COMMERCE DEPARTMENT

DPL10013: FUNDAMENTALS OF LOGISTIC MANAGEMENT

TOPIC 5:INVENTORY AND WAREHOUSING

SESSION :SESI 2021/2022

PREPARED BY :NUR AIN NABILA BINTI ARSHAD

MATRICS NO:10DLS21F1025

CLASS:DLS1B

LECTURER :PUAN IRDAWATI BINTI KAMARUDIN

DATE OF SUBMISSION:30 DECEMBER 2021

ASSIGNMENT INDIVIDUAL
DPL10013

QUESTION 1

An inventory is the stock of items used in an organization.an inventory system monitors the levels
of inventory and determines the timeline and quantity of orders.interpret the meaning of raw
material and work in process. (5 marks)

Raw material

Raw material is defined as the crudest form of product possible, which is used as an input for making
another product. Raw material is essentially the unprocessed product and is the chief constituent of
the primary product that is processed or manufactured.
Raw materials are also an important part of a firm’s inventory management. They are component
parts of the stock of inventories carried by a manufacturing firm at a given time. Every organization
has inventories of some type and the economics and techniques of inventory management are
critical for efficient operation, profitability and survival; especially in a highly competitive
environment.

Work in process

This is inventory in the process of being assembled into final products. Raw materials are released
from inventory and moved to a work center. People (direct labor) and/or machines are used to add
value by putting the parts together as subassemblies, assemblies and then into final products. These
parts may be restocked temporarily until withdrawn for use later in the production process. While
they are in this state, they may be referred to as semi- finished assemblies.
B)Explain FIVE (5) the following classification of inventory with the appropriate example.

i.cycle stock

Cycle stock inventory is the portion of an inventory that the seller cycles through to satisfy regular
sales orders, according to Unleashed Software. It is part of on-hand inventory, which includes all of
the items that a seller has in its possession. For example, a retailer's on-hand inventory would
include the items on store shelves as well as most of those in a store room or stock area. Over time,
cycle stock inventory refreshes itself, or turns over, as new items replace older ones that are sold.

ii.in transit stock

Inventory in transit refers to the goods or supplies that has already been shipped from the supplier’s
warehouse but not yet delivered to the buyer. It is used to account whether the buyer or seller has
the possession and who is responsible for the freight charges for the same.Either the seller or the
buyer has to account for the inventory in transit depending on the shipping terms.
For Example: FOB shipping point: It means that the ownership is transferred to the buyer as soon as
the seller ships the items from his warehouse.

iii.speculative stock

Speculative inventory is stock that a company purchases in anticipation of future demand.

Businesses may stock more inventory than they expect to sell within a sales period in case of future
need. This practice helps them defend against supply chain issues and price increases that could
cause stock shortages or additional expenses. By overstocking inventory, companies may save
money and ensure they have the supplies they need to meet customer demand. To determine their
speculative inventory needs, companies study their inventory control system and measure the cost
of supplies against the risk of price increases or supply shortages.For example, materials may be
purchased in volume larger than necessary in order to receive quantity discounts,because of a
forecasted price increase or materials shortage or to protect against the possibility of a strike.the
buyingof huge amounts of oil because of changing OPEC policies might be example.

iv.seasonal stock

Seasonal inventory is stock which is in high demand during particular times of the year, such as
during Christmas or Halloween. These periods of time often coincide with the different seasons, and
managers need to be proactive in preparing for the waxing and waning of demand during these key
times.For example, Holidays such as Christmas, Easter and Thanksgiving are big drivers of seasonal
inventory in America. This means that supermarkets, for example, will see an increased demand
during these times for specific products, especially items such as turkey, Christmas decorations and
Easter eggs. Halloween is another driver of seasonal inventory, retailers often increasing supply of
costumes, decorations and other relevant products.
Likewise, the weeks building up to the start of school terms are another period during the year
where demand for specific products will increase, and in response supply will typically increase as
well. During such times, retailers can expect to increase the supply of school stationery items, for
example, as well as technology like laptops and software.

v.dead stock

When a company places a certain number of items in its catalogue it previously predicted that
demand would be satisfactory. Nevertheless, those predictions sometimes fail and certain items are
never sold. When identified, deadstock should be removed from regular sales channels and
liquidated from stock in a non-traditional selling process. Companies have to optimize its warehouse
space by clearing room for best-selling products but also deadstock should be, under regular
circumstances, sold for a profit, although lower than expected. For example, some companies offer
deadstock items at discount with the purchase of another product or sell them to discount retailers
at lower prices. Firms try to minimize deadstock because they generate undesirable costs. To do
that, companies have to improve their sales forecasts. A better research on what consumers would
like and which quantity can be actually sold. Firms should also use information systems to get timely
alerts about potential deadstock, with the purpose of minimizing the associated costs.
C)explain FIVE functions of warehouse

i. Storage of goods
The basic function of warehouses is to store large stock of goods. These goods are stored from the
time of their production or purchase till their consumption or use.

ii. Protection of goods

A warehouse provides protection of goods from loss or damage due to heat, dust, wind and
moisture, etc. It makes special arrangements for different products according to their nature. It cuts
down losses due to spoilage and wastage during storage.

iii. Risk bearing

Warehouses take over the risks incidental to storage of goods. Once goods are handed over to the
warehouse-keeper for storage, the responsibility of these goods passes on to the warehouse-keeper.
Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is
bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft
or damage, etc. Thus, it takes all precautions to prevent any mishap.

iv. Financing
When goods are deposited in any warehouse, the depositor gets a receipt, which acts as a proof
about the deposit of goods. The warehouses can also issue a document in favour of the owner of the
goods, which is called warehouse-keeper’s warrant. This warrant is a document of title and can be
transferred by simple endorsement and delivery. So while the goods are in custody of the
warehouse-keeper, the businessmen can obtain loans from banks and other financial institutions
keeping this warrant as security. In some cases, warehouses also give advances of money to the
depositors for a short period keeping their goods as security.

v. Processing
Certain commodities are not consumed in the form they are produced.Processing is required to
make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened,
etc. Sometimes warehouses also undertake these activities on behalf of the owners.
vi. Grading and branding
On request warehouses also perform the functions of grading and branding of goods on behalf of
the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending
and packaging of goods for the convenience of handling and sale.

vii. Transportation
In some cases warehouses provide transport arrangement to the bulk depositors. It collects goods
from the place of production and also sends goods to the place of delivery on request of the
depositors.