WAREHOUSING
10-1
Is it only a storage facility?
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A warehouse is typically viewed as a place to
store inventory.
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However, in many logistical system designs,
the role of the warehouse is more properly
viewed as a switching facility as contrasted to
a storage facility.
10-2
Evolution of strategic
warehousing
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Warehouses were once
viewed as a necessary evil,
used to coordinate product
supply with customer
demand
The explosion of the
consumer economy after
WWII saw the rise of
distribution networks for
consumer goods
Warehousing shifted from
passive storage to strategic
assortment
10-3
Warehousing contributes value
in the logistics process
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Traditionally viewed as
a place to hold or store
inventory
Contemporary view is
the warehouse
functions to mix
inventory assortments
to meet customer
requirements
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Storage of products is
held to a minimum
10-4
Warehousing types evolved to
accommodate the dynamic
aspects
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Distribution centers
Consolidation
terminals
Break-Bulk facilities
Cross-docks
10-5
Warehouse operations involve two
major activities – handling and
storage
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Objective is to
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Efficiently receive
inventory
Store it as required
Assemble it into
complete orders
Make a customer
shipment
Operations will
therefore emphasize
product flow
10-6
Consolidation Warehouses
10-7
Consolidation
Consolidation
 Shipment consolidation is an economic benefit of warehousing.
 With this arrangement, the consolidating warehouse
receives and consolidates materials from a number of
manufacturing plants destined to a specific customer on a
single transportation shipment.
 The benefits are the realization of the lowest possible
transportation rate and reduced congestion at a customer's
receiving dock .
 Deliver at a less congested time in urban environment
10-8
Challenges faced in the urban
environment
10-9
Consolidation Warehouses…
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The primary benefit of consolidation is that it combines the logistical
flow of several small shipments to a specific market area.
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Consolidation warehousing may be used by a single firm, or a number
of firms may join together and use a for-hire consolidation service.
a customer could place and order on ebay and expect it to be
received together. The role of ebay regional warehouse will be to
combine several orders and deliver it to the desired customer.
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Through the use of such a program, each individual manufacturer or
shipper can enjoy lower total distribution cost than could be realized on
a direct shipment basis individually.
10-10
Break bulk warehouses
10-11
Break bulk warehouses
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Break bulk warehouse operations are similar to
consolidation except that no storage is performed.
A break bulk operation receives combined customer
orders from manufacturers and ships them to
individual customers.
The break bulk warehouse sorts or splits
individual orders and arranges for local delivery.
Because the long-distance transportation movement
is a large shipment, transport costs are lower and
there is less difficulty in tracking.
10-12
City Logistics
DC
Central City
Consider a city environment – Where would break bulk and consolidation
operations would fit in the city environment ?????
10-13
Processing/Postponement
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Warehouses can also be used to postpone, or delay, production
by performing processing and light manufacturing activities.
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A warehouse with packaging or labeling capability allows
postponement of final production until actual demand is known.
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For example, vegetables can be processed and canned in
"brights" at the manufacturer.
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Brights are cans with no pre-attached labels.
Impact of postponement on maintenance cost
10-14
Processing/Postponement…
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The use of brights for a private label product
means that the item does not have to be
committed to a specific customer or package
configuration at the manufacturer's plant.
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Once a specific customer order is received,
the warehouse can complete final processing
by adding the label and finalizing the
packaging.
10-15
Processing/Postponement…
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Processing and postponement provide two economic
benefits:
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First, risk is minimized because final packaging is
not completed until an order for a specific label and
package has been received.
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Second, the required level of total inventory can be
reduced by using the basic product (brights) for a
variety of labeling and packaging configurations.
10-16
Stockpiling
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The economic benefit of stockpiling comes from the need of
seasonal storage.
Stockpiling could be done regular basis for round the year used
products .
It could also be done before market demand for a certain
product picks up
Stockpiling requires space and adds cost burden on an
organization
LAWN FURNTIRUE VS AGRICULTURE
PRODUCTS
10-17
Strategic warehousing can provide
both economic and service
benefits
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Economic benefits of warehousing
occur when overall logistics costs are
reduced
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Consolidation and break-bulk
Sorting
Seasonal storage
Reverse logistics
Service benefits are justified by sales
improvements that more than offset
added cost
10-18
Sorting involves reconfiguring freight
as it flows from origin to destination
10-19
Cross-docking is used extensively by
retailers to replenish store inventories
Cross-docking combines inventory from multiple
origins into a pre specified assortment for a specific
DELL
customer
WAREHOUSE
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WHERE IT
ASSEMBLES
PC’S FOR ITS
CUSTOMERS
10-20
Successful cross-docking is highly
dependent on information technology
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Products are received,
selected, repackaged, and
loaded for shipment w/o
storage
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Used with general
merchandise & food
Enabled by conveyors &
sortation equipment
Used in large distribution
centers (800K to 1,200K
sq.ft.)
WalMart Distribution
Center
10-21
Mixing is usually performed at an
intermediate location between origin
and destination
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Incase of
Dell if a
customer
ask
For
additional
accessories
Along with
main order
this could be
done in a
mixing
warehouse .
Mixing combines inventory from multiple origins
(like cross-docking) but also adds items that are
regularly stocked at the mixing warehouse
Stock
Inventory
10-22
Seasonal storage provides direct
benefit by accommodating production
or demand
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Seasonal production
include agricultural
products
Seasonal demand
includes lawn furniture
and toys
Seasonal storage
allows production
efficiencies within the
constraints of
seasonality
10-23
Service Benefits
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Five basic service benefits are achieved
through warehousing:
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spot stock,
assortment,
mixing,
production support, and
market presence.
10-24
Spot Stock
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Under spot stocking, a selected amount of a firm's product
line is placed or "spot stocked" in a warehouse to fill customer
orders during a critical marketing period.
In particular, manufacturers with limited or highly seasonal
product lines are partial to this service.
Rather than placing inventories in warehouse facilities on a
year-round basis or shipping directly from manufacturing plants,
delivery time can be substantially reduced by advanced
inventory commitment to strategic markets.
10-25
Spot Stock…
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Utilizing warehouse facilities for stock spotting allows
inventories to be placed in a variety of markets adjacent to key
customers just prior to a maximum period of seasonal sales.
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Suppliers of agricultural products to farmers often use spot
stocking to position their products closer to a service-sensitive
market during the growing season.
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Following the sales season, the remaining inventory is
withdrawn to a central warehouse.
10-26
Assortment
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An assortment warehouse stocks product combinations in
anticipation of customer orders.
The assortments may represent multiple products from different
manufacturers or special assortments as specified by
customers.
In the first case, for example, an athletic wholesaler would stock
products from a number of clothing suppliers so that
customers can be offered assortments.
In the second case, the wholesaler would create a specific
team uniform including shirt, pants, and shoes.
10-27
Assortment vs. Spot Stock
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The differential between stock spotting and complete line
assortment is the degree and duration of warehouse utilization.
A firm following a stock spotting would typically warehouse a
narrow product assortment and place stocks in a large number
of small warehouses dedicated to specific markets for a limited
time period.
Distribution assortment warehouse usually has a broad
product line, is limited to a few strategic locations, and is
functional year-round.
The combined assortments also allow larger shipment
quantities, which in turn reduce transportation cost.
10-28
Mixing
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In a typical mixing situation, truckloads of products are shipped
from manufacturing plants to warehouses.
Each large shipment enjoys the lowest possible transportation
rate.
Upon arrival at the mixing warehouse, factory shipments are
unloaded and the desired combination of each product for
each customer or market is selected.
When plants are geographically separated, overall
transportation charges and warehouse requirements can be
reduced by mixing.
10-29
Production Support
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Production support warehousing provides a steady supply of
components and materials to assembly plants.
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Safety stocks on items purchased from outside vendors may be
justified because of long lead times or significant variations in
usage.
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The operation of a production support warehouse is to supply
or "feed" processed materials, components, and subassemblies
into the assembly plant in an economic and timely manner.
10-30
Market Presence
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While a market presence benefit may not be so obvious, it is
often cited by marketing managers as a major advantage of
local warehouses.
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The market presence factor is based on the perception or
belief that local warehouses can be more responsive to
customer needs and offer quicker delivery than more
distant warehouses.
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As a result, it is also thought that a local warehouse will
enhance market share and potentially increase profitability.
10-31
Reverse logistics processing
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Reverse logistics include
activities supporting
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Returns management
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Remanufacturing and repair
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Repairing/refurbishing
equipment
Remarketing
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Recalls or product that did
not sell
Selling used equipment
Recycling
Disposal
10-32
Illustration of reverse logistics
flow
10-33
Handling
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Handling must
optimize movement
continuity and efficiency
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Receiving—Unloading
the arriving vehicles
In-Storage—moving
goods for storage
(transfer) or order
selection (picking)
Shipping—verifying the
order and loading the
departing vehicles
10-34
Storage plans should make
product velocity a major factor
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Slotting determines
specific locations for
the product based on
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Velocity—how fast the
goods move
Weight—how heavy is
the product
Special
Characteristics—how
large or small, does it
require rack or bin
storage
10-35
Illustration of storage plan based
on product movement velocity
High-volume product is placed near the cross-docking area
10-36
Warehouses must manage two classes
of storage
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Active Storage—storage
for basic inventory
replenishment
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Focuses on quick
movement
Includes flow-through or
cross-dock distribution
Extended Storage—
storage for inventory held
in excess of period for
normal replenishment
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E.g. seasonal, speculative,
or even commodities
10-37
Warehouse ownership
arrangements
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Private—warehouse operated
by the firm owning the product
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Building may be owned or
leased
Public—service company
owns warehouse and hires
out space and services
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Usually classed as
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General merchandise
Refrigerated
Special commodity
Household goods and
furniture
10-38
Contract warehousing combines
elements of private and public
operations
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Usually a long-term
relationship or contract
between a firm and the
warehousing owner/operator
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Long-term cost savings
compared with public
warehouse
Often a firm’s employees will
work alongside the contract
warehouse’s
Example is Kraft Foods who
has contracted with
10-39
Network deployment is the
combination of private, public and
contract facilities used by a firm
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Network deployment
strategy requires answering
two questions
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How many warehouses
should be established?
Which warehouse
ownership types should be
used in specific markets?
For example, when
warehouse utilization is not
full throughout the year
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Use private or contract
warehouse to cover 75
percent requirement
Public facilities used to
accommodate peak
10-40
Warehouse decisions that
determine handling and storage
efficiency
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Site Selection
Design
Product-Mix Analysis
Expansion
Materials Handling
Layout
Sizing
Warehouse management system
Accuracy and audit
Security
Safety and maintenance
10-41
Site selection is driven by service
availability and cost factors
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Identify broad geography where an active warehouse meets
service, economic and strategic requirements
Selection and number of retail outlets drives location of support
warehouses
Final selection should be preceded by extensive analysis
10-42
Illustration of straight-line product
flow to facilitate velocity
Figure 10.4 Basic Warehouse Design
10-43
Warehouse management systems
encourage best practices
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Warehouse management systems (WMS)
integrate procedures and software support to
standardize storage and handling work procedures
One main use of WMS is to coordinate order
selection
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Discrete selection is when a specific customer’s order is
selected and prepared for shipment as a single work
assignment
Wave or batch selection is when orders are processed
through zones of the warehouse assigned to specific
employees
10-44
Illustration of the range of
activities coordinated by an
advanced WMS
Figure 10.6 Warehouse Management System Functionality
10-45
Other warehouse planning issues
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Inventory accuracy is typically
maintained by annual physical
counts or counting portions of
inventory on a planned basis
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Cycle counting is the audit of
selected inventory on a cyclic
schedule
Audits are common to maintain
safety, assure compliance to
regulations and help improve
procedures
Security issues involve
protection from pilferage and
damage
10-46
Safety and maintenance issues must
also be considered when planning
warehouse designs
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Accident prevention
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Environmental protection
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Comprehensive safety
programs and training,
accident investigation and
follow up
Spill kits and spill plans ( oil
absorbers )
Maintenance
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Scheduled maintenance of
building, material handling
equipment, and collision
damage prevention
10-47
ISSUE OF LAST MILE
Freight Tonnage Increases by 2020
EU 70% by 2020
USA similar
World container traffic 8% p.a. growth
All culminate in a “last mile”
10-48
What is the future of warehouse
management?
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Will warehouses grow smaller in the future?
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Offer a wider range of services?
Will final assembly of goods be increasingly done
in warehouses?
What is your solution to the “challenge of the
last mile” posed by Dr. Patrick Dixon?
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Video link (7:45 min.)
http://www.youtube.com/watch?v=ZbPMaxNl3J4
10-49