Analysis on the Warehouse Management and Practices - A Case Study in UAE

Discussion in 'CAT / MBA INDIA Forum' started by s.ananad, Jan 6, 2014.

  1. Analysis on the Warehouse Management and Practices
    - A Case Study in UAE




    WAREHOUSING DEFINED

    'A warehouse is a planned space for the storage and handling of goods and material' (Fritz Institute). In general, warehouses are considered to be the focal points for product and information flow between sources of supply and beneficiaries. Warehousing is actively involved in the supply chain. In demand-driven supply chain this may be mainly by storing goods or involve more sorting activities; both being required to largely feed external customers. In the supply-driven supply chains then warehouses can be renamed as stores, and held stocks required to feed internal activities like production.

    Warehousing in its most basic form is simply holding goods until they are needed. The functions of a warehouse are to:

    1. Receive the goods from a source.
    2 .Store the goods until they are required.
    3. Pick the goods from the storage area when they are required.
    4. Ship the goods to the appropriate user.

    There are some significant differences between the finished goods warehouse and a raw materials storeroom. The fact is, however, that the functions performed in a finished goods warehouse, receive-store-pick-ship, are identical to the functions performed in a raw materials storeroom. Consequently, both are warehouses.

    In the warehouse environment we need to consider important factors that influence process efficiency e.g. layout choices and the policies by which work routines are controlled. By taking advantage of information technology and increasing the level of automation it has also been declared that the flow of information between different parts of a process can be significantly improved.

    In today's highly competitive global economy many firms are automating their basic warehousing functions to achieve the increases in throughput rates or inventory turns required for their warehousing operations to be cost-effective. As the computer and the associated data-capture equipment are inserted into a warehouse system a fifth warehousing function begins to emerge. That is the function of managing the information necessary to operate and coordinate automated material handling systems and computerized inventory management systems. As higher levels of automation and computerization are introduced, managing the flow of information becomes just as important as managing the flow of materials.

    There are many ways to organize these operations but the overall process in most warehouses shares the following common phases:

    * Receiving – the process of unloading, checking quality and quantity, and dissembling or repacking items for storage
    * Prepacking (optional)* Putaway – defining the appropriate location for items and transferring them to the specified storage location to wait for demand
    * Storage* Order picking – retrieving items from their storage locations and transporting them either to a sorting process or straight to the shipping area
    * Packaging and/0r pricing (optional)* Sortation and / or accumulation * Unitizing and Shipping – inspecting, packing, palletizing and loading items into a carrier for further delivery

    Advantages of WarehousingWarehousing offers many advantages to the business community. Whether it is industry or trade, it provides a number of benefits which are listed below.

    (a) Protection and Preservation of goods (b) Regular flow of goods (c) Continuity in production (d) Convenient location (e) Easy handling (f)Useful for small businessmen- (g) Creation of employment (h) Facilitates sale of goods (i) Availability of finance (j) Reduces risk of loss

    The Plight of the warehouse Manager Under the influence of E-commerce, supply chain collaboration, globalization, quick response, and just-in –time, warehouses today should have the following requirements

    - Execute more, smaller transactions
    - Handle and store more items
    - Provide more product and service customization
    - Offer more value-added services
    - Process more returns
    - Receive and ship more international orders

    But warehouses today have

    - Less time to process an order
    - Less margin for error
    - Less young, skilled, English speaking personnel
    - Less WMS capability (a byproduct in Y2K investments in ERP system)

    Current problems of warehousing in today's context* Automate all the mechanized or manual operations
    * Satisfy the requirements of the customer without much customization
    * Integration of the warehouse data with supply chain applications
    * Compatible to the cost- effective global supply chain

    Managing Inventory Levels It has been established that the role of inventory management is to ensure that stock is available to meet the needs of the beneficiaries as and when required. The inventory manager's job is to make inventory available at the lowest possible cost. In order to achieve this, the inventory manager must ensure a balance between supply and demand by establishing minimum holding stocks to cover lead-times. To achieve this, the inventory manager must constantly liaise with the programs to keep abreast of changing needs and priorities. The warehouse must always have sufficient stocks to cover the lead-time for replacement stocks to avoid stock-outs.

    Inventory ControlThere are two methods of inventory control that are applicable to emergency situations:

    1. reorder level policy
    2. reorder cycle policy.

    There are three basic reasons for keeping an inventory:

    1. Time 2. Uncertainty 3. Economies of scale

    In spite of having drastic developments and latest sophisticated technologies in the field of warehousing, there is always a speculation for the organizations of which strategy should be adapted in order to gain maximum efficiency and at the same time reduce the costs involved in warehousing. The decision to choose the right strategy and the right technology for the businesses is very crucial and this is a very challenging task to perform in the present circumstances. The new technology deployed should increase the throughput and efficiency of the system and at the same time reduce the costs and reduce the time taken to perform that respective operation.

    The present warehouses are in the situation, where there is a speculation of which strategy can give the warehouses the best results and the warehouse managers are very skeptical and apprehensive over the use of the latest technologies or the traditional warehousing methods in order to maintain the warehouse efficiently at the same time gets good results for the organizations.

    This thesis work gives an insight latest advances and trends in technology in the field of warehousing and it also gives us a glance of today's warehouses and how they perform their operations. The terminology of "Warehouse" concept is discussed very briefly in order to get an idea of all the operations performed in the warehouse and the technological advances available in the present market.

    Objective The primary objective of this article is to analyze the warehousing operations of Arabian Ehitcals and to provide feasible solutions for improvement and reduction of cycle time. An important goal of this study is also to identify which part of the warehousing related information is relevant for organizing processes.

    Cycle time reduction is one of the most important elements of successful warehousing. More and more customers are demanding that their suppliers quickly respond to their needs and deliver perfect quality products on time. This trend has led companies to focus more attention on their order processing capabilities. Today's companies require finding a good set of policies to organize warehouse processes for functionality and effectiveness. Reducing order processing cycle times can improve customer satisfaction and internal operations of a company but in order to do so there is a need to understand the relationship between warehouse complexity and control structure.

    Arabian EthicalsThe author conducted an initial study of warehouse processes in Arabian Ethical. The company has been playing the vital role of a wholesaler, controlling the flow of goods from the producers to the end customer. As a result, there is a constant need to improve the cycle time of internal logistics processes.

    Company Profile Arabian Ethicals Company otherwise referred to as "ARABIAN ETHICALS" was established in 1977 in the Emirate of Dubai as agents to Pharmaceutical and Medical equipment /consumable manufacturers.

    With a reputation for excellence, it distributes for many multinational manufacturers specializing in a wide range of pharmaceutical, consumer, veterinary and medical supplies and equipment.

    Arabian Ethicals employs 91 persons including sales and technical personnel. It has offices and warehousing facilities in Abu Dhabi and Dubai, as well as its own retail pharmacy operation. The company has undertaken aggressive expansion plans that will spread its already strong presence regionally.

    Some of the major suppliers of Arabian Ethicals:

    * Mepha
    * Sandoz
    * Himalaya
    * Nuk
    * Apex

  2. Statement of ProblemThe main issue regarding the company of this study is to find ways to improve the warehousing operations and warehouse cycle times through reorganization of order processing and materials handling activities. In order to accomplish these objectives it is important to know the different warehousing activities; the order processing time; and how can warehouse resources and space be allocated between different product categories in order to optimize material handling efficiency.

    The research design used in this study was descriptive research by collecting information on the warehousing operations adopted by Arabian Ethicals.

    In this study the research methodology used is Qualitative research method. The study was taken by interviewing the Warehouse in charge of Arabian Ethicals. By this method it provided the author a deep understanding of the warehousing activities conducted and how the process and operations work in the warehouse. It has also helped to understand the logistics function as to how it reaches UAE from Switzerland and the methods adopted to distribute this to different pharmacies and hospitals.

    The primary data was reviewing the internal database and observing the warehouse personnel's routine work. Interviewing and collecting first hand data (input) from the warehouse in charge of the warehousing practices adopted in the company and the difficulties faced during the operations. This helped to determine the order processing patterns and the overall distribution of time between different warehousing activities and identifying most critical bottlenecks in the warehousing process.

    The secondary data was collected by referring to different journals, news articles and internet that provide useful information on the study of the pharmaceutical company and the pharmaceutical industry.

    The results of this study showed that even simple planning methodologies can provide general guidelines for designing warehouse processes. The results also imply that companies with poor information infrastructure are unable to efficiently track operations that are performed within the warehouse. This emphasizes the fact that management of information flows is becoming an increasingly important criterion to successfully plan and allocate resources within the warehouse.

    Limitations The study solely looks into the internal functions within a company excluding the external environment as much as possible.

    Problem Identified 1. Increased CompetitionA major issue facing the industry is the intense competition and the changing face the pharmaceutical market. The industry has seen a legion of new market entrants, increased competition among key players and industry consolidation. Competitive advantage within the industry is being constantly redefined and to maintain their presence, key industry players are being forced to revamp their organizational structure.

    Competition is the biggest challenge in the Pharma Industry in UAE. In UAE Pharma Market there are as many as 400 to 500 companies are registered, which includes, local generics, branded generics etc, The local generic companies are mainly focusing on the Pharmacy oriented business; they pour a lot of free goods to customers and also they promote their product to doctors by providing sponsorship and gifts to the Doctors. The local generics are usually cheap in price.

    2. Production Delay / Out of Stock:Various factors lead to delay in production and may lead to out of stock if enough buffer stock is not kept.

    At times raw materials needed for manufacturing are not delivered for weeks this internally leads to delay in manufacturing the medicines for which the order has been given. Delay in manufacturing for weeks will lead to production delays for months since the medicines are sent by batches. The shelf life of the medicines, which depends on the climatic zone of the country, also plays a role in causing delay in production. At times changes on leaflet of the product and external factors like changes in the country's MOH Rules and Regulations (Ministry of Health) as well leads to production delay causing out of stock.

    3. Dealing with expired products:As every product has a shelf life, it is the companies responsibility to keep a close look on the expiry date and see that there is enough time for the product to be sold before it gets expired.Sales representatives of Mepha need to take back all expired products from the pharmacies and hospitals as a part of the company policy to the warehouse and get them safely disposed. In order to maintain good relations with the pharmacy and hospital sales representatives provide sales credit for the sale amount of the expired product.

    4. Planning – Decision Making Increased competition, economic conditions, and changes in both regulatory factors are important factors affecting demand.

    Forecasting cannot be always being accurate, forecasting decisions may either lead shortage of medicines or over stock especially during seasonal changes. The presence of more and more competitors as well plays an important role in the sales of the product. It is important for to take into account all factors while forecasting and deciding. New competitors keep entering the market with substitute medicines and are sold at competitive rates to pharmacies and hospitals, thus it becomes difficult to forecast.

    5. Marketing of new medicines: Drug companies are like other companies in that they manufacture products that must be sold for a profit in order for the company to survive and grow. They are different from some companies because the drug business is very risky. For instance, only one out of every ten thousand discovered compounds actually becomes an approved drug for sale. Much expense is incurred in the early phases of development of compounds that will not become approved drug. The total cost of bringing a new product to market from discovery through to launch, including the cost of capital with a risk premium and the cost associated with failures is of high risk.

    It always a challenge for medical representatives to best promotes their new products to the pharmacies or hospitals. New and substitute products keep entering the market and with good sponsorship and gifts been given to the purchase in charge thus marketing new products have become a challenging task for medical representatives. The company markets its new products by personally providing brochures and samples to doctors and pharmacist and by participating in trade shows. The company is not fully utilizing other methods of marketing that are available and are only confined to only few marketing methods.

    6. Damages:product damage in a warehouse is almost as common as air and water. It is so common that it has become invisible, covered by budget allowances and insurance. The cost of damages in warehouses runs into billions of whatever currency you choose. It is a staggering amount and amounts to more money than can be imagined. Damaged product is not just about the immediate cost of the lost products.

    In case of medicinal products bottles, outer package can get damaged due improper storage temperature, rodents, other substances like water spilt on the medicine pack due to which it cannot be sold to the customer and the company bares the loss.

    7. Transportation Cost Mepha air ships its medicines to Dubai by Emirates Sky Cargo. Air shipments are expensive as compared to other means of transportation.

    8. Data Updating: Data updating in the system plays an important factor to maintain stock in the warehouse. Data is updated in oracle manually. Product code, Product Name, Pack Size, Strength, Price, Description and Category all need to be entered by the warehouse staff. There is always a room for human error while updating in the system.

    Recommendations

    1. Increased Competition:The best way to deal with competition is to effectively identify it through market research and industry knowledge. The company should also position itself in the market relative to its competition. It should focus on brand recognition and product differentiation to establish its name as separate from that of competitors. The company should also follow competitor movements, such as price changes, introduction of new products and mergers and acquisitions. The company should always be aware of its competitors and improve itself and its offerings based on that as an ongoing process.

    Proper detailing of the product to Doctors, Routine visit, Proper Follow up of the order will be an added advantage by bringing up good sales. The most important thing is to keep a good relationship with the customer is very essential. The company should also follow competitor movements, such as price changes, introduction of new products and mergers and acquisitions. The company should always be aware of its competitors and improve itself and its offerings based on that as an ongoing process.

  3. 2. Production Delay / Out of Stock: Problems of production methods and costs must be worked out before manufacturing begins. If the original laboratory process of preparing and compounding the ingredients is complex and too expensive, pharmacists, chemists, chemical engineers, packaging engineers, and production specialists should be assigned to develop a manufacturing process economically adaptable to mass production.

    While making the forecast the company should adopt apply Pareto Analysis (also know as the 80/20 rule). This means 80% of the sales generated from 20% of goods and also the 80% goods generate 20% of the sales. Based on this the product should be categorized as ABC, the more volume goods should be categorized as A and then by B and the last would be C. We should always keep at least 3 to 4 months stock as buffer stocks in order to avoid stock outs and production delays.

    3. Dealing with Expired Products:product expiry and scrap due to expiry are a key planning issue. Expiry deals with product which has a defined life, usually due to efficacy and regulatory issues. While obsolete products don't necessarily result in product scrap and disposal, dealing with obsolete products can have a significant negative impact on margins and inventory levels, as well as cannibalize market share from newer products that replace them.

    In order to reduce the risk of products expiring before getting sold, the medicines should be sold based on First in First Out basis.

    4. Planning – Decision Making

    Arabian Ethicals and Mepha together needs to recognize the potential of adopting a high tech approach to both demand planning and supply chain management. More emphasis should be given to improvements in the areas of end to end cost and working capital turnover.

    Arabian Ethicals and Mepha should make the transition to better forecasting methods for inventory planning and end to end supply chain management. With lower inventories, cash will be freed up to address growth and investment opportunities, but it will also introduce the need for competencies in Lean and Response Management.

    If in case of over stock of medicines the company can resort to bundling the different medicines, providing competitive pricing methods and provide some medicines as bonus for a certain period of time in order to push the sale of the overstocked medicines. This will help the company reduce its excess stock which will lead to less storage space in the warehouse optimizing the warehouse storage space and bring up the sales and can better response to changes in the market.

    5. Marketing of new medicines:Medical marketing is important to patients, physicians, pharmaceutical companies and hospitals. Medical marketing is used to generate awareness about new products, services, technology and solutions to improve patient care. Organizations of every type use media and strategic marketing in their overall efforts.

    The following marketing methods can be adopted by the Mepha to promote new medicines in the UAE market:

    a. Conducting Conference:Mepha can adopt marketing methods like conducting conference by inviting sales in charge or purchase in charge of the pharmacies and hospitals. It is one of the best and cheapest ways to target a large number of people at one time. The benefits and uses of the new medicines can be best expressed face to face to a large number of audiences and can be marketed as well.

    b. Press Releases:press releases are used as a strategic tool. By adopting this marketing tool it will help the company keep the industry and medical community aware of new medicine launch and the research study done by the company. Press releases also generate awareness of organizational achievements that are used to attract investors to finance the research and production of promising new drug treatments, technology and equipment, as well as encourage their introduction into the medical industry and marketplace. Mepha can market its new medicines by press releasing in different news papers like Khaleej Times and Gulf news and as well in Arabic news papers like Al Bayan and Al Khaleej.

    c. Professional Journals and PublicationsMedical researchers and pharmaceutical companies strive to gain coverage in professional journals and publications. Articles, citing and references in publications like the Journal are highly respected within the industry. The company can use professional journals and publications like Arab Health Magazine to provide coverage of its new launch which can generate awareness among medical industry through announcements.

    Arab Health Magazine already reaches 29,238 of the top decision makers in the region's healthcare industry, including hospital CEOs, medical directors, department heads, facilities managers, government officials, supplies managers, surgeons, laboratory personnel, nursing staff. This is one of the cost effective's ways to not only market in UAE but other Middle East countries as well.

    6. Damages:Damages cannot be avoided but can be minimized to a great extent by taking proper precautions to make sure the medicines are stored as per their storage requirements. Taking proper measures to keep the warehouse place clean and ensure rodents do not enter the vicinity of the storage area. To ensure the warehouse in charge is present during unloading time to make sure proper techniques and measures are taken to avoid any kind of damage to the medicines. As well to ensure the medicines are not lying on the floor and are kept at its designated area.

    7. Transportation Cost: Reefers in sea shipment can be used instead of air shipment for transporting medicines. By using this method of transportation the company can reduce its transportation cost to a great extent.

    8. Data Updating:The company can use ERP (Enterprise resource and planning system) which integrates the distribution information, financial information with the Warehouse Management System. ERP system like Sage line 500 or Microsoft Great Plains can be implemented which can help easily monitor the movement of stock along with financial information corresponding to these stocks.

    Even though, there are enormous numbers of technologies available in the market, the companies are still hesitating to upgrade their warehouses due to the fear of high initial costs which are incurred due to the up gradation.

    The company should seek into investing into different systems that can help to solve problems in their warehousing functions. Today's world has a lot of different warehousing systems that cater to meet certain needs and requirements which will bring efficiency and accuracy.

    The company should implement Warehouse Management Systems and RFID into their warehousing operations.

    Warehouse management system From the above analysis it is evident that warehouse management system is a pivotal part of the supply chain which mainly controls the storage and movement of materials within a warehouse and processes the transactions, including receiving, shipping, picking and putaway. WMS also enables in directing and optimizing stock putaway according to the real-time information of bin utilization status.

    Warehouse management system works on Auto ID Data Capture technology, such as mobile computers, barcode scanners, wireless, RFID and LAN's to efficiently monitor the flow of products. In this process, data is collected and there is either batch synchronization, or wireless transmission to a central database in real time basis. Then the database provides the status of goods in the warehouse accurately. The main objective of WMS is to provide an automated (computerized) procedure to handle the records of incoming and outgoing goods. WMS provides a helpful link to logistics management and also for order processing in order to pick-up, packing and shipping the product out of the facility.
  4. WMS benefits:

    Faster payback and Inventory returns:
    WMS reduces the lead time by confining the movement of inventory and improve the inventory records accuracy, this leads to a system which supports the JIT environment.

    Efficient-Warehouse floor space utilization: Warehouse management system can efficiently locate the items in relation to receiving, assembling, packing, and shipping point thus contributing to efficient use of warehouse space.

    Reduction in paperwork for inventory transactions: WMS minimize the paper work which is associated with warehouse operations such as receiving, picking and packing by maintaining the data electronically, and also ensures the timely and accurate flow of information.

    Improvement in Cycle Counting: WMS captures relevant data in order to schedule the personnel for cycle counts. These cycle counts can enhance the accuracy of inventory records for planning purposes, and also minimizes the need costly physical inventories.

    Reduced Dependency on Warehouse Personnel: The operations such as picking methods, inventory movements and inventory locations can be standardized by implementing WMS. The above standardization results in lower training costs, lower error rate and minimizes reliance on informal practices.

    Enhanced customer service: The process can be streamlined from order to delivery with the WMS implementation, and thus companies can accurately find product

    Three technologies—dock scheduling, ADC and voice technology—are transforming warehouses nationwide. They deliver big gains and what they can do for your facility.

    The mission of every warehouse manager is clear—boost order fulfillment accuracy, increase worker productivity and slash labor costs. In short, make the warehouse run as smoothly and efficiently as possible. Fortunately, this overall objective is getting easier to accomplish with powerful technological solutions such as dock scheduling software, automatic data capture (ADC) and voice technology.

    Dock Scheduling SoftwareIt processes data from past shipments and figures out how much time a delivery should take. By projecting exact delivery times, the software allows warehouses to process more inbound shipments. Under the old system, changing a carrier's appointment required the receiving department to delete an entire record and then re-enter the data.

    The new software, in contrast, made scheduling a hassle-free process, reducing labor needs. The software has both simplified and sped up scheduling, which was once a 5 to 10-minute undertaking. Now, the average load is scheduled within two minutes.

    The software's reporting capabilities allow the distributor to evaluate vendors' and carriers' performance. Incoming products are time-stamped, and their arrival times are compared to their scheduled time and dates so the distributor can see immediately—as well as analyze over time—how a vendor or carrier is faring.

    In addition, the software helps anticipate labor requirements. Receiving supervisors can look at the warehouse capacity pie chart and automatically know if they're going into overtime. They can also specify time slots when products can't be received—such as during lunch break—so carriers know not to deliver during those hours. Thus, the company is not only increasing its own efficiency but its partners' as well.

    Automatic Data CaptureADC technology, which includes bar codes and radio frequency data communication (RFDC) systems, is another efficiency-enhancing solution that has already improved warehousing operations. By implementing this rapidly evolving technology or expanding its use in your distribution center, you can expect order fulfillment accuracy gains and labor cost reductions.

    ADC technology has also made the company's receiving operations more efficient. The software generates a pick list after workers scan orders into the system. The pick list is then transmitted to handheld devices carried by pickers in the company's 50,000 square-foot facility, and they, in turn, confirm the picks on their devices.

    ADC technology itself is seeing dramatic improvements. Scanners are getting sturdier, lengthening their range, and increasingly employing fuzzy logic, which allows them to read damaged bar codes. In addition, laser scanners may soon have to make way for the more advanced CCD camera, which is even faster and can capture images. Another hot ADC up and comer: wearable scanners, which promote even greater worker productivity in the warehouse.

    Changing trends of warehousing Due to the changing trends in the businesses, warehousing and distribution operations should adopt to the emerging changes and growing needs of the customers. The term 'Globalization' brought rigorous changes in the field of logistics. The distribution operations now pay more emphasis on fewer inventories, smaller order sizes, larger SKU catalogues, quicker order turnaround, increased customized packaging and value adding services. Once the businesses concentrated only on local distribution centers and now all the companies give more importance on having more globalized distribution centers, and instead of having single network channel, they are having multiple distribution channels.

    In order to cope to these changing trends every second, most of the companies have deployed new technologies such as Warehouse management systems (WMS) and Transportation management systems (TMS) and some have decided to redesign the processes and facilities to meet the emerging requirements as well as to reduce costs and improve service levels to the customers at the same time. Some large scale businesses have gone one step ahead and decided to deploy automation of the whole warehousing operations.

Share This Page