10 - Storage, Warehousing, and Inventory Management

Abstract

Inventories are raw materials, work in process, and finished goods that companies keep for different reasons such as saving time, to meet economic objectives, and as a buffer against uncertainties. The basic element of customer service for all logistics is inventory availability, and generally the most expensive logistics cost is inventory. Effective inventory management decreases carrying cost and increases customer satisfaction at the same time. The virtual warehouse (VW) is a business model that tries to reduce costs and provide high-quality customer service. This concept first appeared in 1995. The key factors to achieve VW are information technologies and real time decision algorithms, which provide operating efficiencies and global inventory visibility. Some substantial gains which virtual warehouses provide are: online material visibility for customer service, precise control of transportation and data analysis capabilities for any users capable of accessing the virtual databases. The costs of capital, warehousing, protection, deterioration, loss, insurance, package, and administration make stocks expensive. Inventories can absorb 25-40% of logistics costs and represent a significant proportion of the total assets of an organization.