Business Logistics and Transportation Ch. 9 (McLaury)

Warehousing adds value in customer service by facilitating:

-High Inventory Availability -Shorter Response Times -Value-added Services -Returns -Customization -Consolidation

Site Selection Criteria

-Location of the major markets -Nature of the products being distributed -Quality and variety of carriers serving the site -Quality and quantity of labor available -Cost of industrial land -Cost of construction -Cost and availability of utilities -Local tax structures -Any local government tax concessions or incentives -Potential for expansion

Secondary Functions of a Warehouse

-Quality Inspections: incoming and outgoing. -Repackaging: for specific customer orders. -Assembly Operation: Warehouse operation that puts products together with other items/components before shipping them out to the final customer (Examples: Literature, Spare Parts, Advertising Materials).

Decisions driving Warehouse Management include:

-Site Selection -Number of warehouse facilities in the network -Layout of the warehouse(s) -Methods of receiving, storing, and distributing products and materials

Service Benefits of Warehousing

-Spot-stocking: the positioning of inventory for seasonal or promotional demand -Full Line Stocking: provides one-stop shopping capability for goods from multiple suppliers -Value-added Services: include any work that creates a greater value for customers

Reasons for Warehousing

-To support the company's customer service policy -To maintain a source of supply without interruptions -To achieve transportation economies -To support changing market conditions and sudden changes in demand -To support any JIT programs -To ensure the least logistics cost for a desired level of customer service

Advantages of Cross-Docking Warehouses

-Transportation Cost Savings: 8 FTL Shipments are less expensive per unit than 16 LTL Shipments. -Operational Efficiency: Warehouse operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping. -Inventory Efficiency: As there is no storage at the warehouses, total inventory in the supply chain can be reduced.

Types of Warehouses

1. Distribution Center 2. Consolidation Warehouse 3. Break-bulk Warehouse 4. Sorting Warehouse

Warehousing and their associated inventories facilitate:

1. Production economies of scale. 2. Optimization of factory utilization via seasonal inventory builds. 3. Mitigation of supply chain and business risk by holding contingency and disaster inventory.

Types of Warehouse Ownership

1. Public Warehouses 2. Contract Warehouses 3. Private Warehouses

Primary Functions of a Warehouse

1. Receiving: Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports. 2. Storage: The safe and secure retention of parts or products for future use or shipment. 3. Picking: Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer. 4. Packing: Placing one or more items of an order into an appropriate container for safe shipping , and marking and labeling the container with customer shipping destination data, and other information that may be required. 5. Shipping: Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.

Trade-offs that will determine how many warehouses the company needs and where they should be located are:

1. The level of customer service the company wants to provide 2. The amount of inventory the company is willing to invest in

Public Warehouse

A business that provides storage and related warehouse functions to companies on a short or long-term basis for a fee; generally month-to-month. -Own their own equipment and hire their own staff to manage the facility. -Fees are typically a combination of a monthly storage fee plus a pallet-in fee and a pallet-out fee.

Private Warehouse

A storage facility that is owned by the company that owns the goods being stored in the facility. -Generally established by companies that have a large volume or highly valuable goods, or the need for some type of specialized storage or handling.

Contract Warehouse

A variation of public warehousing that handles the shipping, receiving, and storage of goods on a contract basis for a fee. -The contract can be for an entire building, or for a defined portion within a building. -Usually requires a client to commit to services for years rather than months.

Warehouse Network

A warehouse network is simply the number of, and the relationship between, the warehouses that a company has in their organizational structure. When establishing a warehouse network, the essential questions to be answered are: 1. How many warehouses are needed? 2. Where should they be located?

Warehouse Designs

Accident prevention: Comprehensive safety programs and training, accident investigation and follow up Environmental protection: Spill kits and spill plans Maintenance: Scheduled maintenance of building, material handling equipment, and collision damage prevention

Storage Alternatives

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

Advantages vs. Disadvantages of Private Warehouses

Advantages: -Control: Offers greater flexibility in designing the warehouse and gives users significant control over operations. -Visibility: inventory, material flow, handling, supervision, and associated costs. -Cost: Operating cost can be 15% - 25% lower if the company achieves at least 75% utilization. Disadvantages: -High Start-up Cost: Capital to build or buy a warehouse. Long, risky investment. -Cost of hiring and training employees. --Purchase of material handling equipment. -Fixed Location: Not easy to move to another location if the market changes. -Fixed Size and Costs: When volume is low, the company still assumes the fixed costs.

Advantages vs. Disadvantages of Public Warehouses

Advantages: -No capital investment or property taxes -Flexibility -Lower cost and reduced risk -Access to special features and services Disadvantages: -Potential for incompatible computer systems -Specialized services may not be what is required/needed -Space may not be available when/where needed

Advantages vs. Disadvantages of Contract Warehouses

Advantages: -Services: client can obtain specialized services tailor-made to suit their needs. -Cost: can be bundled in the contract and negotiated at a lower cost. -Control: contract warehousing offers a degree of control at a reasonable price Disadvantages: -Duration: The client company is expected to enter into a contract for a specific period of time; generally three years.

The Value of Warehousing

By holding inventory and postponing customization, overall inventory levels may be reduced. As the physical facility closest to the customer location, a warehouse is also a natural place to: -customize -kit -assemble products in accordance with the principle of postponement, minimizing overall inventory investments throughout the logistics network by delaying customization.

Mixing Warehouse

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

Storage

Considers product velocity as a major factor in determining the warehouse layout. It is essential that products be assigned specific locations in the warehouse called slots. Slotting determines specific locations for the product based on: -Velocity: how fast the goods move -Weight: how heavy is the product -Special Storage Requirements: how large or small, does it require rack or bin storage

Distribution Center

Distribution centers are located much closer to the customer base than are plant warehouses. -They typically receive product from many plant warehouses. -Goods are generally received in large quantities, stored briefly, and then broken down into smaller orders of different items required by the customer. -Emphasis is on expediting movement and handling. -They serve customers with same-day or next-day delivery.

Economic and Service Benefits

Economic benefits of warehousing occur when overall logistics costs are reduced: -Consolidation and break-bulk -Sorting -Seasonal storage -Reverse logistics Service benefits are justified by sales improvements that more than offset added cost: -Spot-stocking -Full line stocking -Value-added services

Warehouse

Facility used to store purchases, work-in-process (WIP), and finished goods inventory.

Warehousing

Function that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer.

Other Warehouse Operating Decisions

Inventory Accuracy: typically maintained by annual physical counts or counting portions of inventory on a planned basis -Cycle Counting: the audit of selected inventory on a cyclic schedule Safety Audits: common to maintain safety, assure compliance to regulations and help improve procedures Security Measures: involve protection from pilferage and damage

Principles of Warehouse Layout Design

Layout of a warehouse depends on the proposed material handling system and requires development of a floor plan to facilitate product flow. Other layout principles include: -Use one-story facilities -Move goods in a straight line whenever possible -Use efficient materials-handling equipment -Use an effective storage plan -Minimize aisle space -Use the maximum height of the building

Assembly Warehouse

Occurs when products or components from 2nd Tier suppliers are assembled by a warehouse located near the manufacturing plant. Common assembly processes are packaging and color customizing

Warehouse Network: Hybrid Approach

One hybrid network is a "hub-and-spoke" where there is a centralized warehouse (i.e., the "hub") which holds most of the inventory linked to a series of smaller geographically dispersed warehouses (i.e., the "spokes") which hold only a small amount of inventory to support their local area in the immediate time frame The hub warehouse feeds the spoke warehouses with inventory as necessary on a regular basis. Operating costs are lower because the spoke warehouses are smaller than in a purely decentralized model. Inventory is also lower as all of the safety stock is held centrally, which generally means that less total safety stock is required because all of the risk and uncertainty is managed centrally. Customer service is generally better than in a purely centralized model since some of the inventory is maintained closer to the customer.

Handling

Optimizes movement continuity and efficiency through: -Receiving: unloading the arriving vehicles -In-Storage: moving goods within the warehouse for storage (transfer) or order selection (picking). Items may be moved to a staging area in preparation for shipping -Shipping: verifying the order and loading the departing vehicles

Positives and Negatives of a Single Warehouse

Positives: -Less complicated -Operating costs and inventory will be lower -No duplication of equipment, warehouse staff, and managers -Network will be centralized and the company will have its best people, equipment and inventory systems concentrated in one place. -Warehouse can more actively focus on the needs of its customers. Negatives: -The single warehouse (i.e., centralized network) may take longer to deliver product to some customers who are remote from the central location.

Positive and Negatives of Multiple Warehouses

Positives: -Potentially faster delivery to customers from a decentralized network that is geographically dispersed throughout the market, assuming adequate inventory in each warehouse Negatives: -More complicated -Operating costs and inventory will be higher as each warehouse costs money to staff and operate. Duplication of equipment, warehouse staff, and managers -Network will be decentralized and the company will have to spread its best people, equipment and inventory systems across a larger network

Economic Benefit: Through Reverse Logistics

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: Returning product following its useful life with the objective of decomposing it into it component materials so they can be effectively reused -Disposal: for materials which cannot effectively be reused

Economic Benefit: Through Seasonal Storage

Storage provides direct benefit by accommodating seasonal demand and/or production: -Accommodates seasonal demand such as lawn furniture and toys -Accommodates seasonal production such as agricultural products

Strategic Warehousing

Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials. Warehousing is integral to just-in-time (JIT) and stockless production strategies. An important goal in warehousing is to maximize flexibility.

Sorting Warehouse

The basic benefit of sorting is to reconfigure freight as it is being transported from origin to destination. Three types: -Cross-docking -Mixing -Assembly

Cross-Docking Warehouse

The logistics practice of unloading materials from an incoming truck or railcar and loading these materials directly onto outbound trucks or railcars, with little or no storage in between to reduce inventory investment and storage space requirements. The main reasons that cross docking is implemented is to: 1. Provide a central site for products to be sorted and combined for delivery to multiple destinations in the most productive and fastest method possible. 2. Consolidate: Combine smaller product loads into one method of transport to save on transportation costs. 3. Break-Bulk: Break down large product loads into smaller loads for transportation for an easier delivery process to the customer.

Traditional View: Storage

The main function of a warehouse in the traditional view is to store materials and products. Personnel involved in the operations of a warehouse must consider many factors when they contemplate where to store materials. The questions that must be asked and answered are: 1. What is the physical size of the material being stored? 2. How much does the material weigh? 3. How often will the material need to be accessed? 4. Does the material need to be co-located with other materials because they will be sold or used together? 5. Does the material have a shelf-life or use-by date? 6. Is the material stored in a form, such as a unit or palletized load, that will need to be broken down and stored in smaller quantities? 7. Are there environmental considerations, such as protection from the elements including extreme temperatures to consider? 8. Is the material hazardous, or does it need other safety considerations? 9. Is the material in need of special packaging?

Today's Challenges

To respond to the challenges presented by e-commerce demands, the need for rapid response, and globalization, today's warehouses are being asked to: -Execute more and smaller transactions -Handle and store more items -Provide more product and service customization -Offer more value-added services -Process more returns -Receive and ship more international orders At the same time, warehouses today have: -Less time to process an order -Less margin for error -Less skilled workers -Less warehouse management system capability

Traditional vs. Contemporary Warehousing

Traditional view: a place to hold or store inventory. Was viewed as a destination Contemporary view: the warehouse functions to mix inventory assortments to meet customer requirements. Now a temporary stop along the way

Warehouse Management Systems

Warehouse Management Systems (WMS) integrate procedures and software support to standardize storage and handling work procedures. -Discrete Selection: when a specific customer's order is selected and prepared for shipment as a single work assignment -Wave or Batch Selection: when orders are processed through zones of the warehouse assigned to specific employees

Break-bulk Warehouse

Warehouse operation that divides full truckloads of items from a single source or manufacturer into smaller, more appropriate quantities for use or further distribution.

Consolidation Warehouse

Warehouse operation that receives products from different plants or suppliers, stores them, and then combines them with similar shipments from other plants or suppliers for further distribution.

Basic Warehouse Operations

Warehouse operations involve two basic 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.

Market Positioned Strategy

Warehouses are set up close to customers to maximize distribution services and improve delivery. Companies use this strategy when they have many more customers than suppliers, and the customers are spread out geographically around the market. If the warehouses are closer to the customers the company can minimize transportation cost.

Product Positioned Strategy

Warehouses are set up close to supply sources to collect goods and consolidate before shipping products out to customers. Companies use this strategy when they have many more suppliers than customers. If the warehouses are closer to the suppliers the company can minimize transportation cost.

Intermediately Positioned Strategy

Warehouses are set up somewhere midway between the supply sources and the customers to try to balance costs, inventory and customer service. This strategy is used when distribution requirements are high and product comes from various supply locations. A warehouse network optimization study may be needed to determine the optimal number and location of warehouse in this strategy.

Contemporary View: Storage

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 a strategic operation.