Given the importance of raw material management in the economic success of companies, it is essential to know important aspects related to its administration, for this reason in PowerPeople we will publish a series of articles that we prepare with the aim of refreshing the knowledge that you have in this field and here is the first one, hoping that it will be useful to you and reiterating our availability to help you.
Introduction
The warehouse's main purpose is to provide the company with the necessary materials for its continuous and regular development, that is, it has a vital role to play in order to achieve a consistent and coherent operation within the production process and thus meet the demand of our customers.
Additionally, the inventory of our warehouses is one of the largest existing assets in the company, and is reflected both in the balance sheet and in the income statement:
On the balance sheet, inventory is often the largest current asset.
In the income statement, the ending inventory is subtracted from the cost of the goods available for sale, determining the cost of the goods sold during a certain period.
All that our warehouses contain are tangible goods that are kept for sale in the ordinary course of business to be consumed in the production of the corresponding departments, that is, Kitchens and Bars. Inventories include the raw materials to be consumed in the production of the products that our menu or menu includes both in Restaurants and Bars.
Purchases in our environment as in any other, are intimately linked to our warehouses, that is why this article is focused on both activities within the Food and Beverage Industry.
Purchasing and Warehouse Administration
The inventory represents the existence of raw material for its production and sale. The optimal administration of the purchasing department and our warehouses consists of having the availability of these resources when required by the hotel departments, based on the implementation of policies that allow us to decide how much and when the replenishment point occurs of goods.
Good administration of the purchasing department focuses on four basic aspects:
1) Requirements of the requesting departments. Production.
2) Reposition point.
3) Articles of greater care.
4) Fluctuation of acquisition prices.
The correct administration of purchases and warehouses consists in having the raw material required for the operation at the lowest possible cost, with the best quality and under the best payment conditions.
A well-stocked inventory allows us to optimize times because production and delivery generally do not take place instantly, so we must have sufficient stocks in our warehouses to which we can draw promptly so that production and sales are not delayed..
The objective of the administration of the purchasing department includes two aspects that oppose each other:
1.- The least investment in inventory is required, since other resources that are not destined for that purpose can be invested in other acceptable projects that would not otherwise be possible to finance.
2.- We must ensure that the warehouse has sufficient inventory to meet the demand of our customers when it occurs and for production to function properly.
The previous aspects are in conflict because if the inventory is reduced, the investment is also reduced, but we run the risk of not having enough raw material to satisfy the demand of the organization's operations.
On the other hand, if we have large inventories, investment increases.
By controlling inventory efficiently we have two aspects:
We are able to meet our customers' needs in the correct time and manner but generally involve high cost due to charges for handling of goods, performance of goods and storage of goods.
The correct administration of our inventory has the specific objectives of customer satisfaction, optimizing purchases and production, and last but not least, reducing investment in this area as much as possible.
Warehouse analysis and optimization.
To achieve efficiency in the management of our inventory and optimize costs for this concept, the organization must design an inventory management policy, considering the conditions in which it carries out its business activity, in our case, in accordance with food and drinks. This policy plans the optimal level of investment in this area and requires that the required stock be met.
Optimal Inventory Level:
It is that level that allows to fully satisfy the needs of the business unit or consumer centers with minimal investment.
A high level of inventory tends to absolutely satisfy the needs of our customers but at a high warehouse cost and higher investment, while a low level of inventory usually does not meet the needs of our customers but we maintain a low warehouse cost and represents a low investment and the Optimal Inventory level: It fully meets the needs of our customers, at a low inventory cost, avoids waste and represents the correct investment.
When developing our inventory policy regarding its optimum level, we must take into account several factors:
1. Rotation of products: through statistics we must determine how the consumption of raw materials is during the year:
Linear: production always behaves the same way.
Seasonal: there are periods when production is low and periods where it is high.
Combined: the company has production lines that behave linearly, but at the same time, it has seasonal production lines.
Unpredictable: production cannot be planned, as it depends on uncontrollable external factors.
2. Purchase capacity: Sufficient capital to finance purchases.
3. Perishable articles: The duration of the products is an indispensable data to determine the maximum time that the product can remain in stock before its production and / or consumption.
4. Supplier response time:
Fast Supply: Just in Time
Delayed supply: High levels
5. Storage capacity: It depends on the capacity of our warehouses including refrigerators, conservators and freezers, based on this, more or less units can be kept in inventory. Alternatives?:
Agreements with suppliers for periodic supplies.
Greater efficiency in the purchasing department based on statistics.
6. Sufficient capital to finance inventory: Maintaining inventory produces a cost.
If the turnover is high, the opportunity cost is low.
If the turnover is low, the opportunity cost is high.
7. Costs associated with maintaining inventory:
Merchandise handling
Insurance
Waste
Slow moving products. How much does it cost us to have product stored when it is not perishable?
8. Protection:
Product shortage. Lobster ban, seasonal fruits.
Untimely demand. High season, type of clients (Spring Break)
Price hikes.
Access to the area. Example: access to the Cancun hotel zone.
9. Risks included in inventories:
• Lower prices. Occasionally it happens.
• Damage to products. Bulk and dry products.
• Accidental loss and theft.
• Lack of demand.
Procurement and warehouse management techniques
As explained in the preceding sections, the objective of the purchasing and warehouse administration is to balance the investment in our inventories and the real demand for the product or service offered, with the intention of satisfying the needs of our customers and, therefore, covering the objectives of both departments and the company.
To achieve this goal, organizations must develop inventory control methods and techniques. Various methods for this purpose are explained below.
The ABC method, in inventories
This consists of carrying out an analysis of the inventories categorizing the products in order to achieve greater control and attention on the inventories, which due to their price of acquisition or delicate use deserve special and / or permanent attention.
The analysis of our inventories is necessary to establish three product segments: A, B and C. The groups must be implemented based on their value. Law 80-20 says that generally 80% of the inventory value is represented by 20% of the items and 80% of the items represent 20% of the investment.
Articles “A” include inventories that represent 80% of the investment and 20% of the articles, in the case of an 80/20 composition. The articles "B", with an average value, cover a smaller number of inventories than the articles "C" of this group and finally the articles "C", which have a low value and will be a large number of inventories.
This system allows to manage the investment in the three categories or groups to pay attention to the handling of items "A", which represent 80% of the investment, so that through its efficient and strict control, it is maintained and in some cases inventory investment is reduced through optimal management.
Determination of the replacement point
As some time elapses before the ordered inventory is received, the purchasing manager must make the order before the present inventory is exhausted considering the number of days necessary for the supplier to receive and process the request, as well as the time in which the Product will be in transit and finally in our warehouse.
The replacement point consists of the existence of an indicator that indicates when to place purchase orders, indicating that the stocks of a certain product have reached a certain level and that a new order must be placed.
There are many ways to mark the replenishment point, the most indicated is to establish it considering the stock of maximums and minimums, the response time of our suppliers, availability in the market, their fluctuation in the acquisition price and the season. Today there are software's that facilitate this activity by carrying inventory inventory through this tool. This type of control was long called "The traveling requisition", its objective was to save administrative work as it is today. They established control and approval points so that by this means new purchase orders were prepared and that there were no shortages of products in our warehouses.
There are two more aspects to consider at the replenishment point:
Fixed orders or orders. In this, the objective is to place the order when the quantity in stock is just enough to cover the maximum demand that may exist during the time that the new order arrives at the warehouse.
Periodic refills. This system is very popular in most cases when perpetual inventory control is established. The main idea of this system is to know the stocks.
Reserve or inventory security
Most companies must maintain certain security stocks to cope with higher than expected demand. These reserves are created to cushion the situations that are created by unpredictable changes in the demand for our products.
Stock inventories are sometimes kept in the form of semi-finished items to balance the production requirements of the different processes or departments of which the production consists and thus be able to adjust production schedules and supply on time.
In general, it is impossible to anticipate all the problems and fluctuations that demand may have, although it is very true that businesses must have certain reserve stocks if they do not want to have unsatisfied customers.
The existence of an inventory reserve is a price that is often necessary to pay when our philosophy of customer service is as indicated, since having what is necessary in our warehouses produces an increase in the market share that we serve.
Inventory control just in time
In just-in-time inventory control, the idea is that raw materials are purchased and delivered for production in the correct time and form. This requires highly reliable suppliers, highly efficient purchasing, and an even more efficient purchasing and warehouse management system.
A business unit can reduce its production in process through a more efficient administration, this refers to internal factors. The necessary raw materials can be reduced thanks to greater internal efficiency. We refer to a reengineering of menus, more intelligent menus, that is, DO MORE WITH LESS and adopt this phrase as a philosophy for our menus. The skill of the Chef and the head of Bars combined with teamwork are essential to reduce the amount of products in store compared to our products on our food and beverage menus, therefore, we can say that if the products move quickly from our warehouses and just as quickly are resupplied the cost of running out of stock is reduced and in the same way the customer is satisfied,which is our ultimate goal.
