CHAPTER FIVE

STORAGE MANAGEMENT

At the end of this unit students will be able to:

 Explain the concept of Storage functions and responsibilities
 Discuss Location and layout
 Explain the Stores system and procedures
 Discuss the Cost aspects of store system
5.1 Introduction
Warehouse/store is the space, room and the building where various types of materials, semi-
finished, finished goods and items purchased and manufactured in the organization are kept
temporarily or for sufficient time till they are removed to supply for production and sale or used
for consumption.

It is an essential branch of an industrial unit. It is the depository of all materials required by the
industrial unit and supplies materials as and when required.
Different types of materials are required for different operations in a production unit.
The variety of items stored in store is too large that a planned system is necessary to keep them
safely, identify them easily and issue them with minimum efforts and time.
5.2Objectives of Stores
Stores play a vital role in the operations of a company.
It is in direct touch with the user departments in its day-to-day activities.
The most important purpose served by the stores is to provide uninterrupted service to the
manufacturing divisions.
The objectives of stores can be classified as follows:
 To receive raw materials, components, tools, equipments and other items.
 To provide adequate, proper storage and preservation.
 To meet the demands of the consuming departments.
 To minimize obsolescence, surplus, and handling cost.
 To highlight stock accumulation, discrepancies and abnormal consumption.
 Apply effective control measures.
 To assist in verification and provide supporting information.

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The following departments are closely linked to the stores department.
- Inspection Department -Sales Department
- Design and Engineering Department -Production Department and
- Finance and Accounts Department -Purchase Department

5.3 Storage Functions and Responsibility

The stores is a unit serving or an activity considered as a temporary location for materials
needed for operational purposes, and should be planned, organized and operated in such a way
that the period for which each stock item kept in should be as short as possible.
The stores department provides both service and control functions.
It must develop a system for classifying, marketing, and locating all materials so that they are
readily accessible and at the same time, protect them against pilferages, unauthorized usage,
and unnecessary damage or deterioration.
The following are the activities that storage is expected to perform.
 Receive all incoming materials.
 Check against quantities and qualities, purchase order, invoices and specifications.
 Provide adequate and proper storage and preservation.
 Issue materials against authorized requisitions.
 Minimize obsolescence, surplus, waste and scrap.
 Perform proper codification, standardization and preservation.
 Ensure good housekeeping so that material handling is done accurately.
These activities and responsibility areas can be put into five functions: Receiving, Storing, Issuing,
Stock controlling and store documentation.
Receiving Materials
The receiving section (function) is the central place where all incoming supplies are received,
checked and inspected before storage or use.
It is also called Goods Inward Section.
Although materials may be received room from many sources (internal and external), our
emphasis here will be on receiving materials from external sources i.e. from suppliers.
Receiving Procedure
A typical receiving procedure consists of four steps (Dobler and Burt, 2001):

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 1. Unloading and checking the shipment. The number of containers unloaded from the carrier’s
vehicle is checked against the carrier’s manifest (freight bill) to make certain the full
consignment has been delivered. All containers are also inspected for external damage.
2. Unpacking and inspecting the material. A receiving clerk is held responsible for three
verifications. First, he or she checks the material received against the seller’s packing slip and
against a copy of the firm’s purchases order.Second, the quality of the shipment is verified in
the same manner. Finally, the clerk inspects the general condition of the material to determine
whether any external damage was incurred during shipment.

3. Completion of the receiving report. Preparing receiving report based on the report from
inspection and other units.
4. Delivery of the material. Dispatching the received material for respected units and departments
according to their requirement.
Storing Materials
The type of equipment to be used in storage depends on the nature of materials to be used, the size and
quantity.
 Bin- Bin is storage equipment with partitions for keeping small items. Each division in a bin is
called a pigeon-hole. Generally, only one item is stored in a pigeonhole.
 Rack- Rack is an open type of storage equipment for keeping bulky materials. The
number of shelves will depend on the type of materials to be stored, quantity involved etc.
 Pallets–pallets are specially designed platforms for the stacking of materials with a view to the
whole load being moved. They are made of either wood or metal depending upon the load they
are expected to carry.
 Block stacking - is another version of storage method in which boxes or pallets are stacked
directly upon each other.

Stock issuance
Issue of materials, which is supply of materials from stores to the various users (department) of
an organization, is one of the routine activities of the warehouse.
The user departments often demand immediate issue of the materials for attending to urgent
repairs of plant and machinery.

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 Stock issuance is executed when the user department comes or sends to the store section and
presents properly authorized issues note-usually referred as stores requisition or issue note or
requisition voucher.
Store requisition should include the following information:
- Requisitions -Material code
- Description of the material -Quantity require
- Signature of the person authorized -Price

Types of Issuance of Materials

i. Capital issue - These are the major capital item (machines, equipment’s, tools) purchased and
issued by the company.
ii. Imprest issues - These are items that are required by the user to be constantly on hand.
Therefore, the user will need constantly to top-up (to fill) his/her supply.
iii.Replacement issues-This is when a material has been broken or worn out or obsolete. In this
case the authorization for a new issue is the exchange for the old piece of equipment or item.
iv. Loan Issue - These are usually tools that are required by certain departments for special jobs.
The material is to be retuned back to the store.
v. Allocated Issue - This is when stock has been allocated by the production plan to a certain
operation in a given section.
vi. General Issues -These are general items of stock needed by various departments within the
operation for the day-to-day running of the company.
vii. Special Issues - In cases where highly dangerous materials are being handled, a special issue
procedure has to be followed to ensure that proper precautions are taken against possible
damage.
[

Stock controlling: Stock taking and stock verification

Stocktaking means manual counting of store items and tallying the physical balance with the
quantity as recorded in the books.
Stocktaking is a routine and continuous exercise in a warehouse and is a strong management
tool to ensure that materials procured are accounted for correctly and that the critical items are
physically available as shown in the records.
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Need for stocktaking
Stocktaking is essential for the following reasons.
 To detect shortage/excess of materials in the stores.
 To detect negligence, mistake, or a willful wrong act on the part of any employee.
 To make sure that important or critical items or physically available.
 To assess the real value of inventory in the stores.
 To take immediate action in utilization of the items with limited remaining shelf-life.
 To develop an appropriate market strategy for a finished product.

Stocktaking Methods
 Routine or Periodic Checks; -Periodic stocktaking is quarterly or semiannually checking of
the entire stock in one or two days.
 Perpetual Stocktaking;-Perpetual inventory may mean checking daily a few items.
 Annual Stocktaking;-Annual stocktaking is the most common method of checking inventory
both physically and record on the book. This is done at the end of a financial year.
 Low point or Out-of-Stock;- This type of stocktaking is only made when the record shows a
particular item having out stock or when only a small quantity remains in the bin.
Store verification
Stores division generates lot of paper work in the process of receipt, issue, inspection and stock
taking of items.
As per procedures, every action of the stores department should be documented. The division
should always keep the records up-to-date.
It is absolutely essential for the safety of materials and their quick verification. The major
documents to be kept by store functions include.
- Receiving report-Issuance copy
- Bin card -Acceptance note
- Rejected note -Traveling requisition
- Purchase order -Package slip
- Freight Bill (suppliers invoice) -Bill of Materials
- Materials Requirements Planning
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5.4. Stores Location and Layout
In the matter of locating the stores, materials management is rarely consulted. The normal
practice is to locate the stores near the consuming departments.
This minimizes handling and ensures timely dispatch. In stores layout the governing criteria
are;
 Easy Movement of materials,
 Good housekeeping,
 Sufficient space for personnel and materials handling equipment’s,
 Optimum utilization of storage space,
 Fair use of storage equipment’s, such as shelves, racks, pallets
 Proper preservation from rain, light and other such elements.
 Number of end users and their location.
 The volume and the variety of goods to be handled.
 Accessibility to modes of transportation such as rail and road.
Since stores have to be nearest to the user, large organizations usually have stores attached to
each consuming department, whereas receiving is done centrally.
It is also important that the stores are constructed with a futuristic orientation, so that sufficient
flexibility for expansion needs is inbuilt.
The stores building must have adequate facilities for preservation of stores.
Sometimes, facilities such as cold storage, heating equipment’s, air conditioning and similar
facilities may be required.
The important factors in the design of stores building can be summarized as follows.
1. Lighting - Clear and adequate lighting is a must for a proper work environment.
2. SafetyThis factor is perhaps the most important aspect. The following measures are necessary if
accidents are to be checked:
a. Safety consciousness should be instilled in the minds of stores personnel.
b. Safety appliances, such as goggles, hand gloves, etc., must be provided.
c. All stores equipment must be kept in good order.
d. Healthy competition can be stimulated by installing ‘safety awards’ and cash prizes.
e. Provision of fire fighting facilities.

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 f. Other factors which merit attention include provision of toilets, routine maintenance,
equipments, safe electrical wirings, etc.

5.5 Storage Systems and Types

Storage Systems

There are two basic systems that can be used in physically controlling stores materials:
1) A closed stores system and
2) An open stores system
The application of each depends on the nature and requirements of a specific production operation.
 Closed System
As its name indicates, a closed stores system is one in which all materials are physically stored
in a closed or controlled area.
Wherever possible, the general practice is to maintain physical control by locking the storage
area.
As a rule, no one other than stores personnel is permitted in the stores area.
Material enters and leaves the area only with the accompaniment of an authorizing document.
This system is designed to afford maximum physical security and to ensure tight accounting
control of inventory material.
 Open System
The open system represents the second major type of stores system. Its widest use is in highly
repetitive, mass production types of operations that exhibit a continuous and predictable
demand for the same materials.
Most JIT manufacturing systems exemplify this situation.
The open system is designed to expedite production activities.
It places little emphasis on the physical security of materials.
In ideal applications, there is considerable justification for this approach because the material
is used relatively quickly, and it is not subject to a high rate of deterioration, obsolescence, or
theft.
Generally speaking, an open system is more likely to function successfully if it is not applied to
a large number of items.

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Types of Stores
Materials held in a store can be classified according to the use they are put into.
The advantages of such a classification are that each broad category of use has its own
characteristics and hence needs its own system for proper control.
In a manufacturing establishment the materials can be classified as raw materials, work-in-
progress, bought-out components, spares, consumables and packing materials.
Raw Material Stores
The proper control of raw materials is one of the prime factors that influence profitability of a
company.
These, being the major input into the organization, form the bulk that gets converted into
output.
A stock out in this class of materials will be immediately reflected by an idle manufacturing
line.
External factors in the supply of such as availability, lead time, seasonality, and credit
conditions all combine to influence the stocking of raw materials.
Therefore, as the organization grows in size, it will be advisable to have a separate raw material
store.
Work-in-Progress stores
This class of materials is largely found in engineering industry.
In a process industry, these are in the process line itself and hence external storage is not
required.
The information system required for the control of these should be comprehensive so that the
persons in charge know what is where.
The normal practice is to let the production planning and control department have the
responsibility of such materials.
But in many industries, where the size or the nature of manufacture does not warrant, the
accounting, responsibility and control of these materials are saddled on the stores section.
Also, in organizations that have an integrated materials management setup, these materials
come under purview of the stores section.
Component Stores

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 In engineering industries, the finished products require complements of the final assembly.
These are either manufactured in feeder shops or procured from sub-contractors.
In either of these cases they are stored in a component store from where the assembly lines are
fed.
Spares/Maintenance Stores
The consumption pattern of spares and maintenance items is usually unpredictable.
In addition to this one has to contend with the external conflict between the maintenance and
stores functions regarding the availability of spare parts and the responsibility for holding these
items.
Tool cribs and Related Stores
Tool cribs are specialties of engineering industries, where the necessary tools fixtures are
stored. These can be cutting tools, farm tools, jigs, fixtures, die sets, hand-tools etc.
Consumables
Consumables like cotton waste, grease, lubricating oils etc enable the smooth running of the
wheels of the industry.
Generally these items do not cause any supply problems but occasionally some can become
scarce; petroleum products can be cited as examples especially in stores located in remote
areas.

Finished Goods
Control of finished goods is normally with the marketing or sales department.
The peculiarities of the finished goods depend on the type of industry.
In a consumer product or a process industry the input to the stock is as per the production
schedule while the output will depend on the market conditions.

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