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Part Three
Planning and control
Figure 12.9 If the true costs of stock holding are taken into account, and if the cost of
ordering (or changeover) is reduced, the economic order quantity (EOQ) is much smaller
Short case
Howard Smith Paper Group 2
The Howard Smith Paper Group operates the most
advanced warehousing operation within the European
paper merchanting sector, delivering over 120,000 tonnes
of paper annually. The function of a paper merchant is to
provide the link between the paper mills and the printers
or converters. This is illustrated in Figure 12.10. It is a
sales- and service-driven business, so the role of the
operation function is to deliver whatever the salesperson
has promised to the customer. Usually, this means
precisely the right product at the right time at the right
place and in the right quantity. The company’s operations
are divided into two areas, ‘logistics’ which combines
all warehousing and logistics tasks, and ‘supply side’
which includes inventory planning, purchasing and
merchandizing decisions. Its main stocks are held at
the national distribution centre, located in Northampton
in the middle part of the UK. This location was chosen
because it is at the centre of the company’s main
customer location and also because it has good access
to motorways. The key to any efficient merchanting
operation lies in its ability to do three things well.
First, it must efficiently store the desired volume of
required inventory. Second, it must have a ‘goods
Dispatch activity at Howard Smith Paper Group
inward’ programme that sources the required volume
of desired inventory. Third, it must be able to fulfil
customer orders by ‘picking’ the desired goods fast
and accurately from its warehouse. The warehouse is
operational 24 hours per day, 5 days per week. A total
of 52 staff are employed in the warehouse, including
maintenance and cleaning staff. Skill sets are not an
issue, since all pickers are trained for all tasks. This
facilitates easier capacity management, since pickers
can be deployed where most urgently needed. Contract
labour is used on occasions, although this is less
Source: Howard Smith Paper Group