Warehousing and
material handling system
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Training Schedule
 Type of warehouse
 Selection of warehouse
 Discussion
 Space and layout
 Discussion - warehouse constraints
 New concept – virtual warehouse
 Open discussion
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Warehousing
 an integral part of every logistics system
 providing a desired level of customer service
at the lowest possible total cost
 a primary link between producers and
consumers
3
Is this what you are looking for ?
4
In reality
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Lucky you have this one
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Cost Trade-offs Required in a
Logistics System
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What is Warehousing?
A part of a firm’s logistics system that stores
products (raw materials, parts, goods-inprocess and finished goods) at and between
point-of-origin and point-of-consumption, and
provides information to management on the
status, condition, and disposition of items
being stored.
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Warehouse vs DC
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Warehouse vs Distribution Centre
Warehouses:
Distribution Centre:
 store all products
hold min. inventory (high
handle in four cycles
demand items)
handle most products in 2
cycles (receive and ship)
perform high % of valueadded activities
collect data in real-time
focus on maximizing the
profit impact
(receive, store, ship and
pick)
perform a minimum of
value-added activities
collect data in batches
focus on minimizing the
operating costs
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Why Hold Inventories? - 1
1. To achieve transportation economies
2. To achieve production economies
3. To take advantage of quantity purchase
discounts and forward buys
4. To maintain a source of supply
5. To support the firm’s customer service
policies
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Why Hold Inventories? - 2
6. To meet changing market conditions (e.g. seasonality,
demand fluctuations, competition)
7. To overcome the time and space differentials that
exist between producers and consumers
8. To accomplish least total cost logistics
commensurate with a desired level of customer
services
9. To support the just-in-time programs of suppliers and
customers
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The role of warehousing in logistics
In the past, warehousing was necessary due to
the traditional production-oriented ‘push’
system.
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The role of warehousing in logistics
In recent times, however, a market-oriented
practice or ‘pull’ system which requires
constant monitoring of market needs.
In a pull system, warehousing offers improved
service to customers by positioning inventory
to achieve strategic and operational
objectives.
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Uses of Warehousing
 Manufacturing support
 Product - mixing
 Consolidation
 Break-bulk
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Manufacturing support
 Warehouses function as inbound consolidation points
for the receipt of materials shipments from suppliers
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Product - Mixing
 Product mixing often involves multiple plant locations
that ship products to a central warehouse
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Consolidation
 Small orders from a number of suppliers may be
shipped to a consolidation warehouse near the
source of supply
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Breakbulk
 Break bulk warehouses are facilities that receive large
shipments of product from a manufacturing plant
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Factors Influencing Warehousing
in the Future
 Time
 The best warehouse operations are those designed to
reduce every aspect of order cycle time.
 Quality
 Users now expect performance that approaches
perfection.
 Asset productivity
 Reduce total cost, reuse, and recycle.
 New kind of workforce
 Requirements for both management and labor will
change significantly.
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Basic Warehousing Decisions
1. Which logistics system design should be adopted?
2. Should warehousing be owned, leased, rented, or
some combination of these?
3. Should warehousing functions be subcontracted to a
third party?
4. Should new materials handling equipment, or use
labour intensive materials be installed?
5. How much capacity is required?
6. Where should warehouses be located?
7. What type of warehousing layout is appropriate?
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Materials to handle
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Poor design of the warehouse
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Poor design of the warehouse
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Types of Warehousing
 Direct Store Delivery (market products directly
to customers)
 Public Warehousing (to rent space)
 Private Warehousing (to own or lease space)
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Six types of Public Warehousing
 General Merchandise Warehouses for manufactured





goods
Refrigerated or Cold Storage Warehouses
Bonded Warehouses
Household Goods and Furniture Warehouses
Special Commodity Warehouses
Bulk Storage Warehouses
Other options
 Cross-docking
 Contract Warehousing
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Warehouse vs Cross dock
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Cross dock
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Advantages of Public Warehousing
1. Conservation of capital
2. Use of space to meet peak requirements
3. Reduced risks
4. Economies of scale
5. Flexibility (size and location)
6. Tax advantages
7. Specific knowledge of storage and handling
costs
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Disadvantages of Public
Warehousing
 Effective communication may be difficult
because of system incompatibility
 Specialized services may not always be
available.
 Space may not be available on demand.
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Advantages of Private Warehousing
1. Control
2. Flexibility (design and operation)
3. Less costly
4. Better use of human resources
5. Tax benefits
6. Intangible benefits
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Disadvantages of Private
Warehousing
 Flexibility (fixed size and location)
 Investment
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Size and Number of Warehouses
 The size and number of warehouses facilities
are interrelated decisions
 They typically have inverse relationship
 The general trend is to have fewer, but larger
warehouses
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How Size is Measured?
 Size is often defined in terms of square
footage of floor space
 Sometimes, in cubic space of the entire
facility
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Factors Affecting the Size
1.
Customer service levels

Higher the level, carry more stock
2. Size of market (served)

Wider the market, carry more stock
3. Number of products marketed

Full range of product need more space
4. Size of the products

Bulky one requires more space
5. Materials handling system used

Prepare turn round basin, aisle width
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Factors Affecting the Size
6. Throughput rate (i.e. inventory turnover)

dedicated location for package/dispatch
7. Production lead time
8. Economies of scale
9. Stock layout
10. Aisle requirement
11. Office area in warehouse
12. Type of racks and shelves used
13. Level of pattern of demand
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Warehouse Storage Area Sizing
1. Obtain monthly sales projection in the planning period
2. Convert sales revenue into volume by product group by months
3. Get the average inventory volume by considering turnover rate
4. Sum the total volume
5. Convert into area requirements by dividing the total volume by
ceiling height
6. Discount by the utilization factor: aisle, gangway
7. Once a monthly figure on area requirement is obtained, a range
of sizes is obtained
8. Match the range with the sales volume. Anything over a
particular size is outsourced
9. Quantify the use of private and outsourced warehouse in dollars
10.The size that results in the least total warehouse operating
expenses is the right size
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The Relationship of Demand
to Warehouse Size
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Determinants of Storage Space
Requirements
These Situations Decrease the Need For Storage Space
These Situations Increase the Need for Storage Space
Decrease in production or sales
Market or company expansion
Decrease in number of SKUs
Shorter product life cycle
Less volatile demand (including longer
Increase in number of SKUs
product life cycles)
Customer handles store delivery
Smaller manufacturing lot sizes
Smaller purchase amounts
Higher inventory turns
Better information
Quicker transportation
Cross-docking
Carrier performing consolidation
Direct store delivery on a quick response
basis
Elimination of distributors
Expansion into specialized products
Import/export items
Lengthened production process
Increase in minimum manufacturing lot
size
Requirement for faster response time
Inflation/forward buying
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Deciding Number of warehouses
Four Factors:
1. Cost of lost sales
2. Inventory costs
3. Warehousing costs
4. Transportation costs
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Relationship Between Total Logistics
Cost and the No. of Warehouses
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Break for 10 minutes and
Classroom Discussion
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Selection of Warehouse
Location
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Basic Warehousing Decisions
 1. Which logistics system design should be adopted?
 2. Should warehousing be owned, leased, rented, or
some combination of these?
3. Should warehousing functions be subcontracted to
a third party?
4. Should new materials handling equipment, or use
labour intensive materials be installed?
 5. How much capacity is required?
6. Where should warehouses be located?
7. What type of warehousing layout is appropriate?
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Reasons for Site Seeking
1. It is necessary to relocate an existing warehouse
operation (e.g. end of lease)
2. The business is expanding and must move inventory
into a new market
3. More warehouse space is needed to accommodate a
growing inventory
4. Contingency planning requires some decentralization
of existing warehousing – in other words, there are
too many eggs in one basket
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Location Selection Decision
 The Macro perspective examines the issue of
where to locate warehouses geographically to
improve the source of materials and the firm’s
market offering.
 The Micro perspective examines factors that
pinpoint specific locations within the larger
geographic areas.
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Macro Approach 1
1. Market Positioned Warehouses
2. Production Positioned Warehouses
3. Intermediately Warehouses
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Macro Approach 2
1. Product Warehouse Strategy
The firm places only one product or product grouping
in a warehouse.
2. Market Area Warehouse Strategy
Each facility stocks all the firm’s products so that
customers can receive complete orders from a single
warehouse.
3. General Purpose Warehouse Strategy
Facilities carry a full line of products that each
warehouse serves all markets within a geographical
market.
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Macro Approach 3
 Approaches based on distance and cost
minimization

The optimal site should minimize the total transportation
costs including the costs of transferring raw materials to the
plant and the costs of transferring finished goods to the
market.
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Macro Approach 4
Infinite Set Approach:

Centre of Gravity Method
Feasible Set Approach:



Load Distance Model
Scoring Model
Transportation Method
Approaches are often used together
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Factors in Retail Location
Proximity to
customers
Location is
everything
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Grid-Map Coordinates
y
n

x=
i=1
1 (x1, y1), W1
3 (x3, y3), W3
y3
x1
x2
x3
x
yiWi
i=1
y=
n

y1

xiWi
i=1
2 (x2, y2), W2
y2
n
Wi
n

Wi
i=1
where,
x, y = coordinates of the new
facility at center of gravity
xi, yi = coordinates of existing
facility i
Wi = annual weight shipped from
facility i
Center-of-Gravity Technique
Locate facility at center of geographic area
Based on weight and distance traveled
Establish grid-map of area
Identify coordinates
and weights shipped
for each location
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Center of Gravity Method
 The center of gravity method is used for
locating single facilities that considers
existing facilities, the distances between them,
and the volumes of goods to be shipped
between them.
 This methodology involves formulas used to
compute the coordinates of the two
dimensional point that meets the distance
and volume criteria stated above.
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Center of Gravity Method
Where:
Cx = X coordinate of center of gravity
Cy = Y coordinate of center of gravity
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = Volume of goods moved to or from ith
location
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Example of Center of Gravity
Method
 Center of gravity method example
Several automobile showrooms are located according to the following grid
which represents coordinate locations for each showroom.
Question: What is the best location for a new Z-Mobile
Warehouse / temporary storage facility considering only distances
and quantities sold per month?
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Example of Center of Gravity
Method
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Example of Center of Gravity
Method
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Center-of-Gravity Technique - exercise
y
x
y
Wt
700
C
600
Miles
500
(135)
B
(105)
400
300
200
D
(60)
A
(75)
100
0
100 200 300 400 500 600 700 x
Miles
A
200
200
75
B
100
500
105
C
250
600
135
D
500
300
60
Center-of-Gravity Technique - answer
y
700
C
600
Miles
500
(135)
B
(105)
400
300
200
A
x
y
Wt
Center of gravity (238, 444)
D
(60)
(75)
100
0
A
200
200
75
100 200 300 400 500 600 700 x
Miles
B
100
500
105
C
250
600
135
D
500
300
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Load Distance Technique
 Establish a grid with the respective locations
 Compute Load x Distance for each site
 Choose site with lowest load x Distance
 Distance can be actual or straight line
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Example of Load Distance Technique
4 suppliers will supply goods to your warehouse. You have
identified 3 potential sites for your warehouse. Which one will be
most suitable?
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Example of Load Distance
Technique
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Example of Load Distance Technique
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Example of Load Distance Technique
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Micro Perspective – Private Warehousing
 Quality and variety of transportation carriers serving








the site
Quality and quantity of available labor
Labor rates
Costs and quality of industrial land
Potential for expansion
Costs of construction
Costs and availability of utilities
Cost of money locally
Local government tax allowances
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Micro Perspective – Public Warehousing
 Facility characteristics
 Warehouse services provided
 Availability and proximity to transport
terminals
 Availability of local cartage
 Other companies using the facility
 Availability of computer services and
communications
 Type and frequency of inventory reports
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Schmenner’s Eight-Step Approach
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Scoring Model - Factor Rating
Method
 A location decision involves both qualitative
and quantitative input.
 It is useful both for evaluating and comparing
alternatives.
 The method allows decision makers to
incorporate their subjective judgments and
quantitative information into the decision
process.
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Factor Rating Method
Six-step procedure of factor rating method
1.
2.
3.
4.
5.
6.
Determine which factors are relevant (e.g. location of market,
water supply, parking facilities, revenue potential)
Assign a weight to each factor, indicating its relative
importance compared to all other factors. Typically, weight the
sum to 1.00
Decide on a common scale for all factors (e.g. 0 to 100)
Score each location alternative
Multiply the factor weight by the score for each factor and the
total results for each location alternative
Choose the alternative that has the highest composite score
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Factor Rating Method Example
Two warehouses (A and B) are assigned the following
values and respective points, where the more points the
better for the site location.
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Transportation Method
 Transportation method seeks to minimize
total transportation costs of shipping products
from m sources to n destinations
 Each source has Ai units of resources
available and each destination in need of Nj
units of resource. The cost of allocating one
unit of resource from source i to destination j
is Cij
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Transportation Method
Five-step procedure of transportation method
1. State the problem so that the total no. of
shipments available equals to the no. of
shipments needed
2. Create an initial solution
3. Evaluate the solution for improvement
4. Modify the solution accordingly
5. Repeats steps (3) to (4) until no improvement
is possible
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Example of Transportation Method
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Natural Selection
 In the real world, surveys have shown that
distribution centres are often concentrated
around a small number of major centres
 An analysis of 29 food manufacturers showed
two thirds of their stockholding points were
within 20 miles of nine cities : London, Bristol,
Glasgow, Birmingham, Manchester,
Newcastle, Leeds, Nottingham, Southampton
 Can we conclude that through time firms
converge on optimal or near-optimal locations
by a process of trial and error....?
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Q&A
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