Chapter 8
Warehousing Decisions
Learning Objectives -
After reading the
chapter, you should be able to do the following:



Discuss the strategic value-adding role
warehousing plays in the logistics system.
Explain the basic rationale for warehousing in
light of transportation consolidation, product
mixing, service, contingency protection, and
smoothing.
Develop an analytical framework for basic
warehousing decisions.
Chapter 8
Management of Business Logistics, 7th Ed.
2
Learning Objectives




Distinguish between the different warehouse
activities requiring space in the warehouse
design.
Discuss the major principles of warehouse
layout design.
Compare the use of private versus public
warehousing.
Explain public warehousing services,
regulations, and pricing.
Chapter 8
Management of Business Logistics, 7th Ed.
3
Learning Objectives



Describe the decision-making approach used
to determine the number of warehouses in
the logistics system.
Discuss the effect of materials handling and
packaging on logistics.
Describe the four dimensions and the
objectives of materials handling.
Chapter 8
Management of Business Logistics, 7th Ed.
4
Learning Objectives



Discuss the different types of materials
handling equipment and the criteria used to
select this equipment.
Explain the cross-functional role of packaging
in a company.
Discuss the role of packaging in the logistics
system.
Chapter 8
Management of Business Logistics, 7th Ed.
5
Learning Objectives


Describe the various types of packaging
materials available and their relative
advantages and disadvantages.
Explain the rationale for using bar codes to
identify packages.
Chapter 8
Management of Business Logistics, 7th Ed.
6
Logistics Profile:
Grainger Industrial Supply



Grainger is dedicated to providing excellent
customer service using an effective network of
warehouses and distribution centers providing
same day or next day service.
13.6 million square feet in one national
distribution center, two regional and six zone
distribution centers, and 373 local branches
1.5 million customers, 220k SKUs, $4.5 billion
in sales, 60k to 80k daily customer orders
Chapter 8
Management of Business Logistics, 7th Ed.
7
The Nature and
Importance of Warehousing



In 1999, $75 billion, or 0.8 percent
of GDP was spent on warehousing.
The total supply of U.S. warehousing space in
1999 was 6.1 billion square feet, an increase
from 1990 of 700 million square feet of space.
Warehousing provides time and place utility for
raw materials, industrial goods, and finished
products, allowing firms to use customer
service as a dynamic value-adding competitive
tool.
Chapter 8
Management of Business Logistics, 7th Ed.
8
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.
9
Table 8-1
Warehouse Value-Adding Roles
Chapter 8
Management of Business Logistics, 7th Ed.
10
Figure 8-1
Transportation Consolidation
Chapter 8
Management of Business Logistics, 7th Ed.
11
Figure 8-2
Supply and Product Mixing
Chapter 8
Management of Business Logistics, 7th Ed.
12
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.
13
Figure 8-3
Basic Warehousing Decisions
Chapter 8
Management of Business Logistics, 7th Ed.
14
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.
15
The Ownership Decision

Factors to consider
 Throughput volume
 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.
16
Firm Characteristics
Affecting the Ownership Decision
Table 8-2
Chapter 8
Management of Business Logistics, 7th Ed.
17
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.
18
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.
19
Contract Warehousing








Up 23% per year in 2000 to $20.4 billion.
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.
20
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.
21
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.
22
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.
23
Figure 8-6
Basic Warehouse Operations
Chapter 8
Management of Business Logistics, 7th Ed.
24
Figure 8-7
The Computerized Warehouse
Chapter 8
Management of Business Logistics, 7th Ed.
25
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.
26
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.
27
Figure 8-8
Warehouse Space Requirements
Chapter 8
Management of Business Logistics, 7th Ed.
28
Principles of
Warehouse Layout Design
Figure 8-9
Chapter 8
Management of Business Logistics, 7th Ed.
29
Warehouse Layout and Design

Chapter 8
Basic needs:
 Receiving
 Basic storage area
 Order selection
and preparation
 Shipping
Management of Business Logistics, 7th Ed.
30
Warehouse Layout and Design

Layout and Design Principles:
 Use one story facilities
where possible.
 Move goods in a straightline.
 Use the most efficient
materials handling
equipment.
 Minimize aisle space.
 Use full building height.
Chapter 8
Management of Business Logistics, 7th Ed.
31
Warehouse Layout and Design:
Layout and Design Objectives





Cubic capacity
utilization
Protection
Efficiency
Mechanization
Productivity
Chapter 8
Management of Business Logistics, 7th Ed.
32
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
Chapter 8
Management of Business Logistics, 7th Ed.
33
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.
34
Objectives of Materials Handling







Increase effective capacity
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.
35
Figure 8-12
Utilization of a
Warehouse’s Cubic Capacity: Principles of
Warehouse Layout Design
Chapter 8
Management of Business Logistics, 7th Ed.
36
Guidelines and Principles for
Materials Handling


To effectively plan and control materials
handling, the logistics manager should
recognize some guidelines and principles.
Table 8-5 lists 20 of the most commonly
accepted principles of effective materials
handling. Asterisks mark those deserving
special attention.
Chapter 8
Management of Business Logistics, 7th Ed.
37
Table 8-5
Principles of Materials Handling
Chapter 8
Management of Business Logistics, 7th Ed.
38
Packaging

Interest in packaging is widespread
 Logistics
 Warehousing
 Transportation
 Size
 Marketing
 Production
 Legal
Chapter 8
Management of Business Logistics, 7th Ed.
39
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.
40
What Is Packaging?


Consumer packaging
 Marketing managers primarily concerned
with how the package fits into the
marketing mix.
Industrial 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.
41
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.
42
Table 8-6
Comparison of Cushioning Materials
Chapter 8
Management of Business Logistics, 7th Ed.
43
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.
44
Chapter 8:
Summary and Review Questions
Students should review their knowledge of the chapter
by checking out the Summary and Study Questions for
Chapter 8.
End of Chapter 8 and 8A Slides
Warehousing Decisions