Question

Case 1: AFG EMPLOYEES
The personnel assigned to the Finished Goods warehouses is a mixture of regular and 5-month contractual employees. These personnel is the ones who manually locate products inside the warehouse and issue them to a 3rd party trucker for delivery to customers. The company uses the services of a manning agency provider (not an employee of the company) for their transportation and distribution of products. The distribution centers of the company have an average of 3,000 sq. m area. No racking system.

Order-taking
A customer sales representative (CSR) is the one who processes orders given by the salesman. The sales order (SO) is a document given by the salesman to the CSR. It shows the actual quantity ordered by the customer. This would be the basis for stock allocation during order processing and this is allocated based on the stocks available in the system, if the customer has no credit issue, this will be approved, said approved SO will be the basis for picking of Finished Goods by warehouse personnel to be issued to the 3rd party trucker. An order-fill-rate (OFR) report is prepared at the end of every month to determine the total of out-of-stock and customer rejections upon delivery. The report (OFR) will reveal unserved orders to the customers.

Unserved Orders
Aside from out-of-stocks, the following are the reasons for unserved orders or customer rejections upon delivery:
1. Aging stocks delivered.
2. The wrong Item delivered
3. Damage stocks
The last 2 reasons are charged or claimed to the 3rd party trucker, a deduction to their monthly billing to the company.
Allegedly the main reason for aging stocks delivered to the customer is non-observance of the First-In-First-Out policy by the warehouse personnel. This is further compounded by 5 months turn-over of contractual warehouse personnel.

What is AFG ‘s problem in Case 1? Use the template as above in suggesting a solution to the problem.

Answer 1

Answer:

The major problem for the AFG is their high turnover of employees at the warehouse and their manual system of locating the stock and taking out for delivery.

First of all the inventory management is a continuous process and need a specific set of skills and training to handle the materials, therefore, the company should train the employees on the best inventory management practice and should have a longer duration of the contract for the employees with proper handover during the transition with arrangements with retraining of new manpower.

Second, the manual system of locating the stock should be avoided and computer-based first in first out inventory management system should be used to reduce the stock aging. This system will help in reducing the age of stock in inventory and the customers will not get the old products. It will also save costs associated with inventory loss or damage during storage.

The distribution center must have a proper raking facility and the people responsible for the distribution of products should be company manpower to supervise the activity of the agency.