TOPIC 1: SUPPLY DEPARTMENT
Supply is to provide something that is wanted or needed often in large quantities over a long period of time necessary in an organization.
Supply chain management- refers to the purchasing department efforts to develop better, more responsive suppliers.
Objectives of supply departments
- To support the firm’s operations with an uninterrupted flow of materials and services. Stock outs of raw materials would shut down an operation and be extremely costly in terms of lost production; escalation of operating cost due to fixed costs, inability to satisfy customer delivery promises to customers.
- To buy competitively and wisely (achieve the best combination of price, quality and service).
- To minimize inventory investment and loss; ensure capital invested on asset inventory cannot be invested elsewhere.
- To develop reliable and effective supply sources. Find suppliers who are both responsive and responsible to enable the firm obtain items and services it needs at the lowest ultimate cost.
- To develop and maintain healthy relations with active suppliers and the supplier community. For example by ensuring that the suppliers are paid in time.
- To achieve maximum integration with other departments, while achieving and maintaining effective working relationships with them;
- To take advantage of standardization and simplification.
- To keep up with market trends;
- To train, develop and motivate professionally competent personnel;
- To avoid duplication, waste, and obsolescence;
- To analyze and report on long-range availability and costs of major purchased items;
- To continually search for new and alternative ideas, products, and materials to improve efficiency and profitability; and to administer the supply management function proactively, ethically, and efficiently.
Supply department relationship with other departments
Supply department and Engineering
- Engineering department prepares material requirement schedule of the quantities required and when required to the supply department to buy accordingly
- Engineering department should prepare reports on quality performance of material and equipment’s purchased.
Supply department and manufacturing.
- Supply department should provide in advance on any delays or failures in material delivery so that production can make alternative arrangements
- Supply department provides raw materials, operating tools and equipment to the manufacturing department.
- Both departments should agree on the economic order quantities of materials to buy that will meet production needs.
- Both departments should introduce a variety of techniques that will improve performance such as Electronic Data Interchange (EDI), Material Requirement Planning (MRP) systems etc.
Supply department and quality.
- Quality control sets standards or specifications to be observed during inspection by the supply department.
Supply department and marketing.
- Supply department ensures that through efficient buying, costs are reduced. Marketing fixes the prices the items competitively.
- Supply department obtains materials on time and enables marketing to meet promised delivery date and schedules.
- Supply department should give advice on price changes and material availability so that marketing can respond appropriately.
- Marketing provides sales forecasts so that supply department can plan the buying of materials.
Supply department and Finance and Accounts.
- Accounts provide for effective purchase of materials. Supply management should consult with the accounts department before placing orders with suppliers.
- Supply management should prepare material requirements and budget allocations by searching for commodity prices.
- The supply department on receiving materials, certifies the supply invoice before presenting it to accounts for payments.
- Through annual stocktaking, supply management provides information on the value of stock that finance can use in making financial statements.
Supply management should give accounts information on materials damage and obsolete/outdated
Supply department and lawyers.
- Legal professionals are frequently and actively involved in contract negotiations and contract formation.
- In other cases, their role is to review and approve contracts developed by supply management professionals.
- Value-adding attorneys who are involved in supply management issues normally must embrace a collaborative approach to dealing with the firm‘s suppliers.
Supply department and Research and Development (R&D).
- Supply management agrees with research and development on material specifications, the availability of substitutes and price of substitutes.
Supply department and Personnel and Administration.
- Personnel department is responsible for recruitment, employment, promotions, transfers and dismissal of the staff.
- The two departments determine staff qualifications requirements, training needs, job description and evaluation to enable supply staff develop
- Personnel provide advice to Supply staff in matters of motivation, conflicts resolutions etc.
Supply department and Information Technology.
- Electronic communication for production materials of 1requires coordination and cooperation between supply management and IT
- The two departments should develop a database which provides timely and accurate input to supply management for strategic planning and tactical activities.
RECEIVING, INSPECTION AND ISSUING GOODS
According to business dictionary “it is an administrative function that involves checking of quality, quantity and condition of incoming goods followed by their proper storage”.
It is also the act of taking possession of goods in order to stage them for inspection or place them into inventory.
In the storehouse goods/materials are received from:
- The supplier – goods purchased
- The production department – the finished goods, semi-finished goods (W.I.P), the unused materials and scrap.
- The other departments – the scrap, goods issued in excess and repaired ones.
The receiving process in all above cases is one and the same, but with a slight difference from one organization to another.
- The supplier delivers the materials to the receipt section of the stores department along with a supplier’s advice note. This note is supplied to the receipt section either by post or through the driver of the carrier, if the goods are being supplied locally. The goods if purchased from outstation, it will be carried by some transport which will give carriers Consignment Note, to the supplier who will send it to the purchaser for the taking the delivery consignment from the transport agency. The supplier may send supplier’s packing note to the purchaser detailing the packages and their contents. This facilitates verification of the goods purchased with the help of the purchase order.
- As soon as the materials are received at the receipt section of the store the receipt clerk signs the delivery note in testimony to the fact he has received the materials recorded in the documents.
- The receipt clerk records the receipt in the Material Receipt Book or the Inward Book.
- The clerk prepares the Daily Receipt Voucher (DRV) or Materials Receipt Note. The DRV is prepared in the triplicate. Along with the DRV four notes, namely the damage report, shortage report, excess report and package slip are prepared.
- Immediately after the receipt of materials and necessary entries and the material receipt book and DRV, the storekeeper proceeds to check the quality of the material with the help of copy of purchase order and with the document which have been supplied to him along with the materials by the supplier. Any discrepancy detected is reported through the above mentioned notes with information to the purchase department for the necessary action at its end.
When the package/ goods are received by the receipt section in damaged condition, damage report is prepared in four copies:
- one of which is sent to the supplier,
- second to the purchase department,
- the third to the transport agency/ carrier’s driver and the
- last is retained as the office copy for record.
Likewise shortage and excess report are prepared incase materials have been short or in excess. They are also prepared in four copies.
- In order to reduce the number of proforma
- lessen the working time
- identify the columns of damage
- Shortage and excess are combined and only the proforma retrained.
After completing the process of preparation of reports, the receiver in charge proceeds to open the different packages received. Then after the DRV is prepared and the goods are sent to the inspection department for inspection along with the voucher for reporting back the suitability, non-suitability and recommending the acceptance/rejection of the materials.
It is a verification check if the goods/materials received arrived in good condition at the storehouse/warehouse before accepting them into your stock. It involves checking boxes, labels, quantity and quality.
After the receipt section is done with receiving the goods it sends them to the inspection department. The inspection department may either accept the materials or recommend their use, or reject the materials and recommend either their return or keeping them in suspense waiting for instructions from the production or purchase department. In case the goods are rejected, the inspection department will send a rejection note to the receipt section.
Objectives of inspection
- To maintain the standard and quality of products by accepting materials only prescribed as per purchase order.
- To receive the right quantity of materials.
- To make the supplier ever careful in supplying the right quality and quantity of materials.
- To utilize material rightfully.
- To make the purchasing or stores staff always watchful against any irregularity.
- The main aim is to prevent the production of non-standard products/items.
- To ensure quality and efficiency.
Advantages and disadvantages of inspection. (Assignment)
Methods of inspection
There are two methods of inspection. They are 100% inspection and Sampling inspection.
This type will involve careful inspection in detail of quality at each strategic point or stage of manufacture where the test involved is non-destructive and every piece is separately inspected. It requires more number of inspectors and hence it is a costly method. There is no sampling error. This is subjected to inspection error arising out of fatigue, negligence, difficulty of supervision etc. Hence complete accuracy of influence is seldomly attained. It is suitable only when a small number of pieces are there or a very high degree of quality is required.
In this method randomly selected samples are inspected. Samples are taken from different batches of products are representatives. If the samples prove defective, the entire delivery concerned is to be rejected or recovered.
Sampling inspection is cheaper and quicker.
It requires less number of Inspectors.
It’s subjected to sampling errors but the magnitude of sampling error can be estimated.
In the case of destructive test, random or sampling inspection is desirable.
This type of inspection accurate currency due to the introduction of automatic machines or equipment’s which are less susceptible to chance variable and hence require less inspection, suitable for inspection of products which have less precision importance and are less costly.
Example: Electrical bulbs, radio bulbs, washing machine etc.
Issuing of goods
‘Issue’ means supply of goods/materials from the store to various workshops or departments of an organization. Materials are issued on a written requisition by the departments which submit to the storekeeper requesting him to issue the material notated in the requisition slip. It is known as requisition/demand/issue slip note/indent and requisition voucher which is duly signed, dated and numbered by the requisitioning department.
Requisition is a written authority for the stores to issue materials to any per or section of the organization entitled to draw materials from the stores. The requisition should have columns for class and code numbers, description, quantity required, quantity issued, date of issue, works order number, requisition number, signature of the authorizing person, signature of the issuing storekeeper and signature of the receiver of materials.
As soon as the issue note is received from the requisitioning department, the storekeeper examines the competency of the requisitioning authority as to whether the authority, who has signed the document, is authorized to place the demand on behalf of the department or not. Generally, the production controller or factory manager or chief foreman is treated to be the component authority incase of production department. Once the competency has been established the storekeeper moves to check the availability of material with the help of stock ledger, which should be readily available at hand. If the materials are not available the storekeeper writes “not available” in the remarks column against the items which is not in stock. At the same time, he has to make sure that for such materials he has informed the purchase department for the necessary replenishment.
The materials which are in stock have now to be taken out from the bins and moved to the issue counter after making the necessary entries in the bin card, stock ledger, stores day sheet and issue note. After the physical delivery of the materials to the receiving personnel of the department concerned, the storekeeper takes the signature of the official with the date of testimony to the fact that the material has been issued and delivered.
Order picking (selection)
Order picking involves the collecting together of the supplies to meet the requirements of customers or production. It is normally labor intensive thus amenable (willing to do it or accept it) to work-study streamlining and use mechanical aids.
Major factor which affect order picking
- The number of stock lines carried
- Throughput per line per unit of time (week, day, hour).
- “ABC” characteristics of stock a regards value/variety.
- Number of orders per unit of time
- Number of line per order
- Number of units per line per order.
- Size, weight and physical properties of supplies handled
- Service ratio required
- Packaging and /or dispensing methods
- Requirements of customers or production
Methods of order picking
- Selection by order pickers who specialize in certain sections of the store each, dealing with a particular section. This method can involve delay if a large schedule includes quantities of materials from different sections. There is, of course no reason why the scheduling office should not prepare separate sheet for various sections to avoid them being passed from one picker to the next.
- Selection without specializing. Here each note or schedule is dealt with on its own, and the picker passes round from bin to bin until the order is complete. This is normal for smaller store, and it is the method where work-study in stores binning can considerable savings.
- Pickers can operate in stores which are themselves sectionalized
- The stores may be in random arrangement as regards location
- The selected materials may be distributed by regular journeys to the work-centers or by the journey, as the needs arise or as full loads are made.
Aids to order picking
There are three reasons for considering aids to order picking
- Order picking is labor intensive and time consuming
- Accuracy must be as near to 100 per cent as possible.
- Lifting and handling strains are frequent hazard
Aids to order picking
- Wire mesh basket carried by hand or on trolleys.
- “Supermarket” type trolleys with fixed baskets
- Tote pans and tote pan trolleys;
- Order picking trolleys- used in conjunction with tote pans
- Reel stands for paying out cable, rope etc, should be replaced clear of aisles, preferably at a wall that can be marked in unit lengths in preference to floor markings; this keeps the cable out of the way of personnel.
- Chutes to hook into shelves and bins for the dispensing of small parts, granules, powders, etc.
- Pans or trays to hook in a similar manner for counting small parts and similar items of supply.
After supplies have been purchased, received, and stored they are then issued to users in the various departments. Getting the right products to the right people at the right time can be confusing if the issuing process is not well managed. Some facilities use multiple storage areas, such as a main one for bulk supplies and another for daily issues. A policy should be implemented and understood by all personnel concerning the issuing procedure. It should include how, by whom, when and where to receive products. To ensure that items needed are properly issued and accounted for,
- A requisition form should be used which includes:
- Order date, issue date, ordered by and issued by,
- A place for the receiving person to sign and date.
To assist the stock clerk in filling the order and to determine daily cost, the following should also appear on the form:
- Stock number
- Total quantity requested
- Order unit
- Item description
- Issued to
- Price per unit
- Total cost
Common Terms Used To Describe Various Kinds of Materials
- Stock in trade – material held by a wholesale, retail or other trading concern usually bought in quantity at a low price to be sold as units at a higher price. E.g sugar, bread utensils.
- Raw materials – these undergo, changes through manufacturing process in the course of being incorporated into finished products e.g. coal, rubber, cotton, timber. The finished product of one industry may be raw material of another. Raw materials of right quality are most important in processing industries.
- Piece parts – small components manufactured from raw materials
- Bought parts – finished parts or assemblies purchased from outside suppliers by a manufacturer either to be incorporated into his / her own product or to be sold as spares or accessories.
- Equipment and spares– This include machines installations and vehicles as well as their associated spare parts.
- Tools– include hand tools (hammer, screw drivers) used on machines such as milling cutters.
- Gauges – devices for measuring dimensions of shapes of material or components e.g. plug, screw etc.
- Jigs and fixtures – pieces of equipment especially designed for holding materials or parts while undergoing machining, fitting and assembly or other.
- WIP – comprises incomplete items in the course of manufacture
- Packaging material – everything used for packing including wrapping materials e.g. paper, straw, rope.
- Scrap and residue – waste, used or surplus materials or parts arising out of manufacturing process or other activities.
- Free issue material – materials or components provided by a customer in connection with some equipment or commodity being manufacturers by him/ hers they are delivered to the supplier‘s factory but remain the customer‘s property and are not paid for or charged by the manufacturer. They are usually but not exclusively associated with goal contracts and are sometimes described as embodiment loan items.
- General materials – All goods which do not fall within any other category e.g. cleaning materials, Protective clothing, paints, nuts, belts, greases e.t.c these are frequently called maintenance repair and operating (MRO items
Coding of stock items:
Coding is a system of words, letters or combination of both that entails brief information related to various materials. Coding is a logical way of describing materials and it is used specifically to identify items exactness.
Methods of coding
(1) By nature of item: This is coding of items according to their inherent characteristics. Similar items into a series of main groups then each group is further subdivided into sub groups or sections
(2) By the end use of the item: This is coding of items according to or to correspond with the purposes for which the items will eventually be used.
(3) By the location of the item: This is the coding of materials on the basis of the location within the store where the materials are to be found e.g. the gangways, shelves, pallets etc.
(4) By source of supply: Here materials are coded according to the supplier or origin. If there are three suppliers the coding would be 1,2,3 or A, B,C. Coding of materials may be in accordance to local or international sources
(5) By the customer who will buy the end item: here materials are coded according to the final consumer who will eventually buy the end product e.g. individual consumer, industrial consumer, institutional consumers or resell government bodies.
Types of codes:
(1) Numeric e.g. 05/09/2009
(2) Alphanumeric e.g. PE/0721
(3) Alphabetical e.g. M/N/Z
Basis of classification and coding of materials
They may be based upon
- Nature of items
- Purpose of items
- Any other logical basis
Characteristic of an efficient stores code
- Uniqueness: Each item should have one code
- Distinctiveness: To avoid errors, codes representing different items should be distinctive.
- Clarity: Code should be entirely Alphabetical or Numerical
- Brevity: Codes should be brief but consistent with the requirement
- Expandable: codes should be able to cope with new additional items
- Unambiguous: Codes with similar letters should be avoided
- Significant: The code should signify something about the coded item the needs of organization.
Advantages of a Coding System
Avoids repeated use of long descriptive titles e.g. a very simple item like a writing pad might be described as faint ruled pad, 30 cm by 2 bound along the narrow edge of paper. Each line is 7.5 mm apart except for a margin of 20mm at the top of each sheet paper and a margin of 10mm
Accurately identifies all items. A separate code symbol is available for every individual type of item of materials in different sizes indicating there are an approved specification and any special character.
Prevents duplication of items – all items are arranged in same order. It therefore follows that similar stores will be grouped together and when an item is coded once it should not be given any alternative code number.
Assist in standardization and variety reduction. This is one of the most important and profitable uses of a code. The grouping of like items together makes it easy to examine complete range of any given type of items and consider whether the number of varieties used can be reduced and standardization achieved on the minimum number of the most suitable types.
It provides a foundation for an efficient purchasing organization. Apart from the fact that a coding system improves stock recording and control, it enables buying instructions to be conveyed easily and quickly. Grouping of items with codes facilitates the purchasing organization or department into commodity sections each engaged on the buying of a particular range of items/store. This is especially important where the is a central buying office serving several dispersed units because demands for materials from units can be programmed to deal with the same commodity group for all concern at the same time thus enabling the buyer to hence full advantage of quantity discount.
Simplify manual recording– Forms a convenient basis for sorting and recording of documents sheets and in fact, basic materials document enables them to be sorted into the number order. Then they are easily posted to the records which are arranged in the same order.
Simplifies mechanical records It would be practically impossible to employ computers for material recording in the absence of coding systems. The limitation of the equipment prohibits the use of long descriptions because of the it would take do input necessary data.
It’s convenient for central analysis of unit stare house records where there are a number of outlined store houses, and records a where there are a number of outlined store house and records are kept at central point, a code is a necessity to make sure that same item has the same identification in every unit. The central stock records can therefore be kept in a code number order showing how much is in stock and what the movement is for each stock holding point separately with a total for the organization as a whole. This act not only facilitates economical savings but enables the central office to arrange for the transfer of material from one unit to another as and when required.
It can be employed as a basis for stock control account. This also is usually arranged to correspond with the commodity groups or laid down coding system.
Simplifies pricing and costing – price list consisting all of the materials are cumbersome and reference to them is difficult and slow. The use of codes and numbers automatically provides a reliable index for all items. This feature of coding is emphasized in the case of production material code number may be arranged so as to correspond with cost headings thus simplifying materials costing.
May be used as store house location system – it’s clearly desirable that goods in the store house are arranged in an orderly manner. One way is to arrange items in the sequence of stores coding system as far as practicable.
Disadvantages of Stock Coding
The process of preparing stock codes is tedious
It requires a lot of memorizing
It complicates the storage function further
It may lead to a proliferation of jargon making it difficult for outsiders to understand.
It is divided into two classes. That is internal and external.
These are the internal measures taken by an organization within the warehouse.
Stock records– maintain accurate stock record for all materials in the warehouse.
Physical stock checking – conduct stock checking on the physical balances of stocks in the shelves so that they tally with the record.
Entry into the store– restricts unauthorized staff from trespassing into the store and ensures you check their gate pass.
Lighting – ensure there is adequate lighting to discourage pilferage of materials.
Stock location system – depending on the size of the store, nature of materials and other factors choose whether to use random or zonal.
Monitoring – Close monitoring of customers especially for distribution warehouses. This can be improved by CCTV cameras.
These measures are taken outside the warehouse building and they include;
Installation of security alarms- This is for alerting security officers in case of any breakage, theft or fire.
Installation of burglar-proof windows and doors – windows in a warehouse should be placed high to discourage material being passed through them, and also doors, should be made of metallic material to discourage easy break – in.
Fencing – warehouse premises should be fenced either using electric fence or ensure only one gate-pass is used, for easy checking of materials moving in and out.
Insurance cover – sock of materials represent capital, and therefore need to be insured against risks like, fire, theft, pilferage, so that compensation can be done for that loss.
Employ security guard – they will be manning the store during the day and night, and they will also be involved in monitoring those entering and leaving the store.
TOPIC 3: STOCK CONTROL
This is the process of making sure that the correct level of stock is maintained, to be able to meet demand while keeping the cost of holding stock to a minimum level (business dictionary).
“The process whereby the investment in materials and parts carried in stock is regulated within predetermined limits set in accordance with inventory policy established by the management” (Gordon b. Carson).
The Need to Hold Stocks
There are a number of reasons why a company might choose or need to hold stocks of different products. In planning any distribution system, it is essential to be aware of these reasons, and to be sure that the consequences are adequate but not excessively high stock levels. The most important reason for holding stock is to provide a buffer between supply and demand. This is because it is almost impossible to synchronize or balance the precise requirements of demand with the vagaries of supply. These and other important reasons are summarized, as follows:
- To keep down productions costs. Often it is costly to set up machines, so production runs need to be as long as possible to achieve low unit costs. It is essential, however, to balance these costs with the costs of holding stock.
- To accommodate variations in demand. The demand for a product is never wholly regular so it will vary in the short term, by season, etc. To avoid stock-outs, therefore, some level of safety stock must be held.
- To take account of variable supply (lead) times. Additional safety stock is held to cover any delivery delays from suppliers.
- Buying costs. There is an administrative cost associated with raising an order, and to minimize this cost it is necessary to hold additional inventory. It is essential to balance these elements of administration and stock-holding, and for this the economic order quantity (EOQ) is used.
- To take advantage of quantity discounts. Some products are offered at a cheaper unit cost if they are bought in bulk.
- To account for seasonal fluctuations. These may be for demand reasons whereby products are popular at peak times only. To cater for this whilst maintaining an even level of production, stocks need to be built up through the rest of the year. Supply variations may also occur because goods are produced only at a certain time of the year. This often applies to primary food production where, for example, large stocks result at harvest time.
- To allow for price fluctuations/speculation. The price of primary products can fluctuate for a variety of reasons, so some companies buy in large quantities to cater for this.
- To help the production and distribution operations run more smoothly. Here, stock is held to ‘decouple’ the two different activities.
- To provide customers with immediate service. It is essential in some highly competitive markets for companies to provide goods as soon as they are required (ex-stock).
- To minimize production delays caused by lack of spare parts. This is important not just for regular maintenance, but especially for breakdowns of expensive plant and machinery. Thus, spares are held to minimize plant shutdowns.
- Work-in-progress. This facilitates the production process by providing semifinished stocks between different processes.
Stock control methods/techniques
- Red-line method: the simplest, since a red-line is drawn at the lower level inside an inventory bin then inventory is stacked and when the red-line shows, more inventories is ordered.
- Two-bin method: Inventory is stacked in two bins. When the working bin is empty, inventory is drawn from the second bin and an order for additional inventory is placed.
- Computerized inventory control system: the inventory is computerized and as inventory is withdrawn, they are recorded in the computer and the inventory balance revised. Orders are placed when the reorder point is reached.
- Just-In-Time System: it automatically coordinates a manufacturer‘s production with suppliers’ production so that raw materials arrive from suppliers just as they are needed in the production process.
- Kardex system: in this system cards are vertically arranged in metallic tray and kept in kardex cabinets specially manufactured for the purpose. Posting in these cards may be done manually. But nowadays computers are slowly but steadily taking the place of manual posting.