Learner Guide OC Knowledge Module 3

SAQA 96368 Knowledge Module 3

Chapter 4 | Administration and Documentation for
Warehousing [KM-03-KT04]

The Topic Elements to be covered in the chapter referenced above include:

Topic Topic Element/Heading Knowledge/Theory
No. Code
Calculating warehouse and distribution charges
1 Document filing systems KT0401

2 KT0402

By the end of this chapter, you should be able to demonstrate an understanding of the
following Internal Assessment Criteria or Learning Outcomes relevant to this topic:

No. Learning Outcomes IAC

1 Identify documents and process required for receipt, dispatch, IAC0401
and storage of cargo

Topic 4.1: Calculating warehouse and distribution charges [KT0401]

Understanding the costs of warehousing 9

9 http://exclusive.multibriefs.com/content/understanding-the-costs-of-warehousing/distribution-ware_3 50

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

All companies with warehouses incur the same elements of cost, but they compile them
differently. However, a costing system can be used to compare costs of one warehouse to
another, or one company to others.
Some warehousing costs tend to be ignored or misallocated because the analyst does not
recognize where they belong. In any costing system, allocation of overhead costs is a matter
of judgment, and no specific formula will be correct for every user. The cost models shown
here have been designed to ensure that no item is overlooked.
Each user should customize the models and make individual judgments regarding allocation
of administrative costs.
4 categories of warehouse costs
1. Handling: All expenses associated with moving product in or out of the warehouse should
be included in the handling cost center. The largest component is the labour used to handle
the product that moves through the distribution center. It includes receiving, put-away,
order selection and loading. It also may include labour to re-warehouse, repackage or
refurbish damaged product.
Handling also includes all costs associated with the equipment used to handle product in the
warehouse, such as the depreciation of equipment cost and the cost of fuel or electricity to
power the equipment.

51

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

Other handling expenses are the detention of truck or rail cars, operating supplies, and trash
disposal. In effect, handling includes all those costs that are associated with "goods in
motion."

2. Storage: Storage expenses are costs associated with "goods at rest." These costs would
be incurred whether or not any product ever moved. Because storage expenses are related
to the cost of occupying a facility, and these costs are normally accumulated each month,
storage is expressed as a monthly cost.

If an entire building is dedicated to an operation, storage expenses are the total occupancy
cost for that facility.

3. Operations administration: These expenses are incurred to support the operation of the
distribution center. Closing the facility would eliminate these costs. Included are costs for
line supervision, clerical effort, information technology, supplies, insurance, and taxes.

4. General administrative expenses: Expenses not incurred for a specific distribution center
are included in this category. General management, nonoperating staff and general office
expenses are examples. Allocation of such expenses to each warehouse is a judgment call.

Productivity improvement

Most warehousing costs, particularly storage and handling, can be influenced by
improvements in productivity.

Improved methods and equipment may enable the operator to increase the number of units
moved without increasing labour, resulting in a higher number of units handled per hour.
Changes in inventory, storage layout or equipment may enable the operator to expand the
number of units stored in the same number of cubic feet of storage space.

The risk factor.

Cost per unit is escalated when a distribution center is not fully utilized. Fixed costs always
will be influenced by the rate of utilization.

Variable costs, such as labour, never are quite as flexible as they seem. Management may
be reluctant to eliminate experienced workers, particularly when they will be needed for a
coming busy season. The same is true for forklift trucks and other materials handling
equipment. Therefore, the primary risk in controlling costs is the rate of utilization.

Errors represent another unknown risk. People make mistakes, which may result in product
damage and errors, or shipping errors.

52

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

Just as the insurance underwriter factors in the risk of loss, the warehouse operator must
make a realistic estimate of risk costs. Risk may be expressed as a percentage of total
warehousing costs. It should be based on past experience. Methods to reduce risk should be
explored.

The simplest way to calculate the risk factor is to include it in the size of the markup. Many
time and material agreements have a low percentage of profit, but the unit pricing
agreement must factor in a higher profit percentage that reflects the substantial risk of
changing volume.
As you contemplate the risk factor, consider the position of the buyer. With a time and
material agreement, the buyer agrees to pay for all space and labour that is used, which
often includes the rent for a building that is dedicated for the buyer’s use. In contrast, the
buyer of a unit price agreement pays only for services that actually are used. Expansion and
construction can be challenging, as well as costly.

A good analogy is the difference between a hotel and an apartment. When you stay in a
hotel, the price per square foot of space occupied is higher than the cost of leasing an
apartment. You pay the premium because you want the flexibility of occupying the space
only on the days you need it. While the apartment may be cheaper, you pay for it whether
or not it is in use.

Developing a handling price

A building-block approach using the four categories of warehousing costs can be used to
develop an hourly selling price. First, all of the costs listed in Section 1 (Handling) are
totalled. Next, a portion of the costs in Section 3 (Operating Administrative Expense) and in
Section 4 (General Administrative Expense) are added to direct handling expense, in order
to develop a burdened handling expense.

An additional percentage of profit is added to develop a handling sales price. This figure is
divided by the hours billed, to convert the figures into a handling fee per man-hour. While
you may not invoice your customers by the hour, the hourly fees can be used to check the
validity of current pricing.

Creating a storage price

A similar building-block approach is used, but the result is expressed in square feet, rather
than hours. Since storage costs increase with time, this storage fee is expressed on a per
month basis.

The first step is to total all costs listed in Section 2 (Storage). Following the handling example
described in this article, a portion of operating and general administrative expenses must be
added, in order to develop a burdened storage expense. Then, a desired profit margin
percentage is added to create a price per square foot per month. That price determines the
storage rate per unit.

53

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

The importance of inventory turns.

Because storage costs are calculated on a monthly basis, the total cost of storing an item
depends on how long it will be in the warehouse.

In the past, each unit received for storage had an anniversary date with renewal storage
charges added each month afterward. Later billing systems were designed to simplify the
clerical task by charging a half month for items received after the 15th of the month, and a
full month for everything in storage on the first day of the succeeding month.

Regardless of the system used, an inventory that turns 24 times per year should cost less to
store than one that turns six times per year. For that reason, the inventory turn rate is a
critical data point in creating storage prices.

The "make or buy" factor.

Nearly all services available from a logistics service provider can be replicated by an
internally managed project. The buyer who knows the amount of space needed and has
estimated the number of people required to staff the operation, should be able to simulate
the "do-it-yourself" cost of providing comparable logistics services.

This cost is then compared with the prices offered by a logistics service provider. In this
situation, the risk factor is critical. The do-it-yourself option is full of risk, unlike a unit price
agreement that provides maximum flexibility because the risk is absorbed by the logistics
service contractor.

Simulating a logistics service provider

Some private warehouse operators treat their operations as if they were public warehouses.
Transfer costs for internal storage and handling prices are determined, and the warehouse
manager is held accountable for profitable operation at the established rates.

Topic 4.2: Document filing systems [KT0402]

Document Storage Services

Company records contain sensitive data regarding customers, employees, business partners,
processes, and more. Keeping these records safe while maintaining document organization
and accessibility will help streamline your workflow and increase security at your office.

Whether your filing cabinets are full or if you are simply looking to step up security, consider
storing your business records at an offsite storage facility.

54

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

Offsite records storage services provide more than just a place to keep your records. With
physical and digital delivery services, environmental disaster protection, and advanced
security technologies protecting your documents, you can rest easy knowing your records
are safe and readily available at a moment’s notice.

Benefits of Records Storage Services

Storing your records off site provides several benefits including:

 Onsite document destruction services for a convenient, closed-loop document life
cycle/retention program solution.

 Digital and physical access to stored documents on an as-needed basis 55
 Complete compliance with information security laws at national and local levels

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

 Web-based management of document stored offsite.
 RFID tracking of documents for quick and easy organization and document retrieval
 Extra space in your office with a reduction in clutter. 10

How to Create a Document Management System 11

Document management is the process of handling documents in such a way that
information can be created, shared, organized, and stored efficiently and appropriately. As
such, learning how to create a document management system is critical for businesses.

For many businesses, the focus of a document management system is on the organization
and storage of documents. They want to be able to store documents in an organized and
secure way that still allows documents to be found easily. This article will show you how to
create a document management system that does exactly that.

The Challenge: Blending Old and New

If you type “document management system” into any search engine, you'll get long lists of
document management “solutions,” many featuring software or apps that advertise the
advantages of having a paperless office.

10 https://www.recordnations.com/records-storage/document-storage/ 56
11 https://www.thebalancesmb.com/creating-a-document-management-system-2948084

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

Document management software or apps, however, are designed to improve your
business’s handling of electronic files. The problem is that many small businesses have to
deal with a mixture of old-fashioned data on paper and electronic files—and, in some cases,
the proportion of paper data is much larger.

One solution to the problem of a mixed data environment would be to use a document
imaging system to convert all of your business’s documents to electronic form. But this is
too expensive and time-consuming for many small businesses.

The good news is that you can put the basics of a document management system in place
without purchasing any special software or going through wholesale document imaging. The
system does not have to be complex; you just have to invest some time in planning and
implementing it.

3 Steps to a Document Management System

Setting up a document management system involves three steps:

1. Create a document management plan.

2. Implement the document management plan.

3. Follow through.

The first step is the most detailed, so let us explore it further.

Creating a Document Management Plan

The first step involves answering these four questions:

1. What are the rules for creating documents?

Invoices, payment reminder letters, sales brochures, email, balance sheets, spreadsheets,
reports—all businesses create a variety of documents in the course of doing and keeping
track of business. And to keep things organized, all businesses need to establish rules for
creating documents.

 Are there in-house templates for some of your standard business documents, such
as letters and invoices, and where are they located?

 Is there an in-house style guide that needs to be followed?
 Should new documents be dated or time-stamped?

 What procedures should be followed for sharing or reviewing documents?

57

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

For some small businesses, the only point that matters will be where the templates for
various business documents are located and how to use them. But if document creation
within your business involves different people collaborating on, reviewing, or updating
documents, you will need to spend some time deciding how these things should be done to
ensure efficiency and consistency.

2. How will we store documents?

There are costs associated with storage—the largest of which, for most small businesses, is
probably the cost of the time wasted when people are looking for documents. So, the
question is: How will documents be filed? The key to filing documents is to follow good file-
management practices. A clear, easy-to-follow system is essential.

You also need to know how you will archive documents. How will you handle files that are
out of date or just ready to be moved to the back burner in your document management
system?
Near the beginning of each year, for instance, you should go through the various work-
related files on your computer, weeding out those that are no longer current, and creating
new folders labelled by year and subject, moving files as needed. You can do the same with
paper files; it is not difficult to remove old documents from a file folder and create a new
one with “Old” in the title. Some software offers automatic archiving options.

3. How can retrieving documents be simplified?

This question is the heart of your document management system. In a survey conducted by
Leger Marketing for Xerox Canada, Canadian small- and medium-business owners and
managers on average said it cost over USD 2000 per year to manage and store documents
and about one hour a day to search for these documents.

Once again, good filing practices can go a long way toward solving the problem. If you do
things such as consistently follow strict naming conventions, for example, documents will be
much easier to find.

And whether you are a sole proprietor or a business owner with employees, you should
create a file locations list, which will remind users where particular types of files go—and
where to find them. Remember to include whether or not the file will be on your computer
system, an in-house server, in the cloud, or filed in a physical location such as a filing cabinet.
For instance, suppose that you use images, video, or even paper photos in your business.

An entry in your file locations list might be:

 Digital images/video: computer (or server)—drive E:/photos—file in the appropriate
subject folder

 Paper photos: filing cabinet 3—Photos—alpha by subject.

58

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3

Shared network or cloud drives should be labelled according to contents, as should filing
cabinet drawers.

4. How can we make and keep our documents secure?

The first line of defence for document security is physically securing the business
premises themselves. All businesses, even home-based ones, need to have security systems
installed.

Businesses may also need or want to invest in other security devices, such as window bars,
security cameras, or patrol services. You can spend all the time you want creating
passwords and encrypting files in an attempt to protect your electronic files, but it does not
matter much if someone can just wander in and steal your computer.

Additional document security measures include:

 Locking all filing cabinets after business hours (and during lunch if no one reliable is
present)

 Backing up electronic documents regularly, preferably off-site to guard against
having your business data wiped out by natural disasters

 Restricting user access to certain documents, applications, and folders on any shared
computers

 Preventing employee theft by conducting background and reference checks as a part
of your hiring process

Implement and Follow Through

Once you have created your document management plan by answering the questions above,
you are ready to implement it. Make sure all your entire staff knows the details of your
business’s document management system and that everyone follows appropriate
procedures when creating, storing, and retrieving documents.

You will also have to be sure that everyone who accesses and uses documents within your
organization follows through by consistently naming and storing documents appropriately.
Spot check on a regular basis to test whether particular files can be easily found and to
guard against misfiling. Even occasional carelessness can throw off the entire system.12

12 https://www.thebalancesmb.com/creating-a-document-management-system-2948084 59

Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021