Does Storage and wastage go hand on hand?

Inventory is a significant and visible asset in most companies often the largest. Generally it costs 20% to 40% of the materials cost per year to store.

Thus a better inventory control system is the need of the organizations. A system which could control the flow by bringing of materials in and sending out on demand ideally. It frees up resources to employ elsewhere in the company. A retail store can remodel the warehouse space into more retail sales floor space without expanding the physical store. A manufacturer gets more space to produce goods. Both companies free the workforce to focus on primary tasks, from making goods to interacting with customers rather than storage.

For lowering the inventory level we have various existing inventory models like – JIT, ABC Inventory Control, Economic Order Quantity, Pooling Inventory etc. But for using these models management must rethink the entire work flow of the company, from initial intake of raw materials to final output of finished product. Supply-chain relationships require retooling that involves multiple suppliers, closer locations, or companies that can supply materials with little advance notice. Companies ordering smaller amounts of goods may encounter difficulty meeting minimum orders, requiring a different contract or a way to break up a large order over time or among several smaller manufacturers. Any attempt to reduce inventory must be in harmony with the goal of the organization which is to maximize long-term profits.

Conventional wisdom holds that inventory provides a buffer to ensure smooth operation against supply chain disruptions, from delivery delays through individual workstation breakdowns to unanticipated consumer demand. However, a carefully planned and systematically executed inventory control system can eliminate waste and encourage higher-quality output. But no inventory model is the best as there is nothing like best in the business. We should always search for the right/better approach. Like JIT could work better for Auto Industry, ABC could be implemented when resources are limited; EOQ could work where demand is constant. So it is very difficult to implement any inventory control model as a stand-alone process.

“Storage and wastage go hand on hand” must be the part of continuous improvement programs with the goal to minimize inventory or zero inventories where we could use one or two inventory model or all of them at a time depending on the variable factors as the culture of continuous improvement.

Union Budget 2016: Impact on India’s logistics and supply chain industry

Infrastructure Development

For FY17, The total budget allocated for road and highways is Rs 55,000 crore – this sum will be topped by an additional Rs 15,000 by NHAI through the issue of bonds. The total investment in the road sector including the Pradhan Mantri Gram Sadak Yojana will be Rs 97,000 crore. Together with the capital expenditure on railways as per this year’s Railway budget, the total outlay on roads and rail in 2016-17 will be Rs 2,18,000 crore. “We further expect to approve nearly 10,000 km of national highway in 2016-17 – much higher than the two previous years. In addition to this, 50,000 km of state highways will be taken up for upgradation and connection with national highways. The total outlay for infrastructure stands at Rs 2,21,246 crore for 2016-17,” said the Finance Minister.

Today’s Budget saw an increase in allocation to Rs 19,000 crore for 2016-17 over last year’s allocation of Rs 9,805 crore.  “This is only 60 percent of the cost – the states will bear the other 40 percent.” The total sum to be spent on the scheme will amount Rs 27,000 crore for the year 2016-17.He stated that the pace of construction of roads in the country has increased to 100 km per day, compared to 73.5 km per day seen in the year 2014.

Ports Development

The govt is planning to develop more Greenfield ports in the western and eastern coasts of India. The work of national waterways has also been expedited. “Rs 800 crore has been provided for this initiative,” he said.

Aviation Sector

In the Civil Aviation sector, the govt is drawing an action plan of reviving underserved airports. “There are 116 airstrips and airports that can be revived at an indicative cost of Rs 50 to 100 crore each. We will partner with the state govt to develop the regional connectivity,” Mr Jaitley said.  

To provide a fillip to India's aviation sector, the FM announced benefits including zero service tax on MRO, services, simplification of import processes for aircraft spares, exemption on customs duty for maintenance tools and removal of the one-year window restriction period for using duty free parts.

Cold Chain

Basic custom and excise duty on refrigerated containers is reduced to 5 percent and 6 percent respectively.

Dispute Resolution and Transparency

A Public Utility Resolution of Disputes Bill will be introduced during 2016-17 to streamline the resolution of disputes in the infrastructure sector arising in the areas related to construction contacts, PPP, and public utility projects. Also, the govt will issue new guidelines for renegotiation of PPP agreements to make the process transparent and ensure revenue.

As importantly, a new Credit Rating System for infrastructure will be introduced to put emphasis on the inbuilt credit enhancement structure of projects. “This could expedite commencement of some of the stalled projects,” he said. This move will also help companies and investors who have to other wise rely on market perceptions for evaluating projects.

With respect to tax sops for SEZs, the benefit of section 10AA to new SEZ units will be available to those units which commence activity before 31.3.2020.

Promoting Inflow of FDI

Announcing a big reform in the food processing sector, the FM informed the parliament that “100 FDI will be allowed through FIPB [Foreign Investment Promotion Board] route in the marketing of food products produced and manufactured in India.”   

E-Procurement

“Access to market is critical for farmers. The govt is implementing a Unified Agricultural Market Scheme which envisages a common e-Market platform to be developed in selected 585 regulated wholesale markets,” the FM said. Amendments to the states’ APMC act are a prerequisite to join this e-platform. This far, 12 states have amended the APMC act and are ready to come on board and more states are expected to join the fray. “A Unified Agriculture Market e-Platform will be dedicated to the nation on the birthday of Baba Saheb Bhimrao Ambedkar on 14 April this year,” he said.

He added that about 97 lakh MT of storage capacity was added to central food stock during this year. In order to increase the income of farmers and thereby domestic demand, today’s Budget allocated a sum of Rs 35,984 crore to farmer welfare and the agriculture sector.

Conclusion

In the last year's Budget [2015], the Service Tax rate was increased from 12.36 percent to 14 percent. An additional 0.5 percent Swachh Bharat Cess applicable from the month of November 2015 took it to 14.5 percent. In today's Budget, a Krishi Kalyan Cess of 0.5 percent was added bringing the current applicable Service Tax Rate to 15 percent.

Additionally, “an infrastructure cess of 1 percent will be imposed on small petrol, LPG, CNG cars, 2.5 percent on diesel cars of certain capacity and 4 percent on other higher engine capacity vehicles and SUVs.” This will see an increase in the cost of small and large commercial vehicles.  Plus, the ‘Clean Energy Cess’ [renamed as ‘Clean Environment Cess’] levied on coal, lignite and peat has been hiked from Rs 200 per tonne to Rs 400 per tonne. This will see a 20-percent increase in coal prices, thereby putting pressure on the cost of electricity.

The government plans to upgrade 50,000 KM of state highways to national highways and plans on building 10,000 KM of new roads at a targeted speed of 100 KM per day, which if achieved would help the bring trucking costs down significantly. Improved fuel efficiency and reduced maintenance cost for trucking companies would reduce prices for long-haul transportation in the long run. Also, another announcement of deferred customs duty payment for large importers would make importers plan logistics efficiently, potentially increasing number of shipments and helping the trade.For start-ups, there have been positive announcements, one being possibility of a new company formation in 24 hours. Also, manufacturing start-ups will gain from a reduced 25 percent taxation in comparison to the current rate, also supporting the Make in India initiative. Start-ups would also gain from application of only MAT, not corporate tax for 3 out of 5 years.

All these measure put together we could see an additional burden of 10-15 percent on the cost of logistics for companies in short run. But if implementation of the budget went well this would be positive in the long run for logistics. 

Ten Important Questions for a 3PL Warehouse Manager

1.      Question- What is warehouse?

·         Answer- A place where to store the goods.

2.      Question- What should be the right approach for a warehouse manager?

·         Answer-To take care of his customer like a nurse do for her patient and value his customer inventory like a banker value his customer money.

3.      Question- What is necessary for warehousing?

·         Answer- Proper Storage of goods, Correct Inbound and Correct Outbound.

4.      Question – What is necessary for warehouse manager?

·         Answer- Goods need to be secured in safe conditions; Goods need be counted and well maintained.

5.      Question- What is Inventory?

·         Answer- The condition in which the customer’s goods are stored in the still quiet condition.

6.      Question- What is inventory checking?

·         Answer- To prove the customer’s goods quantity is as same as the controlled figure.

1.      Question-If Inventory is not accurate, what will be?

·         Answer- You cannot ship the goods properly, cannot tell the customer how much he is having, and critical damage of your company brand.

2.      Question- How to control inventory?

·         Answer-

·         Every day checking in perfect quiet circumstances,

·         Every day reconciling the discrepancy and making correction if needed,

·         Maintain perfect match up of all data verses actual.

3.      Question- What is WMS?

·         Answer-Warehouse management system is the management of inventory, inbound, outbound.

4.      Question- What is purpose to use WMS?

·         Answer-

·         WMS need to be updated at the same timing as goods movement.

·         WMS calculates inventory by entering inbound & outbound.

·         Single entry of inbound and outbound is the key to achieve perfect inventory management.

·         Warehouse manager can check how much inbound and how much outbound has been done at the moment.

·         Warehouse manager could know what happened previously by referring WMS.

Rakesh K. Singh

Logistics Professional