Sufficient Stock at Lower Cost

Reducing the Cost of Carrying ‘Safety Stocks'

Sufficient Stock at Lower Cost

Keeping stock of bulk materials is a costly undertaking, but a necessity to ensure continuously ongoing production. Accurate level measurement can improve inventory reporting and reduce safety stocks of bulk solids, helping companies meet financial targets, reduce costs and increase sales.
(ed. wgeisler - 27/6/2017)
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Radar level measurement - the sophisticated base for automated inventory control

For senior executives in many manufacturing and process industries, inventory management of bulk solids is a major concern. Carrying stock is expensive and the money tied up would be much better spent on product development, plant modernisation or expansion to name but a few.

Safety Stocks

In today’s fast moving and highly competitive markets, to manage inventory uncertainty and avoid the possibility of stopping or slowing production due to a lack of feedstock or intermediate product, most companies will carry what is described as ‘safety stock’. Finding the right balance between too much and too little safety stock is essential as the amount of safety stock an organisation decides to carry can have a significant financial impact on their business. Too much safety stock increases inventory costs and because storage times are extended, product can spoil, expire, or be damaged during handling. On the other hand, too little safety stock can result in missed sales and disappointed customers’ which can adversely affect the company’s long term financial success.

Fig. 1: Silos contain the necessary bulk solid material for production in almost every process industry 

Carrying any type of stock is expensive and safety stocks simply add to this burden. As shown in Fig. 2, carrying costs include the costs of handling the inventory, obsolescence, deterioration and pilferage as well as the taxes, insurance costs and cost of money. These costs can be as high as 50% of inventory value on hand for bulk solid materials, though most organisations use 25% as a ballpark figure. These high costs are a direct result of the need to protect against high levels of uncertainty generated by level measurement in bulk solids.

Fig. 2: Total carrying costs of inventory

These figures assume that the company already owns the storage vessel. It is not uncommon for an organisation that is suffering from poor inventory control to be considering increasing safety stocks. This could require a new or larger storage vessel and associated material handling equipment, incurring additional, significant capital cost.

Accurate Level Measurement is important

Accurately measuring stocks of bulk solids is important for inventory control and financial management; however this can be problematical for many industries using traditional single point level measurement devices. Take for example industries such as food and beverage, chemicals, mining or cement, where raw materials such as grain, sugar, salt and limestone are stored in large bins, silos or warehouses. Unlike liquids that have a clearly defined and relatively easy to measure surface, the surface of solids materials is rarely flat, with peaks and troughs that continually change as the vessel is filled and emptied.

Traditional manual measurements using dipping tapes are time consuming, inaccurate and fail to provide the readily available data needed to support best practice inventory management and regular financial reporting. Performing these types of measurements also creates safety issues, as workers are often required to perform such duties in hazardous locations. Automated solutions help to overcome these issues, but devices that measure the level at a single point within a vessel do not take into account the variations caused by peaks and troughs, making measurements extremely inaccurate and unreliable. Typically, the best repeatable accuracy that can be achieved using such a measurement technique to deduce volume is ±10 - 15%.

That kind of inaccuracy is a problem. Unreliable measurements leave the process operators with not enough information to perform efficient day to day decision making, such as when and where to fill or empty, when to order or when can they schedule maintenance. Management is also adversely impacted as capacity forecasts, cost calculations and inventory reports are all based on faulty data.

Fig. 3: Radar level measurement is applicable for almost any bulk solids material

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