CHAPTER 10

Warehousing
 Cost trade-offs in Marketing 10-2

and Logistics
Product

MARKETING
Order processing
Price and information
costs

Place/customer
service levels
Inventory
LOGISTICS

Transportation
carrying costs
costs

Lot quantity costs Warehousing costs

Order processing
and information
costs
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 Uses of Warehousing 10-3

• Manufacturing support
• Product - mixing
• Consolidation
• Breakbulk

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 Factors Influencing Warehousing 10-4

in the Future
• Time - The best warehouse operations are those
designed to reduce every aspect of order cycle
time.
• Quality - Users now expect performance that
approaches perfection.
• Asset productivity - Reduce total cost, reuse, and
recycle.
• New kind of workforce - Requirements for both
management and labor will change significantly.

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 Advantages of Public Warehousing 10-5

• Conservation of • Flexibility
capital • Tax advantages
• Use of space to • Specific knowledge
meet peak of storage and
requirements handling costs
• Reduced risk
• Economies of scale

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 Disadvantages of Public Warehousing 10-6

• Effective communication may be

difficult because of system
incompatibility
• Specialized services may not always be
available.
• Space may not be available on demand.

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 Advantages of Private Warehousing 10-7

• Control
• Flexibility
• Less costly
• Better use of human resources
• Tax benefits
• Intangible benefits

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 The Relationship of Demand 10-8

to Warehouse Size
120
110
100
90
Inventory (‘000 units)

80
Public
70
warehousing
60
50
40
30
20 Private
warehousing
10
0
Jan. Feb. M ar. Apr. M ay June July Aug. Sep. Oct. N ov. D ec.

Time (months)

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 Determinants of Storage Space
Requirements
These Situations Decrease the Need
For Storage Space
Decrease in production or sales
Decrease in number of SKUs
Less volatile demand (including longer
product life cycles)
Customer handles store delivery
Smaller manufacturing lot sizes
Smaller purchase amounts
Higher inventory turns
Better information
Quicker transportation
Cross-docking
Carrier performing consolidation
McGraw-Hill/Irwin
10-9
These Situations Increase the
Need for Storage Space
Market or company expansion
Shorter product life cycle
Increase in number of SKUs
Direct store delivery on a quick response basis
Elimination of distributors
Expansion into specialized products
Import/export items
Lengthened production process
Increase in minimum manufacturing lot size
Requirement for faster response time
Inflation/forward buying
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 Comparison of Traditional Costing
Versus Activity-based Costing
General ledger view of warehousing costs
Storage and handling……………...$40.1
General and administration………...30.9
Trucking and delivery………………14.5
Freight consolidation……………….. 2.4
Value-added services………………...3.3
Total ……………………………...$91.2
McGraw-Hill/Irwin
10-10
Activity-based view of warehousing costs
Dry storage………………………...…$25.0
Refrigerated storage………………….…8.1
Receiving………………………………20.0
Shipping…………………………...…..18.8
Billing…………………………………...3.2
Delivery…………………………………6.0
Packaging/stenciling…...……………….1.8
Freight consolidation……………………3.0
Material handling equipment…………...5.3
Total………………………………….$91.2
Source: Terrance L. Pohlen, “Activity Based Costing for Warehouse Managers,” Warehousing
Copyright
Forum 9, no. 5©(May
20011994),
by Thep. 1.McGraw-Hill Companies, Inc. All rights reserved.