Chapter 7 Warehousing Decisions

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Chapter 7Warehousing Decisions

• Nature and Importance
• Basic Functions
• Strategic DC Decisions
• Ownership Decisions
• Layout Design
• Summary

Note Dr. Steven Rutner is the initial writer of
these lecture notes.
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Boeing Profile

• Why was the profile added?
• Warehousing image
• Warehousing technology
• What equipment did they use?

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Change in Warehousing

• Storage (long term)
• Distribution Center
• JIT
• Cross dock
• Lower inventory
• Very short time in center

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Importance of Warehousing

• See Table 7-1.

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Nature and Importance
Warehouse
Distribution Center (DC)

• Accountable Amount of Inventory
• Basic Functions
• Movement
• Storage
• Utilities Created
• Time
• Place

• More Modern Term
• Emphasize Flow and Movement
• Stresses Rapidity of Product Movement
• More Accurately Characterizes Todays Logistics
  Environment

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• Basic Functions
• Consolidation (Fig 7-1)
• Product Mixing (Fig 7-2)
• Service / Product Availability (pick when needed)
• Protection Against Contingencies
• Smoothing Manufacturing Operations
• Cross Docking
• Throughput
• basic measure of DC activity
• Quantity (volume) into a DC
• Quantity out of a DC over a period of time
• Cases per month (for example)

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Strategic DC Questions

• How many and where located?
• Centralized (few) vs. decentralized (many)
• Large vs. small
• Location factors
• Which products to be carried at each?
• Which customers to be serviced by which DC?
• Target customer service objectives for each
  facility and the network?
• Role of Private vs. Public vs. Contract
  operations.

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Percent of Goods Stored by Location
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Distribution Center Size and Location

• Basic Question How Large is Large?
• Example Large DC may be 2 million sq.ft.
• 1 acre approximately equals 1 football field

Florida
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Distribution Center Size and Location

• Basic Question How Large is Large?
• Example Large DC may be 2 million sq.ft.
• 1 acre approximately equals 1 football field

Florida
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Warehouse Functions

• Receiving
• Storage
• Picking
• Order Assembly
• Shipping
• Office

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Warehouse Design

• Fig 7-6
• Fig 7-8
• Fig 7-9
• Interaction with computer (Fig 7-10)

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Quality Issues

• How do you eliminate errors?
• What is Pareto Analysis?

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Ownership DecisionFactors to Consider

• Cost
• Level of throughput will be critical
• Fixed vs. variable cost (next slide)
• Flexibility
• Ability to adapt quickly
• Reduce risk
• Services Available
• Managerial Responsibilities/Degree of Control
  Desired

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Cost Comparison Between Private and Public
Warehousing
Public Warehousing
Total Cost
Private Warehousing
Fixed Costs
Volume of Throughput
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Factors Affecting theOwnership Decision
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Types of Public Warehouses

• General Merchandise
• Refrigerated
• Household Goods and Furniture
• Special Commodity
• Bulk Storage

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Legal Forms of Warehousing

• Uniform Warehouse Receipts Act
• Negotiable
• Non-negotiable
• Why would you use each?

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Factors Influencing Public Warehouse Rates

• Space basis per time period
• Product value
• Fragility
• Damage to other goods
• Volume and Regularity
• Weight density
• Services

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Example Services of Public Warehousing Operations

• Marketplace coverage
• Satisfy critical customer service or storage
  requirements
• Service parts distribution
• Break-bulk/broken case handling
• Reverse distribution/recalls/returns
• Cross-docking

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Interesting Examples of Public Warehousing

• Product has unique storage requirements
• Unique customer service demands
• Insurance policy wont permit storage in private
  warehouse (e.g., tires)
• Broken case handling needed.
• Products with high transportation costs for small
  orders
• Excess product from recalls

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Warehouse Costs

• Table 7-4
• Table 7-5

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What is Third Party Contract Logistics?

• Use of outside distribution companies (carriers,
  warehouses, or third-party freight managers) to
  perform all or part of a companys material or
  product distribution functions
• Transportation
• Storage
• Inventory control
• Customer service
• Logistics information networks

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Reasons for Using Contract Warehousing

• Seasonality
• Increase Geographic Coverage
• Flexibility in Testing New Markets
• Gain Management Expertise
• Permit Off-Balance-Sheet Financing
• Reduce Transportation Costs

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Logistics Costs Related to the Number of
Distribution Centers
Total Cost
Total Cost
Inventory Cost
Warehousing Cost
Transportation Cost
Cost of Lost Sales
Number of Distribution Centers
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Example Distribution Center
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DC Layout and Design Principles

• One-story best for distribution
• Straight-line flow when possible
• Use efficient materials handling equipment
• Maximize use of building height
• Aisle space to a minimum
• Item-location strategies
• Randomized vs. dedicated storage
• Complementarily
• Compatibility
• Popularity

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Increased Automationin DC Operations
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Technology in Warehousing, 1999
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Example Cracker Barrel DC

• Gift Shop items of 760m or 22 of rev.
• 100k items per day to 260k at Xmas peak
• 1 DC ships to 250 stores in 28 states
• 250k sq.ft. with 130k increase in 1997
• Equipment includes
• bar coding, conveyors, inv. system, high
  stackers, paperless pick system
• Stores items by size and popularity
• One story with aisles for fork lifts

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Overall Trends in Warehousing/DCs

• Expansion beyond traditional services
• Third party providers
• new and growing industry
• emphasis on dedicated/customized services
• Reduced labor intensity
• Integrate warehouse information systems into
  logistics information systems
• Emphasis on flexibility to changing market
  conditions