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Humanitarian Warehousing – Stock Keeping Units

This presentation is about the concept of
“Stock-Keeping Units”, also known as “SKUs”. Stock-Keeping Units are a really fundamental
part of any warehouse, but they’re really important in Humanitarian settings as well
because the way you choose to define your SKUs and the way you work with them can really
reduce the chance of making mistakes and improves the accuracy of stock keeping in a warehouse.
In this presentation I’m going to introduce the concept of SKUs, we’re going to talk a
little about why they’re important, how to make a good SKU and I’m going to include a
few examples to try to put this knowledge in to context.
So what is a Stock Keeping Unit? Well, a Stock Keeping Unit is basically the building blocks
for how we record and account for everything that’s going on in our warehouse. An SKU is
just a “thing”, an “item” in our warehouse that we’ve defined in a particular way. Every
‘stack’ of items in our warehouse is different in some way to every other stack of items,
so each SKU is different to every other SKU. Each SKU has these attributes/properties/features
which make it different to every other SKU. Some of these features are as shown on the
screen. In a humanitarian warehouse, we normally are worried about who ‘owns’ the particular
item: that could be the project that the item is for or it could be the donor who donated
the item. We have to track the expiry date of perishable goods. We also, in the SKU,
define how we count items. Do we dispatch in kilograms? Do we dispatch in bags? Do we
dispatch in pallet loads? Finally, each SKU also contains a ‘designation’
which is just a short phrase that describes the item.
So an SKU is not a piece of paperwork, it’s not a form; it’s really just a combination
of information relating to a particular item in your warehouse.
Some of you may be familiar with the concept of a “Stock Card” which records movements,
in and out, of particular, specific items in a warehouse. The information at the top
of the Stock Card is basically the SKU. You have the item description, here there is the
“donor” who represents the owner, you have the expiry date (although in this case it’s
blank) and you have the unit of measure on the top right here, you know that this particular
item is measured in ‘sets’. So firstly, let’s talk about the designation.
The designation is a short phrase which should describe the item in such a way that it cannot
be mixed up with any other item in the warehouse, even an item that’s very similar. Using just
the designation alone, someone who is not a logistics officer should be able to go to
the warehouse and pick out exactly the correct item. They should not be able to mix it up
with another very similar item. The designation does have to be short and
concise; it does have to fit on this paperwork. The designation could include any of these
items: the colour of the item, the weight of the item, the volume of the item. Picking
what to pick in your designation is a matter of judgement. For example, knowing the weight
of a bag of sugar would be a really useful way of keeping track of that exact bag of
sugar. But knowing the weight of a tarpaulin is not so useful. For the tarpaulin, you might
decide to describe it as a “blue tarpaulin” or a “tarpaulin with UN logo”, something like
that. OK, let’s take a quick example. Let’s imagine
you have just received a shipment of this item, a shovel. How would you select a designation
for this item? Well, you have to choose a designation which makes sure that this shovel
can’t be mixed up with any other type of shovel. Even if you have no shovels in your warehouse
just now, it’s quite possible that in future you will have more shovels delivered. Your
designation has to be good enough to make sure that those shovels can’t be mixed up
with this one. Here are some of the attributes of the item
which you might choose to include in your designation. Remember, your designation has
to be short, so you cannot include all of these parameters in the designation. Which
attributes would you choose? Well, the shovel on the left has a very unique
colour: it’s yellow and black. So including that could be a really good way of reducing
the chance of that being mixed up with any other type of shovel. The shovel is entirely
metal, so you could mention that, you could mention the material. You could also measure
the *SPADE PART* and also the total length of the shovel and include that information,
because that’s very easy to measure and somebody else could come, measure the shovel, compare
it to the ‘designation’ and then be absolutely sure whether they have the correct shovel
or a different shovel. So, a bad designation here would be simply
one word: “shovel”. Similarly, simply writing “shovel, big, with handle” still isn’t enough
information to avoid mixing up this and other shovels.
Here are two examples of really good item designations. “Shovel, black, black/yellow
handle, 1m”. From this information, you can tell that the shovel on the left is exactly
the one that is being referred to. Similarly, “Shovel, metal, black/yellow, 230x350mm” (that’s
the dimension of the metal part), “1m” (that’s the length). Either of these designations
would be very likely to prevent any mix ups of shovels occurring in future.
So, the designation should be clear enough to allow someone to uniquely identify that
particular item in the warehouse.However, there are two possible situations which make
life a little more complicated for us. Firstly, the expiry date. A particular item,
even with an absolutely perfect item designation, could still need to be tracked separately
to another item with the same designation because it has a different expiry date. In
other words, in your warehouse you might have a stock of beans (food) that expires in October.
This has to be tracked separately to any beans that expire in December.
The second complication is that in a humanitarian warehouse, every item has some sort of “owner”.
Perhaps a particular set of tools belongs to the Water and Sanitation Department. Or
perhaps a particular set of boxes of supplies came from a particular donor. Alternatively,
perhaps some of the items in the warehouse don’t belong to your organisation but to a
partner organisation. However, the most common type of ownership of items in a humanitarian
warehouse is by projects. For example, if you have 100 identical hammers in your warehouse
and 50 of them were purchased by project “ABC1” and the other 50 were purchased by project
“ABC2”. You have to track these products separately and that means you’re going to create two
store-keeping units with the same item designation (because the item is EXACTLY the same) but
with a different owner. Why is this important? Well, imagine that
I gave you permission to take my laptop from my home in order for you to study humanitarian
logistics one evening. If instead you came to my home and accidentally picked up my friend’s
laptop, which was exactly the same model, exactly the same colour and actually did exactly
the same job (for you), that would still be a problem – because this laptop does not belong
to me and therefore you should not have been taking it. You can see why it’s important
to track ownership in a humanitarian warehouse. The “Unit of Measure” defines how you count
items in your warehouse. The “Unit of Measure” is part of the SKU and it is NOT the same
as the ‘packaging unit’. The packaging unit is simply describing the way that things come
when they are delivered by the supplier. For example, in the photograph, we see five boxes
on one pallet. Perhaps the supplier would call this “one pallet” or “five boxes”. Is
that the best way for us to account for these items? Would we choose to measure these items
in pallets? Well, on the one hand, it would mean that
the way that we measure things inside our warehouse matches what is on the delivery
paperwork of the truck driver. Similarly, pallets are very easy to count, there’s a
very low chance of making mistakes. Initially this sounds like a pretty good way of measuring
stuff in our warehouse. However, if you decide to record this as simply
“1 pallet” in your warehouse and you know that each pallet has 60 tarpaulins, imagine
that one day a project manager comes to you and wants to distribute 40 tarpaulins. How
do you record this in your warehouse paperwork? Well, 40/60 is 0.666667 so I guess that means
you have to issue (dispatch) 0.66667 pallets of tarpaulins. And what happens if a single
tarpaulin is later returned to the warehouse because it wasn’t distributed? You can see
that recording in pallets, even though that was the way the items were delivered, is not
a good way of recording and counting things in your warehouse.
The most common problem in this area is choosing a unit of measure that is too large. When
we decide how we’re going to count things in a humanitarian warehouse (which unit we’re
going to use), we really want to pick the smallest possible unit that still “makes sense”.
Let’s have an example. Let’s say that from the delivery paperwork
which came with the truck, you know that on every pallet there are 60 tarpaulins. You
can see that these are arranged as six boxes of 10 tarpaulins each. We already decided
that accounting in units of “pallets” is far too large for our warehouse. We could account
in boxes and this would allow us to give out 40 *TARPAULINS*, which the project manager
requested. However, perhaps the project manager will, the next day, request 41 or 39. Or he’ll
bring back an individual tarpaulin. The correct unit of measure for this case
is the individual tarpaulin – because this is the smallest unit that still makes sense.
It’s really unlikely that the project manager will come to you and ask you to cut a tarpaulin
in half, leaving half in the warehouse and taking half with him. The tarpaulin is the
smallest unit you could possibly have, so therefore we should account in individual
tarpaulins. What about if our deliver was of ROLLS of
tarpaulin material and not individual tarpaulins? Let’s say each pallet has 5 of these rolls
and we know that each roll is 60 metres in length.
Accounting in pallets is probably not helpful for the same reason as before. 60 metres of
tarpaulin material is quite a lot. In fact, it’s very likely that someone will come to
the warehouse and ask for 10m or 20m length, so they will cut part of a roll and take that
with them. The best choice for the measuring unit in this case is PART of a roll. In this
example, we could have a designation of “Tarpaulin, UNHCR, 4m width, rolls”. The unit could be
“metres of length”. One roll would be 60m of length therefore one pallet would be 300m
of length. If you received one pallet of this product, you would account that as receiving
a 300m length of this designation, of this SKU.
Here is another challenging example. Imagine you have taken delivery of several boxes of
nails. There are five different sizes of nails, so you have to create five stock-keeping units
because each of these nails is different to the other. The designation of each SKU would
probably include the length of the nail and also the type of nail. These are concrete
nails, but that information should be available on the packaging.
What unit would you choose to account these nails in, once they were inside your warehouse?
Well, it might be possible to account in boxes of nails. However, a box can be quite a lot
of nails, especially if it’s a large box. You could also count individual nails, one
by one – but this would be very time consuming and it’s not necessary to track nails quite
so accurately/precisely. In this case, there is a clever trick. We can use a unit that’s
not so obvious. The best unit of measure for things like nails is by weight. That way,
in the morning, you could issue 1kg of nails and if some are returned back, you could accept
back, for example, 0.5kg of nails. Here is another tricky example. Let’s say
that you’ve taken delivery of a pallet of “non food item kits”. Each kit contains five
different items. It’s a bag in which there is a set of cutlery, a bar of soap, a towel
and so on. We’re definitely not going to account by pallets, but should be account by kit bags
or should we split in to individual items? In this case, the correct answer is to account
by kit bags. This is because the entire project is giving out these NFI *kits*. You’re not
going to be giving out one set of cutlery to one family and then a bar of soap the next
day to another family. Every beneficiary will receive one entire kit, therefore this is
the smallest unit which makes sense and this should be the SKU measuring unit.
Choosing the correct/best measuring unit for items inside your warehouse is very important
however sometimes confusion can arise between the differences in packaging unit and SKU
measuring unit. The unit in which the supplier delivers may
not match the unit which you want to measure in your warehouse. This is very important
when a supplier is delivering goods according to a contract. In general, the ‘Stock Reception
Form’ or ‘Goods Received Note’ has to match the contract in order to prove that the supplier
delivered exactly what they said they would. For example, if a contract says that “a company
must supply 500kg of cement” but it does not specify whether it should come in 10kg bags,
25kg bags or 50kg bags, the stock reception form should probably say “500kg” of “cement”
received. This way, it matches the contract and it’s very clear that the supplier has
fulfilled what they said they would do. However, inside your warehouse, you may wish
to make the SKU measuring unit a ’50kg bag of cement’. In this case, it is helpful to
note on the ‘Stock Reception Form’ or ‘Goods Received Note’ that the bags came as 50kg
bags each. Finally, on the stock card, you can then enter
the unit of “50kg bag” and in this case you would record 10 of that unit, that is ten
50kg bags, received. Now, remember this list of possible attributes
of items in our warehouse? Some of these attributes might be mentioned as part of the SKU designation
– but that doesn’t mean that the remaining attributes are unimportant or can just be
forgotten. For example, a generator designation could simply say “generator, blue, 8 kVA,
petrol”. But the warehouse team should still know the weight of the generator and its size,
because they need to be able to plan for its transportation. The warehouse team need to
exercise good judgement and make sure that all relevant/important features of an item
are recorded as part of the SKU. This can be done on the reverse of the stock record
card or in a digital system if one is in use. To summarise, SKUs are the fundamental building
blocks that dictate how you will count your stock in your warehouse. They define what
you consider to be a “unit” for the purposes of accounting. These are the main elements
making up an SKU. The measuring unit is not necessarily the same as the unit in which
the items are delivered. It’s important to clearly note and record these differences
to avoid any possible confusion.

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