Supply Chain and Inventory Management: Best Practices

Department of Supply and Storage

ITEM 4: Department of Supply or Storage focuses on:

Purchase: Buying supplies for the company, from production inputs to cleaning equipment and office supplies, taking into account the price, delivery, payment terms, etc.
Storage: Location of stocks waiting to be used. The store’s features depend on the characteristics of the goods. It can also be used to store goods at another stage of the production process.
Warehouse Management: Inventory management. Orders set the pace, anticipating the need for companies to not be without supplies.

Trader: The company buys stocks, holds them for some time in the store, and then sells them. The goods enter and leave without undergoing any transformation. For example, Mercadona.
Production: The company buys products while maintaining a warehouse until needed for the production process. Before leaving the warehouse, finished products can be stored again. The pieces have to wait some time in the store until needed for the production process. For example, a company that makes cars may have painted parts waiting in the store.

Stockpiles refer to any material used by the company that needs to be buffered. Types:

Raw Materials: Used as inputs, these will undergo transformation within the company. For example, logs in a trash can factory.
Semi-finished Products: These still have to go through some stage of the production process. For example, a car engine.
Finished Products: The output of the company, fully finished and waiting in the warehouse until they are sent to customers. For example, folios or a finished car.
Goods or Stock Trading: Stock of a trading company that is only stored, not transformed. For example, products in a supermarket.
Other Supplies: Goods important but not directly involved in the production process. For example, printer cartridges.
Products, Waste, and Recyclable Materials: Products that are not output but can be used by the company or otherwise. For example, fat in a slaughterhouse.

Broken Stocks: Replenishment is the main objective of the department. Stock breakage occurs when a company has shortages of stock and can produce a stop in the production process. It can occur in any producer or trader.
Volume Discounts: Discounts that can be obtained when buying large quantities.

Ordering Costs: Costs incurred in carrying out an order.
Maintenance Costs: Costs of maintaining an order in our company. These can be of 5 types:
- Administrative: To manage maintenance.
- Operational: Staff costs, insurance, media manipulation.
- Physical Space: Premises, refrigerators.
- Economic: Depreciation.
- Financial: Interest costs of that investment in stocks or opportunity cost if funding has not been requested.
Cost Breakdown of Stocks: Costs resulting from failing to meet a customer order.

Maximum Stock: The maximum number of stocks that can be stored, taking into account the costs that we bear.
Stock or Minimum Security: The maximum amount that can be maintained if stocks break and incur costs.
Order Point: The amount of inventory that indicates that an order should be placed to not be without supplies, taking into account the time of supply.
Supply Term: The time that passes since the order is placed until it is in the company.
Cadence Period: The period of time between orders.

Purchase Price: Valuing the stock at the prices that it cost, not just what is stated on the bill, but also the costs involved.
Cost of Production: Value stocks produced by the company as the sum of raw materials, other inputs, other direct manufacturing costs, plus indirect costs of the company. Direct costs are related to product manufacturing, and indirect costs can be applied to different products, such as cleaning.
Assessment of the Outputs: Valued differently depending on when entering or leaving, there are 3 criteria:
- PMP (Weighted Average Price): Rating on a weighted average price, i.e., giving more weight to those products which have more quantity.
- FIFO (First In, First Out): The first to come in are the first to go out. Goods that arrive first are valued at the price at which the first were bought, in chronological order of prices.
- LIFO (Last In, First Out): The last to come in are the first to go out. Goods are valued at the prices of the last ones that entered, which is opposed to chronological order.