When I talk to companies about the ISA-95 standard, most focus on production operations as a pain point. They typically have a computerised maintenance management system (CMMS) for maintenance operations and a laboratory information management system (LIMS) for quality operations, but little attention is given to inventory operations. Maybe they feel that inventory is not such a big deal, and is already handled by the enterprise resource planning (ERP) system. This is a mistake, as scheduling, moving, tracking and reporting on inventory at the operational level can have a major impact on production efficiency and profitability.
In this article, I will focus on those industries with warehouses where raw materials are purchased, counted and sold (excluding mining, oil and gas, chemical and other continuous processes). Ensuring stock accuracy within these industries is of critical importance, not only to calculate production efficiencies, yields and waste, but also to improve production forecasting, available to promise (ATP or lead time) accuracy, shelf life (best before date) monitoring and logistics scheduling. I will use an example where I cut out the complexities of the production environment (work in progress stock). This, I will write about at a different time.
The warehouse
Take a wholesale supplier and distributor of industrial tools, accessories and equipment. This company buys product in bulk (containerised) and then sells individual components, packages and products (referred to as items from here on) to a multitude of businesses all over the country. As the sales volumes increase, it faces increasing challenges in managing warehouse operations efficiently and keeping accurate track of incoming, available, and outgoing stock. As the pace of deliveries and dispatches increases, the manual systems start to delay electronic data processing and lead to very little confidence in the data on existing systems.
It is found that existing systems and processes are prone to errors, resulting in inaccurate stock levels, delayed order fulfilment and dissatisfied customers. The company realises that it needs a warehouse solution that is fully integrated with its ERP, allowing it to work seamlessly across both systems without any interruption of data flow.
The functions critical to the effective operation of the warehouse are identified as the purchase order receiving process, the put-away process, the stock transfer process, the sales order picking process and the dispatch process, including the handover to courier companies. To enable these functions, the process below is proposed.
Receiving a container
A scanner solution is implemented, tightly integrated into the ERP system. When a container of product arrives at the warehouse, each package, box or item in the container is scanned and compared to the purchase order placed on the supplier. Any items without a scannable label are counted and the specific item stock code and description is searched and selected from a dropdown menu based on the purchase order lines. Depending on the item, barcode labels for each item may be printed for later identification. Validations are done to check purchase order validity, status and outstanding quantity. In cases such as low cost or fast moving, over-deliveries are acceptable. In other cases such as big value or slow moving items, over-receiving is not acceptable.
As packaging is sometimes damaged during transit, visual inspection questions are presented to warehouse personnel on the scanner. Items passing the visual inspection are put into a receiving area. If any item or package is damaged, the unit will go into a quarantine area from where the disposition will be decided. Once all the items are scanned or counted, they are displayed on a grid or report to the warehouse supervisor for review. The supervisor can decide to accept a damaged product into the receiving area or to transfer it to a reject area. Once the supervisor is happy with the counts and item status, a goods receipt note (GRN) is posted to the ERP with the quantities received against the purchase order.
Storing the goods
The next step is the put-away step. This is very important as it determines the ease of retrieval of the item later. For instance, fast-moving items need to be put away at eye level, slow moving goods at height, and big, heavy items at floor level. Items that are normally ordered together must also be put away close to one another in the warehouse to reduce travel time. When an item is put away, the scanner solution proposes a put-away location, for example a bin or rack number, based on the retrieval rules. The operator will then scan the location and the items going into that location. This information is sent to the ERP so that the item location can be updated in the ERP. This is critical to enable an accurate stock picture in the ERP. Once put away in a specific location, the items become immediately available for picking to a sales order.
Fulfilling a customer order
When a sales order is placed, it is checked against available stock and forecasted deliveries, and sent to the warehouse supervisor. In an out-of-stock situation, the customer will be informed about the items that will be placed on back-order. The supervisor will assign a pick-slip to a picker on a scanner to direct and guide the picker through the warehouse to the closest location containing the item to pick the stock against the sales order. The picker will scan the pick location and the item barcode (or enter a quantity removed from the location). A validation will be done to ensure that the items in the location are present on the pick-slip and that they have not been picked already. As the items are picked, they are posted to the dispatch note. Once posted to the dispatch note, the items are removed from available stock, ensuring that they cannot be allocated to another sales order, avoiding over-promising to customers.
The items are then checked again with a scanner as they are packed into boxes and box labels are printed. Scanning the box label will display all the items packed into the box so that a clear chain of custody can be maintained. The boxes and dispatch note are handed over to the courier company, which then acknowledges receipt via a sign-on-glass function on the scanner. Data in each process above is synchronised in real-time with the ERP, ensuring seamless and accurate data exchange between the two systems, reducing manual data entry and minimising errors.
Getting a stock picture
As there is now accurate data available and a close relationship between the storage locations and items stored, it is possible to do more frequent stock validations. For instance, the company assigns a warehouse employee to count the number of items in designated locations using a scanner. The employee will scan both the location and the labels for each item in that area or manually count the items and record the total.. This is then compared to the value on the ERP system to calculate a variance. The warehouse supervisor can then request a recount, do the count himself or just accept the new quantity. The new quantity will be sent to the ERP and the stock will be updated to the new value in the ERP.
This process of cycle counting reduces the need for formal stocktake sessions throughout the year that can stop the whole business for days at a time. A similar process is followed for formal stocktake sessions annually. These also take a lot less time as problem locations or problem items can be easily identified and fixed. For instance, where items were stored in a wrong location, the overall item count may be correct, but two location quantities will be wrong and can be fixed easily.
Benefits and outcomes
The implementation of the integrated solution brought about several significant benefits for the customer. These included:
Improved stock accuracy and traceability
Barcode scanning and automated data capture minimised human error, ensuring accurate inventory tracking and order fulfilment. The result was that the company went from an average of 68% stock accuracy to 99,8% stock accuracy.
Streamlined operations
The solution had automated picking and checking processes, making it easier for employees to track orders, locate products, and fulfill customer requests efficiently. This resulted in the company going from picking 900 sales order lines a day, to an average of 2200 lines a day without any considerable increase in manpower.
Improved service delivery
Due to the implementation of picking and checking alone, the company was able to enhance service delivery to customers by cutting lead times by 1,5 days. It was also able to leverage the enhanced forecasting and planning ability to get couriers to cut another day off the lead time, halving the time to get an order to a customer.
Conclusion
The importance of accurate stock figures in a warehouse is often overlooked by engineers and production personnel. The feeling is that it should always have enough raw material for what production needs, or enough product to satisfy customer demand. This is by no doubt correct, but keeping track of what goes into the warehouse and what goes out remains a constant struggle without the right tools. In the digital environment we live in today, the time lag and data capture errors manual systems introduce are just not acceptable any more. Having a word-class, fast-moving smart factory with a manual warehouse management system is an exercise in futility.
About Gerhard Greef
Gerhard Greeff has qualifications in chemical engineering, production management and quality management. He has been involved in manufacturing since 1987 and with software development and integration in the manufacturing operations management (MOM) field since 1999. Gerhard believes that a properly designed and implemented MOM system will improve operational effectiveness and efficiency and can add tremendous business value for any manufacturing company.
For more information contact Gerhard Greeff, Implementation Manager, TransLution Software,
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