Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 18
Principles of Warehousing
Principles of Warehousing
• Warehouses are crucial components of most modern supply chains for
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Handling of raw materials
Handling of work-in-progress
Handling of finished products
Distribution of goods
• Warehouses are critical to the provision of high customer service levels and help in dealing with
• Market volatility
• Product protection from damage and proliferation
• Shortening lead times
Types of warehouses
• There are many types of classifications that can be adopted
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By stage in the supply chain (raw-material, work-in-progress, finished goods)
By geographic area (local, regional, national)
By product type (car bodies, frozen food)
By function (inventory holding or sorting)
By ownership (manufacturer, retailer, third-party logistics company)
By company usage (one company or many companies)
By area (small 100 square meters to large 100,000 square meters)
By height (Low 3 meters high or high-bay 45 meters high)
By equipment (manual operation or highly automated)
The role of warehouses
• The prime objective of warehouses is to facilitate the movement of goods through the supply chain
to the end consumer
• Assuming
• The demand for the product is continual
• The supply lead time is greater than demand lead time
• Roles of warehouses
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Inventory holding
Consolidation centre (for ordering multiple products)
Cross-dock centre (for goods brought from elsewhere)
Sorting centre (goods are brought just for sorting, like post-offices)
Assembly facility
Trans-shipment point (national distribution centres and regional distribution centres)
Returned goods centre (even for online shopping)
Strategic issues affecting warehouses
• Market/industry trends (due to change in fashion or technology)
• Corporate objectives (changing shareholders expectations)
• Business plans (exploring new markets)
• Supply chain strategy (affects number, size and location of warehouses)
• Other related strategy (production plan or batch-size changes)
• Customer service levels (changing customer expectations)
• External factors (laws in the area regarding construction, health, and safety)
Warehouse operations
• For an inventory holding warehouse, typical warehouse functions and material flow are
Floor area usage
• Typical split of floor area usage
Warehouse operations
• Typical warehouse functions in a cross-dock warehouse
Warehouse costs
• Warehousing typically accounts for about 20 to 30% of logistics costs
• Detailed breakdown of warehouse costs varies by the nature of operation
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Staff (both permanent and part-time) – 45 to 50%
Building (including rent and depreciation) – 25%
Building services (utilities, insurance and maintenance) – 15%
Equipment (running and maintenance cost) – 10 to 15%
Information technology (including systems and data) – 5 to 10%
• Optimization
• Need to utilize space more efficiently
• Need to utilize staff more efficiently
Packaging and unit loads
• Packaging: Most goods that pass through a warehouse are packaged to
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Contain the product
Protect or preserve it
Improve its appearance
Provide information
Facilitate storage and handling
• Unit loads
• Supply chains are structured around unit loads, whereby goods are transported, stored and handled in
standard units
• Unit loads help in transport, storage and handling systems to be designed around common dimensions
• Most frequently used unit loads are:
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Pallets (standard raised flat platforms)
Cage and box pallets (to contain goods that may otherwise fall off a standard pallet)
Roll-cages (that can be rolled by pushing)
Tote-bins (plastic bins for storing small parts)
Dollies (bases fitted with wheels)
Intermediate bulk containers (IBC): for storing and transporting one to two tonnes
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 19 and 20
Storage and Handling Systems
(Palletized and non-Palletized)
Wooden Pallet
• The wooden pallet is the most common unit load used in warehouses
• The use of wooden pallets enables standard storage and handling equipment to be used
• Pallet movement: Pallets can be moved by a wide-range of equipment
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Hand pallet truck
Powered pallet truck
Tugs and tractors
Conveyors
Automated guided vehicles (AGVs)
Pallet stacking
• The effective storage of goods in a warehouse normally involves the stacking of pallets
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One pallet on top of another, or
Placing of pallets into a form of racking
Truck must be capable of lifting maximum load at a specified load centre
Lift height is also specified by the manufacturer
Lifting trucks
• There is a wide-range of lifting trucks available
• Stacker trucks
• Most commonly used
• Battery-powered (ride-on, stand-in and seated)
• Light weight (2 to 3 tonnes)
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Limited in height ( up to about 6-metre lift height)
Lifting trucks
• Counter-balanced fork-lift trucks
• These are very versatile trucks
found in a wide variety of
warehouses
• Used for loading and unloading
vehicles, as well as moving goods
around the warehouse, and lifting
goods into pallet racking
• Powered by electric battery, diesel,
LPG or CNG
• Load is carried forward of the front
wheels and the weight of the load
needs to be counterbalanced by a
steel or iron casting
Lifting trucks
• Reach trucks
• Commonly used in warehouses to operate in narrow aisles
• The mast can reach forward along these outriggers to position a pallet in front of the
front wheels, either on the ground or at height
Palletized storage
• There are many storage systems available for palletized goods
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Block stacking
Drive-in and drive-through racking
Push-back racking
Adjustable pallet racking
Double-deep racking
Narrow-aisle racking
Powered mobile racking
Pallet live storage
Automated storage and retrieval systems
Palletized storage
• Block stacking
• Simple storage with pallets being
placed one on top of another
• Height of stack is limited by the
crushability and stability of the
loads
• Lift-trucks should be able to drive
between the rows and access the
back of any row
• Normally used for one SKU
Palletized storage
• Drive-in and drive-through racking
• Avoids the problem of crushability
• Metal uprights are positioned on each
side of every row and horizontal metal
flanges extend along these uprights at
right angles to the aisle
• Drive-in racks are generally built up to
about 10 or 11 metres in height and
to about 6 pallets deep, although they
can be much deeper
Palletized storage
• Push-back racking
• Push-back racking is another form of dense storage system but has the advantage that each level in the ‘block stack’
can be accessed individually
Palletized storage
• Adjustable pallet racking (APR)
• Pallets are placed deep onto horizontal
beams, running parallel to the aisles,
which are fixed to vertical frames
• The main advantage of adjustable pallet
racking is that each individual pallet can
be accessed directly
• APR may be served by counterbalanced
fork-lift trucks
Palletized storage
• Pallet live storage
• Pallet live storage provides dense storage while maintaining ‘first-in, first-out’ stock rotation
• The pallet rolls forward and is then brought to a halt at the far end of the conveyor by an automatic
braking system. The next pallet is then placed on the conveyor and this rolls down until it reaches
the first pallet, and so on
Palletized storage
• Automated storage and retrieval
system
• Whereas all the storage types
described so far require a truck
driver, an automated storage
and retrieval system (AS/RS) is
operated by computer control
• computer controlled cranes run
up and down the aisles, putting
away and extracting pallets
Most Optimum Palletized storage
• The most optimum storage and handling system is likely to include:
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Effective use of space – building height, pallet location utilization factors
Good access to pallets
High speed of throughput
Low levels of damage
High levels of accuracy
Integrity and security of inventory
Personnel safety
Minimum overall cost
Storage and handling systems (non-palletized)
• Although pallets are widely used in warehouse operations, there are many
types of product that are not suitable for palletization, because they may be
• Too small
• Too large
• Too long
• Examples
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Nuts and bolts
Electronic items
Paper reels
Machinery
Steel bars
Carpets
Drums
Hanging garments
Warehouse Unit Loads
• About half of the goods in warehouses are stored in units other than pallets
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The most common of these being
card- board boxes with product inside
Tote bins (plastic, fibreboard or metal boxes)
Small cartons for holding individual products
Small item storage system
• There is a range of equipment designed for the storage of small items
• Shelving, bins and drawer units
• Mobile shelving
• Flow racks (carton live storage)
• Carousels and lift modules
• Miniload
Shelving, bins and drawer units
• Shelving are modular units that come in many different specifications
• Shelves are normally arranged in long rows accessible by aisles
• Each shelf can normally support about 200 kilograms of product
Mobile shelving
• Shelving is fairly space intensive as aisles are required for access
• Where access is only occasionally required (e.g. with archive material) then mobile shelving,
which runs on rails, is used
Flow racks (carton live storage)
• Flow racks are similar in concept to pallet live storage
• Product is positioned on rollers and rolls forward until it reaches the end stop
Carousels and lift modules
• Carousels may be vertical
or horizontal in nature
• Vertical carousels hold
products on shelves
within a steel-clad box
• Shelves are suspended
between two chains that
are rotated in a vertical
direction by electric
motors
Miniload
• A miniload is basically an AS/RS for
small items
• A computer-controlled crane
operates along a central aisle and can
access cartons or tote bins from
shelving or racking on either side
• The cranes may be designed to
transport more than one carton or
tote bin at a time
Truck attachments
• For larger items, it may be possible to handle the goods by means of
attachments fitted to fork-lift trucks
Examples
• Clamps
• Rotating heads
• Load push-pull
• Booms
• Multi-forks
• Drum tines
Long loads
• Long loads (such as steel rods, carpets and wooden boards) are problematic
in terms of storage
• Conventional handling equipment cannot move them effectively as very
wide aisles would be needed to turn the loads
• Specialist storage and handling equipment is therefore used
• Block storage in separate yards
• Cantilever racking
• Pigeon-hole racking
Handling of long loads
• Side loaders
• Multi-directional trucks
• Boom attachments
• Overhead cranes
Cranes
• Cranes are used particularly for moving very heavy loads (such as metal
bars) within a predetermined area
• Most cranes are electrically powered and are controlled by a fixed-wire
push-button control box
Examples
• Jib cranes
• Overhead travelling cranes
• Gantry cranes
Conveyors
• Conveyor systems are used for moving goods between fixed points, for
holding goods as short- term and for sorting
Examples
• Roller conveyors
• Belt conveyors
• Slat conveyors
• Chain conveyors
• Overhead conveyors
Hanging garment systems
• These are specialist systems for storing and handling garments on hangers
• These systems may be manual in nature or may be highly automated
• Individual garments may be identified by bar codes, or radio frequency
identification (RFID) tags
• The garments may be sorted at the rate of several thousand per hour
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 21
Order Picking and Packing
Order picking and packing
• Order picking means to extract from inventory a particular good required by customers and
create its shipment in good condition
• Order picking and replenishment accounts for about 50% of the direct labour costs of a
warehouse
• Order picking and replenishment is either done
• Manually or
• Automatically using machines
Order picking concepts
• Pick-to-order
• Picker takes one order, travels through the whole warehouse until the whole order is picked
• Used in retail food distribution centres
• This method is inefficient if the order has number of products
• Batch picking
• Small orders are picked in batches
• Total requirement of all the orders is picked on a single picking round
• Done manually or using automated sorting equipment
• Pick-by-line or pick-to-zero
• Exact numbers of cases or items are presented for picking
• Picking continues until that line is exhausted
Methods of order picking
• Zone picking
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Warehouse is split into different zones
On receipt of customer order, identify the stock keeping unit (SKU) and the zone
Issue picking instructions to each zone
Make goods ready for packing and dispatch
Zone picking occurs with either pick-to-order or batch picking
• Wave picking
• Orders are released in waves (hourly or mornings, etc.) in order to control the flow of
goods for picking, packing, and dispatch
• Timing of waves is matched with outgoing vehicle schedules
Order picking equipment
• There is a very wide range of order picking equipment from simple trolleys to fully automated
dispensers
• These may be classified under three main categories
• Picker to goods (order picker travels to goods to pick them)
• Goods to picker (SKUs are presented to the picker in sequence)
• Automated systems
Picker to Goods
• Order picker travels to goods to pick them using
• Trolleys and roll-cage pallets
• Powered order picking trucks
• Conveyors
Goods to Pickers
• Stock keep units (SKUs) are presented to the picker in sequence
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Horizontal and vertical carousels
Mini-loads
Totes-to-picker systems
Pallets-to-picker systems
Shelf-modules-to-picker
systems
Automated Systems
• Automated systems are designed for a range of products at set locations
• Layer pickers
• Dispensers
• Robotic applications
Sortation
• If goods are batch-picked, they will need to be sorted into the relevant customer orders
• Manually (eg sorting to pigeon-hole or to roll-cage pallet)
• By automated sortation equipment
• Similarly, goods that have been zone-picked will need to be brought together into the
relevant orders
• Mechanized sortation can be undertaken as an integral part of conveyor systems
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Sliding shoe sorter
Bomb-tray sorter
Tilt-tray sorter
Cross-belt sorter
Picking area layout
• The layout of the picking area is critical to achieving high levels of productivity
• Separate reserve inventory and picking locations for individual SKUs
• Combine all the inventory into a single location
• For example
• In case of small electronic items the total inventory may fit in a single location
• Many pallets required for retail food line may not fit in picking positions
• The general principle is that picking stock should be concentrated into the smallest
feasible area, so as to minimize travelling time between SKUs
Information in order picking
• Picking time includes travel time and information time
• Information system should achieve high productivity while ensuring high levels of accuracy
• Information methods
Paper pick lists
Pick by label
Bar codes
Radio data terminals
Pick by light
Put to light
Radio frequency
identification
• Voice technology
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Picking productivity
• Picking productivity is a very important component of overall efficiency, as order picking can
often account for 50% of the staff in a warehouse
• Picking productivity depends on
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Operational requirement
Equipment
Management
Information technology
• There is a trade-off between cost and picking productivity
Replenishment
• Replenishment is the activity of transferring goods from reserve stock to the picking face
• Both the efficiency and accuracy of picking are greatly affected by the replenishment operation
• If picking stock has not been replenished to the pick face then
• The picker will travel to a pick slot unnecessarily
• The customer will be dissatisfied
• The replenishment task should not only be effective but also should not interfere with the picking task
• Set out separate replenishment and picking aisles
• Undertake the replenishment and picking tasks at different times of day
• Have multiple locations for fast-moving goods, so that replenishers and pickers are not operating at the same pick slot
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 22
Receiving and Dispatch
Receiving and Dispatch
• Receiving area of a warehouse is important, as it forms the basis for all subsequent activities of the
warehouse
• Goods should pass through receiving quickly to become available for picking
• Receiving must be carried out with a high degree of accuracy
• Dispatch area of a warehouse is important, as it is the customer-facing aspect of the warehouse
• Ensure all goods are dispatched to the customers on time
• Operational failures in this area will result in service level failures
Receiving Processes
• Receipt of goods into a warehouse needs to be a carefully planned activity
Incoming vehicle loads are booked in advance
On arrival, drivers report to the gatehouse
Staff check the vehicle documentation and direct the driver where to go
On unloading, the goods are checked to ensure correct quantity and quality against an advance shipping notice (ASN)
by electronic data information (EDI)
• Some packages may require bar-coding, palletizing, placing in bins to be put in storage
• The goods are then stored with location stored in the computer information systems
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• The key objective in designing the receiving process is to store the goods in warehouse with
minimum handling and delay possible
Dispatch Processes
• Dispatch processes include making the good ready delivery. This may include
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Labelling
Tagging
Assembly
Packing into cartons
• The goods then are sorted to vehicle loads and unit loads are ready for dispatch
• Good co-ordination is necessary to avoid the vehicle load taking up valuable marshalling area space
• In the case of temperature-controlled goods, it is important to manage dispatch activities more
effectively
Cross-docking
• Cross-docking is an activity whereby goods are received at a warehouse and dispatched without
putting them into storage
• Goods for cross-docking need to arrive by a strict time schedule linked to the vehicle departure
times
• If sorting is required, then a pick-by-line technique is used to pick individual products from
incoming pallets and place them on outgoing pallets
• Cross-docking is particularly beneficial for fresh and short-shelf life goods
Equipment
• Common types of handling equipment in receiving and dispatch include
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Boom conveyors (for loose cartons)
Pallet trucks (for loading and unloading from the rear of the vehicle)
Fork-lift trucks (for side loading and un-loading)
Automated loading/unloading systems (require special trailers fitted with rollers or tracks)
Pallet scissor lift tables
Loading bays
• The loading bays are equipped with the following features
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Dock levellers
Doors
Dock shelters and seals
Bumpers
Lighting
Warning lights
Vehicle restraints
Wheel guides
Layouts
• The receiving and dispatch area layouts should include
• Outside the warehouse
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Vehicle roadways (roadway markings and signage)
Parking areas (adequate vehicle, trailer and swap-body parking)
Ancillary areas (fuel points, vehicle washing facilities, weighbridge, waste compactors)
A through-flow is better but may not always be possible. In that case U-flow or L-flow should be used, if possible
Vehicle bays may have level intake (suitable for side-unloading of vehicles by lift trucks)
Vehicle bays may have raised dock (so that warehouse floor is at the same level as bed of the vehicle, so that a pallet
truck can drive directly on to the vehicle)
• Inside the warehouse
• 20 to 30% inside floor areas are needs to be allotted to receiving and dispatch
• Many of these areas may only need fairly low building heights
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 23
Warehouse Design
Warehouse Design Process
• Design of a large and modern warehouse is complex and requires a range of skills and disciplines,
including
• Operations
• Construction
• Materials handling
• Information systems
• Personnel, finance and project management
Design Process
• Define business requirements and design constraints
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Define and obtain data
Formulate a planning base
Define the operational principles
Evaluate equipment types
Prepare internal and external layouts
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Draw up high-level procedures and information system requirements
Evaluate design flexibility
Calculate equipment quantities
Calculate staffing levels
Calculate capital and operating costs
• Evaluate the design against business requirements and design constraints
• Finalize the preferred design
Business requirements and design constraints
• The wider business requirements affecting warehouse design
• Warehouse roles
• Storage capacity
• Customer service levels
• Any other value addition activity
• Design constraints
• Health and safety regulations
• Fire regulations
• Insurance requirements
• Municipal requirements
Define and obtain data
• Data are collected for the base year and then projected forward in line with
the business plan to the planning horizon
• Data requirements
• Products (quantity, value, seasonality, inventory, unit load)
• Order characteristics (frequency, lead time, unit load, service levels)
• Receiving and dispatch (number of vehicles, volume per vehicle, 3PL)
• Operations (basic, ancillary, packaging, quality control)
• External area requirement (fleet strength, parking, wash and fuelling)
• Site and building details (locations services)
• Cost (rent, utilities, wage rate, equipment costs)
Formulate a planning base
• Make a warehouse flow diagram
Define operational principles
• Based on the activities to be performed in the warehouse, decide the time
available for each activity using a time profile
Evaluate equipment type
• A structured approach to equipment selection may comprise the following
stages
• Initial automation assessment (based on requirements and costs)
• Attribute assessment (which equipment is necessary)
• Decision trees (evaluating options)
• Cost comparison
• Equipment choice
Internal and External Layout
• Internal layout
• Achieving the required efficiency with least resources
• Enough space for pedestrians and fork-lift trucks
• Environmental requirements (light and water exit)
• External layout
• Building spans
• Dock area
• Other locations (battery charging, toilets, restaurants, etc.)
• Roadway design
• Parking areas
• Gatehouses and fencing
• Vehicle wash, fuelling
• Fire assembly
Information Systems
• Establish processes for
• Issuing instructions
• Confirming the picking
• Conveyor sorting
• Order picking
• Information systems used
• Paper pick up lists
• RFID tags
• Radio data terminal to the picker
• Pick by light
• Voice technology
Evaluate design flexibility
• The agility requirements may include
• Volume
• Time
• Quantity
• Presentation
• Information
• The agility may be provided by proper planning of
• Building
• Equipment
• Staff
• Processes and systems
Calculate capital and operating costs
• Capital and operating costs include
• Building, including land, construction (or leases or rents), local rates or
taxes, services and building security and maintenance
• Equipment, including static and mobile equipment capital costs (or
leasing or rental costs), and maintenance and running costs
• Staffing, including management, operatives, clerical staff and
maintenance staff
• information systems, including hardware, software and implementation
costs
Finalize the Design
• At this final stage, all aspects of the design need to be finalized, including layout, operating
methods, equipment, staffing, information technology and costing
• Actual project implementation
• Building (site search, building design, tendering, constructions)
• Material handling (tendering, supplier selection, installation and commissioning)
• Information systems (specification, selection, development and testing)
• Personnel (job specifications, recruitment and training)
• Associated areas (transportation)
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 24
Warehouse Management and Information
Warehouse Management and Information
• Warehouse management is a very challenging task that requires a range of skill-sets
• Warehouse management is now a high-level position in many companies, and plays a key role
in the provision of high customer service levels
• Warehouse information refers to the supporting information systems that are necessary for
the successful operation of a large warehouse, whether it is automated or conventional in
nature
Operational Management
• The management of a large warehouse is a complex task
• In the long and medium term
• Capacity planning is undertaken to ensure growth and seasonal peaks
• To meet required service levels
• In the short term
• Detailed workload planning to ensure appropriate levels of equipment and staff
• Correctly balanced between different warehouse zones
Operational Parameters
• Warehouses normally operate within defined operational parameters for
• Throughput
• Number of SKUs
• Unit load characteristics
• Product characteristics
• Lines per order
• Units per order line
• Added value requirements
Performance Monitoring
• Continuous measurement of performance is essential for monitoring process improvement
• Performance metrics
• Service levels
• Operational efficiency
• Cost efficiency
• Resource utilization
• Stock integrity
• Cycle times
• Safety
• Personnel
• Environment
Performance Indicators
• The performance of a warehouse is measured against the following indicators
• Leading and lagging indicators
• For example, a lagging indicator is a low level of equipment maintenance, which impacts on
order cycle times, and on-time dispatches
• Single or joint indicators
• For example, a joint indicator is on-time in-full (OTIF) delivery
• External and internal indicators
• For example, how a customer views the operation (external indicator), and how the
employees view the performance within the warehouse (internal indicator)
Warehouse Information
• Warehouse management systems (WMS) use information to achieve significant advantages in
terms of productivity, speed and accuracy
• WMS interfaces with the company’s main ERP system
• To access information such as purchase orders
• To feedback information such as goods received and dispatched
WMS areas of activities
• Receiving
• Put-away
• Replenishment
• Picking
• Added value services
• Packing
• Cross-docking
• Sorting
• Dispatch
• Management
• stock counting
Data capture and transmission
• Bar codes
• Bar code comprises a number of vertical bars of varying thicknesses
• The codes are normally structured, the first few bars indicate the product
symbol, the next few bars indicate the manufacturer, then the product
number, and location
• Optical character recognition (OCR)
• OCR labels can be read by both humans and text scanners
• OCR tends to be less reliable than bar coding and data formats are limited
• Radio frequency identification (RFID)
• RFID is identification of items by means of radio waves, using a tag, an
antenna, a reader, and a host station
Radio data communication
• A number of base stations (static and mobile) are located around a
warehouse and these provide two-way communication between the WMS
and computer terminals
• Real-time information is provided for management and for the operators
• Specific benefits of such systems include
• Paperless operation
• Real-time information and prioritization
• High levels of accuracy
• Dual cycling (a truck may be tasked with two or more activities during one
visit to an aisle)
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 25
International Logistics: Model Choice
International Logistics
• The move by many companies towards global operations, has changed the
nature of logistics and supply chain
• Long-distance modes of transport have become more important to the
development of efficient logistics operations in the global perspective
• The importance of sea freight as against air freight has become crucial
• Road and rail freight transport continues to be the dominant mode of
transport within the country
Transport modal choice
Operational factors
• External factors (external to the company) include
• The basic infrastructure in the country
• Trade barriers
• Export controls and licences
• Law and taxation
• Financial institutions and services, and economic conditions
• Communications systems
• Culture
• Climate
Operational factors
• Customer characteristics include
• Service level requirements
• Delivery point constraints
• Credit rating
• Terms of sales preference
• Order size preference
• Customer importance
• Product knowledge
Operational factors
• Physical nature of the product
• Volume to weight ratio
• Value to weight ratio
• Substitutability
• Special characteristics
Operational factors
• Other logistics components
• Supply point
• Production plants
• Warehouses and storage facilities
• Depots
• Marketing plans and policies
• Existing delivery system
Transport mode characteristics
• Conventional sea freight
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Advantages
Most cost effective
Availability
Speed
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Disadvantages
Need for double-handling
Delay problems
Damage
Transport mode characteristics
• International road freight
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Advantages
Very quick service
Very competitive from cost point of view
Flexibility of scheduling
• Disadvantages
• May not be economical if used as half loads
Transport mode characteristics
• Rail freight
• Advantages
• Relatively cheap mode of
transport
• Particularly suitable for heavy
and bulky consignments
Disadvantages
• Shunting shocks may cause
damage to products
• Need double-handling
• Limited rail-heads available in
factories
• Slow means of carriage
• Sometimes unreliable
Transport mode characteristics
• Air freight
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Advantages
High speed mode of transportation
Low lead times
Allows market flexibility
Low packaging requirements
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Disadvantages
Handling, paperwork and customs delays
Not suitable for high value to weight ratio
very expensive
May have security concerns
Transport mode characteristics
• Container systems
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Advantages
Small packages in one single unit
Reduction in handling
Reduction in individual packaging
Reduction in damage
Better delivery time
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Disadvantages
Need for special facilities and handling equipment
Initial cost of container is high
Return of empty container is expensive
Consignment factors
• Routeing and through transit responsibility
• Distance
• Type of cargo
• Quantity
• Unit load
• Priority
• Commodity value
• Regular shipments
Cost and service requirements
• The ultimate decision for modal choice is the logistics trade-off between
cost and service in relation to the relevant
• Operational factors
• Transport mode characteristics
• Consignment factors
• The following two factor may sometimes completely override the purely
economic factors
• Speed of delivery
• Service reliability
Freight forwarders
• Because of the complications concerning import and export documentation,
many companies use the services of freight forwarders
• Typical services that are offered include
• Preparation and checking of shipping documents
• Booking space with carriers
• Arranging the order collection from the point of origin to the shipping port
• Arranging the customs clearance and final delivery
• Advice in export regulations, and documentation requirements
• Detailed knowledge of carriers, ports
• Knowledge of different modes of international transport
• Knowledge of costs associated with different modes
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 26, 27, 28
Maritime, Air and Rail Transport
Maritime transport
• 90% of the world’s international trade is transported by sea
• Sea transport is ideal for high-volume cargoes that are not necessarily time
sensitive or have long lead times for delivery
• The use of shipping containers has revolutionized the way sea cargo is
handled and transported
Common shipping terms
• Full container load (FCL): load that will fill the container
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Less than container load (LCL): needs to be consolidated with other load
Hook to hook: means the cost includes loading and unloading
Liner in: responsible for loading only
Liner out: responsible for unloading only
Free in and free out: shipping company not responsible for loading or
unloading
Break bulk cargo: non-containerized loose freight
Weight or measure: price is quoted in tonnes or cubic metres
Stackable cargo: that can be stacked one above the other
Stowage plan: where each container is located in the ship
• TEU: twenty foot equivalent unit
• FEU: forty foot equivalent unit
Common ship types and their cargoes
• Cellular container vessel
• Break bulk freighter
• Roro vessel
• LNG vessel
• Oil tanker
• Specialized heavy lift vessel
• Dry bulk carrier
Other factors that restrict sea transport
• Security, piracy, politics and war
• Canal size restrictions
• Land bridges
• Sea-air options
• Weather and port congestions
• Inland waterways
Air transport
• Air transport industry is only about 100 years old
• The advantages of transporting goods by air are
• Cargo is carried securely very long distances in a short space of time
• Reduces inventory carrying for global businesses
• Allows perishable goods to be available all year round instead of
seasonally
• Provides rapid emergency support to industries
• The disadvantages include
• High unit costs
• Weight restrictions
• Security and safety
Air cargo handling
• Unit load devices (ULD)
• Air cargo handling equipment
Types of air freighter
Air cargo security
• Major risks
• Placing of explosive devices inside air cargo prior to being loaded
• Undeclared or undetected transport of hazardous material on board
• Possibility of smuggling contraband goods inside air cargo
• Hijackings of aircraft or sabotage
• Risks may be limited by
• Cargo screening and inspection
• Improving physical security of air cargo facilities
• Improving staff security training
• Restricting access to aircraft and air cargo facilities
Rail and intermodal transport
• Massive investments in both high-speed passenger and freight rail systems
are being made all over the world
• Intermodal transport means the movement of goods in one loading unit,
which uses successively several modes of transport
• Rail plays a major role in intermodal transport of large volumes of bulk
freight such as coal, grain, fuel and other commodities
• introduction of unit loads in the form of ISO containers and pallets
revolutionized the movement of freight through intermodal transport
Intermodal equipment
• Intermodal ISO containers
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Rectangular steel boxes of size 20 feet, 40 feet and 45 feet in length
TEU: Twenty feet equivalent unit
FEU: Forty feet equivalent unit
The swap body: is a type of container used on bimodal (road and rail) operations
Intermodal equipment
• Ship to shore gantry crane: large devices mounted on rails, which are able to transfer
containers from the sea-going vessel to trucks or rail wagons
Intermodal equipment
• Gantry crane
• Grappler lift
• Reach stacker
Intermodal vehicles
• Sea
• The cellular container ship
• Roll-on roll-off ferry
• Rail
• Rolling motorway
• Double stacking
• Ferry-wagon
• Road
• Skeletal trailer
Rail transport
• Railways generally rely on a system of fixed infrastructure based on two parallel metal rails
• Rail track needs bridges, tunnels and crossing points for roads
• Railways require stations to allow the transfer of passengers or cargo from and to the train
Strengths of rail transport
• High average speeds
• Railway effectively utilizes land space. Over any strip of land of a given
width, the railway can carry more passengers and freight than any other
land-based system
• Perceived as being less environmentally adverse
• Railways has bulk handling capacity
• The use of electric traction relieves the reliance on oil for energy
• Safety record of railways is good
• Lease affected by bad weather
Weaknesses of rail transport
• Very high capital investment
• Fixed and inflexible infrastructure
• Not efficient over small journeys
• Very labour intensive
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 29, 30
Road Freight Transport: Vehicle Selection
Road Freight Transport: Vehicle Costing
Vehicle Selection
• Vehicle selection is an important logistics decision that affects physical distribution of goods
• Three important aspects of vehicle selection include
• Efficiency (the most effective way of doing the logistics job)
• Type of load
• Mileage of vehicle
• Economy (the least cost of doing the logistics job)
• Fixed cost
• Operating and maintenance cost
• Resale value
• Legality (selecting and operating vehicles within the existing laws)
• Drivers licences and driving regulations
• Health and safety
• Environmental laws
Vehicle types
• Motor vehicle is a mechanically propelled vehicle intended for use on roads
• Goods vehicle is a vehicle or a trailer adapted or constructed to carry a load
• Trailer is a goods vehicle that is drawn by a motor vehicle
• Tractor-trailer
• Rigid vehicle
• Tipper vehicle
Choice of vehicle
• Product characteristics (form, size, weight)
• Method of loading or delivery (manual or automatic)
• Terrain (motorways, urban, mountains, flat geography)
• Fuel type (diesel, petrol, LPG, CNG)
• Vehicle configuration (two, three, four axle)
• Body type (platform, tanker, tipping)
• Driver cab (sleeper, day cab)
• Ancillary equipment (self loading, refrigeration system)
• Vehicle security (locks, alarms, tracking devices)
Vehicle Costing
• Vehicle costing system helps in formulating the budget of transportation and in monitoring and
controlling the operation of transportation system
• Major costs in the vehicle costing include standing costs, running costs and overhead costs
• A weekly system of reports for every vehicle in a fleet will show the distance that the vehicle has
travelled and the amount spent on fuel for this vehicle
• Each vehicle needs to be operating cost effectively
Road transport costing
• In the road transport costing , five types of transport resources that need to be considered can be
classified as the ‘5 Ms’
• Manpower: the drivers of the vehicles
• Machinery: the vehicles themselves
• Materials: associated resources, such as tyres, fuel, etc
• Money: the respective costs of the resources
• Minutes: the time when these resources are used for different purposes
Common costing terminology
• Cost unit (a unit of quantity in which cost is expressed)
• Cost per distance travelled (miles/kilometres)
• Cost per tonne
• Cost per carton delivered
• Cost centre (a piece of equipment, location or person against which costs are charged)
• A vehicle
• A fleet of vehicles
• A driver
• A depot
Types of costs
• Direct cost (directly attributable to a vehicle)
• Fuel
• Drivers wages
• Road licence
• insurance
• Indirect cost (attributable to running the vehicle)
• Office staff
• Telephone charges
• advertising
Types of costs
• Fixed cost (do not depend on running the vehicle)
• Purchase cost and depreciation
• Excise duty
• insurance
• Variable cost (depend on running the vehicle)
• Fuel and oil
• Drivers wages
Vehicle standing costs
• Vehicle standing costs are the costs that need to be paid whether the vehicle is running or not
• Vehicle standing costs include all fixed costs as:
• Licences: driver’s licence; vehicle excise duty; operator’s licence
• Vehicle insurance
• Driver’s costs: wages; Insurance contributions; pensions; holiday pay; etc
• Vehicle depreciation
Vehicle depreciation costs
• Annual depreciation is calculated based on purchase price, working life of vehicle, and resale value
• The working life of a vehicle depends on the type of job that it has to do, and accordingly depreciation
cost has to be accounted for
• Local delivery vehicle carries light loads and travel only 40,000 miles in a year
• Long-distance vehicle may pulls heavy loads and travels for 80,000 miles a year
Vehicle running costs
• Vehicle running costs include
• Cost of fuel, which further depends on
• Condition of engine
• Driving behaviour
• Fuel leaks
• Vehicle maintenance
• Increase in fuel costs
• Theft
• Repair and maintenance cost
• Labour cost
• Spare parts
Vehicle overhead costs
• Vehicle overhead costs are indirect costs that do not relate directly to an individual vehicle but
are borne by the whole fleet of vehicles
• Fleet overheads
• Costs of all the ‘back-up’ or ‘reserve’ equipment and labour required to run an efficient fleet of
vehicles
• Business overheads
• Salaries and wages for managers and vehicle schedulers, cars and expenses, telephone, fax, rent
and rates, and training
• Legal fees, bad debts and bank charges
Introduction to Business Logistics Management
BSMM 8330
Winter 2022
Chapter 31, 32
Road Freight Transport: Planning and Resourcing
Road Freight Transport: Routeing and Scheduling
Planning and Resourcing
• The main reason for effective road fright transport planning logistics
operation is to get the right balance between customer service and costs
• Assets: Road freight transport fleet consists of very high-value assets, such
as tractors and trailers. It is important that these are efficiently utilized
• Service: Delivery transport acts as the main physical interface with the
customer, so it is important that all customer service requirements are met
• Costs: maintenance costs should be kept to minimum
• Driver management: for efficient operation
• Replacement: when to replace the vehicle
• Security and tracking: using modern technology
Fleet management
• Fleet management is done through management information systems,
which cover the following functions
• Maintenance scheduling (service history, workshop costs)
• Vehicle parts control (stock report and locations, purchase orders)
• Fleet administration (licence renewal, insurance renewal)
• Fleet costing (vehicle cost analysis, driver cost analysis)
• Tachograph analysis (driving time, break time, rest time, vehicle speed)
Types of road freight transport
• Primary transport (used from plant to NDC and RDC)
• Secondary transport (used from RDC to retail)
Transport resources optimization
• Transport resources need to be assessed in two key areas
• Identify the basic requirements that are needed (planning)
• Maximize their utilization and effectiveness on a daily basis (operations)
• Main considerations for delivery
• Weight or volume capacity of vehicle
• Time available in a day
• Loading and unloading times
• Vehicle speeds
• Traffic congestion
• Access restrictions
Vehicle routeing and scheduling
• Vehicle routeing and scheduling means the ‘best’ use of vehicles when
providing a particular delivery service (or ‘optimization’ of vehicle usage)
• Some common objectives of vehicle routeing and scheduling include
• to maximize the time that vehicles are used
• to maximize the capacity utilization of vehicles
• to minimize mileage
• to minimize the number of vehicles used
• to ensure that customer specific delivery requirements are met
Vehicle routeing and scheduling issues
• Vehicle routeing and scheduling issues can be categorized as
• Strategic (long term impact, as regular grocery delivery operations)
• Tactical (routes that have to be scheduled on a weekly or a daily basis)
• Interactive (that allows the scheduler to use computer programs to find the
most effective routes)
• Planning (when historical data is used for planning purposes)
Data requirement for vehicle planning
• Demand data (daily, weekly, monthly, annual basis, peak demand)
• Distance factors (small and long distances)
• Customer and service constraints (delivery times)
• Vehicle restrictions (weight, volume, unit loads)
• Driver constraints (number of hours, shift patterns)
• Route factors (road infrastructure)
• Product/unit load constraints (product groups, fragile)
Methods of vehicle routeing and scheduling
• Manual scheduling system
• Computer routeing and scheduling system (optimization algorithms)
• Objectives: Minimize cost and distance
• Constraints
• Driver maximum shift hours
• Average speed on different types of roads
• Loading and unloading times
Computer output
Computer output
Advantages of computer algorithms
• Decreased standing costs
• Decreased running costs
• Better utilization of vehicles
• Better customer service
• Follows transportation regulations
• Savings in management time
• Better management control
Other information systems for vehicles
• Driver and vehicle performance data
• Vehicle tracking system (GPS) for accurate delivery times
• Paperless invoicing and proof of delivery
• On-board navigation system
• Traffic information system