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Objectives of stock keeping, cost factors

Version: 1.6, by Prof. Dr. Stefan Brunthaler

Stock keeping serves to harmonise procurement and distribution as well as consumption. It should achieve a high level of service with as small a costs as possible. High levels of service can be regarded as resulting in short delivery times and high stock availability. These goals can be 100% attained only by infinitely high storage costs; thus a favourable compromise is to be aimed at. The following cost-categories to be considered are from Barth et al. (see appendix):

  • Costs are caused directly by the stock (capital commitment, insurance, quality and quantity costs)
  • Installation costs
  • Personnel costs

Of interest for the consideration of the cost minimising effect of IT systems in the warehouse, the following cost factors are of particular importance:

  • Space costs: For the necessary area a calculatory rent is to be set.
  • Personnel costs: Total cost of the necessary personnel.
  • Capital outlays: Expenditures and financing expenses for machine, installations and buildings. In addition, fork-lift trucks, shelf-feeding installations, storage halls, IT etc., belongs here.
  • Operating costs: Current expenditures for care and operating machines and installations as well as buildings. Operational resources are also paper, receipts, printing costs, insurance.
  • Capital commitment: Lost income through interest for capital bound in stock.
  • For the evaluation of the use of an inventory control for the company neither costs or service-level can be regarded alone. Objectives for the warehouse-design can be alternatively thus: Minimisation, connected with the inventory control, of the costs with a given supply level, or maximisation of the supply level with a given cost budget for the inventory control.

Functions of an IT system to improve warehouse operations

The actual cost reductions and/or increased potentials in the service level can only be quantified for individual cases, when the individual case is regarded in detail. Therefore received here are some selected qualitative functions connected with usage/costs.

For the rest, there must be differences between pure warehouse accounting and on-line stock management:

Every economic system and (almost) all commercial software has warehouse accounting, because stock is to be commercially evaluated in each case. An On-line stock management system evaluates and administers in real-time and in detailed information about each transaction, each inventory, each warehouse area and personal as well as entry and exit activities.

Only with such a system can a genuine improvement in the operational warehouse business be achieved. It is additionally usually used for commercial warehouse accounting and is connected over interfaces.

On-line data processing in the warehouse


By the employment of IT in the warehouse, in particular with real-time recording of transactions, one receives an exact picture of the inventory at any time in the database. On the one hand the fixed-date inventory can be dispensed with (-> Permanent inventory), on the other hand the inventory security is substantially improved. On this basis exact planning and prognoses are possible, and its service level is clearly increased by avoidance of errors with reduced costs.

On the basis that an exactly known inventory can now, with the help of IT systems, accomplish precise and meaningful evaluations of highly-complex types, in order to reduce the inventory in the warehouse to the range necessary for the desired service level. Also the distribution of the inventory within the warehouse can be optimised by ABC analyses and reorganisation. Thus goods that are accessed frequently are placed into easily accessible areas, while ?slow moving items? are shifted into more remote areas. This supports the route optimisation (see below); such procedures are not economically feasible without IT.

Inventory optimisation, minimising the committed capital

Complex Commissioning Strategies

Specific commissioning strategies, which are indispensable for a high level of service, can be realised only by the use of IT. These are order-orientated parallel commissioning in multiple stock areas as well as multi-level commissioning, with which at first the total quantities of the required articles in multiple areas are relocated in parallel, so that in a further stage the individual orders and/or deliveries can be assigned. In particular, latter procedures offer substantial optimisation potential with IT use, depending upon the complexity of the delivery orders, which manually are not economical to process. Examples:

  • Delivery note:
    A delivery notes are transferred at night by long-distance data transmission to the database of the warehouse IT and automatically combined to the delivery (e.g. same addressee/customer).
  • Hit list
    It is now determined by an analysis program whether in the entirety of the delivery positions certain articles occur particularly frequently and must be selected in small quantities.
  • Optimising
    The IT system now ensures that the articles are processed in 2 stages and the associated orders correctly access the article amounts taken out of storage in the first stage.

Advantage: By concentrating on the temporary, high-turnover articles in exact, convenient amounts and controlling the commissioning precisely on these points of concentration, unnecessary supply procedures are avoid and routes are substantially shortened.

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