Page 282 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Goods receipts are possible from purchase order, inbound deliveries (advanced shipping notice),
stock transport orders, or from production orders. Advanced Shipping Notification is a vendor
document that contains the exact materials, quantities, and the delivery date with reference to a
purchase order. This document becomes the Inbound Delivery in the receipt process.

Notes The importance of receiving is reflected by Tata Steel who are spending
60-70 crores to upgrade their various facilities. Tata Steel's Jamshedpur plant handles
about 13 million tonnes of raw materials per annum. Following capacity expansion, the
raw material requirement will jump to 25 million tonnes annually by 2007-08. That means
Tata Steel will have to handle 250,000 tonnes of material per day. Keeping in view the
projected increased volume of raw materials it will have to handle, Tata Steel is taking
steps to improve its infrastructure. The introduction of the engine-on-load system within
the plant is being introduced to halve the unloading time of an iron ore rake which
presently takes from eight to nine hours. The coal unloading system is being revamped,
and with it the tipping capacity, so that rakes unloading time is halved to 12 hours or so.
The role of receiving has changed in SCM. In this context, receiving has as its objective the rapid
flow of material into a facility. Ideally, the material would move directly to the production line
without making an intermediate stop in a warehouse or other storage area. However, if the
material cannot be used immediately, it is placed in storage.

Inventory Costing Methods

One of the most common methods is the "FIFO", or first in, first out, method. The oldest materials
are considered to be issued first even through in a given instance the actual issue may be from
the latest received lot of the given materials.
A second derived cost method is the so-called "LIFO", or last in, first out, method. This reverses
the first in, first out method of pricing issues and new balances. Issues are assumed to come from
the last received lot of materials so issues are priced at the cost of the latest shipment received.
A third method is the so-called "normal cost" method. This is used more, perhaps, for issuing
company-fabricated parts than for issuing raw material or purchased part. It assumes as the cost
for issue purposes the expected average price for the materials or part. Scientifically determined
standard costs also are often used.
The fourth commonly used derived cost method for pricing issues of materials and parts in a
factory is the average cost method. After each receipt of materials or parts, their cost is added to
the cost of the units already on hand and the sum is divided by the total number of units on hand.
This establishes an average cost per unit in stores. This average unit price is then used for all
issues and for calculating new balances.

Task Analyse the inbound logistics system of Dabur India.

13.3.2 Out-bound Logistics: Distribution and Shipping

Once goods are produced, they need to go to the final customer. That is an obvious statement.
What is less obvious, however, is how to get them there in the most cost effective manner while
satisfying the ever increasing expectations on service levels and availability. This is the role of
the distribution system and shipping.

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