Transportation/Logistic Strategy
Warehousing
Introduction
Progression of Warehousing Decisions
Why Use Warehouses?
Types of Warehousing
Warehouse Operations
Warehousing Innovations
Warehouse Layout
Packaging
Transportation/Logistic Strategy
Warehousing
Progression of Warehousing Decisions.
Should Warehouses Be Used?
If Warehouses are Used, Should they be Public or Private?
Where Should they be Located?
What Should be their Capacities?
How Many Should You Have?
What Should be their Layout and Design?
Transportation/Logistic Strategy
Warehousing
Why Use Warehouses?
Cope with Variable Market Conditions
Cope with Variable Sources of Supply
Production Economies
Purchasing Economies
Transportation Economies
Customer Service
Transportation/Logistic Strategy
Warehousing
Warehouse Operations
Planning, Organizing, Staffing, Equipping, and Controlling
Human Resource Management
Billing and Inventory Control
Order Filling
Local Delivery
Material Handling
Packaging
Safety, Security, Maintenance
Measuring Warehouse Efficiency
Transportation/Logistic Strategy
Warehousing
Warehouse Safety
J.N. Devin, "Cowboy After OSHA,“ 1972.
Transportation/Logistic Strategy
Warehousing
Warehousing Innovations
WERC – Established 1978
Housekeeping
Storage Heights
Automated Retrieval Systems
Bar Codes, Scanners, EDI, RFID, etc.
Narrow Aisle Equipment, Conveyors, etc.
The Distribution Center Concept
Assembly, Product Maintenance, Repair, etc.
Management Controls
Cross Docking
Transportation/Logistic Strategy
Warehousing
Costs of Increasing Storage Heights
Total Cost
$
Labor &
Insurance
C1
Construction
& Finance
H1
Storage Height
Transportation/Logistic Strategy
Warehousing
Costs of Increasing Storage Heights
$
Effects of New Technology
Total Cost
Labor &
Insurance
C1
Construction
& Finance
H1
Storage Height
Transportation/Logistic Strategy
Warehousing
Costs of Increasing Storage Heights
Effects of New Technology
$
Total Cost
Labor &
Insurance
C1
C2
Construction
& Finance
H1
H2 Storage Height
Transportation/Logistic Strategy
Warehousing
Warehousing Innovations
WERC – Established 1978
Housekeeping
Storage Heights
Automated Retrieval Systems
Bar Codes, Scanners, EDI, RFID, etc.
Narrow Aisle Equipment, Conveyors, etc.
The Distribution Center Concept
Assembly, Product Maintenance, Repair, etc.
Management Controls
Cross Docking
84
Transportation/Logistic Strategy
Warehousing
Types of Warehousing
Private Warehousing
Public Warehousing
Contract Warehousing
Cross-Docking
Transportation/Logistic Strategy
Warehousing
Private vs Public Warehousing
(Without Cost of Capital)
Public
$
(All Variable Cost)
Private
(Fixed + Variable Cost)
Prefer Public
Indifferent
Prefer Private
Volume
Transportation/Logistic Strategy
Warehousing
Indifference Point Between Public and Private
(Without Cost of Capital)
Private = Fixed Costs + Variable Costs
Public = Variable Costs
Example:
Private Fixed Costs = $500,000/year
Private Variable Costs = $0.15/pound
Public Variable Costs = $0.25/pound
Indifference point is where both costs are equal
500,000 + .15X = .25X
500,000 = .10X
X = 5,000,000 pounds
ROI = 0
Transportation/Logistic Strategy
Warehousing
Private vs Public Warehousing
(With Cost of Capital)
$
Public
Savings
(All Variable Cost)
Private
(Fixed + Variable Cost)
Prefer Public
Indifferent
Prefer Private
Volume
Transportation/Logistic Strategy
Warehousing
Indifference Point Between Public and Private
(With Cost of Capital)
Private = Fixed Costs + Variable Costs
Public = Variable Costs
Example:
Private Fixed Costs = $500,000/year
Private Variable Costs = $0.15/pound
Public Variable Costs = $0.25/pound
Indifference point is where savings = desired ROI
Savings
Average Investment
= ROI
Transportation/Logistic Strategy
Warehousing
Indifference Point Between Public and Private
(With Cost of Capital)
Desired ROI = Hurdle Rate
Savings = Public – Private
Average Investment = Initial Investment /2
Example:
Hurdle Rate = 10%
Investment = $8,000,000
Private Fixed Costs = $500,000/year
Private Variable Costs = $0.15/pound
Public Variable Costs = $0.25/pound
Transportation/Logistic Strategy
Warehousing
Indifference Point Between Public and Private
(With Cost of Capital)
Hurdle Rate = 10%
Investment = $8,000,000
Private Fixed Costs = $500,000/year
Private Variable Costs = $0.15/pound
Public Variable Costs = $0.25/pound
Savings = Public - Private
.25X - (500,000 + .15X)
= .10
4,000,000
Transportation/Logistic Strategy
Warehousing
Indifference Point Between Public and Private
(With Cost of Capital)
Savings = Public – Private
.25X - (500,000 + .15X)
= .10
4,000,000
.25X - (500,000 + .15X) = .10 * 4,000,000
.25X - 500,000 - .15X = 400,000
.25X - .15X = 400,000 + 500,000
.10X
X
= 900,000
= 9,000,000
Transportation/Logistic Strategy
Warehousing
Advantages of Private Warehousing
Greater Control
Flexibility (CS Needs, Space Use, etc.)
Tax Benefits (Depreciation)
Image to Customers
Potentially Lower Cost
Transportation/Logistic Strategy
Warehousing
Disadvantages of Private Warehousing
Lack of Flexibility (Fixed Size/Location)
Capital Requirements
Equipment Maintenance/Training
Potential Labor Problems
Transportation/Logistic Strategy
Warehousing
Advantages of Public Warehousing
Capital Conservation
Ability to Meet Peak Demand
Reduced Risk
Flexibility WRT Volume
Avoidance of Property Taxes
Avoidance of Labor Problems
Potentially Lower Cost
Knowledge of Exact Costs
Transportation/Logistic Strategy
Warehousing
Disadvantages of Public Warehouses
Lack of Control
Difficult Communications
Not Always Available
Potentially Higher Cost
Transportation/Logistic Strategy
Warehousing
Cross-Docking
An operations procedure that allows product to be delivered
and received on one side of a facility, undergoes internal
handling procedures at the receiving dock, distributing unit
loads and moving the product to shipping docks on the other
side of the facility where trucks or rail cars are waiting to be
loaded for customer delivery.
Transportation/Logistic Strategy
Warehousing
Cross-Docking
Transportation/Logistic Strategy
Warehousing
Cross-Docking
Transportation/Logistic Strategy
Warehousing
Warehouse Layout
Angling vs On-the-Square
Fixed vs Variable Slots
Space Loading Techniques
Item Popularity
Item Size
Cube per Order Index
Family Groupings
Linear Programming
Simulation
Transportation/Logistic Strategy
Warehousing
Cost of Fixed vs Variable Storage Slots
Total Cost
$
Labor
C1
Space Utilization
V1
Percent Variable
Transportation/Logistic Strategy
Warehousing
Cost of Fixed vs Variable Storage Slots
$
Effects of New Technology
Total Cost
Labor
C1
Space Utilization
V1
Percent Variable
Transportation/Logistic Strategy
Warehousing
Cost of Fixed vs Variable Storage Slots
Effects of New Technology
$
Total Cost
Labor
C1
C2
Space Utilization
V1
V2 Percent Variable
Transportation/Logistic Strategy
Warehousing
Warehouse Layout
Angling vs On-the-Square
Fixed vs Variable Slots
Space Loading Techniques
Item Popularity
Item Size
Cube per Order Index
Family Groupings
Linear Programming
Simulation
Transportation/Logistic Strategy
Warehousing
Functions of Packaging
Marketing
Information
Promotion
Logistics
Containment
Protection
Apportionment
Unitization
Convenience
Communication
Transportation/Logistic Strategy
Warehousing
Postponement
What is it?
Why do we do it?
Examples
Transportation/Logistic Strategy
Warehousing
Postponement
What is it?
A delayed differentiation strategy to reduce uncertainty and
cost while satisfying customer needs.
Activities in the supply chain are delayed until a demand is
realized.
Bucklin (1965) Model of Postponement /Speculation
Transportation/Logistic Strategy
Warehousing
Postponement
Why do we do it?
It has the potential to improve responsiveness while reducing
inventory, transportation, storage, and obsolescence.
Insufficient inventory early in the product cycle can cost
market share.
Products at the end of life cycle lose value quickly and risk
obsolescence, which can lead to large inventory write-offs.