Consolidation Warehousing
Aubrey Blacker
Brigham Young University
Agenda:
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Define Consolidation Warehousing
How can it be used in your organization?
Nuts and Bolts
How it Works
Real-World Example
Exercise
What is Consolidation
Warehousing?
• A form of warehousing that pulls together
small shipments from a number of sources
(often plants) in the same geographical
area and combines them into larger, more
economical, shipping loads intended for
the same area
-Like Carpooling!
Small, flexible shipments inLarge, economical shipments out
How can Consolidation
Warehousing be used in your
organization?
How would implementing
Consolidation Warehousing affect
your organization’s…
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Profitability?
Delivery Time?
Inventory Levels?
Customer Satisfaction?
Reputation within the industry?
Nuts and Bolts
• Consolidation warehouses are constructed at a
strategic location between manufacturers and
customers
• Third-Party Logistics Providers (3PLs) manage and
maintain the consolidation warehouse and the
information system needed to run it
– Goal: Maximize transportation utilization and minimize costs
• Warehouses can either be client-dedicated or multiuser facilities
How it Works:
1.Customer places several small orders
from multiple manufacturers in the same
area
How it Works
2. Several Less-than-truckloads (LTL) of
product from manufacturers in the same
area arrive at the consolidation warehouse
How it Works
3. The 3PL strategically consolidates these
small orders from multiple manufacturers
into one full Truck Load (TL) headed to the
customer using tactical transportation
modeling tools
How it Works
Tactical Transportation Modeling Tools
– Input = Customer and purchase order date
requirements
– Look to minimize cost by selecting:
• Most appropriate mode of transportation
• Most appropriate carrier within that mode of
transportation
– Optimize routes and generate a detailed
load plan
How it Works
4. Customer receives product orders from
various manufactures in one transaction
-As load size increases, shared
transportation costs among
manufactures decreases
Benefits of Consolidation
Warehousing
• Lower shipping costs for participants
• More efficient transportation
• No capital investment required
– Reduces risk
• Allows manufactures to focus on their core
competencies
• Lower product costs for customers
• Lower inventory levels required
Concerns associated with
Consolidation Warehousing
• Manufacture’s and customer’s information
systems must be aligned with the 3PLs
– Could be costly
• Takes immediate control of product
transportation out of the manufacturer’s hands
• Requires collaboration among suppliers,
customers and carriers
– May be hard to coordinate
A Real World Example
Frozen Food Industry
A Real World Example
Situation:
• Retailers wanted smaller, more frequent
shipments
– More profitable because it keeps inventory levels
down
• Truck shortage
– Shipping LTLs became very costly
A Real World Example
• 3PLs provided dry, refrigerated/frozen
warehouse space to keep products fresh
– Managed required product information by using:
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Barcodes
Scanning
Instant Messaging
Internet
Other internet-based information systems
A Real World Example
• Multiple Manufacturers in the same area
used these consolidation warehouses to
combine LTL deliveries to retailers
A Real World Example
Result:
• CW maximized truck utilization
– Solved capacity shortage issue in the trucking
industry
• And minimized costs/maximized profitability
– Decreased shipping costs
– Helped retailers maintain low inventories and retain
high profits
An Exercise
The Penny Game!
Summary
• Consolidation Warehousing = pulling together
small shipments from a close geographical area
and combining them to make larger, more
economical, shipments to the customer
– Used to minimize transportation costs and maximize
efficiency
– Beneficial for manufacturers and retailers
– Applicable across many industries
Readings list
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Bozarth, Cecil C., Handfield, Robert B. Introduction to Operations and
Supply Chain Management. Pearson Prentice Hall, United States of
America, 2005.
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Frazelle, Edward H. Supply Chain Strategy.
Blacklick, OH, USA: McGraw-Hill Education Group, 2001. p 228.
http://site.ebrary.com/lib/byuprovo/Doc?id=10041412&ppg=240
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“Chill Challenge”. Food Logistics Age. July 2005. Cygnus Business Media
Inc.
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“US Logistics 2005”. Transport Intelligence Ltd. June 2005 USL0506.
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Warehousing Education and Research Council (WERC): www.werc.org