INVENTORY MANAGEMENT

1. INTRODUCTION

DEFINATION AND MEANING

Inventory is a list of goods and materials, or those goods and

materials themselves, held available in stock by a business.
Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than
delivery delay, and also to ease the effect of imperfections in
the manufacturing process that lower production efficiencies if
production capacity stands idle for lack of materials.

The reasons for keeping stock

All these stock reasons can apply to any owner or product

stage.

Buffer stock is held in individual workstations against the

possibility that the upstream workstation may be a little delayed
in providing the next item for processing. Whilst some
processes carry very large buffer stocks, Toyota moved to one
(or a few items) and has now moved to eliminate this stock
type.

Safety stock is held against process or machine failure in the

hope/belief that the failure can be repaired before the stock

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runs out. This type of stock can be eliminated by programmes
like Total Productive Maintenance

Overproduction is held because the forecast and the actual

sales did not match. Making to order and JIT eliminates this
stock type.

Lot delay stock is held because a part of the process is

designed to work on a batch basis whilst only processing items
individually. Therefore each item of the lot must wait for the
whole lot to be processed before moving to the next
workstation. This can be eliminated by single piece working or
a lot size of one.

Demand fluctuation stock is held where production capacity

is unable to flex with demand. Therefore a stock is built in times
of lower utilisation to be supplied to customers when demand
exceeds production capacity. This can be eliminated by
increasing the flexibility and capacity of a production line or
reduced by moving to item level load balancing.

Line balance stock is held because different sub-processes in

a line work at different rates. Therefore stock will accumulate
after a fast sub-process or before a large lot size sub-process.
Line balancing will eliminate this stock type.

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Changeover stock is held after a sub-process that has a long
setup or change-over time. This stock is then used while that
change-over is happening. This stock can be eliminated by
tools like SMED.

Where these stocks contain the same or similar items it is often

the work practice to hold all these stocks mixed together before
or after the sub-process to which they relate. This 'reduces'
costs. Because they are mixed-up together there is no visual
reminder to operators of the adjacent sub-processes or line
management of the stock which is due to a particular cause
and should be a particular individual's responsibility with
inevitable consequences. Some plants have centralized stock
holding across sub-processes which makes the situation even
more acute.

The basis of Inventory accounting

Inventory needs to be accounted where it is held across

accounting period boundaries since generally expenses should
be matched against the results of that expense within the same
period. When processes were simple and short then inventories
were small but with more complex processes then inventories
became larger and significant valued items on the balance
sheet. This need to value unsold and incomplete goods has
driven many new behaviours into management practise.
Perhaps most significant of these are the complexities of fixed

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cost recovery, transfer pricing, and the separation of direct from
indirect costs. This, supposedly, precluded "anticipating
income" or "declaring dividends out of capital". It is one of the
intangible benefits of Lean and the TPS that process times
shorten and stock levels decline to the point where the
importance of this activity is hugely reduced and therefore
effort, especially managerial, to achieve it can be minimised.

LIFO V/S FIFO

When a dealer sells goods from inventory, the value of the

inventory reduces by the cost of goods sold(CoG sold). This is
simple where the CoG has not varied across those held in
stock but where it has then an agreed method must be derived.
For commodity items that one cannot track individually,
accountants must choose a method that fits the nature of the
sale. Two popular methods exist: FIFO and LIFO accounting
(first in - first out, last in - first out). FIFO regards the first unit
that arrived in inventory the first one sold. LIFO considers the
last unit arriving in inventory as the first one sold. Which
method an accountant selects can have a significant effect on
net income and book value and, in turn, on taxation. Using
LIFO accounting for inventory, a company generally reports
lower net income and lower book value due to the effects of
inflation. This generally results in lower taxation. Due to LIFO's

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potential to skew inventory value, UK GAAP and IAS have
effectively banned LIFO inventory accounting.

SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options

that performs the functions of procurement of materials,
transformation of these materials into intermediate and finished
products, and the distribution of these finished products to
customers. Supply chains exist in both service and
manufacturing organizations, although the complexity of the
chain may vary greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie

between fully vertically integrated firms, where the entire
material flow is owned by a single firm and those where each
channel member operates independently. Therefore
coordination between the various players in the chain is key in
its effective management. Cooper and Ellram [1993] compare
supply chain management to a well-balanced and well-
practiced relay team. Such a team is more competitive when
each player knows how to be positioned for the hand-off. The
relationships are the strongest between players who directly
pass the baton (stick), but the entire team needs to make a
coordinated effort to win the race.

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 Below is an example of a very simple supply chain for a
single product, where raw material is procured from vendors,
transformed into finished goods in a single step, and then
transported to distribution centers, and ultimately, customers.
Realistic supply chains have multiple end products with shared
components, facilities and capacities. The flow of materials is
not always along an arborescent network, various modes of
transportation may be considered, and the bill of materials for
the end items may be both deep and large.

To simplify the concept, supply chain management can be

defined as a loop: it starts with the customer and ends with the
customer. All materials, finished products, information, and
even all transactions flow through the loop. However, supply
chain management can be a very difficult task because in the
reality, the supply chain is a complex and dynamic network of
facilities and organizations with different, conflicting objectives.

Supply chains exist in both service and manufacturing

organizations, although the complexity of the chain may vary
greatly from industry to industry and firm to firm.

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 Unlike commercial manufacturing supplies, services such
as clinical supplies planning are very dynamic and can often
have last minute changes. Availability of patient kit when
patient arrives at investigator site is very important for clinical
trial success. This results in overproduction of drug products to
take care of last minute change in demand. R&D manufacturing
is very expensive and overproduction of patient kits adds
significant cost to the total cost of clinical trials. An integrated
supply chain can reduce the overproduction of drug products by
efficient demand management, planning, and inventory
management.

Traditionally, marketing, distribution, planning,

manufacturing, and the purchasing organizations along the
supply chain operated independently. These organizations
have their own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum
sales dollars conflict with manufacturing and distribution goals.
Many manufacturing operations are designed to maximize
throughput and lower costs with little consideration for the
impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little
information beyond historical buying patterns. The result of
these factors is that there is not a single, integrated plan for the

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organization---there were as many plans as businesses.
Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain
management is a strategy through which such integration can
be achieved.

Supply Chain Management (SCM) is the process of planning,

implementing, and controlling the operations of the supply
chain with the purpose to satisfy customer requirements as
efficiently as possible. Supply chain management spans all
movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-
consumption.

According to the Council of Supply Chain Management

Professionals (CSCMP),

a professional association that developed a definition in 2004,

Supply Chain Management “encompasses the planning and
management of all activities involved in sourcing and
procurement, conversion, and all logistics management
activities”. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In

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essence, Supply Chain Management integrates supply and
demand management within and across companies.

According to Cohen & Lee (1988)

Supply Chain Management is “The network of organizations

that are having linkages, both upstream and downstream, in
different processes and activities that produces and delivers the
value in form of products and services in the hands of ultimate
consumer.” Thus a shirt manufacturer is a part of supply chain
that extends up stream through the weaves of fabrics to the
spinners and the manufacturers of fibers, and down stream
through distributions and retailers to the final consumer.
Though each of these organizations are dependent on each
other yet traditionally do not closely cooperate with each other.
An integrated supply chain management streamlines processes
and increases profitability by delivering the right product to the
right place, at the right time, and at the lowest possible cost.

According to Ganeshan & Harrison (2001)

Supply Chain Management is a “systems approach to

managing the entire flow of information, materials, and services

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from raw materials suppliers through factories and warehouses
to the end customer.”

Supply chain event management (abbreviated as SCEM) is a

consideration of all possible occurring events and factors that
can cause a disruption in a supply chain. With SCEM possible
scenarios can be created and solutions can be planned.

Some experts distinguish supply chain management

and logistics management, while others consider the
terms to be interchangeable. From the point of view of an
enterprise, the scope of supply chain management is
usually bounded on the supply side by your supplier's
suppliers and on the customer side by your customer's
customers.

Supply chain management is also a category of software

products.

2. SIEMENS
SIEMENS is one of the world's largest companies and Europe's
largest engineering firm. Siemens has six major business
divisions: Communication and Information; Automation and

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Control; Power; Transportation; Medical; and Lighting.
Siemens' international headquarters are located in Berlin and
Munich, Germany. Siemens AG is listed on the Frankfurt Stock
Exchange, and has been listed on the New York Stock
Exchange since March 12, 2001. Worldwide, Siemens and its
subsidiaries employ 480,000 people in 190 countries and
reported global sales of €87.325 billion in fiscal year 2006
HISTORY

Siemens was founded by Werner von Siemens on October 1,

1847, based on the telegraph he had invented that used a
needle to point to the sequence of letters, instead of using
Morse code. The company – then called Telegraphen-
Bauanstalt von Siemens & Halske – opened its first workshop
on October 12.

In 1848, the company built the first long-distance telegraph line

in Europe; 500 km from Berlin to Frankfurt am Main. In 1850
the founder's younger brother, Sir William Siemens (born Carl
Wilhelm Siemens), started to represent the company in
London. In the 1850s, the company was involved in building
long distance telegraph networks in Russia. In 1855, a
company branch headed by another brother, Carl von Siemens,
opened in St Petersburg. In 1867, Siemens completed the
monumental Indo-European (Calcutta to London) telegraph line

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In 1881, a Siemens AC Alternator driven by a watermill was
used to power the world's first electric street lighting in the town
of Godalming, United Kingdom. The company continued to
grow and diversified into electric trains and light bulbs. In 1890,
the founder retired and left the company to his brother Carl and
sons Arnold and Wilhelm. Siemens & Halske (S&H) was
incorporated in 1897.

In 1919, S&H and two other companies jointly formed the

Osram lightbulb company. A Japanese subsidiary was
established in 1923.

During the 1920s and 1930s, S&H started to manufacture

radios, television sets, and electron microscopes.

Before World War II Siemens was involved in the secret

rearmament of Germany. During the Second World War, like
most big companies in Germany at the time, Siemens
supported the Hitler regime, contributed to the war effort and
participated in the "Nazification" of the economy. Siemens had
many factories in and around famous extermination camps
such as Auschwitz and used slave labor from concentration
camps to build electric switches for military uses. In one
example, almost 100,000 men and women from Auschwitz
worked in a Siemens factory inside the extermination camp,
supplying the electricity to the camp

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In the 1950s and from their new base in Bavaria, S&H started
to manufacture computers, semiconductor devices, laundry
machines, and pacemakers. Siemens AG was incorporated in
1966. The company's first digital telephone exchange was
produced in 1980. In 1988 Siemens and GEC acquired the UK
defense and technology company Plessey. Plessey's holdings
were split, and Siemens took over the avionics, radar and traffic
control businesses — as Siemens Plessey.

In 1991, Siemens acquired Nixdorf Computer AG and renamed

it Siemens Nixdorf Informationssysteme AG. In 1997 Siemens
introduced the first GSM cellular phone with colour display.
Also in 1997 Siemens agreed to sell the defence arm of
Siemens Plessey to British Aerospace (BAe) and a UK
government agency, the Defence Analytical Services Agency
(DASA). BAe and DASA acquired the British and German
divisions of the operation respectively

In 1999, Siemens' semiconductor operations were spun off into

a new company known as Infineon Technologies. Also,
Siemens Nixdorf Informationssysteme AG formed part of
Fujitsu Siemens Computers AG in that year. The retail banking
technology group became Wincor Nixdorf.

In February 2003, Siemens reopened its office in Kabul.[3]

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In 2004, Siemens took over the mantle of official Formula One
timekeeper, replacing TAG Heuer.

In November, 2005, Siemens signed a 12 year agreement with

the Walt Disney Company to sponsor attractions in its Florida
and California parks.

In 2006, Siemens announced the purchase of Bayer

Diagnostics, which was incorporated into the Medical Solutions
Diagnostics division officially on 1 January 2007.

In March 2007 a Siemens board member was temporarily

arrested and accused of illegally financing a business-friendly
labour association which competes against the union IG Metall.
He has been released on bail. Offices of the labour union and
of Siemens have been searched. Siemens denies any
wrongdoing.

In April 2007, the Fixed Networks, Mobile Networks and Carrier

Services divisions of Siemens merged with Nokia’s Network
Business Group in a 50/50 joint venture, creating a fixed and
mobile network company called Nokia Siemens Networks.
Nokia delayed the merger due to bribery investigations against
Siemens.

Through an American sub-organisation known as the Siemens

Foundation, Siemens also devotes funds to rewarding students
and AP teachers. One of its main programs is the Siemens

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Westinghouse Competition in maths, science, and technology,
which annually grants scholarships up to US$100,000 to both
individual and team entrants. According to the foundation
website, Siemens awards a total of nearly US$2 million in
scholarship money every year.

MAJOR CLIENTS OF SIEMENS

KCR

Novartis

Edmonton Transit System

Calgary Transit

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Deutsche Bahn AG ( German rail transport company)

METRORail (Houston, Texas)

Sacramento Regional Transit District

Regional Transportation District TheRide (Denver,

Colorado)

LACMTA (Los Angeles County, California)

Pittsburgh Light Rail

San Diego Trolley

MAX Light Rail (Portland, Oregon)

Nederlandse Spoorwegen (the Dutch railways) (The

Netherlands)

Port of Rotterdam (Rotterdam, The Netherlands)

Balkim Muh. Elk. Ltd. Sti.

BBC

Indian Railways

Airtel

Powergrid Corporation of India

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Products

Industrial Instrumentation (Sensors and Controls)

Telecommunication Service Platform, the TSP 7000

Combino, ULF, and Avanto trams

Siemens-Duwag U2 LRV

ER20 locomotive - MTR

LHB/Siemens M1/M2/M3 Metro Mar. Pair

Siemens-Adtranz LRV

Duewag/Siemens 1435 mm Combino Low Flr LRV

MX3000 Metro car for Oslo (SGP Wien works)

S4000 metro

Schindler/Siemens ABB Be 4/8 Low Floor LRV

Metro 5001

SWBSiemensr NGT 6D LRV

Eurosprinter locomotive

Desiro, ICE, and Transrapid trains

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Gigaset, Home entertainment products, including Gigaset M740
AV, a set-top box to receive TDT and integrate it in a domestic
network (using WLAN or cable), i.e. for home streaming media.

Hicom Trading E

Hicom 300

HiPath

HiQ 8000 Softswitch

MSR32R

EWSD telephone exchanges

SPX 2000 small digital telephone exchange (rural)

Siemens Gigaset cordless telephones

Siemens Mobile Phones - divested to BenQ in 2005

Siemens SPPA-T2000 Control System (formerly Teleperm XP)

Siemens SPPA-T3000 Control System (For Electrical Power

Generation Control)

SIMATIC PCS 7 Process Automation System for Process and

Hybrid industries

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Radio and core products for 2G and 3G Mobile Networks
(GSM, UMTS, ...)

Gas & Steam Turbines

Industrial programmable controls (including Simatic PLC, and

Logo! microcontrollers)

The Siemens Servo life support ventilator line

MAGNETOM(TM) Espree

SOMATOM(R) Definition CT

SOMATOM(R) Sensation CT

SOMATOM(R) Emotion CT

AXIOM Artis

AXIOM Sensis

E.Cam Signature Series Gamma Camera

Symbia TruePoint SPECT-CT

Biograph TruePoint PET.CT

Magnetom C!, a low field open MRI

Magnetom Avanto, a Tim system MRI

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Magnetom Espree, a Tim system, open bore MRI

Magnetom Trio, A Tim System, ultra high field MRI

Windturbines, 1.3 MW, 2.3 MW, 3.6 MW

Sinorix(TM)

Sistore(TM)

Main competitors of Siemens are:

ABB

Alcatel-Lucent

Alstom

Automated Logic

Bombardier

Cisco Systems

Computrols

Eaton

Ericsson

General Electric

Honeywell

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Johnson Controls

Lantronix

Nortel

Philips

Reliable Controls

Rockwell Automation

Samsung

Schneider Electric

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 3. OBJECTIVES AND NEED OF SUPPLY CHAIN
MANAGEMENT

Traditionally, marketing, distribution, planning,

manufacturing, and the purchasing organizations along the
supply chain operated independently. These organizations
have their own objectives and these are often conflicting.

Marketing's objective of high customer service and maximum

sales dollars conflict with manufacturing and distribution goals.
Many manufacturing operations are designed to maximize
throughput and lower costs with little consideration for the
impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little
information beyond historical buying patterns.

The result of these factors is that there is not a single,

integrated plan for the organization---there were as many plans
as businesses. Clearly, there is a need for a mechanism
through which these different functions can be integrated
together. Supply chain management is a strategy through
which such integration can be achieved.

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 Moreover, shortened product life cycles, increased
competition, and heightened expectations of customers have
forced many leading edge companies to move from physical
logistic management towards more advanced supply chain
management. Additionally, in recent years it has become clear
that many companies have reduced their manufacturing costs
as much as it is practically possible. Therefore, in many cases,
the only possible way to further reduce costs and lead times is
with effective supply chain management.

In addition to cost reduction, the supply chain management

approach also facilitates customer service improvements. It
enables the management of:

 inventories,
 transportation systems and
 whole distribution networks

so that organizations are able to meet or even exceed their

customers' expectations.

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 The major objective of supply chain management is to
reduce or eliminate the buffers of inventory that exists between
originations in chain through the sharing of information on
demand and current stock levels.

Broadly, an organization needs an efficient and proper

supply chain management system so that the following
strategic and competitive areas can be used to their full
advantage if a supply chain management system is properly
implemented.

1. Fulfillment of raw materials:

Ensuring the right quantity of parts for production or

products for sale arrive at the right time. This is enabled
through efficient communication, ensuring that orders are
placed with the appropriate amount of time available to be
filled. The supply chain management system also allows a
company to constantly see what is on stock and making sure
that the right quantities are ordered to replace stock.

2. Logistics:

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 The cost of transporting materials as low as possible
consistent with safe and reliable delivery. Here the supply chain
management system enables a company to have constant
contact with its distribution team, which could consist of trucks,
trains, or any other mode of transportation. The system can
allow the company to track where the required materials are at
all times. As well, it may be cost effective to share
transportation costs with a partner company if shipments are
not large enough to fill a whole truck and this again, allows the
company to make this decision.

3. Smooth Production:

Ensuring production lines function smoothly because high-

quality parts are available when needed. Production can run
smoothly as a result of fulfillment and logistics being
implemented correctly. If the correct quantity is not ordered and
delivered at the requested time, production will be halted, but
having an effective supply chain management system in place
will ensure that production can always run smoothly without
delays due to ordering and transportation.

4. Increase in Revenue & profit:

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 Ensuring no sales is lost because shelves are empty.
Managing the supply chain improves a company flexibility to
respond to unforeseen changes in demand and supply.
Because of this, a company has the ability to produce goods at
lower prices and distribute them to consumers quicker then
companies without supply chain management thus increasing
the overall profit.

5. Reduction in Costs:

Keeping the cost of purchased parts and products at

acceptable levels. Supply chain management reduces costs by
increasing inventory turnover on the shop floor and in the
warehouse controlling the quality of goods thus reducing
internal and external failure costs and working with suppliers to
produce the most cost efficient means of manufacturing a
product.

6. Mutual Success:

Among supply chain partners ensures mutual success.

Collaborative planning, forecasting and replenishment (CPFR)
is a longer-term commitment, joint work on quality, and support
by the buyer of the supplier’s managerial, technological, and
capacity development. This relationship allows a company to

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have access to current, reliable information, obtain lower
inventory levels, cut lead times, enhance product quality,
improve forecasting accuracy and ultimately improve customer
service and overall profits. The suppliers also benefit from the
cooperative relationship through increased buyer input from
suggestions on improving the quality and costs and though
shared savings. Consumers can benefit as well through higher
quality goods provided at a lower cost.

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 4. ACTIVITIES/FUNCTIONS OF SCM IN SIEMENS

Supply chain management is a cross-functional approach

to managing the movement of raw materials into an
organization and the movement of finished goods out of the
organization toward the end-consumer. As corporations strive
to focus on core competencies and become more flexible, they
have reduced their ownership of raw materials sources and
distribution channels. These functions are increasingly being
outsourced to other corporations that can perform the activities
better or more cost effectively. The effect has been to increase
the number of companies involved in satisfying consumer
demand, while reducing management control of daily logistics
operations. Less control and more supply chain partners led to
the creation of supply chain management concepts. The
purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving
inventory visibility and improving inventory velocity.

Several models have been proposed for understanding

the activities required managing material movements across
organizational and functional boundaries. SCOR is a supply
chain management model promoted by the Supply-Chain
Council. Another model is the SCM Model proposed by the
Global Supply Chain Forum (GSCF). Supply chain activities

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 can be grouped into strategic, tactical, and operational levels of
activities.

(a) Strategic:-
 Strategic network optimization, including the number,
location, and size of warehouses, distribution centers and
facilities.

 Strategic partnership with suppliers, distributors, and

customers, creating communication channels for critical
information and operational improvements such as cross
docking, direct shipping, and third-party logistics.

 Products design coordination, so that new and existing

products can be optimally integrated into the supply chain.

 Information Technology infrastructure, to support supply

chain operations.

 Where to make and what to make or buy decisions.

(b) Tactical:-
 Sourcing contracts and other purchasing decisions.

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  Production decisions, including contracting, locations,
scheduling, and planning process definition.

 Inventory decisions, including quantity, location, and

quality of inventory. Transportation strategy, including
frequency, routes, and contracting.

 Benchmarking of all operations against competitors and

implementation of best practices throughout the
enterprise.

(c) Operational:-
 Daily production and distribution planning, including all
nodes in the supply chain.

 Production scheduling for each manufacturing facility in

the supply chain (minute by minute).

 Demand planning and forecasting, coordinating the

demand forecast of all customers and sharing the forecast
with all suppliers.

 Sourcing planning, including current inventory and

forecast demand, in collaboration with all suppliers.

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 Inbound operations, including transportation from
suppliers and receiving inventory.

 Production operations, including the consumption of

materials and flow of finished goods.

 Outbound operations, including all fulfillment activities and

transportation to customers.

 Order promising, accounting for all constraints in the

supply chain, including all suppliers, manufacturing
facilities, distribution centers, and other customers.
Performance tracking of all activities.

INTEGRATED SUPPLY CHAIN MANAGEMENT

An integrated supply chain management streamlines

processes and increases profitability by delivering the right
product to the right place, at the right time, and at the lowest
possible cost. Unlike commercial manufacturing supplies,
clinical supplies planning is very dynamic and can often have
last minute changes. Availability of patient kit when patient
arrives at investigator site is very important for clinical trial
success.

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 This results in overproduction of drug products to take
care of last minute change in demand. R&D manufacturing is
very expensive and overproduction of patient kits adds
significant cost to the total cost of clinical trials.

An integrated supply chain can reduce the overproduction

of drug products by efficient demand management, planning,
and inventory management. Implementation of ERP system
(such as SAP) in R&D can have major ROI by an efficient
supply and inventory management system and also by
reducing overproduction.

⇒ How Integration Is Achieved In Supply Chain?

Stage 1:
Complete functional independence where each business
function such as production or purchasing does its own thing in
complete isolation from other business function. For instance,

32
production function seeking to optimize its unit cost of
manufacture by long production runs with out regard for build
up of finished goods inventory and advance impact it will have
on the warehousing as well as working capital.

Stage 2:
Companies recognize the need of limited integration between
adjacent functions such as distribution and inventory
management or purchasing and material control.

Stage 3:
A natural extension of stage two, leading to establishment and
implementation of end- to-end integration. A concept of linkage
and coordination is achieved.

STAGE 4:
The linkage achieved in stage three is extended upstream to
suppliers and down stream to customers. It represents true
supply chain integration. This concept is also called ‘co-
managed inventory’ (CMI).

Force of supply chain management is on trust and cooperation

and the recognition that is properly managed ‘the whole cane
be greater then the sum of its part’.

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Inventory Decisions:

These refer to means by which inventories are managed.

Inventories exist at every stage of the supply chain as either
raw material, semi-finished or finished goods. They can also be
in-process between locations. Their primary purpose to buffer
against any uncertainty that might exist in the supply chain.
Since holding of inventories can cost anywhere between 20 to
40 percent of their value, their efficient management is critical
in supply chain operations. It is long term in the sense that top
management sets goals. However, most researchers have
approached the management of inventory from short term
perspective. These include deployment strategies (push versus
pull), control policies --- the determination of the optimal levels
of order quantities and reorder points, and setting safety stock
levels, at each stocking location. These levels are critical, since
they are primary determinants of customer service levels.

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 5. INVENTORY CONTROL
MANAGEMENT
Inventory database
An important component of inventory planning involves access
to an inventory database. It is a structured framework that
contains the information needed to effectively manage all items
of inventory, from raw materials to finished goods. This
information includes the classification and amount of
inventories, demand for the items, cost to the firm for each
item, ordering costs, carrying costs and other data.
The task of inventory planning can be highly complex. At the
same time it rests on fundamental principles. In doing so we
must understand and determine the optimal lot size that has to
be ordered. The EOQ (economic order quantity) refers to the
optimal order size that will result in the lowest total of order and
carrying costs and ordering costs. By calculating the economic
order quantity the firm attempts to determine the order size that
will minimize the total inventory costs. In examination of the two
curves reveals that the carrying cost curve is linear i.e. more
the inventory held in any period, greater will be the cost of
holding it. Ordering cost curve on the other hand is different.
The ordering costs decrease with an increase in order sizes.
The point where the holding cost curve i.e. the carrying cost
curve and the ordering cost curve meet, represent the least

35
total cost which is incidentally the economic order quantity or
optimum quantity.

PRODUCTIVITY
In the industries there will be a competitor who will be a low
cost producer and will have greater sales volume in that sector.
This is partly due to economies of scale, which enable fixed
costs to spread over a greater volume but more particularly to
the impact of the experience curve.

It is possible to identify and predict improvements in the rate of

output of workers as they become more skilled in the processes
and tasks on which they work. Bruce Henderson extended this
concept by demonstrating that all costs, not just production
costs, would decline at a given rate as volume increased. This
cost decline applies only to value added, i.e. costs other than
bought in supplies. Traditionally it has been suggested that the
main route to cost reduction was by gaining greater sales
volume and there can be no doubt about the close linkage
between relative market share and relative costs. However it
must also be recognized that logistics management can provide
a multitude of ways to increase efficiency and productivity and
hence contribute significantly to reduced unit costs.
In today’s more turbulent environment there is no longer any
possibility of manufacturing and marketing acting independently

36
of each other. It is now generally accepted that the need to
understand and meet customer requirements is a prerequisite
for survival. At the same time, in the search for improved cost
competitiveness, manufacturing management has been the
subject of massive renaissance. The last decade has seen the
rapid introduction of flexible manufacturing systems, of new
approaches to inventory based on materials requirement
planning (MRP) and just in time (JIT) methods, a sustained
emphasis on quality.
Equally there has been a growing recognition of the critical role
that procurement plays in creating and sustaining competitive
advantage as part of an integrated logistics process.

In this scheme of things, logistics is therefore essentially an

integrative concept that seeks to develop a system wide view of
the firm. It is fundamentally a planning concept that seeks to
create a framework through which the needs of the
manufacturing strategy and plan, which in turn link into a
strategy and plan for procurement.

Inventory Flow:

The management of logistics is concerned with the movement

and storage of materials and finished products. Logistical
operations start with the initial shipment of a material or

37
component part from a supplier and are finalized when a
manufactured or processed product is delivered to a customer.
From the initial purchase of a material or component, the
logistical process adds value. By moving inventory when and
where needed. Thus the material gains value at each step. For
a large manufacturer, logistical operations may consist of
thousands of movements, which ultimately culminate in the
delivery of the product to an industrial user, wholesaler, dealer
or customer. Similarly for a retailer, logistical operations may
commence with the procurement of products for resale and
may terminate with consumer pickup or delivery.
The significant point is that regardless of the size or type of the
enterprise, logistics is useful and requires continuous
management attention.

INVENTORY- related costs

Inventory carrying cost (ICC):

Tax
Storage
Capital
Insurance
Obsolescence
Ordering:
Communication

38
Processing, including material
handling and packaging
Update activities, including
receiving and date-processing

BASIC INVENTORY DECISIONS

There are two basic decisions that must be made for every item
that is maintained in inventory. These decisions have to do with
the timing of orders for the item and the size of orders for the
item.

Basic Inventory
Decisions

How much? When?

Lot sizing decision Lot timing decision

39
 Determination of the Determination of the
quantity to be ordered. timing for the orders.

RELEVANT INVENTORY COSTS

Relevant Inventory Costs

Holding Ordering Shortage

Item Costs
Costs Costs Costs
Direct cost for Costs Fixed costs Costs
getting an associated associated associated
item. with with placing with not
Purchase cost carrying an order having
for outside items in (either a enough
orders, inventory. purchase inventory to

40
EOQ:

The EOQ can be calculated with the help of a mathematical

formula. Following assumptions are implied in the calculation:
1. Constant or uniform demand- although the EOQ model
assumes constant demand, demand may vary from day to day.
If demand is not known in advance- the model must be
modified through the inclusion of safe stock.
2. Constant unit price- the EOQ model assumes that the
purchase price per unit of material will remain unaltered
irrespective of the order offered by the suppliers to include
variable costs resulting from quantity discounts, the total costs
in the EOQ model can be redefined.
3. Constant carrying costs- unit carrying costs may very
substantially as the size of the inventory rises, perhaps
decreasing because of economies of scale or storage efficiency
or increasing as storage space runs out and new warehouses
have to be rented.
4. Constant ordering cost- this assumption is generally valid.
However any violation in this respect can be accommodated by
modifying the EOQ model in a manner similar to the one used
for variable unit price.
5. Instantaneous delivery- if delivery is not instantaneous,

41
which is generally the case; the original EOQ model must be
modified through the inclusion of a safe stock.
6. Independent orders- if multiple orders result in cost saving by
reducing paper work and the transportation cost, the original
EOQ model must be further modified. While this modification is
somewhat complicated, special EOQ models have been
developed to deal with it.
These assumptions have been pointed out to illustrate the
limitations of the basic EOQ model and the ways in which it can
be easily modified to compensate for them.

The formula for the EOQ model is:

2 M Co
S Cc

Where M = is the annual demand

Co is the cost of ordering
Cc is the inventory carrying cost
S = is the unit price of an item.
Limitations of the EOQ formula-
1. Erratic changes usages- the formula presumes the usage of
materials is both predictable and evenly distributed. When this
is not the case, the formula becomes useless.
2. Faulty basic information- order cost varies from commodity to

42
commodity and the carrying cost can vary with the company’s
opportunity cost of capital. Thus the assumption that the
ordering cost and the carrying cost remains constant is faulty
and hence EOQ calculations are not correct.
3. Costly calculations: the calculation required to find out EOQ
is extremely time consuming. More elaborate formulae are
even more expensive. In many cases, the cost of estimating the
cost of possession and acquisition and calculating EOQ
exceeds the savings made by buying that quantity.
4. No formula is a substitute for common sense- sometimes the
EOQ may suggest that we order a particular commodity every
week (six-year supply) based on the assumption that we need it
at the same rate for the next six years. However we have to
order it in the quantities according to our judgment. Some items
can be ordered every week; some can be ordered monthly,
depends on how feasible it is for the firm.
5. EOQ ordering must be tempered with judgment- Sometimes
guidelines provide a conflict in ordering. Where an order
strategy conflicts with an operational goal, order strategy
restrictions should be developed to permit honoring the goal.

Quantity discounts: In the EOQ analysis, it has been assumed

that material prices and transportation costs were constant
factors for the range of order quantities considered. In practice,
some situations occur in which the delivered unit cost of a

43
material decreases significantly if a slightly larger quantity than
the originally computed EOQ is purchased. Quantity discounts,
freight rate schedules and price increases may create such
situations. These additional variables can also be included in
the formula.
Cost of carrying inventory:
Carrying material in inventory is expensive. A number of
studies indicated that the annual cost of carrying a production
inventory averaged approximately 25% of the value of the
inventory. The escalating and volatile cost of money has
escalated the annual inventory carrying cost to a figure
between 25% - 35% of the value of the inventory. The following
five elements make up this cost:
1) Opportunity cost (12% -20%)
2) Insurance cost (2% – 4%)
3) Property taxes (1% - 3%)
4) Storage costs (1%- 3%)
5) Obsolescence and deterioration (4% - 10%)
Total carrying cost (20% - 40%)
Let us briefly look into these costs:
Opportunity cost of invested funds
When a firm uses money to buy production material and keeps
it in the inventory, it simply has this much less cash to spend for
other purposes. Money invested in external securities or in
productive equipment earns a return for the company. Thus it is

44
logical to charge all money invested in inventory an amount
equal to that it could earn elsewhere in the company. This is
the opportunity cost associated with inventory investment.

Insurance cost
Most firms insure the assets against possible losses from fire
and other forms of damage.

Property taxes
This is levied on the assessed value of a firm’s assets, the
greater the inventory value, the greater the asset value and
consequently the higher the firm’s tax bill.

Storage costs
The warehouse is depreciated every year over the length of its
life. This cost can be charged against the inventory occupying
the space.

Obsolescence and deterioration

In most inventory operations, a certain percentage of the stock
spoils, is damaged, is pilfered, or eventually becomes obsolete.
A certain number always takes place even if they are handled
with utmost care.

45
Generally speaking, this group of carrying costs rises and falls
nearly proportionately to the rise and fall of the inventory level.

The ABC Classification:

Indicators that classifies a material as an A,B or C part
according to its consumption value .The classification process
is known as the ABC analysis.
The three indictors have the following meanings:
A-important part , high consumption value
B-less important , medium consumption value
C-relatively unimportant part , low consumption value
The ABC classification system is to grouping items according
to annual sales volume, in an attempt to identify the small
number of items that will account for most of the sales volume
and that are the most important ones to control for effective
inventory management.
Reorder Point: The inventory level R in which an order is
placed where R = D.L, D = demand rate (demand rate period
(day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an
order is placed and when new stock is received. If there are not
enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an
extra inventory to take care on unexpected events. It is often

46
called buffer stock. The absence of inventory is called a
shortage.

ABC Inventory Classification

The ABC classification process is an analysis of a range of

items, such as finished products or customers into three
categories: A - outstandingly important; B - of average
importance; C - relatively unimportant as a basis for a control
scheme. Each category can and sometimes should be handled
in a different way, with more attention being devoted to
category A, less to B, and less to C.
Inventory Control Application: The ABC classification system is
to grouping items according to annual sales volume, in an
attempt to identify the small number of items that will account
for most of the sales volume and that are the most important
ones to control for effective inventory management.
Break-even analysis depends on the following variables:
1. Selling Price per Unit: The amount of money charged to
the customer for each unit of a product or service.

47
 2. Total Fixed Costs: The sum of all costs required to
produce the first unit of a product. This amount does not
vary as production increases or decreases, until new
capital expenditures are needed.
3. Variable Unit Cost: Costs that vary directly with the
production of one additional unit.
Total Variable Cost The product of expected unit sales and
variable unit cost, i.e., expected unit sales times the variable
unit cost.
4. Forecasted Net Profit: Total revenue minus total cost.
Enter Zero (0) if you wish to find out the number of units
that must be sold in order to produce a profit of zero (but
will recover all associated costs)
Break-Even Point in siemens: Number of units that must be
sold in order to produce a profit of zero (but will recover all
associated costs). In other words, the break-even point is the
point at which your product stops costing you money to
produce and sell, and starts to generate a profit for your
company.
where:
Q = Break-even Point, i.e., Units of production (Q),
FC = Fixed Costs,
VC = Variable Costs per Unit
UP = Unit Price
Therefore,

48
 Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit
Cost)

Stock control and inventory

Stock control, otherwise known as inventory control, is used to
show how much stock you have at any one time, and how you
keep track of it.
It applies to every item you use to produce a product or service,
from raw materials to finished goods. It covers stock at every
stage of the production process, from purchase and delivery to
using and re-ordering the stock.
Efficient stock control allows you to have the right amount of
stock in the right place at the right time. It ensures that capital is
not tied up unnecessarily, and protects production if problems
arise with the supply chain.

Supply chain vendor management inventory:

Allows supply chain partners to share critical order, demand
and inventory information in real-time and uses both integrated
and web based applications to reduce administration costs,
shortening cycle times and help lower inventory levels. Our
unique, managed supply hub requires little upfront investment,
yet quickly starts delivering high performance in real time

Inventory Control Overview

49
Normal Inventory
As it sounds, this type of inventory item will be used for the
majority of your parts. It will correctly track the inventory
received and sold on a first in first out basis, will handle cost of
sales, and will warn you when you're out of stock.

Non-Inventory Type
This is used for selling things that are not really inventory items.
For example, you could be selling warranty, but because you
don't have warranty in a box to sell, and you'll never run out of
stock, you won't need to keep inventory control on it. As well,
there is no cost of sale adjustments with non-stock items. The
system will not calculate how much you paid for the item, and
therefore will not try to remove that value from inventory in the
general ledger. If you are selling something that does cost you
money, you will have to handle these details manually.
Labor Parts

You (probably) don't have technicians hanging from hooks in

your back room, so like non-inventory items, the system will not
try to remove them from inventory when you sell a labor item.
The two differences between Non-Inventory items an Labor
items are that you can optionally have the system ask you for
the technician code that did the work so that you can print

50
reports showing who did what work. As well, the system will
optionally ask for a comment to explain what was done so that
the description of the service work can be printed on the
invoice.

Note too that you can optionally keep track of how much time
was spent and how much time was billed for on a per job basis.
At the end of the month, you can then print technician
productivity reports to compare total time spent compared to
billable hours. In the automotive industry, some mechanics can
do the work faster than is what is billed because the billing is
based on industry standards.

Consignment Items
Consignments can be used to keep track of inventory that you
don't own, but at the time you sell it, you must pay for it. You'll
be able to generate several reports, including a list of inventory
that is on consignment but not sold and a list of inventory sold
on consignment, but not yet paid for.

Floor Plan Inventory

Floor planning is very similar to consignment, except that you

take possession and own the inventory when you receive it, but
you don't have to pay for it until it's sold, or until it's been in the

51
store for a negotiated period of time. However, you do own the
inventory and do have to pay for it sometime.

Some floor planning companies want the ability to check the

inventory serial number by serial number for the larger items,
and others may just want to count the number of each model
number on hand. Regardless, Windward System Five can
handle it.

On the accounts payable side, you will be able to keep track of

who you owe the money too (Floor Planning Company) and
who you actually bought the inventory from (Supplier) and
generate proper histories of each.

Tire Inventory
Windward System Five has the ability to sort and categorize
tires by their size, aspect ratio and rim size. In addition, you will
also be able to search for the tires by just entering in some of
the search criteria and having the system bring up a window of
all matches.

When the list brings up a list of tires that can all fit the vehicle,
the system can sort the list to show the items with the highest
quantity in stock at the top of the list and the items that are out

52
of stock at the bottom of the list. This will help you sell what you
actually have to sell instead of creating special orders.

Product Inventory
Products are items such as vehicles that you might service or
repair after selling them to the customer. That is, they are an
item in the database that can be sold, and when sold, are
automatically added to the customer's list of products that can
be worked on.

Examples are vehicles, trucks, recreational vehicles, fridges, air

conditioners, and chainsaws. The system will let you keep
additional information on these products, such as make, model,
year, and other comments, and will also be able to list all the
work or repairs performed between two dates.

Windward System Five can also track whole goods such as

recreational vehicles by keeping track of the cost of the item
before the sale, add ones and pre-delivery inspection items. In
addition, the system can generate a "wash out" report one level
deep to show the costs and income associated with the trade
in.

53
Serialized Inventory
Those items that need to be tracked by their serial numbers
can be marked as serialized inventory. For example, fridges,
stoves, computers, and chainsaws might all be serialized. Note
that if you plan on servicing these items in the future and
keeping track of all work you do on them, they should be
entered as products instead of serial numbers.

TYPES OF INVENTORY

Several different types of inventories are conducted,

depending upon the type of materiel involved and type of
information needed. Bulkhead-to-Bulkhead Inventory

A bulkhead-to-bulkhead inventory is a physical count of all

stock materiel within the ship or within a specific storeroom. . A
bulkhead-to-bulkhead inventory of a specific storeroom is
taken when a random sampling inventory of that
storeroom fails to meet the inventory accuracy rate of 90
percent when directed as a result of a supply management
inspection (SMI). It is also taken when directed by the
commanding officer or when circumstances clearly indicate
that it is essential to effective inventory control.

Specific Commodity Inventory

54
The specific commodity inventory is a physical count of all
items under the same cognizance symbol, FSC, or that
support the same operational function, such as- boat
spares, electron tubes, boiler tubes, or fire brick. This
inventory is taken under the same conditions as a bulkhead- to-
bulkhead inventory; however, prior knowledge of specific
stock numbers and item location is required to conduct a
specific commodity inventory

Special Materiel Inventory

A special materiel inventory requires the physical count

of all items that, because of their physical characteristics, costs,
mission essentiality, and criticality, are specifically
designated for separate identification and inventory
control. Special materiel inventories include, but are not
limited to, stocked items designated as classified or hazardous.
Special materiel inventories also include controlled equipage
and presentation silver

Advantage Inventory Control

The Inventory Control gives you the ability to handle your
inventory your way. As one of the most flexible and
comprehensive modules in the Advantage, you can choose the
level of control that best suits your specific business needs.

55
Your inventory can be valued on a LIFO, FIFO or Average cost
basis. You can choose to use parts explosions, serialized
inventory, parts allocations, vendors, warehouses and an audit
trail. The system can also track the quantity sold for each item
for the last 12 months and, using this data, provides a sales
analysis report to help you better manage your stock. Financing
is aided by the serialized aged report that shows which
serialized items have been in your inventory the longest and
how much you have outstanding. Pricing can be standardized
by rounding to a given factor or by being set to a specific suffix.
With the Below Minimum report, reordering stock is automatic
and accurate. Inventory Control is a stand–alone module that
can also be integrated with Purchase Orders, Point of Sale,
Billing/Order Entry, Job Cost, Time Billing and Quick Sale.
21–character alphanumeric item number field
Lookup on item number, item description (21 characters) and
group (15 character) fields
Tracks serialized items
Allows for superseded, preceded and substitute items
Unlimited additional descriptions can be added to items
Handles markup and gross profit cost basis
Can automatically update item pricing and discounts
Handles core pricing
Produces a re–order report based on minimum stock quantities

56
Tracks unlimited vendors per item and recommends a ‘best’
vendor
Tracks allocations including explosion allocations
Up to 254 discounts per item, including quantity break
discounts
Unit conversions can be defined for each item for both buying
and selling quantities
Allows for warehouse transfers and other quantity adjustments
Set up special sale dates for item discounting

Produces physical inventory forms

Imports physical inventory and received quantities from data
collected with hand-held computers
Provides up to 255 levels of parts explosion to allow you to
identify all components of your assembled stock
Automatically updates cost and price on explosion items based
on subassembly changes
· Reports the best and worst selling items in each of eight
different categories
· Tracks items by location or quantity in multiple warehouses
· Can automatically generate items based on a template item
· Utilizes Rapid Entry to facilitate entry of item data
Disadvantages:

• conveyor needs to be slightly declined for carton movement

57
(one way);

• may require addition of powered booster units in some

applications;

• cannot be used for inter-floor movement except for down

travel;

• goods need to be manually pushed when horizontal;

• no positive control over moving carton;

• produces line pressure when accumulating.

· Require efficiency of land

We propose a method for valuing new, recoverable, and

recovered assemblies (products, components, parts, etc.) in
production systems with reverse logistics. Values of assemblies
influence their opportunity holding cost rates and are hence
essential for comparing inventory strategies in average cost
models. We argue that the proposed method is 'correct' from a
discounted cash flow (DCF) point of view. We refer to some
previous results on valuing assemblies in systems without
disassembly of returned products that seem to confirm this.
Furthermore, we test the method for a specific example with

58
disassembly of returned products. The simulation results
indicate that the method indeed leads to (nearly) DCF optimal
inventory strategies.

Packaging

In siemens, with its large product volumes, low margins and

fierce competition, is constantly seeking efficiency
improvements in its supply chain. The grocery retail industry
uses an immense amount of packaging and is directly affected
by packaging logistics activities. There is, therefore, a potential
for efficiency improvements in the grocery retail supply chain
through the integration and development of new systems of
packaging and logistics. Packaging handling is identified as one
of the main activities that has a strong impact on the overall
logistical cost of chain. This research article investigates
packaging handling evaluation methods and discusses how
these are employed to benefit the industry from the industry,
have been used to evaluate packaging and logistics activities.
This work, together with a literature review, was used to identify
the need for evaluative methods and the present availability of
such methods. The results indicated a lack of sufficient and
usable packaging handling evaluation methods in today's
grocery and packaging industry especially from a logistical
point of view. The paper also highlights the lack of

59
systematization among the few methods used and discusses
how these can be used to build a systematic and
multifunctional evaluation model in order to utilize the
information from different studies to build a knowledge base for
the future

Vendor-Managed Inventory
Siemens is a leading global manufacturer, focused on
delivering operational services to high-tech companies, needed
to take advantage of vendor-managed inventory (VMI)
postponement and optimal fulfillment solutions to stay
competitive in its low-margin manufacturing marketplace. Its
objective was to find ways to reduce inventory redundancy,
improve customer responsiveness by reduced cycle times and
simplify supplier management and procurement administration.
The manufacturer also needed to augment existing
infrastructure, while reducing investments in additional
personnel, facilities and systems Vendor Managed Inventory
(VMI)

Vendor Managed Inventory supports the efficient flow of

materials into the market. Working closely with you and your
suppliers, we automate the forecast management process with
Web-based software that enables the flow of supply to more
accurately mirror store – and even shelf-level – demand.

60
Move your inventory in and out of our distribution centers and
manage demand planning. We can store and stage product for
replenishment at our often freeing or limited store rooms. We
provide forecast visibility, comparing actual demand against
DC-on-hand, store-on-hand and in-transit inventory. When
store or inventory falls below pre-determined levels, auto alerts
are sent to you and your supplier to prompt replenishment.

Advanced Shipping Notices (ASNs) provide detail on in-transit

inventory from suppliers so you have visibility to inventory
deeper into the supply chain. This allows for confident
commitment to orders based on this inbound flow.
Postpone inventory ownership until shipment to your site. Once
your inventory is moved to the we work with your suppliers to
transition inventory ownership until demand occurs.
Perform value-added services, allowing you to more efficiently
manage the flow of goods into manufacturing or directly to
market.

Vendor Managed Inventory (VMI)

61
Vendor Managed Inventory by Kuehne + Nagel supports the
efficient flow of materials into the market. Working closely with
you and your suppliers, we automate the forecast management
process with Web-based software that enables the flow of
supply to more accurately mirror store – and even shelf-level –
demand.
Move your inventory in and out of our distribution centers and
manage demand planning with Web-based applications. We
can store and stage product for replenishment at our DCs,
often freeing up your own DC space or limited store rooms. We
provide forecast visibility, comparing actual demand against
DC-on-hand, store-on-hand and in-transit inventory. When
store or DC inventory falls below pre-determined levels, auto
alerts are sent to you and your supplier to prompt
replenishment.

Advanced Shipping Notices (ASNs) provide detail on in-transit

inventory from suppliers so you have visibility to inventory
deeper into the supply chain. This allows for confident
commitment to orders based on this inbound flow.
Postpone inventory ownership until shipment to your site. Once
your inventory is moved to the Kuehne + Nagel DC, we work
with your suppliers to transition inventory ownership until
demand occurs.

62
Perform value-added services, allowing you to more efficiently
manage the flow of goods into manufacturing or directly to
market.

63
 6. WAREHOUSE

A warehouse is a commercial building for storage of goods.

Warehouses are used by manufacturers, importers, exporters,
wholesalers, transport businesses, customs, etc. They are
usually large plain buildings in industrial areas of cities and
towns. They come equipped with loading docks to load and
unload trucks; or sometimes are loaded directly from railways,
airports, or seaports. They also often have cranes and forklifts
for moving goods, which are usually placed on ISO standard
pallets loaded into pallet racks.

Some warehouses are completely automated, with no workers

working inside. The pallets and product are moved with a
system of automated conveyors and automated storage and
retrieval machines coordinated by programmable logic
controllers and computers running logistics automation
software. These systems are often installed in refrigerated
warehouses where temperatures are kept very cold to keep the
product from spoiling, and also where land is expensive, as
automated storage systems can use vertical space efficiently.
These high-bay storage areas are often more than 10 meters
high, with some over 20 meters high.

The direction and tracking of materials in the warehouse is

coordinated by the WMS, or Warehouse Management System,

64
a database driven computer program. The WMS is used by
logistics personnel to improve the efficiency of the warehouse
by directing putaways and to maintain accurate inventory by
recording warehouse transactions.

Traditional warehousing has been declining since the last

decades of the 20th century with the gradual introduction of
Just In Time (JIT) techniques designed to improve the return on
investment of a business by reducing in-process inventory. The
JIT system promotes the delivery of product directly from the
factory to the retail merchant, or from parts manufacturers
directly to a large scale factory such as an automobile
assembly plant, without the use of warehouses. However, with
the gradual implementation of offshore outsourcing and
offshoring in about the same time period, the distance between
the manufacturer and the retailer (or the parts manufacturer
and the industrial plant) grew considerably in many domains,
necessitating at least one warehouse per country or per region
in any typical supply chain for a given range of products.

Recent developments in marketing have also led to the

development of warehouse-style retail stores with extremely
high ceilings where decorative shelving is replaced by tall
heavy duty industrial racks, with the items ready for sale being
placed in the bottom parts of the racks and the crated or
palletized and wrapped inventory items being usually placed in

65
the top parts. In this way the same building is used both as a
retail store and a warehouse.

IN INDIA SIEMENS HAVE THEIR WAREHOUSES AT DELHI,

MUMBAI, KARNATAKA, CHENNAI, BANGLORE, WEST
BENGAL, NASHIK, AURANGABAD, GOA, PUNE,
HYDERABAD, VADODRA

66
 7. TRANSPORTATION

Transport or transportation is the movement of people and

goods from one place to another. The term is derived from the
Latin trans ("across") and portare ("to carry"). Industries which
have the business of providing equipment, actual transport,
transport of people or goods and services used in transport of
goods or people make up a large broad and important sector of
most national economies, and are collectively referred to as
transport industries.

MODES OF TRANSPORT USED FOR TRANFER OF

INVENTORY IN SIEMENS

Air transport

Cable transport

Conveyor transport

Human-powered transport

Hybrid transport

New Mobility Agenda

Rail transport

Road transport, including human-powered transport such as

walking and cycling

Ship transport

67
Space transport

Sustainable transportation

Transport on other planets

Proposed future transport

Transport is a major use of energy, and transport burns most of

the world's petroleum. Transportation accounts for 2/3 of all
U.S. petroleum consumption.[3]

The transportation sector generates 82 percent of carbon

monoxide and 56 percent of NOx emissions and over one-
quarter of total US greenhouse gas emissions.[4] Hydrocarbon
fuels also produce carbon dioxide, a greenhouse gas widely
thought to be the chief cause of global climate change, and
petroleum-powered engines, especially inefficient ones, create
air pollution, including nitrous oxides and particulates (soot).
Although vehicles in developed countries have been getting
cleaner because of environmental regulations, this has been
offset by an increase in the number of vehicles and more use of
each vehicle.

68
Other environmental impacts of transport systems include
traffic congestion and automobile-oriented urban sprawl, which
can consume natural habitat and agricultural lands.

Toxic runoff from roads and parking lots that can also pollute
water supplies and aquatic ecosystems.

Alternative propulsion can reduce pollution. Low pollution fuels

may have a reduced carbon content, and thereby contribute
less in the way of carbon dioxide emissions, and generally have
reduced sulfur, since sulfur exhaust is a cause of acid rain. The
most popular low-pollution fuels at this time are biofuels:
gasoline-ethanol blends and biodiesel. Hydrogen is an even
lower-pollution fuel that produces no carbon dioxide, but
producing and storing it economically is currently not feasible.
Plug-in hybrids are energy-efficient vehicles that are going to
be in the mass-production.

Another strategy is to make vehicles more efficient, which

reduces pollution and waste by reducing the energy use.
Electric vehicles use efficient electric motors, but their range is
limited by either the extent of the electric transmission system
or by the storage capacity of batteries. Electrified public
transport generally uses overhead wires or third rails to transmit
electricity to vehicles, and is used for both rail and bus
transport. Battery electric vehicles store their electric fuel
onboard in a battery pack. Another method is to generate

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energy using fuel cells, which may eventually be two to five
times as efficient as the internal combustion engines currently
used in most vehicles. Another effective method is to
streamline ground vehicles, which spend up to 75% of their
energy on air-resistance, and to reduce their weight.
Regenerative braking is possible in all electric vehicles and
recaptures the energy normally lost to braking, and is becoming
common in rail vehicles. In internal combustion automobiles
and buses, regenerative braking is not possible, unless electric
vehicle components are also a part of the powertrain, these are
called hybrid electric vehicles.

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 8. DISTRIBUTION

Distribution is one of the 4 aspects of marketing. A distributor

is the middleman between the manufacturer and retailer. After
a product is manufactured it is typically shipped (and usually
sold) to a distributor. The distributor then sells the product to
retailers or customers.

The other three parts of the marketing mix are product

management, pricing, and promotion.

Traditionally, distribution has been seen as dealing with

logistics: how to get the product or service to the customer. It
must answer questions such as:

Should the product be sold through a retailer?

Should the product be distributed through wholesale?

Should multi-level marketing channels be used?

How long should the channel be (how many members)?

Where should the product or service be available?

When should the product or service be available?

Should distribution be exclusive, selective or intensive?

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Who should control the channel (referred to as the channel
captain)?

Should channel relationships be informal or contractual?

Should channel members share advertising (referred to as co-

op ads)?

Should electronic methods of distribution be used?

Are there physical distribution and logistical issues to deal with?

What will it cost to keep an inventory of products on store

shelves and in channel warehouses (referred to as filling the
pipeline)?

THE DISTRIBUTION CHANNEL

Frequently there may be a chain of intermediaries, each

passing the product down the chain to the next organization,
before it finally reaches the consumer or end-user. This
process is known as the 'distribution chain' or the 'channel.'
Each of the elements in these chains will have their own
specific needs, which the producer must take into account,
along with those of the all-important end-user.

A number of alternate 'channels' of distribution may be

available:

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Selling direct, such as via mail order, Internet and telephone
sales

Agent, who typically sells direct on behalf of the producer

Distributor (also called wholesaler), who sells to retailers

Retailer (also called dealer or reseller), who sells to end

customers

Advertisement typically used for consumption goods

Distribution channels may not be restricted to physical products

alone. They may be just as important for moving a service from
producer to consumer in certain sectors, since both direct and
indirect channels may be used. Hotels, for example, may sell
their services (typically rooms) directly or through travel agents,
tour operators, airlines, tourist boards, centralized reservation
systems, etc.

There have also been some innovations in the distribution of

services. For example, there has been an increase in
franchising and in rental services - the latter offering anything
from televisions through tools. There has also been some
evidence of service integration, with services linking together,
particularly in the travel and tourism sectors. For example, links
now exist between airlines, hotels and car rental services. In
addition, there has been a significant increase in retail outlets

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for the service sector. Outlets such as estate agencies and
building society offices are crowding out traditional grocers from
major shopping areas..

CHANNEL MEMBERS

Distribution channels can thus have a number of levels. Kotler

defined the simplest level, that of direct contact with no
intermediaries involved, as the 'zero-level' channel.

The next level, the 'one-level' channel, features just one

intermediary; in consumer goods a retailer, for industrial goods
a distributor, say. In small markets (such as small countries) it
is practical to reach the whole market using just one- and zero-
level channels.

In large markets (such as larger countries) a second level, a

wholesaler for example, is now mainly used to extend
distribution to the large number of small, neighborhood
retailers.

In Japan the chain of distribution is often complex and further

levels are used, even for the simplest of consumer goods.

In Bangladesh Telecom Operators are using different Chain of

Distribution specially 'second level'.

Many of the marketing principles and techniques which are

applied to the external customers of an organization can be just

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as effectively applied to each subsidiary's, or each
department's, 'internal' customers.

In some parts of certain organizations this may in fact be

formalized, as goods are transferred between separate parts of
the organization at a `transfer price'. To all intents and
purposes, with the possible exception of the pricing mechanism
itself, this process can and should be viewed as a normal
buyer-seller relationship. The fact that this is a captive market,
resulting in a `monopoly price', should not discourage the
participants from employing marketing techniques.

Less obvious, but just as practical, is the use of `marketing' by

service and administrative departments; to optimize their
contribution to their `customers' (the rest of the organization in
general, and those parts of it which deal directly with them in
particular). In all of this, the lessons of the non-profit
organizations, in dealing with their clients, offer a very useful
parallel.

CHANNEL MANAGEMENT

The channel decision is very important. In theory at least, there

is a form of trade-off: the cost of using intermediaries to achieve
wider distribution is supposedly lower. Indeed, most consumer
goods manufacturers could never justify the cost of selling
direct to their consumers, except by mail order. In practice, if

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the producer is large enough, the use of intermediaries
(particularly at the agent and wholesaler level) can sometimes
cost more than going direct.

Many of the theoretical arguments about channels therefore

revolve around cost. On the other hand, most of the practical
decisions are concerned with control of the consumer. The
small company has no alternative but to use intermediaries,
often several layers of them, but large companies 'do' have the
choice.

However, many suppliers seem to assume that once their

product has been sold into the channel, into the beginning of
the distribution chain, their job is finished. Yet that distribution
chain is merely assuming a part of the supplier's responsibility;
and, if he has any aspirations to be market-oriented, his job
should really be extended to managing, albeit very indirectly, all
the processes involved in that chain, until the product or service
arrives with the end-user. This may involve a number of
decisions on the part of the supplier:

Channel membership

Channel motivation

Monitoring and managing channels

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Good Distribution Practice or GDP deals with the guidelines
for the proper distribution of medicinal products for human use.
GDP is a quality warranty system, which includes requirements
for purchase, receiving, storage and export of drugs, intended
for human consumption.

GDP regulates the division and movement of pharmaceutical

products from the premises of the manufacturer of medicinal
products, or another central point, to the end user thereof, or to
an intermediate point by means of various transport methods,
via various storage and/or health establishments.

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 9. PACKAGING AND LABELLING

Packaging is the science, art and technology of enclosing or

protecting products for distribution, storage, sale, and use.
Packaging also refers to the process of design, evaluation, and
production of packages. Package labelling (BrE) or labeling
(AmE) is any written, electronic, or graphic communications on
the packaging or on a separate but associated label.

Packaging is heavily integrated into our daily lives, we see it all

around us, on everyday items such as chocolate bars and
potato chip (crisp) packets- As explained below, the main use
for packaging is protection of the goods inside, but packaging
also provides us with a recognisable logo, or packaging, we
instantly know what the goods are inside

The purposes of packaging and package labels

Packaging and package labelling have several objectives:

Physical Protection - The objects enclosed in the package

may require protection from, among other things, shock,
vibration, compression, temperature, etc.

Barrier Protection - A barrier from oxygen, water vapor, dust,

etc., is often required. Package permeability is a critical factor
in design. Some packages contain desiccants or Oxygen
absorbers to help extend shelf life. Modified atmospheres or

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controlled atmospheres are also maintained in some food
packages. Keeping the contents clean, fresh, and safe for the
intended shelf life is a primary function.

Containment or Agglomeration - Small objects are typically

grouped together in one package for reasons of efficiency. For
example, a single box of 1000 pencils requires less physical
handling than 1000 single pencils. Liquids, powders, and
flowables need containment.

Information transmission - Packages and labels

communicate how to use, transport, recycle, or dispose of the
package or product. With pharmaceutical, food, medical, and
chemical products, some types of information are required by
governments.

Marketing - The packaging and labels can be used by

marketers to encourage potential buyers to purchase the
product. Package design has been an important and constantly
evolving phenomenon for dozens of years. Marketing
communications and graphic design are applied to the surface
of the package and (in many cases) the point of sale display.

Security - Packaging can play an important role in reducing the

security risks of shipment. Packages can be made with
improved tamper resistance to deter tampering and also can
have tamper-evident features to help indicate tampering.

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Packages can be engineered to help reduce the risks of
package pilferage: Some package constructions are more
resistant to pilferage and some have pilfer indicating seals.
Packages may include authentication seals to help indicate that
the package and contents are not counterfeit. Packages also
can include anti-theft devices, such as dye-packs, RFID tags,
or electronic article surveillance tags, that can be activated or
detected by devices at exit points and require specialized tools
to deactivate. Using packaging in this way is a means of loss
prevention.

Convenience - Packages can have features which add

convenience in distribution, handling, display, sale, opening,
reclosing, use, and reuse.

Portion Control - Single serving or single dosage packaging

has a precise amount of contents to control usage. Bulk
commodities (such as salt) can be divided into packages that
are a more suitable size for individual households. It is also
aids the control of inventory: selling sealed one-liter-bottles of
milk, rather than having people bring their own bottles to fill
themselves.

Packaging types

Packaging may be looked at as several different types. For

example a transport package or distribution package is the

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package form used to ship, store, and handle the product or
inner packages. Some identify a consumer package as one
which is directed toward a consumer or household.

It is sometimes convenient to categorize packages by layer or

function: "primary", "secondary", etc.

• Primary packaging is the material that first envelops the

product and holds it. This usually is the smallest unit of
distribution or use and is the package which is in direct
contact with the contents.
• Secondary packaging is outside the primary packaging –
perhaps used to group primary packages together.
• Tertiary packaging is used for bulk handling and shipping.

Using these three types as a general guide, examples of

packaging materials and structures might typically be listed as
follows:

Primary packaging

Aerosol spray can

Bags-In-Boxes

Beverage can

Wine box

Bottles

Blister packs

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Carton

Cushioning

Envelopes

Plastic bags

Plastic bottles

Skin pack

Tin can

Wrappers

Secondary packaging

Boxes

Cartons

Shrink wrap

Tertiary Packaging

Bales

Barrel

Crate

Container

edge protector

Flexible intermediate bulk container, Big bag, "Bulk Bags", or

"Super Sacks"

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Insulated shipping container

Intermediate bulk container

Pallets

Slip Sheet

Stretch wrap

Packaging machines

A choice of packaging machinery includes, technical

capabilities, labor requirements, worker safety, maintainability,
serviceability, reliability, ability to integrate into the packaging
line, capital cost, floorspace, flexibility (change-over, materials,
etc.), energy usage, quality of outgoing packages, qualifications
(for food, pharmaceuticals, etc.), throughput, efficiency,
productivity, ergonomics, etc.

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High speed conveyor with bar code scanner for sorting
transport packages

Packaging machines may be of the following general types:

Blister, Skin and Vacuum Packaging Machines

Capping, Over-Capping, Lidding, Closing, Seaming and

Sealing Machines

Cartoning Machines

Case and Tray Forming, Packing, Unpacking, Closing and

Sealing Machines

Cleaning, Sterilizing, Cooling and Drying Machines

Conveying, Accumulating and Related Machines

Feeding, Orienting, Placing and Related Machines

Filling Machines: handling liquid and powdered products

Package Filling and Closing Machines

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Form, Fill and Seal Machines

Inspecting, Detecting and Checkweighing Machines

Palletizing, Depalletizing, Pallet Unitizing and Related

Machines

Product Identification: labelling, marking, etc.

Wrapping Machines

Converting Machines

Other speciality machinery: slitters, perforating, laser cutters,

parts attachment, etc

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 10. CONCLUSION

Logistics is the art and science of managing and controlling

the flow of goods, energy, information and other resources like
products, services, and people, from the source of production
to the marketplace. It is difficult or nearly impossible to
accomplish any international trading, global export/import
processes, international repositioning of raw materials/products
and manufacturing without a professional logistical support. It
involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging. The operating
responsibility of logistics is the geographical repositioning of
raw materials, work in process, and finished inventories where
required at the lowest cost possible.

Inventory is a list of goods and materials, or those goods and

materials themselves, held available in stock by a business.
Inventory are held in order to manage and hide from the
customer the fact that manufacture/supply delay is longer than
delivery delay, and also to ease the effect of imperfections in
the manufacturing process that lower production efficiencies if
production capacity stands idle for lack of materials.

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FINALLY I CONCLUDE THAT SIEMENS HAVE THE BEST
INVENTORY CONTROL MEASURES THEY HAVE BACK UP
FOR EVERYTHING I LEARNT

• HOW INVENTORY IS MANAGED

• WHAT IS ROLE OF TRANSPORT
• WHAT IS ROLE OF PACKAGING
• ROLE OF SUPPLY CHAIN IN INEVNTORY
• ROLE OF LOGISTICS DEPARTMENT IN INVENTORY

THEY CAN STILL UPGRADE MORE BY CONCENTRATING

MORE ON

JUST IN TIME

MAKE BUY IMPORT

PRICE FIXING

COST ACCOUNTING

COST REDUCTION TECHNIQUES LIKE

87
VALUE ENGINEERING

STANDARDIZATION

AND OTHER TRANSPORTATIONS PROBLEMS

88
 12. BIBLIOGRAPHY

MATERIAL MANAGEMENT BY SD APHALE

WWW.GOOGLE.COM

WWW.WIKIPEDIA.COM

WWW.SIEMENS.CO.IN

SIEMENS COMPANY – KALWA

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