TOTAL SUPPLY CHAIN
MANAGEMENT
CASE STUDY
ON
WAREHOUSE MANAGEMENT
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INDEX
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SR NO
TOPIC
PAGE NO
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Introduction
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Warehouses versus distribution
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Rationale for warehouses
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The role of warehousing
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Basic components of a warehouse
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Function of a Warehouse
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Types of Warehouses
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Number of warehouses
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Warehouse design
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Warehouse productivity
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Warehouse information system
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Bibliography
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WAREHOUSE MANAGEMENT
INTRODUCTION
Facility structure refers to the management of warehouses and distribution centers.
Warehouses can play a key role in integrated logistics strategy and in building and
maintaining good relationships between supply chain partners. Warehousing affects
customer service, stock out rates, and a firm’s sales and marketing success. Many firms
ignore warehousing and fail to recognize it as a source of integrated logistics cost
reduction and productivity improvement.
A warehouse smoothes out market supply and demand fluctuations. When supply
exceeds demand, a warehouse stores product in anticipation of customer requirements A
classic example is the build up of retail inventory to anticipate the Christmas season.
However, an efficient warehouse can do far more than simply store product. When
demand exceeds supply, the warehouse can speed product movement to the customer by
performing additional services- marking prices, packaging product, or final subassembly.
WAREHOUSES VERSUS DISTRIBUTION CENTERS
The difference between warehouses and distribution centers may cause some confusion.
On one hand, the purpose of a warehouse is to store products until customers require
them. On the other hand, the purpose of a distribution center is product throughput, not
storage. Bulk shipments come into a distribution center, are broken down into smaller
shipments, and then are transported further in the supply chain. Also, distribution centers
normally serve a large territory than a warehouse. Distribution centers play a major role
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in the outbound flow of finished goods and are common in large countries with a good
transportation infrastructure.
Some companies use a small number of large distribution centers. Large distribution
centers handle enough volume to achieve economies of scale. Economies of scale mean
that long-term average costs decline as output increases. However, rising customer
expectations about service have induced some firms to use smaller, regional distribution
centers. This allows each distribution center to be located closer to the market and
provide superior service.
RATIONALE FOR WAREHOUSES
From an integrated logistics viewpoint, warehousing is a necessary evil. Warehousing
allows production to gain economies of scale from long production runs. Warehouses
allow marketing to maintain or increase customer service. If forecasting was perfect and
production was instant, the need for inventory and warehousing would vanish. However,
in the real world forecasts are wrong and production times vary, so warehousing buffers
supply and demand. Other arguments for warehousing include:
 To achieve economies in transportation by moving higher volume
 To obtain quality purchase discounts
 To keep a supplier
 To meet changing market conditions
 To support JIT programs through the integrated logistics system.
THE ROLE OF WAREHOUSING
A Warehouse plays multifaceted role in the integrated logistics system. It can serve as a
transportation consolidation facility. Companies can transport less than loads into a
warehouse, consolidate them into full loads, and then transport them out again. This
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lowers transportation costs because the carrier charges less per unit for transporting a full
load. The reason is simple: the carrier’s cost per unit is lower for a full load.
Warehousing also acts as a reservoir for production overflow. This function, known as
stockpiling, can take a variety of forms, including:
 Seasonal production-level demand
 Level production-seasonal demand
Seasonal production-level demand is created with some food products like corn whose
demand is fairly uniform throughout the year.
Level production-seasonal demand is also common. Some products, like sunscreen, are in
high demand for one season but low demand for rest of the year.
Some of the roles of warehousing include:
 Warehouses act as product mixing sites
 It can also facilitate production
 It acts as safety valves in plant strikes, supplier stockouts, or transportation delays
 Warehouses smooth out production runs
The primary role of a warehouse is to provide customer service. Warehousing can help
fill a customer’s order faster. Orders are often filled at the closest warehousing instead of
the manufacturing plant. The customer gets the order faster, which usually reduces
complaints. An effective warehouse system means quicker delivery, fewer stockouts and
better customer services. The result is higher levels of customer satisfaction and more
sales.
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BASIC COMPONENTS OF A WAREHOUSE
The three basic components of the warehouse are space equipment and people. Space
allows for the storage of goods when demand and supply are unequal. Space affects not
only warehousing decisions but also the design of the logistics system. If demand for
warehousing space exceeds the supply, the price of storage increases as firms compete for
the limited space. Ultimately, the higher cost of space increases the price of the product.
Warehouse equipment includes material handling devices, storage racks, docks and
information processing systems. The equipment helps in product movement, storage and
tracking. The type of equipment used in a facility depends on the type of the facility used
product and interaction between the equipment and the other components of the
warehouse.
People are the most critical components of the warehouse. Space and equipment means
nothing without competent people. A primary reason for establishing the warehouse is to
increase customer service level. This often requires individual attention to special
customers requests like final subassembly, specialized packaging, or price marking of
shipments. Customers requests can reduce standardization in the warehouse, making
complete automation impossible. People play the critical role in every part of the supply
chain, and the warehousing is no exception.
FUNCTIONS OF WAREHOUSE
Basic functions of warehouse include moment, storage, and Information transfer. To store
product property moment is necessary. It takes place in four distinct areas:
 Receiving inbound goods from transportation carriers and performing quality and
quantity checks.
 Transferring goods from the receiving docks and moving them to specific storage
locations throughout the warehouse
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 Order selecting the products for filling customers orders including checking,
packing, and transporting to the outbound dock
 Shipping the goods outbound to customers by some form of transportation.
Storage refers to the physical disposition of products throughout the facility. This can be
temporary or semi permanent. A temporary basis means storing a product that is
necessary for inventory replenishment. Semi permanent storage is used for inventory in
excess of immediate needs. This is called safety.
TYPES OF WAREHOUSES
A basic warehouse decision is choosing the type or combination of type to use. There are
three basic types of warehouses. Private, public and contract.
PRIVATE WAREHOUSING
The firm producing or owning the goods owns private warehouses. The focus of this type
of facility is to store the firm’s own a goods until they are delivered to a retail outlet or
sold. High volumes and high levels of utilization favor owning the warehouse because
economies of scale. The firm can maintain lower delivered prices or higher profit margins
based on such economies. Private facilities also offer a great deal of control regarding
hiring and firing employees, benefits packages, and operations within the warehouse.
Another potential advantage of using a private warehouse is the ability to maintain
physical control over the facility, which allows managers to address loss, damage and
theft.
Also a firm can earn extra income from renting or leasing excess space in private
warehouse. The private warehouse is a depreciable asset to the firm, which reduces net
income and income taxes. To make a private warehouse cost-effective, the facility needs
high product throughput to achieve economies of scale and spread the fixed costs of the
facility over many items. A firm needs stable demand and generally should be located in
or near a dense market area. Without these factors, the firm should investigate external
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PUBLIC WAREHOUSING
A public warehouse rents space to individuals or firms needing storage. The service these
warehouses offer may her. Some provide a wide array of services including packaging,
labeling, testing, inventory maintenance, local delivery, data processing and pricing.
There are many reasons to lease space instead of owning a warehouse. First leasing
lowers the capital investment needed to establish a warehouse. Second, leasing offers
flexibility. If a firm’s market shifts to another region, it simply leases space in the new
area.
CONTRACT WAREHOUSING
Contract warehousing is a specialized form of public warehousing. In addition to
warehousing activities, a contract warehouse provides a combination of integrated
logistics services, thus allowing the leasing firm to concentrate on its specialty. Contract
warehousing often provides customized services. In essence, contract warehousing is a
third party integrated logistics organization that provides higher quality services than are
available from a public warehouse. There are in testing many reasons for the growth of
contract warehouses, including;
1. Product seasonality
2. Geographic coverage requirements
3. Flexibility in testing new marketing
4. Management expertise and dedicated resources
5. off-balance sheet financing
6. Reduction in transportation cost.
A contract warehouse often replaces a private warehouse. The decision frequently
rests on the results of a leave versus buy analysis. The goal is to examine all relevant
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variables and decide whether to build and operate a private warehouse, purchase public
housing services.
Financial considerations include the operating costs of each option (e.g., direct
handling and direct storage expenses). Direct handling expenses are incurred when
moving goods into, through, and out of a warehouse. The type of lease can also affect the
type of warehouse chosen. The lease – or – buy decision calls for expert financial and
legal advice.
NUMBERS OF WARE HOUSE
Independence of warehouse type, a critical question is how many warehouses are needed
to effectively serve customers. Theoretically, the more warehouses in or near market
areas, the higher the customer service levels because goods can be delivered to the
consumer faster.
Some factors to consider when evaluating the optimal number of warehouses
include:
The level of customer service required
The number of customers, their location, and buying habits.
The amount and type of electronic data interchange (EDI) taking place between
producers and consumers.
A few firms have increased the number of warehouses to improve customer’s
service, but the recent trend is to use fewer warehouses to reduce total costs. More
warehouses mean higher inventory and more frequent, smaller shipments – and higher
costs. Logistics information system like EDI often helps to improve consumer demand
forecasting and communication with suppliers and customers. Whether to increase or
decrease the number of warehouses should depend on the goals of the organization.
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Figure 11.1 : Number of Warehouses and Logistics Costs.
information systems like EDI often help to improve consumer demand forecasting and
communication with suppliers and customers. Effective EDI application can improve
order processing, product receipt, and delivery to the customer. Whether to increase or
decrease the number of warehouses should depend on the goals of the
WAREHOUSE DESIGN
In warehouse design, five interrelated variables should be considered. They are:
1. Land and building
2. Management and staff
3. Storage and handling equipment.
4. Computers and software.
5. Operating methods and procedures.
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Since each of these variables can affect the others, they must be considered in an
overall systems framework, and total cost analysis should be applied in the warehouse
design decision. The design decision should consider possible constraints, such return on
investment requirement, available financing, reuse of existing equipment , flexibility of
the facility, the existing land, and the existing building. Other, less evident, constraints
are union and staff objectives, government regulations, management preference, and
needed software requirement.
The first step in warehouse design is forecasting demand for the company’s products.
This helps to estimate the required space. Space requirements should also be set for
receiving and shipping, picking and assembly, primary storage, equipment needs, offices,
rest rooms and locker rooms.
One-story facilities are usually better than multiple stories. A single-story warehouse
allows for single line flows of product. The use of single-story facilities is common in the
United States since land is relatively abundant. Figure 11.2 shows how a typical
WAREHOUSE PRODUCTIVITY
Warehousing affects profits, so most firms measure warehouse performance. There
are three primary reasons to monitor facility performance. First, warehousing costs
average around 10 % of a sales dollar. So productivity improvements in warehousing
appear on the bottom line of the profit and loss statement. Second, most warehouses use
cubic space poorly. On average, only about 30 to 35 percent of a warehouse’s available
space is used to store inventory. As land and space costs increase, warehouse managers
must find ways to use the available space. Third, warehouses are measured for
productivity because it is relatively easy to do. Warehouse costs and operations are fairly
straightforward to monitor.
There are three approaches to warehouse measurement: productivity, utilization and
performance. Productivity is the ratio of real output to real input. An example is the
number of cases handled per labor hour. Utilization is the ratio capacity used to available
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capacity. This could refer to the amount of space used by pallets, the number of employee
hours logged, or even the amount of cubic space used compared to the amount available.
Performance is the ratio of actual output to standard output. Examples could include
cases picked per hours versus estimated cases per hour and /or equipment hours run
compared to estimated equipment hours.
WAREHOUSE INFORMATION SYSTEM
Without information transfer, today’s warehouses would operate much less efficiently.
Information technology EDI, automatic data collection, and radio frequency systems have
created advantages in warehousing, including improved customer interfaces in receiving,
storing quality control, order picking, error control packing and shipping
ELECTRONIC DATA INTERCHANGE.
Electronic data interchange (EDI) has quickly become standard in warehouse
management. EDI refers to the exchange of machine-readable data in a standard format
between one company’s computer and another company‘s computer. The result is a
paperless transaction that offers several advantages. First simply reducing the amount of
paper used can save money. Second, EDI transactions can save time because they are
nearly instantaneous and use computers instead of people move information, which
reduces errors.
A third advantage is improved customer service: data are transferred
quicker, the order cycle time is reduced, and the product arrives faster. Fourth there are
substantial savings in warehousing operations and delivery costs. EDI is readymade for a
just-time environment. Production can be scheduled better with supplier and customer
orders. By producing closer to supply and demand timing cycles, inventory carrying costs
are reduced. A fifth advantage is reduced effort. Using EDI means that data needs to be
entered into the system only once. After that, computer interface with each other without
additional human intervention in the transfer of data.
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For EDI to help operate a warehouse more efficiently, it must meet standards for
reliability, clarity, availability, utility and accuracy. Without these, the EDI system will
not work as expected.
AUTOMATIC DATA COLLECTION
Another useful application for information technology in the warehouse is automatic data
collection (ADC). ADC use computer technology to enter information into a computer
system with little or no human involvement. The process enters data through machinereadable bar codes and scanners. The result is quicker and more accurate reading of data.
Most often bar codes or Uniform Process Codes (UPC) is used to transfer data from a
package to a computer through the use of an optical reader.
Properly installed, ADC benefits warehouse management in a number of ways, ranging
from lower inventory costs to better quality control. Table 11.2 lists and discusses these
benefits.
RADIO FREQUENCY SYSTEM
Radio frequency (RF) technologies consist of terminals, network controllers, and radio
frequency units. The terminals can be handheld; vehicle mounted, or fixed data collect-
tors. The radio frequency units are transmitters/receivers that communicate with the
terminals. An RF system is a series of antennas placed under the roof of the facility.
Table 11.4 depicts possible RF applications in a warehouse.
RF benefits warehouse operations through increased operator productivity, reduced
deadheading, and decreased errors. Other benefits include better use of storage space,
better control of stock rotation, shorter order cycles, and better customer service. In fact,
an order accuracy rate of 99.9 percent can be achieved.
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BIBLIOGRAPHY
 www.google.com
 Logistics by David .J. Bloomberg
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