Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

11.1.1 Characteristic Features of Stores Management

Intended learning outcomes: Present in detail characteristic features such as storage location ID, storage type, valuation basis, stock organization, embedding in the flow of goods, storage management principle, inventory issuance principle, and inventory control principle.


Stores management, in particular, determines the values of characteristic features related to storage of goods. The choice of values is heavily depen­dent on the characteristic features of planning & control within supply chains listed in Section 4.4, but particularly on the order penetration point.

The stockkeeping unit (SKU) is an inventory item at a particular geographic location.

For example, a shirt in six colors and five sizes would represent 30 different SKUs. A product stocked at the plant and at six different distribution centers would represent seven SKUs. See [APIC16].

Figure 11.1.1.1 presents specific characteristic features of stores management. Definitions of some of the features and values follow:

Fig. 11.1.1.1       Characteristic features for stores management.

The identification or storage location identifies the geographic place of sto­rage. This will generally refer to the layout in a warehouse and include the warehouse ID, its different floors, and, for each floor, the coordinates row (x-axis), shelf (y-axis), and level (z-axis).
Storage type describes the infrastructure available for physical storage: floor storage, refrigerated storage, storage in special tanks, silos, and so on.
Cost accounting uses the feature valuation basis for distributing the costs of storage to their source, the stored goods, as accurately as possible.
Stock organization:
  • Single-stock organization stores the entire stock of a particular item, or good to be stored, at one single stock location. Conversely, it is possible to store several different items at the same stock location, that is, under the same geographic identification.
  • Multiple-stock organization keeps the inventory of a particular item at various stock sites. Each partial inventory corresponds to a different stockkeeping unit, according to the definition of this term.
  • Variant-stock organization uses a concept that provides for storage of all variants of the same item family under one item ID. If, for example, the varying dimensions of a particular type of screw make up a family of screws, then every dimension of the screw is one variant of the same item family. The item family as a whole is then stored at one or several stock sites, while inventories for each variant are tracked separately.
Embedding (of the store) in the flow of goods:
  • A centralized store is usually remote from the flow of goods. Between the centralized warehouse and the user operations, inventories are transferred using an inventory issue slip. Inventory receipts also generate a stock receipt slip. The responsibility rests with an organizational unit (usually centralized) created for that purpose.
  • A decentralized store is located directly at the shop floor or production line. The (decentralized) responsibil­ity for and management of this store lies with production.
  • A floor stock is a stock of low-cost items held in the factory, from which production workers can draw without requisition.
Storage management principle:
  • Fixed-location, or “on site” storage, is arranged according to a particular seque­nce. All items that logically belong together can be picked up one after the other.
  • With random-location storage, any one storage location can hold the stock of one item or another. Warehouse personnel do not try to find logical locations for new stock to be stored, but simply place it in the next available location. While random storage requires a locator file to identify parts locations, it often requires less space than fixed-location.
Inventory issuance principle and inventory valuation method:
  • With an unordered issuance principle it makes no difference what portion of stock should be issued. An appropriate valuation method is the average cost system: When a new order is received, a new weighted average unit cost value is computed as follows: (1) The value of the order is added to the value of the on-hand balance (valued at the current average unit cost value), and (2) the resul­ting value is divided by the sum of the units on hand plus those just received.
  • The FIFO issuance principle / valuation method (first in, first out) or a LIFO issuance principle / valuation method (last in, first out) results in the removal from stock of that partial quantity that was received first or last, respectively. For this we need proof of the time at which each quantity was placed into stock. Batch control, as described in Section 8.2.3, provides such data.
  • The order specific issuance principle issues items that have been produced or procured by specific order. The corresponding order-specific valuation method assigns to these items a value that equals the actual costs of the respective order. For this, lot control has to be provided, too.
Inventory control principle:
  • With centralized inventory control, one office or department is responsible for inventory decision making (for all SKUs) for the entire company.
  • With decentralized inventory control, inventory decision making (for all SKUs) is exercised at each stocking location for SKUs at that location (see [APIC16]).

Optimal inventory organization is tuned to the characteristic features of planning & control currently valid in the supply chain. Just as the value of each of these features may change with the organization’s policies, the value of each inventory management feature can also change. Inventory organization must therefore remain flexible. Rather than forming a constraint for logistics, it must ensue from the type of logistics chosen.



Course section 11.1: Subsections and their intended learning outcomes

  • 11.1 Stores and Inventory Management

    Intended learning outcomes: Present characteristic features of stores management. Produce an overview on inventory transactions. Describe physical inventory and inventory valuation.

  • 11.1.1 Characteristic Features of Stores Management

    Intended learning outcomes: Present in detail characteristic features such as storage location ID, storage type, valuation basis, stock organization, embedding in the flow of goods, storage management principle, inventory issuance principle, and inventory control principle.

  • 11.1.2 Inventory Transactions

    Intended learning outcomes: Differentiate between perpetual inventory and book inventory. Produce an overview on the sources of planned and actual inventory transactions.

  • 11.1.3 Physical Inventory and Inventory Valuation

    Intended learning outcomes: Identify physical inventory, inventory adjustment, and inventory valuation. Present an example of a stock inventory list. Differentiate between the periodic physical inventory procedure and the cycle counting procedure.

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