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WAREHOUSE MANAGEMENT

Warehousing
A role beyond storage

Definition

That part of a firms logistics system that


stores products at and between point-oforigin and point of consumption, and
provides information to management of the
status, condition, and disposition of items
being stored.

The Changing Role of Warehousing


MANAGING INVENTORIES
(The old mission)

Warehouse
Computerization

Warehouse Employee Skill


Development

Development of an Integrated
Perspective of Warehousing

MANAGING INVENTORY
AND INFORMATION
(The new mission)

Warehouse
Equipment
Automation

Typical Processes - Warehouses


Storage is the primary differentiator for the processes in warehouses, and many of the
activities encountered revolve around putting products into storage and taking them out
again, driven by customer orders

Inbound

Receiving

Quality
assurance

Putaway

Outbound

Storage

Replenish

Picking

Loading/
Shipping

Inventory
management

Controls are typically applied on both inbound receipts


and outbound orders

Operations in the Warehouse


Receiving (receive, check,
disburse)
Put-away (transportation
and placement)
Storage (size, quantity)
Order picking (basic
service)
Packaging and/or pricing
(optional)

Sortation and/or
accumulation
Packing and shipping
(checking, packaging,
weighing, accumulating,
loading)
Cross-docking (optional)
Replenishment (reserve
storage, optional)

Warehouse Functions
Stock holding
Consolidation
Break bulk
Cross docking
Postponement
Assortment
Mixing / assembling
Packaging & labelling
Material handling
Order filling
Information handling

Types of Warehouses
Private warehouse
Public warehouse
Contract warehouse

Storage Alternatives
Private
WH

Public
WH

Contract
WH

V.high

None

V. Less

Controls

High

Low

Medium

Operation
Flexibility

High

Low

Medium

Inversely
related to
volumes

Low

Inversely
related to
volumes

Low

High

Medium

FACTORS
Investment

Cost per unit


stored
Risk

Typical Warehouse Layout


MATERIAL INWARD & INSPECTION
BULK STORAGE
PLACE

RACK /BIN
STORAGE
PLACE

ORDER PICKING SECTION


PACKAGING SECTION
MATERIAL DISPATCH SECTION

Warehousing Trends
Focusing on the customer
Warehouse adds value by keeping products available
Develop partnership by information sharing, joint planning, and
win-win agreements for future

Consolidation
Competitive advantage with reduced supplier base
Fewer distribution centers allow economies of scale that can
reduce operating costs, including inventory, space, equipment and
labor

Continuous flow of material and information


Frequent receiving and shipments puts greater demands on
material handling, storage, and information systems

Warehousing Trends
Value-added services
Labeling, customized packaging, servicing vendor-managed inventories,
and electronic data interchange

Information technology
Bar coding, radio frequency data communication, warehouse
management system

Space compression
Greater emphasis on throughput results in more docks, staging, buffer,
and sortation system space

Time compression
Better, cheaper , and faster battle cry of the future
Increase service levels with same-day shipments with reduced SKUs and
space requirements

Warehousing Trends
Distribution requirements planning
MRP, MRP II, DRP, ERP
Dynamic distribution action plan
Interchange information using networks and radio
frequency devices

Reverse logistics
Process of receiving returned goods, determining
product status, crediting customers and deliver
recyclable material to manufacturing

Warehousing Trends
Leadership
One individual with proactive role to take charge of
warehouse
Dissociate from operational issues and concentrate on
tactical and strategic issues.

Cross docking
Preplanning incoming and out going shipments to move
goods directly from receiving to shipping
Information processing systems must track and
coordinate product movement

Warehousing Trends

EDI &Internet
EDI communication by direct link

Warehousing Trends
Vendor managed inventory
POS system and integrated production operations to
manage inventories and high level of customer service
Suppliers to track and replenish inventories

Paperless warehouse
Product movement tracked electronically
Delivery challans, replenishment tickets, pick tickets
replaced by electronic data capture and display devices

Warehousing Trends
Supply chain management
Partnering with suppliers and customers
In depth sharing of information
Willingness to invest in maintaining relationship

Third-party warehousing

Reduction in investment requirements


Improved customer service
Reduction in permanent labor force
Overall reduction in distribution cost

Warehousing Trends
Customized warehousing
Customizing generic products
Compliance labeling, ticketing, bagging, and
palletization.
Value addition to the product or service

Operations audit & performance measurement


Customer service, labor productivity, control systems,
inventory accuracy, layout effectiveness, space
utilization, storage systems & equipment utilization,
warehousing facility, house keeping and safety

Warehouse Site Selection Process


Traditionally, sales were key drivers
influencing warehouse site selection

in

Companies satisfied the needs of their sales


force by building warehouses with the hope to
increase market presence and hence revenue.
-Infrastructure, market, access, transportation
cost, product, regulations, local levies.

Before making a site selection companies must


closely examine the current distribution network and
the impact of adding , subtracting or consolidating
facilities for the entire organization.

Quantitative variables :

(a) Cost drivers, tangible and relatively easy to define.


Demand potential and trends, consumption pattern,
transportation costs, labour costs and facility costs

Qualitative variables
(b) More difficult to understand and to measure. Customer service levels

The Square Root Law


The square root law states that The total
inventory in a system is proportional to the
Square Root of the Number of Locations at
which a product is stocked.
It is recognized that the inventory tends to
increase as the number of locations increase.
An important assumption is the total customer
demand remains same.

The Square Root Law mathematically is


represented as under:
L = [(L1) x { (W2 W1) }], where

L= Total inventory in future warehouses


L1= Total inventory in existing warehouses
W1= Number of existing warehouses
W2 = Number of future warehouses.

For example, In a company there are 40


warehouses and the existing inventory is
2,00,000 units. If the number of warehouses
are reduced to 10 what will be impact on total
inventory.
L1= 2,00,000
W1= 40
W2= 10
L= [(2,00,000) x { (10 40 )}] = 1,00,000
Thus, inventory will consist of 1,00,000 units
giving a reduction of 50%.Conversely, if the
number of warehouses are increased, the total
inventory will increase.

Assumptions are

(1) Inventory transfer from one warehouse to


other is not done.
(2) Lead time does not vary.
(3) Customer service level does not change from
any warehouse.
(4) Demand level is well distributed from all
warehouse.

Warehouses as Distribution Centres


Distribution strategies can be of following types
Cross docking
Milk runs
Hub and spoke model

A Cross docking:
Helps to reduce the amount of finished goods
inventory that is required to be maintained as
safety stock.
Constraints of Cross Docking
Requires a strong IT base and real time
information sharing facilities e.g. Bar codes
on cartons.
Appropriate for products with large, and
predictable demands.

B. Milk Runs :
A milk run is a route in which a truck either
delivers product from a single to multiple
retailers or goes from multiple suppliers to a
single retailer.

Milk runs from single supplier to


multiple retailers
Retail Store 1
Supplier

Retail Store 2
Retail Store 3
Retail Store 4

Retail Store 5
Retail Store 6

Milk runs from multiple suppliers to


single retailer.

S1

Retail Store
S2

S3

S4
S5
S6

Benefits/ Limitations of Milk Runs


Milk runs help to reduce the the transportation
costs by consolidating shipments to multiple
stores on a single truck .
Helps to reduce the amount of inventory to be
kept as a safety stock in the warehouses.
High
degree
of
coordination
and
synchronization required among the members
of supply chain.

C. Hub and Spoke Model


In this model, the distribution hub is the
location that holds inventory for a large
region, with each spoke leading to smaller
distribution centre, which houses inventory
for a smaller region.
The main driver of the hub and spoke model
is the proximity to the customer, with the goal
being to supply to a maximum numbers of
customers in minimum time.