CHAPTER 03 - RESEARCH METHODOLOGY

3.1 Hypothesis

Ø  There is a negative relationship between worker’s job knowledge and cost of inventory in UK Beverages (Pvt.) Ltd.

Ø  There is a positive relationship between lead time and cost of inventory in UK Beverages (Pvt.) Ltd.

Ø  There is a negative relationship between safety of the materials and cost of inventory in UK Beverages (Pvt.) Ltd.

Ø  There is a negative relationship between warehouse capacity for inventory and cost of inventory in UK Beverages (Pvt.) Ltd.

3.2 Basic Variables

Y = f (x₁, x₂, x₃…..)

X₁ = Worker’s job knowledge

X₂ = Lead time

X₃ = Safety of the materials

X₄ = Warehouse’s capacity for inventory

3.3 Conceptual Model

the ERP functioning and features, the inventory operations management is heavily dependent upon WMS System.

the ERP functioning and features, the inventory operations management is heavily dependent upon WMS System.

WMS system is different from an ERP based inventory system in the sense that WMS manages inventory but manages inventory operations and warehouse operations. Though it mirrors the inventory that lies in ERP, the rest of the operations that are carried out through WMS are different and operations intensive. Until a few years ago the inventory operations used to be carried out with basic WMS where most of the operations were manual. Put away lists and pick lists had to be printed and issued to the operators, who had to note down the bin location and the pallet ID etc on the slip and give it back to the operator to do the data entry into the WMS and update the systems.

With the introduction of scanning technology things became a lot easier where barcodes labels could be pasted on the inventory which could then be scanned via hand held or wireless scanners and the data could get uploaded into the WMS. This was further replaced by RF scanners, which work in real time basis. Today most of the warehouse operations are carried on through RF Scanners, which are like the extension of the WMS and are connected to the system on real time basis.

The operators can now download tasks, carry out the tasks and upload confirmation of task completion into the system through RF scanners. This has not only improved operations efficiencies and ensure better housekeeping but has greatly improved the inventory as well as data efficiency. Both ERP and WMS systems along with RF technology have helped improve inventory visibility, accuracy and operations efficiency, resulting in faster operations, leaner inventory and good warehouse management practices.

RF Tag IDs have made an entry into the inventory and supply chain arena and are currently being adapted by retail and textile industries as well as aero spares industry etc. Tag IDs will provide inventory visibility at all times throughout the supply chain and thereby ensure inventory accuracy. They are expected to help cut down and ease a lot of operational processes too. However exorbitant cost of the RF tags IDS has been the entry barrier that kept the industries from adapting this technology. The rates are dropping fast making it viable for all industries to adopt these into the inventory management and operations systems.

2.8 Inventory Management Systems

2.8 Inventory Management Systems Modern day inventory is managed by sophisticated system applications that are designed to manage complex inventory plans and to a large extent contain processes that initiate and streamline the operations and inventory management. In the wake of improvements in the communication technology, companies are deploying one single ERP system across all factories, offices, departments and locations, thereby ensuring seamless transactions, visibility and controls. Inventory in the earlier days used to be managed by a system known as cardex system. Bin cards were printed and kept in every bin location. Whenever inventory was put into the bin or removed, the card had to be updated. Apart from the bin cards, books or registers were maintained to note down the transactions and reports were prepared manually. The system was basic and did not provide flexibility to manage warehouse locations as dynamic locations. The operations being manual were time consuming.

In the next phase come the basic inventory management systems, which were a replica of the accounting books containing debit and credit entries along with the balance and the Cardex System continued to be used to manage the shop floor operations.

With the ERP System introduction, Material Management modules are deployed which work in tandem with procurement and other modules. Inventory modules contain intelligent applications that manage the inventory, help in analysis, categorization and to a large extent initiate actions and processes based on auto inputs derived from other sources.

ERP systems do contain Warehouse Management System modules, which can be deployed along with the inventory module to manage the warehouse operations. Basic inventory modules in ERP do contain location management of inventory but do not support warehousing operations in detail. WMS System applications are designed to work like an extension of the inventory system but are stand alone applications that help in warehousing, control, direct and manage inventory and operations.

In fact a robust system suite comprising of ERP and WMS with interfaces built in between the two systems can play a major role in managing inventory efficiencies. Both the systems need to be robust, strong and built to suit the business operations requirement as well as logistics operations requirements. While the inventory management efficiencies depend upon

(a) A-Item: Very tight control, the items being of high value. The control need be exercised at higher level of authority.

(b) B-Item: Moderate control, the items being of moderate value. The control need be exercised at middle level of authority.

(c) C-Item: The items being of low value, the control can be exercised at gross root level of authority, i.e., by respective user department managers. 

2. HML analysis

In this analysis, the classification of existing inventory is based on unit price of the items. They are classified as high price, medium price and low cost items.

3. VED analysis

In this analysis, the classification of existing inventory is based on criticality of the items. They are classified as vital, essential and desirable items. It is mainly used in spare parts inventory.

4. FSN analysis

In this analysis, the classification of existing inventory is based consumption of the items. They are classified as fast moving, slow moving and non-moving items.

5. SDE analysis

In this analysis, the classification of existing inventory is based on the items.

6. GOLF analysis

In this analysis, the classification of existing inventory is based sources of the items. They are classified as Government supply, ordinarily available, local availability and foreign source of supply items.

7. SOS analysis

In this analysis, the classification of existing inventory is based nature of supply of items. They are classified as seasonal and off-seasonal items.

For effective inventory control, combination of the techniques of ABC with VED or ABC with HML or VED with HML analysis is practically used.

2.6 Benefits of Inventory Control

·      Improvement in customer’s relationship because of the timely delivery of goods and service.

·      Smooth and uninterrupted production and, hence, no stock out.

·      Efficient utilization of working capital. This is helps in minimizing loss due to deterioration, obsolescence damage and pilferage.

·      Economy in purchasing.

·      Eliminates the possibility of duplicate ordering.

2.7 Techniques of Inventory Control

In any organization, depending on the type of business, inventory is maintained. When the number of items in inventory is large and then large amount of money is needed to create such inventory, it becomes the concern of the management to have a proper control over its ordering, procurement, maintenance and consumption. The control can be for order quality and order frequency. The different techniques of inventory control are: (1) ABC analysis, (2) HML analysis, (3) VED analysis, (4) FSN analysis, (5) SDE analysis, (6) GOLF analysis and (7) SOS analysis.

The most widely used method of inventory control is known as ABC analysis. In this technique, the total inventory is categorized into three sub-heads and then proper exercise is exercised for each sub-heads.

1. ABC analysis

In this analysis, the classification of existing inventory is based on annual consumption and the annual value of the items. Hence we obtain the quantity of inventory item consumed during the year and multiply it by unit cost to obtain annual usage cost. The items are then arranged in the descending order of such annual usage cost. The analysis is carried out by drawing a graph based on the cumulative number of items and cumulative usage of consumption cost. Once ABC classification has been achieved, the policy control can be formulated as follows: