Session 7: Warehousing Decisions Logistics function: time and effort

Objectives
General management
Traffic management
Discuss the importance and functions of Warehousing

warehousing in the logistics system. Inventory control

Purchasing

Function
Global logistics
Identify the major forms of warehousing. Order processing
Product planning

Identify the functions performed by Facility location

Sales forecasting

protective packaging Packaging

Order entry

0 5 10 15 20 25
% of time and e ffort

Chapter 8&14

Warehousing-definition
Warehousing-definition

In a simple sense: Its an integral part of a logistics system that

stores products (raw materials, parts, finished
A warehouse is any location where goods) temporarily, semi-temporarily at and
stocks of material are held on their between point of origin and point of
journey through supply chains. consumption, to mix, consolidate, break-bulk
products and provide information on the status,
condition, and disposition of the items being
It creates time utility stored.
Three basic functions of warehousing:
Storage
Movement
Information transfer

Functions of Warehouses Distribution strategies

Warehousing: This is the classical Cross-docking: In this strategy

strategy in which warehouses products are distributed
Storage
stock and provide continuously from suppliers
Temporary long time
customers with through warehouses/DCs to
products as required. customers. However,
Movement warehouses/DCs rarely keep
Receiving Transferring (put away) Order selection Shipping the products more than 10-
Direct shipment: In this 15 hours.
strategy, products are
Information Transfer
shipped directly from the The key to the process is
Such as: Inventory level , Inventory location, Throughput rate, Space utilisation supplier to retail stores transshipping, not holding
without going through stock.
distribution centres/
warehouses.

1
 Terminology: W and DC Terminology: W and DC (contd)

Warehouses (W) Distribution centres

handle most products
in four cycle, e.g.,
receive, store, pick,
and ship.
Ws perform a
minimum of value-
added activities
(receive-store-ship
generally in original
forms).
(DC) handle most Ws collect data in batches
(generally) (receive and
products in two cycle,
ship goods in batches).
e.g., receive and ship.
Ws store all products
(slow or fast moving).
DCs perform a great
deal of value-added Ws focus on minimising
the operating costs to
activities, e.g, final meet shipping
assembly. requirements.
DCs collect data in real
time,might deliver less
than the batch size.
DCs hold predominantly
high demand items.
DCs focus on maximising
the profit impact of
fulfilling customer
delivery requirement.

Warehousing of products
Warehousing of products (contd)
The reasons are similar to the objectives of
holding inventory: Achieve transportation economics (e.g., Truckload (TL)
instead of Less than Truckload (LTL) of supply
Maintain a source of supply

Achieve production economics (Long production runs)

Support the supply-chains customer service
policies (e.g., on time delivery, supply in full)
Meet changing market conditions (e.g., demand
fluctuations, seasonality)
Overcoming the time and space differentials that
exist between suppliers, producers, and consumers
(place/time utility)
Take advantage of quantity purchase discounts and
forward buys
Provide customers with a mix of products (e.g., product
mixing, product consolidation, break-bulk)
Provide temporary storage materials to be disposed of
or recycled (reverse logistics)

Uses of Warehousing in logistics

Product mixing
Manufacturing Support

Supplier
Supplier A
A TL or CL TL or CL TL, LTL or CL
Plant
Plant A
A
A Customer
B C1
A B C
Supplier
Supplier B
B A B C
Warehouse Plant Plant
Plant B
B Mixing
Mixing
Warehouse Plant
Warehouse
Warehouse
Supplier
Supplier C
C Plant
Plant C
C A Customer
B C2
A B C
A B C
Supplier
Supplier D
D

A Customer
B C3
A B C
A C

2
 Consolidation
Breakbulk

Plant
Plant A
A TL or CL A ACustomer
B B C C1
TL or CL A A B B C C LTL
Customer 1
TL or CL
Plant Consolidation Break-bulk
Break-bulk
Plant B
B Consolidation Plant
Plant A
A
Warehouse Warehouse
Warehouse A Customer
B C 2
Warehouse Customer 2
Plant
Plant C
C
A Customer
B C 3
Customer 3

Warehousing Decisions
Warehousing decisions Ownership
Ownership

Strategic Operational
Private
Private Public
Public
decisions deal with the decisions related to
allocation of logistics managing logistics
resources performance
How
How many
many
Strategic decisions
long term decisions e.g., Centralised
Centralised Decentralised
Decentralised
should warehousing be
short term decisions and
owned, leased, rented or some generally are routine in
combination of these? nature e.g., What
What size
size
If owned, where should these how to better utilise
facilities be located, how equipment and Where
Where
many, what size? workforce?
Should the warehousing designing better layout Interior
Interior layout
layout
services be outsourced?
for product movement. Operational decisions
What
What products,
products,
where
where

Ownership Decision
Types of warehousing-ownership
Public warehousing

Private warehouse - Public warehouse - rented

Total cost

company owned or leased facilities Break-

Break-even point
contract warehousing (also
called third-party Logistics) Private warehousing
general merchandised
warehouses
refrigerated warehouses Fixed Cost
bonded warehouses

household goods warehouses

special commodity
warehouses Throughput volume
bulk storage warehouses

3
 Firms Characteristics affecting the Benefits of Public warehouse
ownership decision
Flexibility to deal with changing demand
Firm characteristics Private Public Ability to supply skills and experience that the
organisation doesnt have internally
Throughput volume High Low
Access to latest equipment and practices
Demand variability Low Fluctuating Avoiding large capital investment (concentrate on
Market density High Low core business)
Quick access to a new and wider areas
Physical control Yes No
Allowing short-term tests of business in new areas
Service required High Low
Disadvantage: mainly loss of control
Security requirements High Low

Multiple use needed Yes No The trend in recent years has been to use public warehouses

Australian Study Relationship: Number of warehouses and total logistics costs

Total
cost
Total cost

Carrier selection Inventory

Product returns cost
Order processing
Shpment consolidation
Warehousing
Fleet management cost
Order fulfillment
Transportation
Warehouse management cost
0 10 20 30 40 50 60 70
Percentage of respondents Cost of lost
sales
Figure: The most frequently used TPL services

Number of warehouses

INPUT

Dont forget about the

Warehouse operations
Receiving
Receiving

Schedule carrier

Schedule carrier
Square Root Law Unload vehicle
Unload vehicle
Inspect for damage
Inspect for damage
Compare to P/O
Compare to P/O

the trend is to move from Decentralized strategy to Put-away

Put-away Storage
Storage Orderpicking
Order picking Shippingprep.
Shipping prep.
Centralized strategy (regional warehouse/DC to
Identifyproduct
Identify product
Identify storage



Equipment
Equipment
Stocklocation
location

Information
Information
Walk & pick
Packaging
Packaging
Identify storage Stock Walk & pick Labelling
move product Popularity Batch picking Labelling
move product Popularity Batch picking Staging
Staging
replace distributed field warehouses) Update records
Update records
Unitsize,
Unit size,Cube
Cube AS/R
AS/R

Shipping
Shipping
Schedule carrier
Schedule carrier
Load vehicle
OUTPUT Load vehicle
Bill of lading
Bill of lading
Record update
Record update

4
 Materials Handling equipment
Principles of materials handling

Storage and Movement Three types of MH systems Planning Deadweight

Storage (racks, Manual Systems Maintenance Obsolescence
shelving, drawers) Mechanical Materials flow Utilisation
Automatic (AS/RS - Simplification Capacity
movement and automated storage and Gravity Control
sorting (forklift trucks, retrieval system) Space utilisation Performance
platform trucks, Carousels Unit size Safety
cranes, and carts) Conveyors Mechanisation
AGV: automatic Automation
guided vehicles Equipment selection:
Robots Standardisation
Adaptability

Warehouse functions and flows Example of cross-docking

and pallet picking
Reserve storage

case picking
picking

Broken
Case

Shipping

ay
to re putaway

aw Warehouse
ut y
t p ar
serve

c m
Accumulation, sortation,
ire ri packing
t

D op
D irec

Receive Cross- Shipping Receiving

products docking products

Example of cross-docking Cross-docking

Cross-docking systems require a significant start-up

investment and difficult to manage:
DCs, retailers, and suppliers must be linked with advanced
Shipping
Receiving information systems to ensure that all pickups and deliveries
are made within the required time windows.

A fast and responsive transportation system is necessary

Sortation
Warehouse Cross-docking strategies are effective mainly for the large
Storage distribution systems in which a large number of vehicles are
area delivering and picking up goods at any one time. There must
be enough volume every day to allow shipments of fully
loaded trucks.

5
 Warehouse productivity
Elimination of non-value added activities
Nonessential and inefficient physical
movement and handling activities are
eliminated, resulting in improved facilities
layout and warehouse efficiencies
Rapid flow through of materials
emphasis is given on mixing, consolidating
and breakbulking products rather than
storage.
Functions of packaging
Marketing Logistics
provides Containment - contained before
moving
customers with Protection - protect against
information damage or loss, also protects
about product environment
and promotes Apportionment- translate a large
output into smaller quantities
products Communication - - use of readily
understood symbol (e.g., UPC,
RFID)
Convenience
Unitization
Reducing environmental impact of
packaging
Reduction at source through minimising
packaging thereby using fewer resources and
creating less waste;
Products are overpackaged purely for
marketing reasons
Marketers are concerned that ecologically
sound packaging may mean less attractive
packaging.
Reuse or refilling of packaging;
Recycling of packaging
Packaging-definition
Packaging is a means of ensuring safe and
efficient delivery of the goods in a sound
condition to the ultimate consumer,
supplemented by efficient reuse of the
package or recovery and/or disposal of the
packaging material at the minimum cost.
Packaging typically represents up to 10% of
the retail cost of an item and for luxury goods
this figure could be as high as 40%.
Packaging types
Three types:
Sales packaging direct wrapping around a product
Plastic bottle for shampoo
Tube for toothpaste
Glass bottle of milk.
Secondary packaging
Cardboard carton around a tube of toothpaste
Transport packaging
Containers
Pallets
Cardboard boxes