skilled input from the implementing organisation

Introduction of new software required a level of training, and a potential culture change

ERP systems due to the multiple tasks can take hours to make decisions with smaller systems such as SCM (supply chain management) DRP (distribution requirement planning) take minutes

Common ERP systems are

SAP

Oracle

Microsoft Dynamics NAV

JIT (Just In Time) described by Womack and Jones

‘A system for producing the right items at the right time in the right amounts. Just in time approaches just on time when the upstream activities occur minutes or seconds before downstream activities, so single pieces flow is possible. Key elements of just in time are flow, pull, standard work (with standard in-process inventories) and take time - the available production time divided by the rate of customer demand, setting the heartbeat of the lean system’

\
Or Simply by the dictionary

\
A production philosophy whereby what is needed is made when it is needed and not before

TQM - Total Quality Management

Organisation-wide effort to improve outputs through continuous improvement in internal practicies

JIT objectives of eliminating waste summarised in 5 Zeros

Zero Defects - to meet or exceed customer quality requirements

Zero Set up times - no or reduced set up time for production line machinery, creation of no/minimal machine downtime

Zero Inventories - reduced batch sizes, throughout the production from raw materials to WIP to finished goods

Zero Handling - using process mapping to identify duplications of effort, redesign systems & processes to remove/reduce handling operations

Zero Lead times - the ultimate aim of the JIT process. Which is currently difficult to achieve due to smaller batches whic have lead to shorter lead times

Kanban

The signal to move to the next process