WAREHOUSING

10-1

Is it only a storage facility?

 A warehouse is typically viewed as a place to store inventory.  However, in many logistical system designs, the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility.

10-2

Evolution of strategic warehousing

   Warehouses were once viewed as a necessary evil, used to coordinate product supply with customer demand The explosion of the consumer economy after WWII saw the rise of distribution networks for consumer goods Warehousing shifted from passive storage to strategic assortment 10-3

Warehousing contributes value in the logistics process

  Traditionally viewed as a place to hold or store inventory Contemporary view is the warehouse functions to mix inventory assortments to meet customer requirements – Storage of products is held to a minimum 10-4

Warehousing types evolved to accommodate the dynamic aspects

 Distribution centers  Consolidation terminals  Break-Bulk facilities  Cross-docks 10-5

Warehouse operations involve two major activities – handling and storage

  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 10-6

Consolidation Warehouses

10-7

Consolidation

Consolidation

 Shipment consolidation is an economic benefit of warehousing.

 With this arrangement,

the consolidating warehouse receives and consolidates materials from a number of manufacturing plants destined to a specific customer on a single transportation shipment.

  The benefits are the realization of the lowest possible transportation rate and reduced

congestion

at a customer's receiving dock .

Deliver at a less congested time in urban environment 10-8

Challenges faced in the urban environment

10-9

Consolidation Warehouses …

 The primary benefit of consolidation is that it combines the logistical flow of several small shipments to a specific market area.  Consolidation warehousing may be used by a single firm, or a number of firms may join together and use a for-hire consolidation service.

a customer could place and order on ebay and expect it to be received together. The role of ebay regional warehouse will be to combine several orders and deliver it to the desired customer.

 Through the use of such a program, each individual manufacturer or shipper can enjoy lower total distribution cost than could be realized on a direct shipment basis individually.

10-10

Break bulk warehouses

10-11

Break bulk warehouses

    Break bulk warehouse operations are similar to consolidation except that no storage is performed. A break bulk operation receives combined customer orders from manufacturers and ships them to individual customers.

The break bulk warehouse sorts or splits individual orders and arranges for local delivery.

Because the long-distance transportation movement is a large shipment, transport costs are lower and there is less difficulty in tracking. 10-12

City Logistics

DC Central City

Consider a city environment – Where would break bulk and consolidation operations would fit in the city environment ?????

10-13

Processing/Postponement

 Warehouses can also be used to postpone, or delay, production by performing processing and light manufacturing activities.

 A warehouse with packaging or labeling capability allows postponement of final production until actual demand is known.  For example, vegetables can be processed and canned in "brights" at the manufacturer.  Brights are cans with no pre-attached labels.

Impact of postponement on maintenance cost

10-14

Processing/Postponement …

 The use of brights for a private label product means that the item does not have to be committed to a specific customer or package configuration at the manufacturer's plant.  Once a specific customer order is received, the warehouse can complete final processing by adding the label and finalizing the packaging.

10-15

Processing/Postponement …

 Processing and postponement provide two economic benefits:  First, risk is minimized because final packaging is not completed until an order for a specific label and package has been received.  Second, the required level of total inventory can be reduced by using the basic product (brights) for a variety of labeling and packaging configurations. 10-16

Stockpiling

    The economic benefit of stockpiling comes from the need of seasonal storage. Stockpiling could be done regular basis for round the year used products .

It could also be done before market demand for a certain product picks up Stockpiling requires space and adds cost burden on an organization

LAWN FURNTIRUE VS AGRICULTURE PRODUCTS

10-17

Strategic warehousing can provide both economic and service benefits

 

Economic benefits

occur when overall logistics costs are reduced of warehousing – – – – Consolidation and break-bulk Sorting Seasonal storage Reverse logistics

Service benefits

improvements that more than offset added cost are justified by sales 10-18

Sorting involves reconfiguring freight as it flows from origin to destination

10-19

Cross-docking is used extensively by retailers to replenish store inventories



Cross-docking

combines inventory from multiple

DELL WHERE IT

origins into a pre specified assortment for a specific customer

ASSEMBLES PC’S FOR ITS CUSTOMERS

10-20

Successful cross-docking is highly dependent on information technology

   Products are received, selected, repackaged, and loaded for shipment w/o storage – Used with general merchandise & food Enabled by conveyors & sortation equipment Used in large distribution centers (800K to 1,200K sq.ft.)

WalMart Distribution Center

10-21

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



Mixing

combines inventory from multiple origins (like cross-docking) but also adds items that are

Incase of Dell if a customer ask For additional accessories Along with main order this could be done in a mixing warehouse

. regularly stocked at the mixing warehouse Stock Inventory 10-22

Seasonal storage provides direct benefit by accommodating production or demand

   Seasonal production include agricultural products Seasonal demand includes lawn furniture and toys Seasonal storage allows production efficiencies within the constraints of seasonality 10-23

Service Benefits

 Five basic service benefits are achieved through warehousing: – spot stock, – assortment, – mixing, – production support, and – market presence. 10-24

Spot Stock

  Under spot stocking, a

selected amount

of a firm's

product line

is placed or "spot stocked" in a warehouse to fill customer orders during a

critical

marketing period.

In particular, manufacturers with limited or highly seasonal product lines are partial to this service.

 Rather than placing inventories in warehouse facilities on a year-round basis or shipping directly

from

manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets. 10-25

Spot Stock …

 Utilizing warehouse facilities

for

stock spotting allows inventories to be placed in a variety of markets

adjacent to key customers

just prior to a maximum period of seasonal sales.

 Suppliers of agricultural products to farmers often use spot stocking to position their products closer to a service-sensitive market during the growing season.

 Following the sales season, the remaining inventory is withdrawn to a central warehouse.

10-26

Assortment

    An assortment warehouse stocks product

combinations

anticipation of customer orders. in The assortments may represent multiple products

from

different manufacturers or special assortments as specified by customers. In the first case,

for

example, an athletic wholesaler would stock products from a number of clothing

suppliers

so that customers can be offered assortments. In the second case, the wholesaler would create a specific team uniform including shirt, pants, and shoes.

10-27

Assortment vs. Spot Stock

    The differential between stock spotting and complete line assortment is the degree and duration of warehouse utilization. A firm following a

stock spotting

would typically warehouse a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets

for

a

limited

time period. Distribution

assortment

warehouse usually has a

broad

product line, is limited to a

few

strategic locations, and is functional year-round.

The combined assortments also allow larger shipment quantities, which in turn reduce transportation cost.

10-28

Mixing

    In a typical mixing situation, truckloads of products are shipped from manufacturing plants to warehouses. Each

large

rate. shipment enjoys the lowest possible transportation Upon arrival at the mixing warehouse, factory shipments are unloaded and the desired

combination

of each product for each customer or market is selected. When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing. 10-29

Production Support

 Production support warehousing provides a steady supply of components and materials to assembly plants.  Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage.  The operation of a production support warehouse is to supply or "feed" processed materials, components, and subassemblies into the assembly plant in an economic and timely manner.

10-30

Market Presence

 While a market presence benefit may not be so obvious, it is often cited by marketing managers as a major advantage of local warehouses. 

The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses.

 As a result, it is also thought that a local warehouse will enhance market share and potentially increase profitability. 10-31

Reverse logistics processing

 Reverse logistics include activities supporting – – – – – Returns management  Recalls or product that did not sell Remanufacturing and repair  Repairing/refurbishing equipment Remarketing  Selling used equipment Recycling Disposal 10-32

Illustration of reverse logistics flow

10-33

Handling



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 10-34

Storage plans should make product velocity a major factor

 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 10-35

Illustration of storage plan based on product movement velocity

High-volume product is placed near the cross-docking area

10-36

Warehouses must manage two classes of storage

 

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 10-37

Warehouse ownership arrangements

 

Private

—warehouse operated by the firm owning the product – Building may be owned or leased

Public

—service company owns warehouse and hires out space and services – Usually classed as     General merchandise Refrigerated Special commodity Household goods and furniture 10-38

Contract warehousing combines elements of private and public operations

 Usually a long-term relationship or

contract

between a firm and the warehousing owner/operator – – – Long-term cost savings compared with public warehouse Often a firm’s employees will work alongside the contract warehouse’s Example is Kraft Foods who has contracted with AmeriCold Logistics since the 10-39

Network deployment is the combination of private, public and contract facilities used by a firm

  Network deployment strategy requires answering two questions – – How many warehouses should be established?

Which warehouse ownership types should be used in specific markets?

For example, when warehouse utilization is not full throughout the year – – Use private or contract warehouse to cover 75 percent requirement Public facilities used to accommodate peak demand 10-40

Warehouse decisions that determine handling and storage efficiency

           Site Selection Design Product-Mix Analysis Expansion Materials Handling Layout Sizing Warehouse management system Accuracy and audit Security Safety and maintenance 10-41

Site selection is driven by service availability and cost factors

   Identify broad geography where an active warehouse meets service, economic and strategic requirements Selection and number of retail outlets drives location of support warehouses Final selection should be preceded by extensive analysis 10-42

Illustration of straight-line product flow to facilitate velocity

Figure 10.4 Basic Warehouse Design

10-43

Warehouse management systems encourage best practices

 

Warehouse management systems (WMS)

integrate procedures and software support to standardize storage and handling work procedures One main use of WMS is to coordinate order selection –

Discrete selection

selected and prepared for shipment as a single work assignment is when a specific customer’s order is –

Wave or batch selection

through zones of the warehouse assigned to specific employees is when orders are processed 10-44

Illustration of the range of activities coordinated by an advanced WMS

Figure 10.6 Warehouse Management System Functionality

10-45

Other warehouse planning issues

   Inventory

accuracy

is typically maintained by annual physical counts or counting portions of inventory on a planned basis –

Cycle counting

is the audit of selected inventory on a cyclic schedule

Audits

are common to maintain safety, assure compliance to regulations and help improve procedures

Security

issues involve protection from pilferage and damage 10-46

Safety and maintenance issues must also be considered when planning warehouse designs

   Accident prevention – Comprehensive safety programs and training, accident investigation and follow up Environmental protection – Spill kits and spill plans ( oil absorbers ) Maintenance – Scheduled maintenance of building, material handling equipment, and collision damage prevention 10-47

ISSUE OF LAST MILE Freight Tonnage Increases by 2020 EU 70% by 2020 USA similar World container traffic 8% p.a. growth All culminate in a “last mile”

10-48

What is the future of warehouse management?

 Will warehouses grow smaller in the future?

– Offer a wider range of services?

 – Will final assembly of goods be increasingly done in warehouses?

What is your solution to the “challenge of the last mile” posed by Dr. Patrick Dixon?

– Video link (7:45 min.) http://www.youtube.com/watch?v=ZbPMaxNl3J4 10-49