PSM -602 Storage & Distribution_lecture slide_Mid term

PSM- 602 Storage & Distribution

Objective & Scope of
Storage & Distribution
 The essential objective of storage and
distribution to be the supply and delivery of
the
Right Goods
Right Place
Right Time
Right Price
in accordance with customer requirement

Storage
 Storage Can be define as a temporary location for material
require for operational purpose
 The role of management of stores ( inventory management)
is concern with improving both the efficiency and the
effectiveness of the store function by seeking to eliminate
waste from activities
Costs of holding stock
• Cost of capital tied up in inventories
• Costs of obsolescence, deterioration, insurance, etc
• Administration costs such as staffing, stock control
systems, etc
• Warehousing costs

Distribution
Distribution is the efficient movement of finished product
from the end of the production line to the customer and in
some cases includes the raw movement of raw material
from the source of supply to the beginning of the production
line.
Objectives of the distribution function
 Meeting predetermined cost targets
 Providing a level of service that seeks to grow the
business and raise the organisation profile and reputation
in the market
 Contributing toward providing a reasonable profit margin

Distribution
Elements of distribution
 Freight transport
 Warehousing
 Materials handling
 Packaging
 Inventory control
 Plant and warehouse site selection
 Order processing
 Marketing
 Forecasting
 Customer service

Logistic
Definitions of logistics
 The process of planning, implementing and controlling
the efficient and cost-effective flow and storage of raw
materials, in- process inventory, finished goods and related
information from the point of origin to the point of
consumption, for the purpose of conforming to customer
requirements.’ (Management of Business Logistics, Coyle,
Bardi and Langley)
 ‘The process of ensuring that the right products reach the
right place in the right quantities at the right time to
satisfy customer demand.’ (Institute of Logistics and
Transport)
 ‘The process of strategically managing the movement
and storage of materials, parts and finished inventory from
suppliers, through the firm and onto customers cost-
effectively.’ (Martin Christopher)
 The time-related positioning of resource.’

Logistic
Objectives of logistics
 To support and simplify the supply
chain
 To control total cost
 To improve total quality
 To maximize customer service
 To help increase profit

Role of Storage and distribution in
business Environment
• Manufacturing Organization
o Material Requirement planning ( MRP) : enabling JIT
delivery >> operating on minimum stock
levels
o Need good purchasing/ supplier relations sound inventory
management, effective on delivery organization
o Just In Time ( JIT) or warehouse less trading; supply direct
to manufacturer >> Focus on Distribution (not
storage)
o Need Excellent Planning, Communication and Quality

Role of Storage and distribution in
business Environment
• Retail Organization
o Minimizing cost while meeting demand;
Focus availability
o Use of EPOS ( electronic point of sales) etc
to manage stock level
o Use of national / regional distribution
center
• Environmental Factor
o Competition :Rationalization but also
specialist niches
o Technology: Application in store design,

Recent changes in distribution
 The competitive market place has led to rationalisation of
providers while still allowing specialist provider
opportunities.
 Technology has transformed many areas: computer
modelling has aided the positioning, design and layout of
warehouses; in-cab telematics have aided route
scheduling; satellite tracking has enabled the location of
vehicles to be plotted accurately

Networks Relationship Supporting
Store & Distribution
The supply chain is a network of suppliers ( feeding
into the organization and intermediaries/ distributor
( interface between organization and customer
Integrated management of the flow of value from
source through to customer through
o Accurate demand forecasting and information
flow along the supply chain
o Policies and objectives extended beyond
the organization to the whole supply
chain
o Forecast demand, logistic and cost
information
shared with supply chain via ICT link

Physical flows
Information flows
Physical flows
Information flows
Financial flows
Suppliers In company Customers
Integrated
logistics
Supply chain management
Physical flows
& physical distribution
Materials management
(incl. Purchasing)
M1:U1:1.1-2
ITC

• Total cost concept and the idea of sub-
optimisation
• Total cost concept and why it is relevant
• Major areas that need to be evaluated in
order to arrive at an optimal solution
• Cross-functional team working skills that
need to be
developed to avoid sub-optimisation
problems
Connection between Distribution
storage & Supply Chain

Total Cost Concept
The total distribution cost of concept recognize that
distribution cost extend beyond transport and warehousing
cost
The total distribution cost concept in the form of an equation.
TDC = TC + FC + CC + IC + MHC + PC + MC
TDC = Total distribution cost
TC = Transport costs
FC = Facilities costs (depots, warehouses)
CC = Communication costs (order processing, invoicing,
etc) IC = Inventory cost
MHC = Materials handling costs
PC = Packing costs
MC = Management costs

A trade - off occurs where a cost increase in one
area is more than matched by a cost reduction in
other area leading to an overall improvement
Design of packaging to maximize container
load capacity will incur initial costs but this
will be recouped later
Buying in bulk ties up additional working
capital and incurs extra storage cost – but
this may be outweighed by saving through
large discount
Trade-offs

Two ways of assessing trade-offs
Impact on total system cost : How will overall cost
be reduced?
Impact on Sales Revenue : How will revenue be
increased by improvement ( eg. In quality
availability) as a result of increase cost?
Optimization
The organization should seek to manage total cost
of all function ( and their balance with overall service
levels) – rather than minimizing the cost of each sub
function
Optimizing purchasing by buying in bulk
Optimizing transport by moving in bulk or route
planning
Trade-offs

Review the learning
» Essential objective of storage and
distribution
» Costs of holding stock
» Objectives of the distribution
function
» Elements of distribution
» Objectives of logistics
» supply chain network
» Total Cost Concept
» Two ways of assessing trade-offs
» Optimization

Customer Service in Storage &
Distribution
• Intermediaries/outlets to whom finished goods are
supplied for re sale
• End user/ consumer of the product
• Supply chain stakeholder in store and distribution
activity ( downstream and upstream partner
External
Customer
• Internal user of store like production & transport
• Internal user of information about availability, stock,
cost etc ( Purchasing, Marketing, Accounting)
• Other internal stakeholder is store & distribution
activity and performance (Senior
management)
Internal
Customer

Improving the customer interface
• Developing and maintaining improved
performance,
reliability and value throughout the organisation.
• Enhancing the professionalism of staff, their
knowledge, their understanding of customers’
needs and their commitment to quality and
quality improvement.
• Maintaining a well-managed and consistent
company profile development program to
ensure those working within the company
understand their role and the contribution they
can make to customers’ perception of the
overall company offer.

Tools for improving the customer interface
Direct marketing
Product updates
Customer team briefings
Customer satisfaction
surveys
Customer performance
review meetings
Returns policy.

The Role of Store & Distribution in Customer
service
The customer interface at point of delivery has a key role in
customer perceptions of the organization
 Ensuring availability of the product in the right place right
time and right cost
 Adherence to stated or agreed service level and terms
 Efficient ordering , expediting and payment process
 Clear communication re offering, progress of order
changes of order
 Constructive handling of complaints, claim, and return
( reverse
distribution)
 Professional customer facing staff
 Feedback seeking with a view to continuous service
improvement

Delivery processes
 Ordering should be simple and straightforward.
 Internal processes should ensure the availability of goods within an
agreed timeframe.
 Systems should help the order to progress without undue delay.
 Goods should be available when required in the correct location in
direct correlation to the meeting of agreed customer service levels.
 Customers should be kept informed of progress.
 Delivery time and place should be agreed.
 Delivery should be made as agreed.
 In case of undue delay customers should be kept informed.
 Records should be kept in relevant areas such as on-time deliveries,
customer complaints and claims, to monitor the effectiveness of the
service.
 Drivers should be polite, smart and well trained in customer service
skills.

Developing a customer service policy
 Identify the main elements of service, being those that are
most
highly rated by the customer.
 Determine the relative significance of each service element.
 Establish company competitiveness at current service
levels offered.
 Identify distinct service requirements for different
market
segments.
 Develop and cost specific service packages.
 Determine monitoring and control procedures.
 Regularly update customer service packages to ensure they
are continuing to meet the changing needs of customers.

Benefits of retaining customers
• The cost of acquiring new customers can be substantial.
A higher retention rate means that fewer customers
need to be acquired and that these can be acquired
more cheaply.
• Established customers tend to buy more.
• Regular customers place frequent, consistent orders
and usually cost less to serve.
• Satisfied customers are often willing to pay premium
prices to
a supplier they know and trust.
• Retaining customers makes it difficult for competitors to
enter the market or to gain market share.
• Satisfied customers often refer new customers to the
supplier at virtually no cost.
Discussion

Influence on Customer service
Customer
service
Production
Trading
Marketing
Capital
Planning
Finance
Demand
Management
Purchasing
Logistic

Developing a customer service
strategy
Identify the service mission
Set Customer service objective
Recognize Customer difference
Develop a package to meet needs
Monitor & Evaluate

Reasons for poor delivery of customer service
Lack of clear and consistent thinking at strategic level.
Narrow vision and thinking from those involved.
Lack of clearly defined roles and responsibilities
Lack of agreed procedures and process compliance.
Failure to understand the complexities of customer service.
The difficulty of assessing costs and benefits.

Needs of customers
• are the needs the customer regards as
essential. They do not need
mentioning. If they are not met the
customer will be dissatisfied.
Basic Need
• might be requested features that the
customer would like as part of the
total value package. They are
offered to help satisfy the customer.
Spoken Need
• are unexpected delights. The customer had
not expected this product attribute or
service as part of the value package.
Unspoken Need

Demand
Forecast
Demand side
variability
Supply unplanned
order
Create further
shortage
Short order
customers
Trade of between service level & cost
The circular supply problem
M1:U6:6.4-2
Adjust Supply
Priority
Supply Side
variability
Unexpected
demand
Change
production Plan
Customer supply
interrupted
Customer
Demand spikes

Measuring order fulfilment
 The number of orders completely satisfied, say 18 out of 20 (ie
90 per cent), over a given period.
 The number of lines delivered from a single order, say 75 out of
the 80 line items requested (94 per cent).
 The number of line items or cases delivered from a single order,
say 75 out of the 80 line items requested, but only 1,400 of the
1,800 total line items (78 per cent).
 The value of the order completed, say £750 of the £900 order
(83 per cent).

Aspects of customer service:
Pre-transaction elements
• Written customer service policy
• Accessibility of order personnel
• Single order contact point
• Organizational structure
• Method of ordering
• Order size constraints
• System flexibility

Aspects of customer
service:
Transaction elements
• Order cycle time
• Order preparation
• Inventory availability
• Delivery alternatives
• Delivery time
• Delivery reliability
• Delivery of complete order
• Condition of goods
• Order status information

Aspects of customer
service:
Post-transaction elements
 Availability of spares
 Call-out time
 Invoicing procedures
 Invoicing accuracy
 Warranty
 Returns policy
 Customer complaints and procedures
 Claims procedures

Pre-transaction
costs
• Identification of
needs
• Investigation of
supply
sources
• Qualification and
registration of suppliers
• Communications between
buyer & supplier
• Training of buyer
and/or supplier
Transaction
costs
• Price
•Administrative cost of
purchasing
• Transport / delivery
• Tariffs, duties &
taxes
• Invoicing & payment
• Inspection & testing
• Returns
• Follow-up correction
•Installation &
commissioning
Post-transaction
costs
• Operating costs
(energy, labour
&
consumables)
•Stockholding
costs
•Maintenance &
repairs
•Spare parts
•Downtime / lost
output
•Wastage in
production
•Defective
Cost performance
Price vs. total cost of ownership
ITC

Adding Value in Storage and Distribution
Key questions for competitive advantage
• How does a company gain a sustainable cost
advantage?
• How can it differentiate itself from
competitors?
• How can it choose a market segment so that
competitive advantage grows out of a focus-
based strategy?
• When and how can it gain competitive
advantage from competing with a co-
ordinated strategy in related industries?
• How is uncertainty introduced into the
pursuit of competitive advantage?

M10:U2:2.2-8
The Value Chain
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
& SALES
SERVICE
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
PRIMARY ACTIVITES
SUPPORT
ACTIVITIES
ITC

Primary activities in the value chain
• Inbound logistics. Activities associated with receiving,
storing
and disseminating inputs to the product.
• Operations. Activities associated with transforming inputs
into the final product form.
• Outbound logistics. Activities associated with collecting,
storing and physically distributing the product to buyers.
• Marketing and sales. Activities associated with
providing a means by which buyers can purchase the
product and inducing them to do so.
• Service. Activities associated with providing service to
enhance or maintain the value of the product.

Storage and distribution: adding value
Storage and Distribution can add value in way such
as:
• Reducing the time for getting a product from
the
production line to the customer
• Packaging the product to suit
customer requirements
• Adding the customer’s own brand
labels
• Picking and packing into smaller or mixed
order quantities
• Aiding the development of new products

Meeting customer
needs
The right quantity must be delivered
Special instructions must be complied with
The driver should be courteous and
knowledgeable
The vehicle must be well presented

Cultural issues in customer
service
• People must be encouraged to function as
a team.
• People must be properly trained and
updated.
• Staff must be motivated to ‘go the extra
mile’ for the customer

The board’s role in customer
service
• Taking full responsibility for it across the business
• Accepting that everyone in the business has a responsibility for it
• Being realistic about what is being achieved
• Making decisions based on sound understanding of the effect on
customer service and the business as a whole
• Ensuring that departmental objectives are harmonised and
measured
• Ensuring that comprehensive procedures are in place to
cover all
foreseeable product shortage situations
• Ensuring process compliance
• Installing comprehensive systems for measuring customer
service
performance
• Using customer service as a key performance indicator

Guidelines for customer
service
• Avoiding supply decisions that create or exacerbate product
shortages
• Valuing and protecting service to all major customers (not favouring
one customer over another)
• Containing supply problems (do not allow problems created by one
customer to spill over into the rest of the business)
• Avoiding short-term changes to production schedules that worsen
the overall situation
• Treating problems, not just their symptoms

Review the learning
Session 3-4
 Customer of Storage & Distribution
 Tools for improving the customer interface
 The Role of Store & Distribution in Customer
service
 Benefits of retaining customers
 Influences on customer service
 Developing a customer service strategy
 Reasons for poor delivery of customer service
 Needs of customers
 Meeting customer needs
 Aspects of customer service
 Primary activities in the value chain
 Storage and distribution: adding value
 Cultural issues in customer service
 The board’s role in customer service
 Guidelines for customer service

Review the Types of Question
Session 1-4 ( course content-1)
• Define & objective
– Logistic
– Storage
– Distribution
– Trade of
• What is the total distribution cost equation?
• What are the basic Elements of cost of holding stock? How it influence/effect storage
decision
• Who are the customer for storage & distribution?
• How you improve the customer interface
• The Role of Store & Distribution in Customer service
• Reasons for poor delivery of customer service
• Key aspects of customer service can be broken in three area what are they
• How storage and distribution can add value
• What are the supporting and primary activities of value chain
• Consider a real life company that you believe is good at customer service. What makes
them so?
• Factor that influence the customer service.
• Draw a guideline for customer service of your company
One question example
a. Define store & Distribution -5
b. What are the main reason of poor customer service- 7
c.Consider a real life company that you believe is
good at customer service. What makes them so? -8

PSM-602
SHARE YOUR THOUGHTS
Thank you

Group – Each group will present 3 to 4 slide allocated time 25 min for each
group
Modern Warehouse layout/ racking system to bring operation efficiency
Individual – incoterms 2020 – source website Assignment for home
ACTIVITY BASED GROUP PRESENTATION

Warehousing and
management of goods
Warehouse selection
design & layout

?
Why Have Stores/ Warehouse ?
To ensure a balanced flow of materials needed to keep
the business running;
To organise and account for the receipt & issue of
materials;
To accept and store materials until these are needed or can
be disposed of.
M11:U5:5.1-1
ITC

Maximise completion of orders on time & in full.
Minimise the cost of warehouse operations.
Maximise inventory turnover (i.e., minimise the
time that materials stay in the warehouse).
Minimise response time to demand & errors in
despatches.
At the same time, preserve the quality, value &
security of the stored items.
M11:U5:5.1-2
ITC

• To act as a collection and distribution point for items of stock
• To provide convenient and secure storage for items of value
• To provide space for related administrative activities
• To house materials handling equipment
• To keep down production costs by allowing long production runs
• To help link demand requirements with production capabilities
• To provide a buffer to smooth variations between supply and
demand
• To enable procurement savings through large volume purchases
• To enable large seasonal demands to be catered for more
economically
• To provide a good customer service
• To allow cost trade-offs with the transport system
• To facilitate order assembly
• To provide a wide range of products from different suppliers
in one location
• To cover for production shutdowns

Warehouse location and acquisition considerations
Proximity to suppliers
& customers
Drainage & security
Availability of
essential services
Acquisition options
 Purchase of existing warehouse
 Self build - land purchase
 Rental
 Outsourced warehouse services
 Build, Own, Operate or Tax-free zone
Capacity of the site
for future expansion
Clear & certain road or
rail access
Taxes & investment
incentives
M11:U5:5.2-1
ITC

Daily throughput, volumes & weights of minimum and
maximum inventory movements.
Sizes & gross axle weights of vehicles
Packaging sizes & stacking restrictions.
Sizes, weights & load-bearing data for storage
racking, pallet trucks and other equipment.
Safe limits for moisture content, temperature &
dust particles
Forecast power consumption requirements for
equipment
Information required
M11:U5:5.3-1
ITC

Factors in warehouse
design
• Purpose of the warehouse
• Choice of materials handling systems
and equipment
• Size
• Location
• System requirements
• Overall layout

Data required for warehouse
design
• Goods handled (inventory levels,
handling requirements)
• Order characteristics (service levels,
order frequency)
• Goods arrival and despatch patterns
(vehicle types and sizes, unit loads to be
handled)
• Warehouse operations (picking and
packing, administration)

Handling Capacity
Number of
movements
Weight
Staff
Equipment
Volume
Basic information needed to design a warehouse
ITC M11:U5:5.3-2

A number of distinct
areas
Receiving bay
Dispatch bay
Control point/office
Area for materials
handling equipment
Unpacking area
Inspection area
Marshalling area
Fast moving pallet area
Slow moving parts
Heavy goods area
Bin area (used to hold
small items)
High value items security
cage
M11:U5:5.4-4
ITC

Which other factors to consider?
Inherent safety
Clearly marked signs
Staff comfort
Good communication
Accessibility
Use of space
Long term flexibility
M11:U5:5.4-6
ITC

Design and layout principles for
warehouses
 Use a one-stored building wherever possible.
 Use straight-line or direct flow of goods in and out of the
warehouse with goods being delivered at one end, held, and
ranked according to ABC analysis.
 Utilize an effective storage plan to maximize warehouse
operations and to avoid inefficiencies.
 Use efficient materials handling equipment.
 Minimize aisle space within the constraints of the size, type and
turning circle of materials handling equipment.
 Maximize use of the building’s height to use the cubic capacity
fully.
 Use an efficient system of product identification.
 Plan for growth.
 full attention is given to health and safety issues.

Features of an effective warehouse
• A building design that allows for maximum flexibility
• Good road and rail access
• Ideally the location should be ‘out of town’
• Doors and loading bays that allow ready access while offering security
• Additional outside parking for vehicles that may need to queue to gain
access
• Clear access within the warehouse
• Durable and sealed floor surfaces
• Adequate ceiling height
• Dry, well-ventilated atmosphere with adequate heating
• Good security features
• Adequate lighting with natural light where possible
• Compliance with building and fire regulations
• Adequate parking facilities for staff and access via public transport
• Office space

Constraints on storage capacity
The use of fixed locations for certain stock
lines
The application of ABC analysis classifying
stock into high-, medium- or low-usage stock
areas
Whether goods can be held at random
locations

ABC storage
High usage (Category A) items should be
located close to entrances, dispatch areas or
pick-and-pack areas as deemed necessary.
Medium usage (Category B) items will be
located further from the main areas.
Low usage (Category C) items will be kept in
less utilized areas.

Materials, unit loads and quantities
handled
Vehicle types and sizes, and vehicle
movements
Site access, and site roads and flows
Areas for vehicle manoeuvre and
parking Loading dock types
Control and security
Loading by arrangement and
equipment
ITC M11:U5:5.6-1

Impact of the type of materials handled on the
layout of the warehouse
The type of handling equipment needed
Space needed for consolidation/deconsolidation of
loads (kitting/breaking bulk)
Space required for marshalling or collecting full vehicle
loads prior to dispatch
& control
Quality/certification waiting areas
requirements

ITC
Loading-dock levelling device in operation
Affect loading dock layout and capacity
Loading-doc levelling device in operation
Hydraulic dock-
leveller
Vehicle types, sizes and movements
M11:U5:5.6-3

Tail lift truck
Tail lift
Out of use
position
They avoid the necessity for docking
bays but are slower to load / unload
ITC M10:A:1.2-3

3.7 m
3.7 m
15 m
13.4 m
radius
M11:U5:5.6-4
ITC
a) Ninety degrees raised docks:
Reversed vehicles are parked at 90 degrees to the loading docks,
with sufficient room left in front of the cab for turning
draw forward 6 m before turning
front axles
Types of docks

b) Raised docks
In conditions of limited space, angled parking is used
with with saw-tooth dock configuration
5.3 m
10.6 m
draw forward 7.7 m
before turning
13.4 m
radius
5.3 m
3.7 m
3.7 m
12.4 m
45°
21.3 m
Also...
c) Level docks
d) Sunken
vehicle
access docks
M11:U5:5.6-5
ITC

DISPATCH
Storage locations
ADMIN.
Dock
levellers
Dock
levellers
Transshipment
bay
UNPACKING
&
INSPECTION Low Use item
High Use item
Medium Use item
Low Use item
Medium Use item
M11:U5:5.4-1
ITC

Advantages & Disadvantage of
throughflow systems
Advantage
Useful if goods in and goods out vehicle requirements are
different. Works well if it is in a natural flow with other
processes.
Total separation of the ‘in’ and ‘out’ sections reduces scope for
error
Disadvantage
Loading bays take up a lot of space.
Bay security and management may be more difficult.
Internal movement may be greater than with other
systems

the inverted ‘T’ flow system

Advantages of the inverted ‘T’ flow
system
Good utilisation of loading bays and materials
handling equipment.
Flexibility for expansion on three sides.
Popularity storage reduces need for
movements.
Segregation aids handling.

Disadvantages of the inverted ‘T’ flow
system
Central aisle becomes prone to congestion.
Expansion requires some modification of flow.
Moving items from bulk storage to stock or to
dispatch requires tight control.

STORES / STOCKYARD LENGTH
OF FLOW
ENTRANCE EXIT
ITC
FAST MOVING ITEMS
SLOW MOVING ITEMS
MEDIUM RATE MOVING ITEMS
M11:U5:5.4-3

Advantages of the ‘crossflow’
system
 Good utilisation of loading bays and materials
handling equipment.
 Flexibility for expansion on three sides.
 Popularity storage reduces movement.
 A combination of ‘bulk’ and ‘standard’ stock can be
utilised across the width of the warehouse, normally
with Category A items the most accessible and bulk
items the least accessible in terms of flow.
 One-way flow is clearly defined.

Disadvantages of the ‘crossflow’ system
Segregation into high, medium and low usage
may not always be possible.
Combination of ‘bulk’ and ‘standard’ stock
can
present problems.

Purpose-built vs converted
stores buildings

Design parameters Traditional warehouses Automated warehouses
Height of eaves 10 metres 18 to 32 metres
Storage  Pallets in lanes
 The goods dictate
stacking height
the
 Wide aisles for
forklift turning circle
 Fully automated storage
& retrieval
 Storage height
independent of
goods
 Very narrow aisles
for picker-stackers
Equipment Pallet racking Multi-depth and
purpose - built
Interior space Standard “box”
according
to site
Operations dictate the
design
Store space
utilisation 50% to 75% Above 95%
Warehouse design and efficiency
ITC M11:U5:5.3-4

Warehouse KPIs:
cost
 Staff, including overtime and other payments
 Building and site
 Equipment and other resources
 Maintenance
 Pallets and pallet repair
 Usage of packing materials and other consumables.
 Service, including any bought-in services

Warehouse KPIs: customer service
 Stock availability in the warehouse
 Order lead-time
 Percentage of orders completed on time
 Percentage completeness of order fill
 Number of outstanding back orders
 Damaged stock
 Returns and customer complaints
End of Session

PSM-602
Question & Answer
Thank you

Warehousing and
management of goods
Storage System Material
Handling Equipment

T
ypes of
racking
 Fixed pallet racking is constructed of a strong frame usually made of steel
with shelving of the same material.
 Adjustable pallet racking is similar in design but is configured so that the
shelves can be set at any required height and adjusted as necessary.
 Drive-in and drive-through racking. These are pallet-based racking
systems that allow access for forklift trucks.
 Push-back racking allows pallets to be stored up to four pallets deep on
flexible racking.
 Cantilever racking is designed for the storage of long items such as
bars,
tubes and sheet materials.
 High-rack and narrow-aisle racking. Designed to maximize space, the
racking utilizes the full height of the warehouse with aisles placed as close
as possible to each other to allow access by either manually driven or
computer-controlled forklifts.

Space utilisation and racking design
Aisle
2 back-to-back
double depth racks
2 back-to-back
double depth racks
2 back-to-back
double depth racks
Aisle
2 back-to-back
single depth
racks
2 back-to-back
single depth
racks
2 back-to-back
single depth
racks
Aisle Aisle
Access space <Storage space>
Double depth
Pallet racks
Single depth
Access space >Storage<
space
M11:U5:5.5-5
ITC

Single depth pallet racks
Access
Storage
Storage
Picker-stacker :
Forklift :
Comparing space requirements for picker-
stackers and standard forklift trucks
Guide rails for
automatic steering
Access
M11:U5:5.5-13
ITC
Picker-stackers Forklift trucks

Highly-automated fixed handling equipment
Maximum
height: 40 m.
Picker-
stacker
crane
Automatically
guided
vehicle
M11:U5:5.5-14
ITC

Mezzanine Storage
M11:U5:5.5-9
ITC

T
ypes of shelving
 Long-span shelving offers a full range of beam sizes and load capacities that are
easily adjustable in sturdy upright frames.
 Closed shelving with sheet steel backing and sides easily divided for small parts
storage.
 Carton live storage allows containers or tote-boxes to flow down inclined rollers
permitting first in, first out (FIFO) stock rotation and order picking.
 Line-side carton live storage units operate in a manufacturing or assembly area
and are particularly suitable where just in time (JIT) manufacturing processes are
used.
 Mobile shelving systems permit increased flexibility and can make the best use of
usable space.

Post pallets
Shelving
M11:U5:5.5-7
ITC

Compactor
shelving
M11:U5:5.5-8
ITC

Pallet
s
Pallets
• Basically flat platforms that on which a load is stacked and then bound or
shrink wrapped against movement or theft
• Can be made of wood, plastic, metal or fibreboard
• Two common sizes:
– Euro pallet 1200mm x 800mm
– UK ISO 12,00mm x 1000mm
Types of Pallets
 Standard two-way or four-way wooden pallets where the forklift can approach
the pallet fron two sides or four sides respectively.
 Box pallets are standard pallets with a box structure incorporated into the
design.
 Eco pallets are used extensively in the food and pharmaceutical industries.
 Post pallets have a post framework at each corner and this provides stability for
goods that are not always suitable for palletisation.
 Steel pallets suitable for heavy loads or drums etc.

Steel or plastic
storage bins
First In First Out
(FIFO) type racking
Carousel
storage unit
M11:U5:5.5-10
ITC

There are four main goals for warehouse management operations,
in particular: maximising completion of orders on time-in-full
and minimising:
• The cost of warehouse activities
• The time that materials stay in the warehouse
• Response time to demand from the next stage in the
supply chain and errors in dispatched loads
Whilst preserving the quality, value and security of the stored
items.
M11:U5:5.5-1
ITC

Methods of materials handling
 Manual handling
 Manually operated mechanical
handling equipment
 Forklift trucks
 Crane systems
 Conveyors

T
ypes of power-driven equipment
Forklift trucks
Platform trucks and trailers
Order pickers
Cranes
Conveyors

Container crane
Mobile crane
Fixed crane
Different kinds of cranes
Truck crane
Handling equipment
ITC M10:A:1.2-1

Hand trolley
Pallet
truck
Forklift
truck
ITC M11:U5:5.5-2

Trolleys, platform trucks and hand
pallet trucks
ITC M10:A:1.2-4

Unloading, putting away and picking equipment
Forklift trucks
Reach truck
Picker-stacker truck
Maxim
um
height
15m.
Pantograph
M11:U5:5.5-12
ITC

Semi-automated handling equipment:
conveyor systems
M11:U5:5.5-11
ITC

Aims of mechanising handling
 To cater for heavy loads
 To save time (important to keep production moving without
disruption)
 To save labour (though the reduction in cost must be balanced
against the costs of owning and running the equipment as
well as safety considerations)
 To save space (much of the stock stored on pallet racking, for
example, would be out of reach without mechanical handling
equipment)

Benefits of materials
handling
equipment
Reduce overall handling costs
Allow greater economy in use of space
(through higher stock density)
Reduce potential damage to stock

Selecting materials
handling
equipment
 What requirements are imposed by the nature and types of goods to be
handled?
 What requirements or constraints should be considered in respect of the
warehouse?
 What is the cost-effectiveness of using different types of handling
equipment?
 What quantity of material will be handled?
 What loading distances have to be travelled (horizontal and vertical)?
 Does the use of certain types of equipment enhance safety within the
operation?
 What activities are taking place in adjacent areas?
 What flexibility is required?

to
Eliminating unnecessary movement
Clear understanding of hazardous material
classifications & markings
Plan layout & handling simultaneously
reduce handling time & costs
Arrange handling/movement to minimize the number
of pick-up & put-down movements
Use sealed unit loads, pallets or containers
wherever
possible
The principles of efficient materials handling
M11:U5:5.5-3
End of Session

Warehousing and
management of goods
• Inventory Control
a) Coding
b) Obsolete & redundant
stock
c) Inventory control,

Record Keeping and Communication
Inventory transaction records
The lack of timeliness in updating data (on manual or
computer-based systems) is one of the major causes
for discrepancy between physical inventory and the
one on paper
Warehouse transaction data is used by many parts
of the organisation, and so it is essential to reach
agreements regarding the maximum lapse time
Procedures must be agreed that avoid the need to
duplicate transactional recording by other functions
M11:U5:5.7-1

Reasons for maintaining stock records
 To indicate the quantity of any item without the need
to perform a time-consuming physical count.
 To indicate when new supplies should be ordered or
manufactured.
 To act as a check on physical stock levels.
 To record the locations where items of stock are
held.
 To provide financial information, eg for use in pricing
or for preparing periodic financial statements.

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Padim Greases
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Part description:
and cost category
Part supplier code
& usual lead-time
Store location &
instructions
Movement
records
Usual re-order
units & quantity
Item ID code
Safety
stock point
Out
of
stoc
k
Pink rear
turned to
front shows
item is out
of stock
ABC category
Card-based inventory management system
M11:U5:5.7-3
ITC

There are several different standard bar-
codes.
These systems use machine reading of a unique
item identification code instead of manual keying or
hand-written code entry.
Bar coding systems dramatically
speed-up data collection & reduce errors.
Computer-based systems
M11:U5:5.7-4
ITC

Automatic data collection
a) Computerised bar coding
An example of an
EAN 39 bar code
This PD147 symbol can contain
more than one kilobyte of
information
20
05500
8
3 0683
WMS scanner and reader
Laser scanner
M11:U5:5.7-5
ITC
b) Computerised radio-frequency tagging
c) Integration - the real challenge

Product codes vs
names
 Names can be easily confused.
 Names do not provide any way of
accurately categorizing goods.
 Names are not easily input in computer
systems.
Product codes provide savings in
 time required for completing
documentation;
 time required for incorporating into a computerised
stock control system;

Advantages of a good coding
system (Jessop and
Morrison)
 It avoids repeated use of long descriptive titles.
 It accurately identifies all items.
 It prevents duplication of items.
 It assists standardization and variety reduction.
 It provides a foundation for an efficient purchasing organization.
 It forms a convenient basis for sorting and recording of documents.
 It simplifies recording.
 It is convenient for central analysis of unit storehouse records.
 It can be employed as a basis for stock control accounts.
 It may be used as a warehouse location system.

Advantages of a coding system
(Quayle and Jones)
 Coding leads to better identification of physical materials in the factory
or warehouse. This is of greatest interest to the stores, inspection and
production functions.
 Coding provides easier reference for recording and analysis. This is of
concern to the administrative and clerical functions.
 Coding offers a better means of identifying and classifying for
charging
value to jobs. This is the concern of the finance function.
 Coding is an aid to all activities of materials management and control.
This is of significant importance to senior management.
 Coding is an aid to, or in many cases a prerequisite of, stock control
systems.

Types of Coding Scheme
There are four main type of
coding
 Numeric Coding System
Letter code
Color Code
Symbolic code

Principles for developing a coding
system
 It must be capable of covering all items likely to be used, not
only
now but also in the future.
 It must be designed to suit the needs of the organization.
 It must allow for expansion without duplication occurring.
 Each item must appear only once and the system must be
designed
to ensure this occurs.
 There must be a constant number of symbols or digits in all
code references.
 Each group of symbols and/or digits must signify only one
object.
 Descriptions and specifications on which the system is based
should be as brief as possible while maintaining accuracy.

Requirements of an effective coding
system
 Each code should be unique and certain. Each item should have
only one possible code number that can be easily identified
from the structure of the code.
 It should not be possible for two people to allocate a different
code
number to a single stock item.
 The coding system should be comprehensive and flexible,
ie it should be possible to identify a code number for every
item.
 The coding system should be capable of
expanding to accommodate new items.
 The code should be as brief as possible, having regard to the
amount of detail needed in any analysis of items that may
need to be performed.
 The coding system should be centrally controlled. It should
not be possible for individuals independently to delete codes
or add new codes to an existing system.

b) Obsolete & redundant stock
Obsolete stock is stock that has become
outdated and is no longer appropriate for
current requirements.
Redundant stock is stock that is excess to
foreseeable requirements. Redundant stock
can arise from over-ordering or because of a
failure to react appropriately to a decline in
demand for the item.

New and obsolete items
 The introduction of new items needs to
be managed
 Obsolete and redundant stock is likely to
cause difficulties – problems need to be
minimised
 Improved communications can reduce
such problems
 Management information systems can be
used to help control the problems associated
with new introductions, obsolete and
redundant stock

New items
• Why are they required?
• Will there be a significant demand?
• Can the need be satisfied by an existing
product?
• If the new item is accepted, will it replace an
existing item?
• Can zero inventories be held? (JIT or vendor
managed

Reverse logistics
• Relevant when:
– Products recalled for quality or safety reasons
– Unwanted goods returned
– Used packaging for recycling or disposal
• Methodology that could be used for
improvements in the area of reverse logistics
• KPIs for reverse logistics:
– Return rates
– Actual costs
– Costs less recovered costs
– Time

Reasons for returns (David
Hughes)
 Over-merchandising
 Poor ordering
 Promotional stock pushed into shop
 Customer warranty returns
 Bulk product recalls, unfit for sale
 Damaged packaging or damage in transit
 Wrong delivery
 End-of-season ranges, end of promotion, end of sale
 Change of display
 Stock-counting forcing a clear-out or discovery of lost stock
 Badly bought goods, slow sellers
 Dead or dormant stocks
 Salvage from sun damage, fire, flood
 Out of date, past its ‘best before’ date, obsolete
 Reallocation, branch-to-branch transfers
 Return to inventory

Examples of reverse logistics
 Goods returned, as they are faulty, damaged
or fail to meet customers’ expectations
 Product recall for quality or safety reasons
 Unwanted or surplus goods
 Pallets, roll cages and other unit load devices
being returned after use
 Used packaging being returned for recycling or
disposal

The importance of reverse logistics
o More retailers are offering a no-quibble returns policy to
customers.
o Customers are becoming more likely to return products.
o Customers are more aware of their rights to return
goods.
o Internet selling and the growth in home delivery
encourage
and increase returns if the product fit is not as expected.
o legislation is forcing recycling of products and packaging.
o Hazardous materials require special handling and
disposal.
o Disposal of waste electrical and electronic equipment (WEEE)

C) Inventory control
Stock Control
The systematic regulation of stock levels
with respect to time and quantity
Purposes of a stock control system
• To indicate when an item should be made or bought
• To assist in deciding the quantity to be bought or
made
• To regulate the level of stock for each item so that stockouts
and excess stocks are avoided, but costs of investment in
stocks are minimized

What is stored and where
Incoming pipeline loads
Restrictions on storage flexibility
due to specific needs of each
product
Outgoing pipeline loads
Forecast for demand and usage
Expected lead-time for each inventory item
Free inventory space available in each
configuration
ITC M11:U4:4.1-1

to
Age & monetary value of each item in storage
Its criticality to production or to the consumer
Customer packaging & finishing requirements
Fixed & variable costs of operation
Changing production output & sales promotions
New suppliers, supply items &
changes delivery patterns
Supplier & customer product
requirements
Evolution of efficiency-
enhancing
information
tech es
nologi
ITC M11:U4:4.1-2

Receipt of copy
of purchase order
Acknowledgement
Schedule/plan
delivery
Delivery
Unloading
Inspection
Storage/
put away
Notification
of goods receipt
Receipt of stock
ITC M11:U4:4.4-1

Action Point 4.4-1
The warehouse receipt process
List, in sequence, the main transactions undertaken by a
warehouse from the time that materials arrive to the
moment they are stored in their correct warehouse
location.
In each case, indicate which differences exist, if any,
compared to the process that we have just described.
ITC M11:U4:4.4-2

User determines
requirement
Requisition
authorised
Requisition
presented to stores
Identification
of the goods
Picking
Delivery/
collection
Cost
allocation
Adjustment of
stock records
Issue of stock
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ITC M11:U4:4.4-3

How to value
this issue?
Received
Quantity
(Units)
Issued
Quantity
(Units)
1 July $100 200 200
1 August 100 100
1 September 60 40
1 October $150 200 240
1 November 100 140
Date
Received
Unit Price
In Stock
Quantity
Method 1 - First In First Out (FIFO)
ITC M11:U4:4.3-1
Issues are valued
based on the cost of
the earliest arrivals
The value of stock is calculated from the
unit values of the items remaining in stock
No. of units issued
and unit value
Total value of
units issued
40 units at $100 each $4,000
60 units at $150 each $9,000
100 units $13,000
No. of units in stock
and unit value
Total value of
units in stock
140 units at $150 each $21,000

How to value
this issue?
Received
Quantity
(Units)
Issued
Quantity
(Units)
1 July $100 200 200
1 August 100 100
1 September 60 40
1 October $150 200 240
1 November 100 140
Date
Received
Unit Price
In Stock
Quantity
Method 2 - Last In First Out (LIFO)
ITC M11:U4:4.3-2
The value of stock is calculated from the
unit values of the items remaining in stock
Issues are valued
based on the cost of
the latest arrivals No. of units issued
and unit value
Total value of
units issued
100 units at $150 each $15,000
and unit value
Total value of
units in stock
40 units at $100 each $4,000
100 units at $150 each $15,000
140 units $19,000

Received
Quantity
(Units)
Issued
Quantity
(Units)
1 July $100 200 200
1 August 100 100
1 September 60 40
1 October $150 200 240
1 November 100 140
Date
Received
Unit Price
In Stock
Quantity
How to value
this issue?
Method 3 - Weighted Average Costing (WAC)
The value of stock is calculated from weighting
the average values of the items in stock
Before issue: Issues are valued based on the cost of
this weighted average value
and unit value
Total value of
units in stock
40 units at $100 each $4,000
200 units at $150 each $30,000
Weighted average
unit value
= $34,000 / 240 units
= $141.67
$34,000
After issue:
ITC M11:U4:4.3-3
and unit value units in stock
No. of units in stock Total value of
140 units at $141.67 $19,834
No. of units issued
and unit value
Total value of
units issued
100 units at $141.67 $14,167

Received
Quantity
(Units)
Issued
Quantity
(Units)
1 July $100 200 200
1 August 100 100
1 September 60 40
1 October $150 200 240
1 November 100 140
Date
Received
Unit Price
In Stock
Quantity
Method 4 - Standard Costing
The value of stock is calculated from applying a
standard cost to the item (e.g., in our example: $130)
How to value
this issue?
Issues are valued
based on
the same unit
standard cost
No. of units in stock Total value of
and standard value units in stock
140 units at $130 each $18,200
Method 5 - Replacement Costing
Similar to above, but uses replacement cost instead of standard
cost to better reflect the market value (e.g., $160)
No. of units issued
and standard value
Total value of
units issued
100 units at $130 each $13,000
ITC M11:U4:4.3-4

The inventory value will affect the
company’s profit & loss account
$10,000
Turnover (sales):
Cost of sales:
Opening
inventory
+ Net
purchased
- Closing
inventory
$3,000
$5,000
$8,000
$2,000
$6,000
Operating profit:
($6,000)
$4,000
If prices are rising or
falling over time, each
method will calculate the
values of inventory issued
and in store differently
You should verify that the same valuation method has
been employed before comparing unit costs or
inventory values
End of Session -17 M11:U4:4.3-5

Action Point 4.3-1
Applying the different methods of inventory valuation
Based on the following table (assuming inventory on 31 December of the
previous year was zero)...
Date
Received
Received
Unit Price Quantity
(Units)
Issued
Quantity
(Units)
In Stock
Quantity
January $90 300 50 250
February 100 150
March $80 600 110 640
April 90 550
May 80 470
June $120 200 170 500
July 160 340
Inventory valuation method
Value of the
issue in
July
Unit value of
the remaining
stock in July
1. First in First out (FIFO)
2. Last in First out (LIFO)
3. Weighted Average Costing (WAC)
4. Standard Costing ($100)
5. Replacement Costing ($110)
ITC M11:U4:4.3-6

Re-order level systems
Periodic review systems
Demand-driven lean supply
(e.g.Just-in-time):
systems
 The frequency & quantity of orders is driven by demand
data passed on directly to suppliers
 Very small or non-existent inbound inventory stores
 Requires smooth production process, short lead-times and
supplier-guaranteed quality
ITC M11:U4:4.5-1

Re-order level (ROL) =
Demand in the lead-time + Safety stock (S)
Demand in the lead-time =
Rate of demand/usage (Rd) (e.g., per week)
x Lead-time (L) (e.g., in weeks)
ITC M11:U4:4.5-2
Where...
ROL = (Rd x L) + S
Re-order level systems - formula:

Basic re-order level stock replenishment system
(fixed quantity, variable interval)
Quantit
y
Time
Lead-time
{
Safety
stock
Re-order Re-order Re-order
Re-order
level
Fixed order
quantity
Slope = Rd
ITC M11:U4:4.5-3

Action Point 4.5-1
Re-order level
Given the following data, what is the re-order level:
Safety stock = 100 units
Supply lead-time = 6 weeks Average
weekly demand = 200 units
ITC M11:U4:4.5-4

Periodic review stock replenishment system
(fixed interval, variable quantity)
Fixed
review
interval
Lead-time
Periodic reviews
Safety
{
stock
Lead-time Lead-t im
e
Lead-t i
me
A
B
C D
Z
Quantit
y
Time
Variable order
quantities
ITC M11:U4:4.5-5

Periodic review systems -
formula to calculate the order size:
Order size =
(Demand over the review interval + the lead-time)
- (Actual stock) - (Pipeline stock)
+(Safety stock)
In a periodic review system, the basis for
determining the order size (which varies each
time) is therefore the (fixed) review interval.
ITC M11:U4:4.5-6

Action Point 4.5-2
Re-order quantity
Given the following data, what quantity should be re-ordered?
Expected demand per week = 100
Lead time = 3 weeks
Review interval = 4 weeks
Safety stock = 300
Physical stock = 450
On order (pipeline) = 200
ORDER QUANTITY
ITC
=
Periodic reviews
Review
interval
Lead-time
Safety

Stock
What should the next order quantity be?
Lead-time Lead-time Lead-time
M11:U4:4.5-7

Demand-driven lean supply
systems
Both the frequency of ordering & the quantity
of items ordered are driven by data on demand
from the production line that is passed directly
to suppliers
 The company’s production process runs very smoothly
 Supply lead-times are short & respond rapidly to changes in
production requirements
 Suppliers are fully responsible for the quality and quantity
control of the products
12
3
6
Requirements for an effective JIT functioning: 9
M11:U4:4.5-8

Objectives of stock
control
 To monitor the movement of materials and goods in and out of stores,
the degree of measurement varying according to the individual usage of
each item
 To indicate when each item should be re-ordered and what quantity
should be ordered
 To maintain sufficient materials and goods in stock to provide the
required service level to the user
 To check that all or specific materials and goods are only issued by, or
received into, the stores upon receipt of, or accompanied by, the
appropriate documentation
 To provide a basis for the satisfactory control of storekeeping
 To maintain perpetual stock records which enable stock levels to be
regulated and/or checked at any time
 To identify categories of stock (ABC)
 To ensure, in conjunction with the above objectives, that total
inventory
costs are minimized

Advantages of efficient stock control
 Minimize investment in stock
 Allow money to be available within the
company for other purposes
 Keep ordering, administrative and
stockholding costs as low as possible
 Reduce the possibility of obsolescence,
physical deterioration and breakages in stores

Considerations in a stock management
policy
 Customer service levels required
 Nature of the relationship with suppliers (eg
strategic; building the supply chain; adversarial;
getting the best value for the organization, etc).
 Financial constraints
 Stock investment
 Nature and type of goods
 Competitive considerations

Working capital costs: The cost of borrowing
the money needed to pay for one unit of stock.
Storage costs: Rent, heat, light per m2
occupied by one unit of stock.
Obsolescence risk costs:Cost of the
stock
disposed of in a period, apportioned over
each unit stored in the period.
In which:
P = Unit purchase costs (i.e., price plus transport and other
delivery costs)
i = Inventory carrying cost (expressed as a percentage of P )
Q/2 = Average inventory (the order quantity divided by 2)
Holding costs (H) = (P) x (i) x (Q/2)
ITC M11:U4:4.6-5

Ordering
costs
Administrative costs of placing the order
Communications costs (with suppliers,
transporters, etc.)
ITC M11:U4:4.6-6
Ordering costs (O) = (C 0) x (D/Q)
In which:
Co = Cost per order
D/Q = The number of orders in the period (i.e.,
the demand divided by the order quantity)

Costs of adopting plans with different order quantities
* Minimum
total cost
• Demand (D) = 1,000 units per yr
• Unit purchase cost (P) = $5
• Inventory carrying cost (i) = 20%
• Cost per order (Co) = $20
Order quantity
(Q)
+ Ordering costs Total
costs
Co D/Q
=
50
100
150
200
250
300
350
400
25
50
75
100
125
150
175
200
400
200
134
100
80
66
58
50
425
250
209
200*
205
216
233
250
Holding costs
Pi Q/2
So... Total cost = P iQ + CoD
2
Q
ITC M11:U4:4.6-7

Graphical representation of the Economic Order
Quantity (EOQ)
0
50
100
150
200
350
300
250
400
Total cost
Holding
costs
Ordering costs
200
Order quantity
40
0
Cost
($)
o
Pi
ITC M11:U4:4.6-8
2 C D
EOQ 
Co = Cost per order
D = Demand over the
period
P = Purchase cost per unit
i = Inventory carrying

Some assumptions of the EOQ
stock
traceable,and
predict
able,
Demand over the period (e.g. a year) is given, and
remains unchanged
Price, including transport cost, does not change with
order size and remains constant throughout the year
Order processing costs and
holding costs are
remain constant
Lead-time is zero, or
accurately
and does not vary
ITC M11:U4:4.6-9

The assumptions included in the model
The real costs of stock in operations
The use of the model as a prescriptive device
?
ITC M11:U4:4.6-28

Bin 1 Bin 2
Two-bin system
Re-order level
inventory
+
Saf
ety
stock
Items
being used
Two-bin and three-bin ordering systems
Re-order level
inventory S
s
a
t
f
o
e
c
t
k
y
Bin 1 Bin 2
Three-bin system
Bin 3
Items
being used
Process:
Start by using only the items
from bin1
Re-order when stock has to be
issued from bin 2
No need to record issues for
low-value items
Re-estimate usage each time
by noting how long it takes to
use bin 1
1 2
3
M11:U4:4.7-20
End of Session -18
Class Test on Session 15-18 in session 19

Course Content -2
Summary of discussion
• Discuss and evaluate different types of Warehouse layout.
• You are assign to select a warehouse location and asked for ware house design & layout. In
this context answer the following
– what need to consider for warehouse selection
– What information require for warehouse design
– What factor need to consider for warehouse design
– During warehouse design & layout what distinct area you need to keep in mind
• Discuss the feature of a effective warehouse. Discuss the design and layout principle of
the warehouse
• Factors in loading bay design and layout
• Discuss the warehouse KPI – cost & customer service
• Discuss the types of shelving , racking a pallets
• Types of coding system. Discuss the advantage of coding system.
• Requirement of effective coding system
• What you mean by obsolete and redundancy stock
• discuss the warehouse receipt and issue process
• Math –

PSM -602 Storage & Distribution_lecture slide_Mid term

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PSM -602 Storage & Distribution_lecture slide_Mid term