Chapter 8
Warehousing Decisions
The Nature and
Importance of Warehousing

Warehousing provides time and place utility
(primarily time) for raw materials, industrial
goods, and finished products, allowing firms to
use customer service as a dynamic valueadding competitive tool.
Chapter 8
Management of Business Logistics, 7th Ed.
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The Role of the Warehouse in the
Logistics System: A Basic Conceptual
Rationale

 Functions of
The warehouse is
warehousing include:
where the supply
 Transportation
chain holds or stores
consolidation
goods.
 Product mixing
 Cross-docking
 Service
 Protection against
contingencies
 Smoothing
Chapter 8
Management of Business Logistics, 7th Ed.
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Table 8-1
Warehouse Value-Adding Roles
Chapter 8
Management of Business Logistics, 7th Ed.
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Figure 8-1
Transportation Consolidation
Chapter 8
Management of Business Logistics, 7th Ed.
5
Figure 8-2
Supply and Product Mixing
Chapter 8
Management of Business Logistics, 7th Ed.
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Figure 8-3
Basic Warehousing Decisions
Chapter 8
Management of Business Logistics, 7th Ed.
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Basic Warehouse Decisions:
A Cost Trade-off Framework


Ownership
 Public versus contract versus private
Centralized or Decentralized Warehousing
 How many
 Location
 Size
 Layout
 What products where
Chapter 8
Management of Business Logistics, 7th Ed.
8
The Ownership Decision



Chapter 8
Public warehousing
costs mostly all
variable.
Private warehousing
costs have a higher
fixed cost component.
Thus private
warehousing virtually
requires a high and
constant volume.
Management of Business Logistics, 7th Ed.
9
The Ownership Decision

Factors to consider
 Throughput volume
 (because of fixed costs)
 Stability of demand
 Density of market area to be served
 Security and control needs
 Customer service needs
 Multiple use needs of the firm
Chapter 8
Management of Business Logistics, 7th Ed.
10
Firm Characteristics
Affecting the Ownership Decision
Table 8-2
Chapter 8
Management of Business Logistics, 7th Ed.
11
Figure 8-6
Basic Warehouse Operations
Chapter 8
Management of Business Logistics, 7th Ed.
12
Public Warehousing


Rationale for Public Warehousing
 Limited capital investment
 Flexibility
Public Warehousing Services
 Bonded warehousing
 Field warehouses
Chapter 8
Management of Business Logistics, 7th Ed.
13
Public Warehousing

Public warehousing
regulation:
 Liability
 Receipts
Chapter 8

Public warehousing rates
based upon:
 Value
 Fragility
 Potential damage to
other goods
 Volume and
regularity
 Weight density
 Services required
Management of Business Logistics, 7th Ed.
14
Contract Warehousing








Increasing phenomenon
Compensation for seasonality in products.
Increased geographical coverage.
Ability to test new markets.
Managerial expertise and dedicated resources.
Less strain on the balance sheet.
Possible reduction of transportation costs.
Other issues discussed in Chapter 11.
Chapter 8
Management of Business Logistics, 7th Ed.
15
The Number of Warehouses

Chapter 8
Factors Affecting the
Number of Warehouses
 Inventory costs
 Warehousing costs
 Transportation costs
 Cost of lost sales
 Maintenance of
customer service levels
 Service small quantity
buyers
Management of Business Logistics, 7th Ed.
16
Table 8-3: Factors Affecting the
Number of Warehouses
Factor
Centralized
Decentralized
Substitutability
Low
High
Product Value
High
Low
Purchase Size
Large
Small
Special Warehousing
Yes
No
Product Line
Diverse
Limited
Customer Service
Low
High
Chapter 8
Management of Business Logistics, 7th Ed.
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Basic Warehouse Operations


Movement
 Receiving
 Put-away
 Order picking
 Shipping
Storage
 Stock location
 Warehouse Management System
(WMS)
Chapter 8
Management of Business Logistics, 7th Ed.
18
Warehouse Layout and Design





Chapter 8
Develop a demand
forecast.
Determine each item’s
order quantity.
Convert units into cubic
footage requirements.
Allow for growth.
Allow for adequate aisle
space for materials
handling equipment.
Management of Business Logistics, 7th Ed.
19
Warehouse Layout and Design




Provide for the
transportation interface.
Provide for orderpicking space.
Provide storage space.
Provide recouping,
office, and
miscellaneous spaces.
Chapter 8
Management of Business Logistics, 7th Ed.
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Figure 8-8
Warehouse Space Requirements
Chapter 8
Management of Business Logistics, 7th Ed.
21
Warehouse Layout and Design

Chapter 8
Basic needs:
 Receiving
 Basic storage area
 Order selection
and preparation
 Shipping
Management of Business Logistics, 7th Ed.
22
Warehouse Layout and Design

Layout and Design Principles:
 Use one story facilities where
possible.
 Move goods in a straight-line.
 Use the most efficient materials
handling equipment.
 Use an effective storage plan
 Minimize aisle space.
 Use full building height.
Chapter 8
Management of Business Logistics, 7th Ed.
23
Warehouse Layout and Design:
Layout and Design Objectives





Cubic capacity
utilization
Protection
Efficiency
Mechanization
Productivity
Chapter 8
Management of Business Logistics, 7th Ed.
24
Table 8-4: Warehouse
Productivity Metrics








Pounds or units per day
Employees per pound moved
Pounds unloaded per hour
Pounds picked per hour
Pounds loaded per hour
Percentage of orders correctly filled
Productivity ratio = pounds handled/day divided by
labor hours/day
Throughput = amt of material moved through the
system in a given time period
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Management of Business Logistics, 7th Ed.
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Materials Handling



Definition: Efficient short distance
movement in or between buildings and a
transportation agency.
Four dimensions
 Movement
 Time
 Quantity
 Space
Coordination
Chapter 8
Management of Business Logistics, 7th Ed.
26
Objectives of Materials Handling

Increase effective capacity


Improve operating efficiency





Use building’s height and minimize aisle space
Reduce product handling
Develop effective working
conditions
Reduce heavy labor
Improve logistics service
Reduce cost
Chapter 8
Management of Business Logistics, 7th Ed.
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Table 8-5: Principles of Materials Handling
To effectively plan and control materials handling, the logistics
manager should recognize some guidelines and principles.
(* deserving special attention)
Chapter 8
Management of Business Logistics, 7th Ed.
28
Packaging

Interest in packaging is widespread
 Logistics
 Warehousing
 Transportation
 Size
 Marketing
 Production
 Legal
Chapter 8
Management of Business Logistics, 7th Ed.
29
The Role of Packaging




Identify product and provide information
Improve efficiency in handling and
distribution
Customer interface
Protect product
Chapter 8
Management of Business Logistics, 7th Ed.
30
What Is Packaging?


Consumer (interior) packaging
 Marketing managers primarily concerned
with how the package fits into the
marketing mix.
Industrial (exterior) packaging
 Logistics managers primarily concerned
with efficient shipping characteristics
including protection, ability to withstand
stacking when on a pallet, cube, weight,
shape and other relevant factors.
Chapter 8
Management of Business Logistics, 7th Ed.
31
Packaging Materials


Table 8-6 presents a comparison of various
packing material characteristics.
Basic considerations include:
 Soft materials
 Plastic
 Environmental issues
 Recycling (reverse logistics)
Chapter 8
Management of Business Logistics, 7th Ed.
32
Bar Coding


Standard markings that can be read by automatic
or handheld scanners that allow for labor saving
logistical activities for all supply chain members.
Bar Codes contain information regarding:
 Vendor
 Product type
 Place of manufacture
 Product price
Chapter 8
Management of Business Logistics, 7th Ed.
33
Appendix 8A
Materials-Handling Equipment
Dock Equipment






Forklifts
Dock bumpers
Dock levelers
Dock seals
Trailer restraint
systems
Pallets
Chapter 8
Management of Business Logistics, 7th Ed.
35
Pallets and Pallet Movers
Chapter 8
Management of Business Logistics, 7th Ed.
36
Figure 8A-1
Chapter 8
Forklift Truck
Management of Business Logistics, 7th Ed.
37
Figure 8A-2
Chapter 8
Pallet Types
Management of Business Logistics, 7th Ed.
38
Other Materials Handling
Equipment: Conveyors


Types
 Roller or gravity style
 Belt style
Advantages
 Assist in keeping
inventory records an
location
 Ability to move
goods quickly and
efficiently
Chapter 8

Disadvantages
 Very expensive
 Relatively inflexible
Management of Business Logistics, 7th Ed.
39
Other Materials Handling
Equipment: Other

Types
 Cranes (overhead
and wheeled)
 Packers (COFC
and TOFC)
 Automatic guided
vehicles
Chapter 8


Advantages
 Ability to handle
special
movements
quickly and
efficiently
Disadvantages
 Very expensive
and limited use
Management of Business Logistics, 7th Ed.
40
Cranes
Chapter 8
Management of Business Logistics, 7th Ed.
41
Materials-Handling
Equipment Top-running
Figure 8A-3
Chapter 8
Management of Business Logistics, 7th Ed.
42
Order-picking and Storage
Equipment

Picker-to-part systems - order picker must
travel to the pick location within the aisle.
 Bin shelving
 Modular storage drawers
 Flow racks
 Mobile storage systems
 Order-picking vehicles
Chapter 8
Management of Business Logistics, 7th Ed.
43
Order-picking and Storage
Equipment

Part-to-picker systems - the pick location
travels through an automated machine to the
picker.
 Carousels
 Horizontal
 Vertical
 Mini-load automated storage and retrieval
systems (AS/RS)
Chapter 8
Management of Business Logistics, 7th Ed.
44
Figure 8A-4
Order-Picking Equipment
Chapter 8
Management of Business Logistics, 7th Ed.
45
Figure 8A-5
Chapter 8
Mezzanines
Management of Business Logistics, 7th Ed.
46
Types of Materials Handling
Equipment – A Design Perspective



Flexible path
 Fork lifts, power lifts/skids
 Very flexible, but usually labor intensive
Continuous-flow fixed path
 Conveyors, track-guided vehicles
 Expensive but capable; limited flexibility;
need high volumes to be efficient
Intermittent-flow fixed path
 Rail-mounted cranes
Chapter 8
Management of Business Logistics, 7th Ed.
47
Equipment Selection Factors




Physical attributes of the product and its
packaging
Characteristics of the facility
Time requirements
Sources of information
 Vendor sales force
 Company engineers
 Consultants
 Similar site visitation and inspection
Chapter 8
Management of Business Logistics, 7th Ed.
48