Storage & Warehousing

Lecture 1

The Role of Warehousing in Supply Chain

uzma.tahira@lbs.uol.edu.pk

Lahore Business School, University of Lahore

 Learning Objectives 2

At the end of this chapter you will be able to understand;

• Reasons for holding stocks

• The concept and importance of warehousing
• Types of warehouse operations
• Issues affecting warehousing

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 Introduction 3

• The role of a supply chain is to deliver the

right products, in the right quantity, to the
right customer, at the right place, at the
right time, in the right condition, at the
right price (7 R’s).
• The warehouse plays a significant part in
this.

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 Why do we hold stock? 4
• Uncertain and erratic(unpredictable) demand patterns
• Trade-off between transport and shipping costs, justifying larger
shipments
• Discounts via bulk buying
• Distance between manufacturer and the end consumer
• Cover for production shutdowns
• Ability to increase production runs
• High seasonality
• Spare parts storage
• Work-in-progress storage
• Investment stocks
• Document storage
• Third-sector storage
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 Warehousing contributes value in the logistics
process 5

• Traditionally viewed as a place to hold or

store inventory
• Contemporary view is the warehouse
functions to mix inventory arrangements
to meet customer requirements

 Storage of products is held to a minimum

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 The Role of Warehousing 6

• Delivering the right product in the right quantity relies on the

warehouse picking and dispatching accurately.
• Delivering to the right customer at the right place, on time, requires
the product to be labelled correctly and loaded onto the correct
vehicle with sufficient time to meet the delivery deadline
• In the right condition means that the warehouse has to ensure the
product leaves the warehouse clean and damage free.
• At the right price requires a cost-efficient operation that delivers
value for money.
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 Evolution of warehousing 7

• Warehouses were once viewed as a necessary

evil, used to coordinate product supply with
customer demand
• Stock visibility along the supply chain was
limited and information flow was very slow,
resulting in companies holding more stock than
necessary.
• The economy was also seen as supply driven
with manufacturers producing products in the
hope that consumers would buy them (Push Based
Supply Chain Strategy) Lahore Business School, University of Lahore
 Evolution of warehousing (Cont.) 8
• The explosion of the consumer economy after World War II
saw the rise of distribution networks for consumer goods
• Warehousing shifted from passive storage to strategic
assortment
• We have gone from a ‘push’ to a ‘pull’ supply chain over
recent years.
• In today’s market with expensive land, buildings, labor and
energy costs, together with the introduction of concepts
such as just in time (JIT), efficient consumer response
(ECR) and quick response (QR), companies are continually
looking to minimize the amount of stock held and speed up
throughput.
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Difference between Warehouse and DC 9

• A warehouse is used for storing products while a

distribution center, apart from storing products offers
value-added services like product mixing, order
fulfillment, cross docking, packaging etc. ... Typically
retail and warehouse orders are shipped from a
distribution center and not a warehouse.

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 Types of Warehouse Operations 10
• Raw materials storage
• Intermediate, postponement, customization or
sub-assembly facilities
• Finished goods storage
• Consolidation centers and transit warehouses
• Transshipment or break-bulk centers
• Cross-dock centers
• Sortation centers
• Fulfilment centers
• Reverse logistics centers
• Public sector warehousing
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 Types of Warehouse Operations (Cont.) 11
Raw materials storage
These warehouses store raw materials and components close to the point of manufacture.
Intermediate, postponement, customization or sub-assembly facilities
• These warehouses are used to store products at different stages in production.
• These centers are also used to customize products before final delivery to the customer.
• Postponement and sub-assembly activities can include: specific packaging or labelling
being changed or added, e.g. for store-ready items or printing in different languages
Finished goods storage
These warehouses store products ready for sale, on behalf of manufacturers, wholesalers and
retailers. They provide a buffer or safety stock for companies, enabling them to build up
stock in preparation for new product launches, expected increases in demand and to deal
with seasonality.
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 Types of Warehouse Operations (Cont.) 12
Consolidation centers and transit warehouses
• Consolidation centers receive products from different sources and consolidate
them for onward delivery to the customer or onto a production line.
• This can include just-in-time centers where automotive parts are delivered to a
warehouse where they are brought together and sequenced for delivery onto
the production line.
• They can also be retail warehouses where products from different suppliers are
consolidated for onward delivery to the stores.
• These differ from cross-dock centers in that product could remain in the center
for a period of time awaiting call-off from the final destination.
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 Types of Warehouse Operations (Cont.) 13
Transshipment or break-bulk centers
Transshipment centers receive products in large quantities from suppliers and break
them down into manageable quantities for onward delivery to various locations.
Cross-dock centers
• Cross-dock centers are seen as being the future for warehousing. Efficient
consumer response and quick response within retail require operations to be able
to move goods quickly through the supply chain.
• Cross docking requires deliveries into these centers to be already labelled and
ready for onward delivery. Here the items are identified and consolidated with
other deliveries, ready for dispatch. Items should remain in the warehouse for as
short a time as possible. Same-day dispatch is the target.
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 Consolidation and break-bulk 14
• Consolidation occurs when a warehouse receives materials from a number of
sources and combines them into exact quantities for a specific destination
• Break-bulk occurs when a warehouse receives a single large shipment and
arranges for delivery to multiple destinations

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 Cross-docking is used extensively by retailers
to replenish store inventories 15
• Cross-docking combines inventory from multiple origins into a pre
specified assortment for a specific customer

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 Types of Warehouse Operations (Cont.) 16
Sortation centers
• Sortation centers are used in the main by letter, parcel and pallet distribution
companies.
• Goods are collected from all parts of the country, delivered into hubs or
sortation centers, sorted by zip or post code, consolidated and delivered
overnight to their respective distribution areas for onward delivery.
• Today’s retailers are also moving towards automated sortation centers with
pallets being de-layered on entry, the use of mini-load systems for temporary
storage and retrieval and finally automated pallet build on exit.

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Sorting involves reconfiguring freight as it
flows from origin to destination 17

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 Mixing is usually performed at an intermediate
location between origin and destination 18

Mixing combines inventory from multiple origins (like cross-docking) but also
adds items that are regularly stocked at the mixing warehouse

Stock
Inventory

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 Types of Warehouse Operations (Cont.) 19
Fulfilment centers
• The growth of e-retailing has seen an increase in the number of
customer fulfilment centers.
• These warehouses have been designed and equipped to manage large
volumes of single-item orders.
• Grocery retail fulfilment centers have, in the main, taken the place of
store picking for home-delivery orders.
• These centers can also double up as returns processing centers as e-
commerce has a larger percentage of returns than normal retail
activities.
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 Types of Warehouse Operations (Cont.) 20
Reverse logistics centers
• A number of returns warehouses have been set up specifically to deal with returned
items.
• Third-party contractors are providing a service to retailers where customers return
unwanted or defective items to the stores; the items are then consolidated and sent to
the returns center, where they are checked and either repackaged, repaired, recycled
or disposed of.
Public sector warehousing
• Outside the commercial world there are also warehouse operations which support the
public sector, armed forces and the third sector.
• The increasing number of natural disasters such as earthquakes, droughts and tsunamis
is resulting in third-sector organizations opening up warehouses in strategic locations
across the globe. This ensures that they are closer to the disaster areas and thus able to
react quicker.
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 3PL Warehouse 21
A 3PL warehouse is one to which a company might outsource its warehousing operations.
Warehouses operated by third-party logistics providers are either dedicated operations
on behalf of a single customer or can be shared-user or public warehouses where a
number of different customers share resources and are accommodated under one roof.
These include:
• Companies with different products but with common customers such as retailers or
automotive manufacturers;
• Companies with the same or similar products delivering to common customers, e.g.
tyre manufacturers;
• Companies needing similar types of service, eg fulfilment or returns processing;
Customs and excise storage;
• Companies requiring the same environmental conditions, eg hazardous or temperature
controlled. Lahore Business School, University of Lahore
 Warehouse operations involve two major
activities – handling and storage 22
• Objective is to
• Efficiently receive inventory
• Store it as required
• Assemble it into complete orders
• Make a customer shipment
• Operations will therefore emphasize
product flow

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 Handling 23

• Handling must optimize movement

continuity and efficiency
• Receiving—Unloading the arriving vehicles
• In-Storage—moving goods for storage (transfer)
or order selection (picking)
• Shipping—verifying the order and loading the
departing vehicles

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 Storage plans should make product velocity a
major factor 24
• Slotting determines specific locations
for the product based on
• Velocity—how fast the goods move
• Weight—how heavy is the product
• Special Characteristics—how large or
small, does it require rack or bin storage

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 Warehouses must manage two classes of
storage 25

• Active Storage—storage for basic inventory

replenishment
• Focuses on quick movement
• Includes flow-through or cross-dock distribution
• Extended Storage—storage for inventory
held in excess of period for normal
replenishment
• E.g. seasonal, speculative, or even commodities

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 Warehouse decisions that determine handling
and storage efficiency 26

• Site Selection
• Design
• Product-Mix Analysis
• Expansion
• Materials Handling
• Layout
• Sizing
• Warehouse management system
• Accuracy and audit
• Security
• Safety and maintenance
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 Issues Affecting Warehousing 27
Market and product base stability
• Long –term market potential for growth and for how the
product range may expand will influence decisions on the
size and location of a warehouse facility, including space for
prospective expansion.
• These considerations will also impact on the perceived need
for potential flexibility, which in turn can influence decisions
on the type of warehouse and the level of technology to be
used.
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 Issues affecting Warehousing (Cont.) 28
Type of materials to be handled
• Materials handled can include raw materials, WIP, OEM Auto spare
parts, packaging materials and finished goods in a span of material
types, sizes, weights, products lives and other characteristics.
• The units to be handled can range from individual small items through
carton boxes, special storage containers for liquids, drums, sacks, and
palletized loads.
• Special requirements for temperature and humidity may also have to
be met in the case of perishables and all of these will impact on the
type of warehouses and technology level.
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 Issues affecting Warehousing (Cont.) 29
Warehouse Facility: type, size and location
• The type of operation, the design capacity and size of a warehouse and
its location will all be influenced if not directly determined by its exact
role and position in the supply chain network, and the role, capacity
and location of any other facilities in the supply chain.
• The customer base, level of inventory, the need for optimization of
inventory, time compression in the supply chain and the overall
customer service levels should also be considered when deciding on
type, size and location.
• A further consideration here is whether the warehouse facility should
be an own-account operation run by the company or outsourced and run
by a 3PL.
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 Issues affecting Warehousing (Cont.) 30

Inventory and Inventory Location

• Within a supply chain network there is an issue not only of what
materials to stock and in what quantities, but also in what locations .
• Options can include distribution centers devoted to specific markets
or parts of the product range distribution centers dedicated to
serving specific geographic areas, or regional distribution centers
that hold for example the fast moving product lines, with the slower
lines held only in a Regional distribution center (RDC).
• The option depends on such factors as customer base, product range
and service levels required.
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 Issues affecting Warehousing (Cont.) 31
Choice of Unit load
• The option of unit load or loads – pallets, roll or cage pallets, tote bins -
will be determined by the nature and characteristics of the materials
passing through the supply chain, and this clearly encompasses an
enormously wide range of goods, unit quantities, and pack types and
sizes
• This may appear as a very important factor more subject to basic
operation than to strategic influences. However, within the warehouse it
can influence the option of handling equipment and the types of storage
systems.
• In the wider context it will affect transport operations in terms of
vehicle loading and unloading and vehicle utilization.
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