Cause of Greenhouse Effect

The atmosphere of earth protects us from a number of things, including extreme cold. It acts like a woolen coat, which helps the world keep warm and above the freezing point. The heat from sun passes through the atmosphere before reaching the interiors of the earth. Some of this heat is trapped by the atmosphere, while the rest escapes into space. Greenhouse effect is the case in which the atmosphere traps more of the heat than what it normally does. The result of this effect is increase in the temperatures on earth.  If you want to know what the reasons for the greenhouse effect are, go through the following lines.

What is the Cause of Greenhouse Effect

The main reason for greenhouse effect is the emission of gases like nitrous-oxide, carbon-di-oxide, methane, ozone and water vapor. The causes of these emissions have been listed below.

Deforestation

One of the major reasons for the greenhouse effect is deforestation. With the increase in population, more and more forests are being cut to provide accommodation and other amenities to people. This has led to an increase in the amount of carbon di-oxide in the atmosphere. Add to this, burning of forests, for the purpose of deforestation, and we know why the carbon di-oxide has increased to such enormous levels.

Burning of Fossil Fuels

We all know that burning of fossil fuels, like petroleum and oil, wood and gas results in release of pollutants into the atmosphere. With time, the consumption of fossil fuels, be it for industrial purposes or consumer purposes, has increased and with it, the pollution levels in the world.

Electrical Appliances

Electrical appliances are amongst the major contributors to the green house effect. Refrigerators, air conditions or some other electric appliances emit gases, known as Chlorofluorocarbons (CFCs), which have added to the greenhouse effect.

Industries

Most of the industries today add to the pollution levels and in turn, lead to the greenhouse effect. Aerosol cans, some foaming agents used in the packaging industry, fire extinguisher chemicals and cleaners used in the electronic industry contribute to this. Even some processes of the cement manufacturing industries can be counted amongst the culprits.

Automobiles

Automobiles, whether they run on petrol or diesel, create pollution and release harmful gases into the atmosphere. These gases, in turn, create the greenhouse effect in the atmosphere. The forever-increasing use of automobiles has only added to the problem.

Population Growth
The high rate of population growth has been indirectly responsible for the greenhouse effect. With the increase in the number of people, the need for things like accommodation, clothes, cars, ACs, etc has increased. The result is more industries, more cars, more deforestation, and so on.  The ultimate consequence is greenhouse effect.

Greenhouse Effect & Global Warming

The Earth is wrapped in a blanket of air called the 'atmosphere', which is made up of several layers of gases. The sun is much hotter than the Earth and it gives off rays of heat (radiation) that travel through the atmosphere and reach the Earth. The rays of the sun warm the Earth, and heat from the Earth then travels back into the atmosphere. The gases in the atmosphere stop some of the heat from escaping into space. These gases are called greenhouse gases and the natural process between the sun, the atmosphere and the Earth is called the 'Greenhouse Effect', because it works the same way as a greenhouse. The windows of a greenhouse play the same role as the gases in the atmosphere, keeping some of the heat inside the greenhouse.

THE NATURAL GREENHOUSE EFFECT

The atmosphere has a number of gases, often in tiny amounts, which trap the heat given out by the Earth.

To make sure that the Earth's temperature remains constant, the balance of these gases in the atmosphere must not be upset.

The GREENHOUSE GASES are very important and are mainly:

§  Water vapour
occurs naturally in the atmosphere.

§  Carbon dioxide
produced naturally when people and animals breathe. Plants and trees absorb carbon dioxide to live. Volcanoes also produce this gas. Carbon dioxide is not the same as carbon monoxide

§  Methane
comes from cattle as they digest their food. The gas also comes from fields where rice is grown in paddy fields.

§  Nitrous oxide
when plants die and rot, nitrous oxide is produced.

§  Ozone
occurs naturally in the atmosphere.

THE ENHANCED GREENHOUSE EFFECT

Some of the activities of man also produce greenhouse gases. These gases keep increasing in the atmosphere. The balance of the greenhouse gases changes and this has effects on the whole of the planet.

Burning fossil fuels - coal, oil and natural gas - releases carbon dioxide into the atmosphere. Cutting down and burning trees also produces a lot of carbon dioxide.

A group of greenhouse gases called the chlorofluorocarbons, - which are usually called CFCs, because the other word is much too long! - have been used in aerosols, such as hairspray cans, fridges and in making foam plastics. They are found in small amounts in the atmosphere. They are dangerous greenhouse gases because small amounts can trap large amounts of heat.

Because there are more and more greenhouse gases in the atmosphere, more heat is trapped which makes the Earth warmer. This is known as GLOBAL WARMING.

A lot of scientists agree that man's activities are making the natural greenhouse effect stronger. If we carry on polluting the atmosphere with greenhouse gases, it will have very dangerous effects on the Earth.

THE EFFECTS

With more heat trapped on Earth, the planet will become warmer, which means the weather all over Earth will change. For example, summers will get hotter, and winters too. This may seem a good idea, but the conditions we are living in are perfect for life, and a large rise in temperature could be terrible for us and for any other living thing on Earth.

At the moment, it is difficult for scientists to say how big the changes will be and where the worse effects will occur.

The Weather

In Britain, winter and summer temperatures will increase and the weather will be warmer. In winter it may also rain more but in summer it may become drier.

In other parts of the world, the effects will be different, some places will become drier and others will be wetter. Although most areas will be warmer, some areas will become cooler. There may be many storms, floods and drought, but we do not know which areas of the world will be affected.

All over the world, these weather changes will affect the kind of crop that can be grown. Plants, animals and even people may find it difficult to survive in different conditions.

Sea Levels

Higher temperatures will make the water of the seas and oceans expand. Ice melting in the Antarctic and Greenland will flow into the sea.

All over the world, sea levels may rise, perhaps by as much as 20 to 40 cm, by the beginning of the next century.

Higher sea levels will threaten the low-lying coastal areas of the world, such as the Netherlands and Bangladesh. Throughout the world, millions of people and areas of land will be at danger from flooding. Many people will have to leave their homes and large areas of farmland will be ruined because of floods. In Britain, East Anglia and the Thames estuary will be at risk from the rising sea.

Farming

The changes in the weather will affect the types of crops grown in different parts of the world. Some crops, such as wheat and rice grow better in higher temperatures, but other plants, such as maize and sugarcane do not. Changes in the amount of rainfall will also affect how many plants grow.

The effect of a change in the weather on plant growth may lead to some countries not having enough food. Brazil, parts of Africa, south-east Asia and China will be affected the most and many people could suffer from hunger.

Water

Everywhere in the world, there is a big demand for water and in many regions, such as the Sahara in Africa, there is not enough water for the people. Changes in the weather will bring more rain in some countries, but others will have less rain.

In Britain, the Southeast will be at risk from drought.

IN DANGER!

Plants & Animals

It has taken million of years for life to become used to the conditions on Earth. As weather and temperature changes, the homes of plants and animals will be affected all over the world.

For example, polar bears and seals will have to find new land for hunting and living, if the ice in the Arctic melts.

Many animals and plants may not be able to cope with these changes and could die. This could cause the loss of some animal and plant species in certain areas of the world or everywhere on Earth.

People

The changes in climate will affect everyone, but some populations will be at greater risk. For example, countries whose coastal regions have a large population, such as Egypt and China, may see whole populations move inland to avoid flood risk areas. The effect on people will depend on how well we can adapt to the changes and how much we can do to reduce climate change in the world.

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, MM 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 WMS 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 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 more 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.

Good Inventory Management Practices

Good inventory Management practices in the company help by adding value in terms of having control over and maintaining lean inventory. Inventory should not be too much or too less. Both the situations are bad for the company. However often we see that inventory is not focused upon by the management and hence lot of inefficiencies build up over a period of time without the knowledge of the management. It is only when we start a cost reduction drive that the inventory goof ups and skeletons come out of the cupboard and results in revamping the entire operations.

However those companies, which have always focused on inventory as a principle function and recognized that the inventory effects their sales, as well as the books of accounts and profits, have managed to introduce and improve inventory management processes. Many business models work on lean inventory principle or JIT inventory along with other models like VMI etc. Inventory management to a large extent is dependent upon the supply chain efficiency as well as operations.

Inventory management is a management cum operations function. It requires operational processes to be followed and maintained on the floor and in inventory management systems. Coupled with operations, it entails continuous study; analysis and decision making to control and manage inventory levels.

We have covered below briefly few of the points which when followed, can go a long way in ensuring that the inventory is lean and clean.

1.      Review Inventory periodically and revise stocking patterns and norms

Inventory is dependent upon the demand as well as the supply chain delivery time. Often companies follow one stocking policy for all items. For example, all A, B & C categories may be stocking inventory of 15 days, which may not be the right thing that is required. While some items may have a longer lead-time thus affecting the inventory holding, the demand pattern and the hit frequency in terms of past data may show up differently for each of the inventory items. Therefore one standard norm does not suit all and can lead to over stocking of inventory as well as in efficiencies in the system.

2.      Get into detailed inventory planning – One size does not fit all

Understand the inventory types and the specific characteristics of the items you are carrying. Then build the inventory stocking parameters taking into account the unique characteristics of the particular inventory.

From amongst your inventory list, you will find that all types of materials are not of the same value. Some might be very expensive and need to be carried in stock for a longer period, while another item might have a shorter lead-time and may be fast moving. Quite a few items often have shelf life and hence require separate norms and focus to manage such items.

Getting into the detailed understanding will help you identify the inventory-stocking norm required to manage these characteristics to ensure optimum efficiency. The solution quite often may not be to carry stocks; rather it may involve setting up the customer service standard for such items and specifying a delivery time depending upon the frequency of demand. Quite a few items often have shelf life and hence require separate norms and focus to manage such items.

3.      Study demand pattern, movement patterns and cycles to build suitable inventory norms for different categories of inventory

Companies which are into retail segments and dealing with huge inventories in terms of number of parts as well as value will necessarily need to ensure they practice review of inventory list and clean up operations on ongoing basis.

Popularly known as catalogue management, inventory norms review should be carried out based on detailed study of the sales data, demand pattern, sales cycles etc. Understanding of the business and sales cycles specific to the product category helps one manage inventories better. For example, in case of retail garments, with every season certain skus become redundant no matter how their demand was in the previous months. This helps identify those stocks which are required to be managed at a micro level and identify the high value and fast moving items that need to be always on the radar to avoid stock outs.

It does not help for example to carry standard stocks of all items including low value items as well as high value items. If the low value items are locally available and the lead-time is less, one can cut down on the inventory and change the buying pattern. Similarly high value items too can be managed by cutting down the delivery lead times and in turn reducing inventory.

It helps to periodically study the past data and extrapolate the same to identify slow moving and obsolete items. The dead stocks should be flushed out and active catalogue items should be made available.

Inventory Planning – Basic Concepts

Every organization that is engaged in production, sale or trading of Products holds inventory in one or the other form. While production and manufacturing organizations hold raw material inventories, finished goods and spare parts inventories, trading companies might hold only finished goods inventories depending upon the business model.

When in case of raw material inventory management function is essentially dealing with two major functions. First function deals with inventory planning and the second being inventory tracking. As inventory planners, their main job consists in analyzing demand and deciding when to order and how much to order new inventories. Traditional inventory management approach consists of two models namely:

• EOQ – Economic Order Quantity
• Continuous Ordering
• Periodic Ordering

1. EOQ: Economic Order Quantity method determines the optimal order quantity that will minimize the total inventory cost. EOQ is a basic model and further models developed based on this model include production Quantity Model and Quantity Discount Model.
2. Continuous Order Model: works on fixed order quantity basis where a trigger for fixed quantity replenishment is released whenever the inventory level reaches predetermined safety level and triggers re ordering.
3. Periodic System Model: This model works on the basis of placing order after a fixed period of time.

 

EOQ Model

Example: Biotech. Co produces chemicals to sell to wholesalers. One of the raw material it buys is sodium nitrate which is purchased at the rate of $22.50 per ton. Biotech’s forecasts show a estimated requirement of 5,75,000 tons of sodium nitrate for the coming year. The annual total carrying cost for this material is 40% of acquisition cost and the ordering cost is $595. What is the Most Economical Order Quantity?

D = Annual Demand
C = Carrying Cost
S = Ordering Cost

D = 5,75,000 tons
C =0.40(22.50) = $9.00/Ton/Year
S = $595/Order

            

                        = 27,573.135 tons per Order.

This model pre supposes certain assumptions as under:

• No safety Stocks available in inventory.
• No Shortages allowed in order delivery.
• Demand is at uniform rate and does not fluctuate
• Lead Time for order delivery is constant
• One order = One delivery no shortages allowed.
• This model does not take into account other costs of inventory such as stock out cost, acquisition cost etc to calculate EOQ.

In this model, the demand increases for production the inventory gets depleted. When the inventory drops to a critical point the re order process gets triggered. New order is always place for fixed quantities. On receipt of the delivery against the order the inventory level goes up.

Using this model, further data extrapolation is possible to determine other factors like how many orders are to be placed in a year and what is the time lapse between orders etc.

EOQ For Production Lot:

This model is also used to determine the order size and the production lot for an item to be produced at one stage of production and stored as work in progress inventory to be supplied to the next state of production or to the customer.

Inventory Health – Important factors to be considered to avoid Inventory Mismatch

Any inventory of raw materials or finished goods runs into thousands of SKU items. Especially in case of Raw Material Inventory as well as Spare Parts Inventory these numbers could be much higher when compared to Finished Goods. Even in Finished Goods some products like clothes, grocery etc could run into thousands of SKUs across the entire range.

Every unit of Inventory has an economic value in the books of the company. Therefore as an asset one needs to have a control over the inventory and ensure that the books stock matches with the physical stock. By book stock essentially we mean system stock.

Inventory management on one hand consists of managing the inventory transactions and data in the system and on the other it involves physical processes on the ground. Both these have to work in tandem to ensure that all transactions are closed and completed both in the system as well as on the shop floor.

In a warehouse a typical day operations begin with receiving materials from different vendors, which are unloaded, counted and updated in the system. The system then issues a GRN and directs the location to which the material should be stored. Accordingly the material is then moved to the storage location and a confirmation back in the system closes the entire transaction. At the same time, parallel processes for shipment delivery will be under process where the system releases pick orders on the warehouse. Operations staff picks up the materials as per pick list and confirm back to the system, which then releases a packing order and an invoice for shipment. Amidst these multiple transactions there would be quite a few operational transactions like bin to bin transfers, kitting etc which are again transacted in the system followed by physical process and re confirmation to the system.

In such situation where multiple transactions both in system as well as physical operations are going on and the tasks are interdependent, any process deviation in any one of the transactions is bound to occur resulting in differences between system transactions and physical inventory.

Current trend in the industries is to outsource the warehousing operations to third party service providers, in which case the transactions increase manifold because of the introduction of additional system at the warehouse end, which belongs to the third party vendor. The principle customer maintains his inventory in his ERP, which transacts with the third party vendors WMS – Warehouse Management System and the Physical transactions on the shop floor, which have to run concurrently with the system.

1.      Systems Issues

Normally the ERP system and the WMS are interfaced using standard interfaces. Both systems exchange standard interface files updating the transactions carried out in each of the systems and are downloaded at both the ends in periodic batch frequencies of half hour or one hour. Thus all receipts received physically at the warehouse in one hour get updated in warehouse WMS which then sends out the GRN information to Client’s ERP for updating. Client’s ERP similarly processes the orders based on the inventory available in its system and issues sales orders which are sent across to WMS. WMS then generates pick waves which when confirmed lead to releasing of packing list and invoice. These transactions are again completed physically and WMS is updated. WMS further sends out the information of dispatch to ERP for further updation. For these transactions to happen smoothly both ERP as well as WMS should match perfectly in terms of inventory and transaction information.

When in case of day-to-day operations, hundreds of transactions are being processes at both the ends concurrently; the system updates may not happen on real time basis and can lead to inventory discrepancies. Therefore it becomes necessary to have daily reconciliation of all transactions between both systems as well as operations.

2.      System discipline required

Such transaction based systems call for strict discipline on the part of system users to ensure they complete all processes without deviation and regularly update the masters and reconcile on daily basis. Any lack of discipline can affect not only the inventory but effect transactions as well. For Example, if for any reason a particular SKU or consignment is blocked at the warehouse and is not to be dispatched, the inventory block should not only happen in WMS which controls floor operations but in ERP also. Otherwise in the ERP the blocked inventory may be showing as open inventory and get allocated for a sales order.

3.      Master Data Up-dation is a MUSTM

SKU code numbers in any inventory are subject to frequent changes. You can also have the same description and same item being supplied by different vendors. Every time a new SKU is created at the Customer’s ERP, one must ensure that the same new SKUs are created in the WMS too. WMS master data with regard to SKU Code, description and other SKU Master Data and Vendor Master Information should mirror that of the ERP. If by oversight or careless ness this co–ordination is found lacking the inventory gets mixed up or does not get uploaded into the system.

4.      System Inventory should match with Physical Inventory

The inventory that is setup and maintained in the ERP as well as WMS should correspond to the inventory on the shop floor. For example the inventory shown in ERP and WMS with details of each location as to where, how much is stored in which location should match exactly with the physical reality. On the shop floor the physical location should have the same SKU, Exact quantity as per System entry. Any mismatch on the floor location resulting out of mistake from the operations staff of keeping inventory in wrong location will create havoc in both system as well as operations.

Operational Challenges in Inventory Management

The latest trend in all industries has been to outsource inventory management functions to Third Party Service providers. Companies outsource both Raw Material Inventory as well as Finished Goods to the Service Provider.

In case of finished goods inventory, depending upon the supply chain design, there may be multiple stocking points at national, regional and state levels. In such an event each of the warehouses a different service provider may manage operations, as one may not be able to find a supplier having operations all over the country.

Therefore the inventory in such a situation will be managed in the Company’s system as well as in the Service provider’s system. Inventory management and control becomes a critical function especially in such situations where multi locations and multiple service providers are involved.

To ensure Inventory control is maintained across all locations, following critical points if focused upon will help:

1. Establish and outline Operations Process for Service Providers: Draw up SOP – Standard Operating procedure detailing warehouse operations process, warehouse inventory system process as well as documentation process.

Especially in a 3rd Party Service Provider’s facility, it is important to have process adherence as well as defined management, authorization and escalation structure for operations failing which inventory operations will not be under control.

2. Establish inventory visibility at each of the location through MIS Reports: Draw up list of reports and MIS data for all locations and ensure they are mailed to a central desk in the inventory team for daily review. The inventory team leader should analyze daily reports of all locations and highlight any non-conformity and resolve them as well as update the management.
3. Initiate Daily Stock count procedure to be carried out at all of the locations and reported back to the inventory desk.

Daily stock count should be able to reflect location accuracy, stock accuracy as well as transaction summary for the day.

4. Monthly audits and inventory count should be implemented at all locations without fail and insist on one hundred percent adherence.
5. Quarterly inventory – wall-to-wall count or half yearly and annual wall-to-wall count should be implemented depending upon the volume of transactions as well as value of transactions at each location.
6. Central Inventory team to be responsible for ensuring review of all reports and controlling inventories at all locations.
7. Inventory reconciliation – involves reconciling physical inventory at site with the system inventory at 3PL Site and then reconciling 3PL System stocks with company’s system stock.
8. Visiting major sites and being present during physical stock audits on quarterly or half yearly basis is very important.
9. Lastly keep reviewing processes and ensure training and re training is carried out regularly and at all times at site so that a process oriented culture is imbibed and all operating staff understand the importance of maintaining processes as well as inventory health.

Inventory is nothing but money to the company. If 3PL vendor is managing the inventory, needless to say you should have your processes in place to be able to control and maintain inventory health.

Factors affecting Inventory Operations

Inventory management operations are increasingly being outsourced to third party service providers, thereby ensuring that the investments and costs in managing the inventories are reduced. This is a welcome trend provided the company’s focus on overseeing and reviewing both inventory management as well as inventory operations periodically to ensure proper controls are maintained and processes followed.

Inventory management entails study of data on movement of inventory, its demand pattern, supply cycles, sales cycles etc. Active management calls for continuous analysis and management of inventory items to target at lean m inventory Management.

Inventory Management function is carried out by the inventory planners in the company in close co ordination with procurement, supply chain logistics and finance, besides marketing departments.

The efficiencies of inventory management are largely dependent upon the skills and knowledge of the inventory planners, the focus and involvement of management and the management policies coupled with the inventory management system.

However inventory operations management is not under the control of the inventory management team but rests with the third party service providers. In this section of the article we aim to uncover few of the critical areas and action points on the part of operations that can impact the inventory of the company.

1. Unskilled Labor and Staff: Inventory operations management is a process-oriented operation. Every task and action required to be carried out by the operatives will impact the inventory as well as the delivery lead times and other parameters. Therefore knowledge of what one is required to do and the effect of the action should be known to the operatives who are on the shop floor. For Example: If an operative is given a put away task, he should know how and where he should put away the pallet, how to scan the pallet ID and confirm it back to the system. Besides he should also know the impact of not completing any of these actions or doing some thing wrong. The impact his action will have on the system as well as physical inventory should be clear to the operative.

Secondly different inventory items would have to be handled differently. Operatives who are carrying out the task should know why and what is required to be done. They should also know the consequences of not following the process. A pallet might have to be scanned for the pallet id and put away on a floor location, while a carton might have to be opened and scanned for individual boxes inside and put away into a bin. The operatives should be trained on the entire process and understand why and what he is doing.

The WMS systems are quite operational and task intensive. Where the warehouses are being managed on RF based systems, the operatives should be able to manage the RF readers, understand how to access and complete transactions through the RF Guns.

Often it is noticed that when the warehouse operations are being managed by a third party service provider and the principle customer is not present at the location, the quality of staff and operatives is compromised and people are not given adequate training before being allocated their responsibility. Such situations can lead to inventory discrepancies.

2. In adequate SOP, Training and emphasis on processes compliance: When a inventory management project kicks off at a third party warehouse location, both the principle customer as well as the third party service provider work on the project and setup basic processes, document them in Standard Operating Procedures and conduct training as a part of the project management methodology.

However over a period of time, the nature of business requirements changes, resulting in change in the operating processes. These do not get documented in terms of amendments and the SOPs become outdated. Thereafter one finds that the new comers who are introduced on the shop floor are required to learn the processes by working along with others where as no training or SOP document is provided to him for reference. With the result they often have half-baked knowledge of the processes and carry on tasks not knowing why they are doing and what they are required to do.

This situation is very dangerous for the health of the inventory and it shows slackness in the attitude of the third party service provider. Continuation of such a situation will lead to bad housekeeping, inventory mismatches, discrepancies and also affect the service delivery. If left unchecked can lead to theft, pilferage and misuse of inventory.

In any third party owned inventory operations warehouse, the principle client should ensure that periodic review and training is conducted for all staff. Inventory operations should be periodically reviewed and inventory counts and audits carried out regularly.

Factors Leading to Inventory Inefficiencies

In any company inventory management is one area that the managements always focus on when it comes to improving business efficiencies and cutting costs. An inventory reduction drive always yields results, which are visible and releases cash back into business. Does this mean that inventory management is inefficient? The answer can be a yes and a no.

Inventory management function is dependent upon physical operations involving multiple locations and agencies and processes. The inter dependence upon transactions which are sequential and parallel, renders inventory susceptible to inefficiencies occurring in operations, transactions, and documentation over a period of time.

Another possible factor that can hamper the inventory efficiencies is the system setup that is used to manage the inventory. Quite often one can find that the system setup and process defined in the system is not user friendly and cumbersome. An efficient system should define and guide the physical process as well as documentation process. The system process should in turn be developed based on the business process requirement. In many cases the operations are made to suit the system setup, which already exists in some basic form and not suited to the particular business process on hand. Poor system setup that does not match with the shop floor warehouse set up renders operations in efficient. It is very common to come across complaints from users with regard to non-availability of features to work around the processes; at times processes are lengthy and cumbersome leading to operational delays. Non availability of different reports and loops and bugs in the system can often push the operations teams to find shortcut methods to bypass the system processes and carry on with the work, resulting in inventory inefficiencies as well as inefficient operations.

In cases where a company has outsourced the inventory management to a third party service provider, the inventory management complications increase manifold. You have the company’s ERP or inventory system on one hand and the third part service provider’s inventory management system or warehouse system on the other hand. At any given point of time both have to be reflecting the same inventory accuracy and also match with physical stock available on shop floor, but this is not the case always. In cases where the systems are interfaced too inventory in one system cannot mirror the other and reconciling transactions between the two systems can be cumbersome and time consuming.

Health of the inventory accuracy as well as inventory management can also depend upon the inventory strategy of the company and its outlook.

A few companies treat inventory to be a necessary evil and just about ensure processes are compliant and inventory audits are regularly held. They do not deal with and treat inventory as an important asset that needs to be managed and reviewed to keep it clean and accurate.

Those companies, which are aware of the implications and benefits that a lean inventory management practice can have on their business, strive to build good management practices and keep finding ways to optimize the processes. Any efficiency brought about with change in processes adds to the company’s profits. Hence they give attention to and invest in driving inventory management strategy and practices, which are benchmarked against the best in the industry.

Decisions with regard to level of inventory to be carried, who owns and carries the inventory in the supply chain are some of the key decisions that drive efficiencies in inventory management. Besides this technology can also bring about process improvements speeding up the sales and delivery processes and to a certain extent reduces manpower resources and associated costs too.

Inventory management is an ongoing and dynamic process. To keep out the inefficiencies in systems, processes and physical operations, calls for active management participation and continuous improvement in all processes and systems that are involved in inventory management.