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MODULE
A Business Sense Publication
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Contents
Section 1 : Introduction
A professionally managed Store has a process and a space within, to receive the incoming
materials (Receiving Bay), keep them for as long as they are not required for use (Custody)
and then to move them out of stores for use (Issue)
The objective is to efficiently and economically provide the right materials at the time when it
is required and in the condition in which it is required.
Stores
1
From
suppliers Receipt
2
Holding
3
Issues
to
production
/ users
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Organization Structure*
CEO
Stores
Manager
Stores
Executive /
Assistant
Stores
Executive /
Assistant
Stores
Executive /
Assistant
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Ensure that the materials are stored without any impact on the quality, physical and chemical composition that the materials
are intended for use in the subsequent functions.
Ensure that the data/information and regular audits regarding the materials stock positions and locations are updated daily
and correctly.
Regular coordination with the Purchase and Production teams to ensure the material availability and issues.
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Proper documentation and storage of materials including receiving, identifying space, labeling, issuing and stock keeping
Focus on A and B category items. MinMax model/Two bin system for C category items
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Items
Value
20%
80%
80%
20%
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Lead time verification for all A & B category items at regular intervals (every 6 months)
Analyze the PO date vs. GRN date note the lead time for the 5 transactions
Average of this gives the lead time and the standard deviation gives the Safety Stock days
S.No
PO date
GRN date
Difference (days)
5 Dec
28 Dec
23
19 Dec
30 Dec
11
25 Dec
8 Jan
13
1 Jan
12 Jan
11
6 Jan
26 Jan
20
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Property of Hash Management Services LLP. Unauthorized copying, circulating, modifying and using it without the knowledge / approval of Hash Management Services LLP is prohibited.
Accounting
Issues
Material Issue
Requisition Slip
Stores
Assistant
Production
Supervisors
Bill
Passing
Purchase
Indent
Net
Requirement
Purchase
Executive
Materials
Receipts
Warehouse
Invoice,
Delivery Challan
Perpetual Stock
Verifications
Shipments
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Stores executive receives materials along with the invoice and Delivery
Challan (DC)
After checking the quality& Quantity of the received materials against the PO,
the Goods Receipt Note (GRN) is created by the Stores Executive
Invoice is sent to the Bill Passing / Accounts function for payments to the
supplier
If the quality / Quantity of the incoming materials are not according to the
PO, Purchase and other relevant functions are informed and necessary
actions are taken
Action ranges from sending back the materials to the suppliers in case of major
quality issues to adjustments in the payment schedules to the suppliers
Any part supplies/ Quality issues / changes from the above mentioned processes would
be discussed with the Stores manager/ Senior Management and necessary actions
would be taken.
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The Stock position is updated in the bin card, system stock /ledger
on the same day
Stock count: every month the closing stock report is prepared and
sent to the Stores Manager and the Senior Management of the
company
Every day the stores executives count and verify the stock of at least 5
A& B class items. Any discrepancy in the physical stock, system
stock/ledger and bin card should be reported to the Stores Manager
Any discrepancy in stock/ Quality issues / changes from the above mentioned
processes would be discussed with the Stores manager/ Senior Management and
necessary actions would be taken.
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Whenever the materials are required for the production function, a Material Issue Requisition (MIR) is created by the production
supervisor and sent to the Stores Executive
Against the MIR, Stores Executive issues the required quantity for the materials and immediately updates the Bin card and system
stock/ledger
In case of a new customer order, the stores executive would create the Net requirement for the order based on the Bill of Materials
(BOM), Stock available in the stores corresponding to that order, Pending POs, and the delivery schedule
Indenting: The stores executive would raise a Purchase Indent (PI) to the purchase Executive during a new customer order / the
existing materials in the stores reaches the ordering points
Any part issues/ Quality issues / changes from the above mentioned processes would be discussed with the Stores manager/ Senior
Management and necessary actions would be taken.
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Contents
Items
Value
20%
80%
80%
20%
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Property of Hash Management Services LLP. Unauthorized copying, circulating, modifying and using it without the knowledge / approval of Hash Management Services LLP is prohibited.
While analyzing the raw materials it would be clear that the top 20% of the items would constitute about
80% of the purchase value. Next 30~40% items would constitute about 15% of the purchase value.
Remaining 50% of the items constitute 5% of the purchase value.
A Category
B Category
C Category
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For e.g., Consider an organization where the total purchase value is about 2 Crores per month and there
are about 300 different items.
S.No
Classification
1
2
A
B
Total
% of Items
20%
Next 30%. i.e.
Up to 50%
Remaining
50%
100%
No of Items
60
90
Purchase
Value in %
80%
15%
Purchase
Value (Rs)
1.6 Cr
0.3Cr
150
5%
0.1Cr
300
100%
2 Cr
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This analysis has to be done season-wise separately. ( peak season / moderate season and lean season of
the year)
Consumption of the raw materials would follow the same trend as production/sales
Sales
Lean
Season
Jan
Moderate
Season
Feb
Mar
Apr
Moderate
Season
Peak Season
May Jun
July
Aug
Sep
Oct
Lean
Season
Nov
Dec
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Let us assume that the company has two major seasons. A peak season where the demand is high (October to March) and
a moderate/low season (April to September). This ABC analysis has to be done every season (though there may not be
major changes in the items in each category). For the season starting October, the data of the previous year (month-wise
consumption data for all items) is used.
Monthly Consumption in Kgs
Item
Unit of
Price in
S.No
Name Measurment
Rs.
October November December January February
1
X6
Kgs
961
455
1080
1278
1002
650
2
X9
Kgs
867
1265
1200
1231
1198
1258
3
X5
Kgs
654
1331
651
1470
971
896
4
X7
Kgs
153
629
1330
290
1045
1316
5
X4
Kgs
980
111
126
118
107
128
6
X8
Kgs
76
1038
170
1338
66
1498
7
X1
Kgs
454
107
135
100
134
131
8
X15
Kgs
728
97
63
71
62
72
9
X14
Kgs
928
54
65
57
50
53
10
X13
Kgs
787
42
43
46
84
81
11
X2
Kgs
382
117
132
115
115
124
12
X10
Kgs
645
55
63
91
89
55
13
X16
Kgs
607
94
41
86
71
58
14
X18
Kgs
820
22
59
75
34
35
15
X3
Kgs
270
110
108
138
118
120
16
X12
Kgs
412
52
69
80
86
72
17
X17
Kgs
208
66
24
39
56
62
18
X11
Kgs
53
40
84
96
86
69
Sample done wth 18 items
Avg
Average in consumption
%
Cumulative
March
Kgs
value in Rs. consumption
%
Category
1057
920.3
884440.3
25.5%
25.5%
A
1272
1237.3
1072768.0
30.9%
56.4%
A
1382
1116.8
730409.0
21.0%
77.4%
A
690
883.3
135150.0
3.9%
81.3%
A
110
116.7
114333.3
3.3%
84.6%
B
1055
860.8
65423.3
1.9%
86.5%
B
146
125.5
56977.0
1.6%
88.2%
B
87
75.3
54842.7
1.6%
89.7%
B
62
56.8
52741.3
1.5%
91.3%
B
97
65.5
51548.5
1.5%
92.7%
B
150
125.5
47941.0
1.4%
94.1%
B
78
71.8
46332.5
1.3%
95.5%
B
84
72.3
43906.3
1.3%
96.7%
C
57
47.0
38540.0
1.1%
97.8%
C
134
121.3
32760.0
0.9%
98.8%
C
49
68.0
28016.0
0.8%
99.6%
C
61
51.3
10677.3
0.3%
99.9%
C
43
69.7
3692.3
0.1%
100.0%
C
Total
3470499
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The top 4 items constituting about 80% of the average purchase value are in the A category. The next 8
items constitute 15% of the value, which are in the B Category. The remaining 6 items constitute 5% of
the purchase value and they are in the C category.
Category
No of Items
Cumulative %
81.3
95.5
100
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Contents
Ordering Techniques
Category
Characteristics
Ordering Techniques
Reason
Re-Order level
Re-Order level
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Few items in the A category whose consumption does not vary across months can be ordered with a
single purchase order asking the supplier to deliver the items as per the schedule the company gives the
supplier.
For e.g.. Please refer to the Item X9 in the table. The consumption of this item does not vary across
months (only slight variations). Average consumption of this item is around 1200 kgs per month. This item
can be ordered with a single PO to the supplier for the entire season. Every week the company requires
300Kgs ( 4 X 300 = 1200). The supplier can send the items every week (300kgs). Payments can be made to
the supplier month-wise.
So in the PO the following details can be mentioned:
Quantity in Kgs Week 1 Week 2 Week 3 Week 4
Total order quantity = 1200 per month for 6 months
October
300
300
300
300
Delivery : 300kgs per week
November
December
January
February
March
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
300
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This method can be followed for most of the A and B category items. Leadtime of all these items should
be known with a fair degree of accuracy. Safety stock (SS) to be determined ( 25% of the leadtime X daily
Material
Material
Material
consumption- can be taken initially)
Arrival
900
36
10
360
2.5
90
450
360
Arrival
Re-Order
Point
Lead time
consumption
-360 kgs
Arrival
Average
Stock
holding
Day 1
Day 10
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At the Day 1, the company has 360+90=450 kgs of stock. Purchase Order for 360
kgs should be placed now. At the end of 10th day, the stock remaining will be
90Kgs. On that day, 360kgs arrive from the supplier against the purchase order. In
case of 1~2 days delays, the safety stock would be consumed. This would be
adjusted in the subsequent purchase orders.
Sometimes, the Re-order quantity can be set as twice the lead time consumption
(720kgs, in this case). In that case the next PO can be raised after 10 days. (at the
point when the stock in hand reaches 360+90(SS) ). So,
Re-Order Level/Point = 360+90 = 450 kg ; Order quantity = 360~720 kgs. Every time
the stock reaches 450 kgs, Purchase to be done for 360 or 720 kgs.
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Stage 1
FULL
300kgs
FULL
300kgs
Stage 2
EMPTY
0 kg
FULL
300kgs
Stage 3
FULL
300kgs
FULL
300kgs
300
900
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25~30%
reduction in
inventory
After
Implementation
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Contents
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Storage Techniques
Items for
issues taken
from the
front side
to ensure
FIFO
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Storage Techniques
Rack Master List
A2
- Bolts
B2
- Threads
C2
-Adhesives
A3
-Screws
A4
- Washers
B4
B3
Plastic
- Nails
items
C3
C4
Welding Electrical
rods
Items
S.no Rack No
Items
A1
Nuts
A2
Bolts
A3
Screws
A4
Washers
B1
Rubber Matls
B2
Threads
B3
Nails
B4
Plastic items
C1
Tools
10
C2
Adhesives
11
C3
Welding Rods
12
C4
Electrical
Items
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Storage Techniques
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Stores Layout
Each different value stream within the warehouse will use dedicated space and
assets
Each value stream will have a dedicated flow
The result will be better customer service, faster response and less waiting
Value stream X
Value stream Y
Value stream Z
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Stores Layout
Warehouse layout must be designed in order to separate inbound and outbound flows
This means providing physically different spaces and aisles for replenishment and for
picking or operating inbound and outbound at different times
The result will be increased productivity, reduced stock loss and reduced accidents
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Stores Layout
Long journeys
Empty returns
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Storage of Materials
Item Name
Unit of Measurement
Rack No
Supplier Code
Supplier Name
Lead time
Safety stock
Date
Issues (subtract)
Receipts (add)
Available Qty
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Use full building height design racks based on the height of the materials
stored/to be stored in each rack ( optimal air gap between the materials
and the inner edge of the rack)
Air-Free racks
Large air gap
wastage of
space
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Count-Free racks
10
15
11
16
12
17
13
18
14
19
14 items in the
rack
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Stores personnel should maintain that the physical stock and the book stock should be equal all the time
Every day at least 5 A-category items should be counted and verified for stock discrepancy this is called Perpetual
Stock Counting
By this method the stock position of all the key items would be monitored regularly
S.no
Item
Code
Item description
Category
Inspection
Date
Book Stock
Physical
Stock
Difference
Remarks
Next
Inspection
Date
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Contents
The list below explains the various parameters to track, the reports to generate, the frequency and the
person-in-charge in the Purchase function:
Type
Absolute Reports
Variance Reports
Key Parameters
Monthly Issues, Receipts and
Closing Stock
Non-Moving Stock value
Report Name
Nature of Report
Category-wise / Item-wise
- descending in value
Monthly Stock report
terms
Non-Moving Stock Report Item-wise / Category-wise
Frequency
Prepared by
Monthly
Every 3 months
Stores Executive
Stores Executive
Monthly
Stores Executive
Monthly
Purchase Executive +
Stores Executive
Key Parameters
Monthly Issues,
Receipts and
Absolute Reports
Closing Stock
Report Name
Monthly Stock
report
Variance Reports
Stock
Stock Discrepancy Discrepancy
value
Report
Quality issues in
the incoming
materials
Incoming
Quality Report*
Frequency
Questions to ask
Monthly
What is the category-wise consumption, receipts and closing stock. Is the closing stock of A&B
class items more than 30 days of consumption? How to bring the closing stock value down ? Can
we convert any major item into batches of small quantity instead of ordering one time?
Every 3 months
What are the major non-moving items ? Why they have not issued in the last 3 months? How to
use / salvage them ?
Monthly
What is the value of the stock discrepancy ? In that what is the value of A & B category items ? Is
there is downward trend observed in the stock discrepancy value? If not, why? What are the
corrective actions taken to avoid discrepancy in the future?
Monthly
What is the pareto of the quality issues in the incoming materials ? What is the trend ? Is it for
the same item / from same supplier? What is the time taken by the supplier to rectify/send new
materials ? How to avoid this in the future ?
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All the above initiatives would work only if the senior management is
committed to the change and continuously monitors the processes.
There would be a lot of resistance initially for this and would take 2~3
months for the initiatives to sustain.
Regular interactions with the personnel are the key and a systematic
follow-up is vital for the initiatives to be successful.
Meetings with the respective personnel can be scheduled for a predetermined date every month/week.
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Contents
S.No
Item Code
1009
Steel Rods
1003
Steel Wires
Price
(Rs)
UOM
Opening Stock
Receipts
Issues
Closing
Stock
Closing Stock
value
500
tons
200
60
35
225
112,500
500
tons
150
75
60
165
82,500
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Management
Services
LLP.
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Item Description
Item
Category
UoM
tons
Quantity on
Hand
Purchase
Value
500 45,000
Purchased
on
12-Jul-10
Last Issue
date
Production of that
30-Dec-10 model - stopped
Action Plan
suggested by Senior
Management
Try to talk to the
suppliers and return
the materials
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S.No
Date
15-Jun-11
Item Code
1009
Item Name
Steel Rods
Item
Category
Book
Stock
247
Physical
Reason for
Stock Difference Shortage/excess
258
Corrective Action
Taken
Counting machine
Wrong entry after would be bought to
11 counting
solve it
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Item Code
1008
Item
Item
Description Category
Steel Rods
Purchase
Order No
PO date
Quantity
UoM
Supplier
Code
A2345
15-Jan
25.00
tons
1234
Supplier
Name
ABC
Metals
Quality
Problem
cracks
No of
Defective
items
Repeated
Issue
25 yes
Corrective Action
Sent back to
supplier. Future
dispatches only after
100% quality checks
Reasons for quality issues must be sorted out with the suppliers. Items which frequently appears in the list should be examined
and necessary action to be taken
* - to be jointly done with the Purchase Function
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STORES
MODULE
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