Warehousing Decisions

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Chapter 8

• Warehousing Decisions

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Contents Warehousing

• General concept of warehousing
• A) Deciding warehousing..
• B) Its environment
• Basic Warehouse Operations
• Warehouse Layout and Design
• Materials Handling

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1. Warehousing

• Why we need warehousing
• Warehousing provides time and place utility for
  raw materials, industrial goods, and finished
  products, allowing firms to use customer service
  as a dynamic value-adding competitive tool.
• In 1999, 75 billion, or 0.8 percent of GDP was
  spent on warehousing.
• The total supply of U.S. warehousing space in
  1999 was 6.1 billion square feet, an increase
  from 1990 of 700 million square feet of space.

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• A general environment of Warehouse in a business
  setting, how complex is it

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Logistics Profile Grainger Industrial Supply

• Grainger is dedicated to providing excellent
  customer service using an effective network of
  warehouses and distribution centers providing
  same day or next day service.
• 13.6 million square feet in one national
  distribution center, two regional and six zone
  distribution centers, and 373 local branches
• 1.5 million customers, 220k SKUs, 4.5 billion in
  sales, 60k to 80k daily customer orders

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The Role of the Warehouse in the Logistics
System A Basic Conceptual Rationale

• The warehouse is where the supply chain holds or
  stores goods.

• Functions of warehousing include
• Transportation consolidation
• Product mixing
• Cross-docking
• Service
• Protection against contingencies
• Smoothing

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A) Deciding warehousing..

• The role of warehousing in
• 1. Transportation
• Inbound Versus outbound logistics
• .see next slide
• 2. Supply and product mixing
• Product mix Versus Supply mix

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Figure 8-1Transportation Consolidation
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Figure 8-2Supply and Product Mixing
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Managerial Questions

• The ownership of Warehousing
• Shall we own or rent a warehouse, how to
  management them?
• Based on trade-off vlaue

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Basic Warehouse Decisions A Cost Trade-off
Framework

• 1. Ownership
• 1a Public versus 1b contract versus 1c private
• 2. Centralized or Decentralized Warehousing
• How many
• Location
• Size
• Layout
• What products where

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The Ownership Decision1a Versus 1c

• 1a. Public warehousing costs mostly all variable.
• 1c. Private warehousing costs have a higher fixed
  cost component.
• Thus private warehousing virtually requires a
  high and constant volume.

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The Ownership Decision 1a Vs 1c

• Other Factors to consider for 1a or 1c
• Throughput volume
• Stability of demand
• Density of market area to be served
• Security and control needs
• Customer service needs
• Multiple use needs of the firm
• Their characteristics see next slide

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Table 8-2 Firm Characteristics Affecting the
Ownership Decision
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1a Vs 1b

• characteristics of
• 1a Public Warehouse
• 1b contract Warehouse

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1a. Public Warehousing

• Rationale for Public Warehousing
• Limited capital investment
• Flexibility
• Public Warehousing Services
• Bonded warehousing tax/tariffs deferment pay only
  when ready to sell
• Field warehouses co uses inventory as a form of
  collateral for a loan
• its regulations rate based requirement
• next slide

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1a. Public Warehousing

• Public warehousing regulation
• Liability
• Receipts

• Public warehousing rates based upon
• Value
• Fragility
• Potential damage to other goods
• Volume and regularity
• Weight density
• Services required

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1b.Contract Warehousing

• Up 23 per year in 2000 to 20.4 billion.
• Compensation for seasonality in products.
• Increased geographical coverage.
• Ability to test new markets.
• Managerial expertise and dedicated resources.
• Less strain on the balance sheet.
• Possible reduction of transportation costs.
• Other issues discussed in Chapter 11.

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2a Centralized Vs 2b Decentralized Warehousing

• Their decision features include
• Substitutability alternative choices
• Product Value capital cost
• Purchase Size dimensional of goods
• Special Warehousing special facility
• Product Line special equipment?
• Customer Service of customer satisfaction
• See next slide for comparison .

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2a Centralized Vs 2b Decentralized Warehousing
Factor Centralized Decentralized
Substitutability Low High
Product Value High Low
Purchase Size Large Small
Special Warehousing Yes No
Product Line Diverse Limited
Customer Service Low High
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How many warehouses should we have?

• Their decision features include
• Inventory costs
• Warehousing costs
• Transportation costs
• Cost of lost sales
• Maintenance of customer service levels
• Service small quantity buyers
• Their comparison .

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The Number of Warehouses

• Factors Affecting the Number of Warehouses
• Inventory costs
• Warehousing costs
• Transportation costs
• Cost of lost sales
• Maintenance of customer service levels
• Service small quantity buyers

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• The logical flow for selecting type of
  warehousing..

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Figure 8-3Basic Warehousing Decisions
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B) Its environment

• B1. Basic Warehouse Operations
• B2. Warehouse Layout and Design
• B3. Materials Handling appendix
• B4. Packaging
• B5. Bar Codes

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B1. Basic Warehouse Operations

• Movement
• Receiving
• Put-away
• Order picking
• Shipping
• Storage
• Stock location
• Warehouse Management System (WMS)

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Figure 8-6 Basic Warehouse Operations
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Figure 8-7 The Computerized Warehouse
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B2. Warehouse Layout and Design

1. Develop a demand forecast.
2. Determine each items order quantity.
3. Convert units into cubic footage requirements.
4. Allow for growth.
5. Allow for adequate aisle space for materials
   handling equipment.

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B2. Warehouse Layout and Design

• 6. Provide for the transportation interface.
• 7. Provide for order-picking space.
• 8. Provide storage space.
• 9. Provide recouping, office, and miscellaneous
  spaces.
• see next slide for layout .

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Figure 8-8 Warehouse Space Requirements
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Principles of Warehouse Layout and Design

• Layout and Design Principles
• Use one story facilities where possible.
• Move goods in a straight-line.
• Use the most efficient materials handling
  equipment.
• Minimize aisle space.
• Use full building height.

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• Their level of significant

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Figure 8-9 Principles of Warehouse Layout
Design
Most Common Acceptable priority
(see next slide)
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The flow of Warehouse Layout and Design

• Basic needs
• Receiving
• Basic storage area
• Order selection and preparation
• Shipping

One dimensional design
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Warehouse Layout and Design Layout and Design
Objectives

• Cubic capacity utilization
• Max use od space
• Protection
• Stay away hazardous materials
• Efficiency
• 1 space, 2 labor cost
• Mechanization
• Automation vs obsolescence
• Productivity
• Materials/labor cost
• See next slide ..

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Table 8-4 Warehouse Productivity Metrics
Pound handled

• Pounds or units per day
• Employees per pound moved
• Pounds unloaded per hour
• Pounds picked per hour
• Pounds loaded per hour
• Percentage of orders correctly filled
• Productivity ratio pounds handled/day divided
  by labor hours/day
• Throughput amt of material moved through the
  system in a given time period

Labor cost
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B3. Materials Handling

• Definition Efficient short distance movement in
  or between buildings and a transportation agency.
• Four dimensions
• Movement
• Horizontal vs vertical
• Time
• Traveling time between locations
• Quantity
• How much can carry/various of goods
• Space
• Required space
• Coordination between all parties involved

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B3. Objectives of Materials Handling

1. Increase effective capacity see next slide
2. Minimize aisle space
3. Reduce product handling
4. Develop effective working conditions
5. Reduce heavy labor
6. Improve logistics service
7. Reduce cost

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Figure 8-12 Utilization of a Warehouses
Cubic Capacity Principles of Warehouse Layout
Design
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B3. Guidelines and Principles for Materials
Handling

• To effectively plan and control materials
  handling, the logistics manager should recognize
  some guidelines and principles.
• Table 8-5 lists 20 of the most commonly accepted
  principles of effective materials handling.
  Asterisks mark those deserving special attention.
  . See next slide.

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Table 8-5 Principles of Materials Handling
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B4. Packaging

• Interest in packaging is widespread
• 1. Logistics
• Warehousing
• Transportation
• Size
• 2. Marketing attractiveness
• 3. Production related costs on how goods are
  placed
• 4. Legal confine with env. Rules and regulations

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B4. The Role of Packaging

• Identify product and provide information
• Make it more appearing to customers
• Improve efficiency in handling and distribution
• physical dimensions, strength, shapes
• Customer interface
• Integrate/compatible with customers handling
  systems
• Protect product
• Adequate of product production

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What Is Packaging?

• 1. Consumer packaging
• Marketing managers primarily concerned with how
  the package fits into the marketing mix.
• 2. Industrial packaging
• Logistics managers primarily concerned with
  efficient shipping characteristics including
  protection, ability to withstand stacking when on
  a pallet, cube, weight, shape and other relevant
  factors.

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Packaging Materials

• Table 8-6 presents a comparison of various
  packing material characteristics.
• Basic considerations include
• Soft materials
• Plastic
• Environmental issues
• Recycling (reverse logistics)

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Table 8-6Comparison of Cushioning Materials
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B5. Bar Coding

• Standard markings that can be read by automatic
  or handheld scanners that allow for labor saving
  logistical activities for all supply chain
  members.
• Bar Codes contain information regarding
• Vendor
• Product type
• Place of manufacture
• Product price
• An important system for SCM
• environment

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Chapter 8 Summary and Review Questions

• Students should review their knowledge of the
  chapter by checking out the Summary and Study
  Questions for Chapter 8.

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Table 8-1Warehouse Value-Adding Roles
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End of Chapter 8 and 8A Slides

• Warehousing Decisions