Chapter 9: Warehousing

Public Warehouses

- A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally from 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. - Fees will vary based on what is being stored and/or based on: - Size and weight of the pallets - If they can be stacked - How fragile the product is - Value of goods (risk of theft) - Hazards associated with the goods - They may also have some document fees and account management fees

Warehouse

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

Sorting: Assembly

- Assembly supports manufacturing operations - 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

Contract Warehouse Disadvantages

- Duration: The client company is expected to enter into a contract for a specific period of time; generally three years

Fulfillment Centers

- Dynamic Cross-docking - Mixed Mode Fulfillment - Multi-channel including On-line Fulfillment - Distributed Order Management - Green Operations (e.g., end of product life disposition, recycling, reclamation)

Warehousing

- Function that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer - Decisions driving warehouse management include site selection, the number of warehouse facilities in the network, the layout of the warehouse(s), and the methods of receiving, storing, retrieving, and distributing products and materials

Handling

- Handling must optimize movement continuity and efficiency - 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 - Typically, these activities require the use of material handling equipment, e.g., lift trucks, conveyors, etc

Quality Inspections

- Incoming and outgoing

Cross-Docking Advantages

- 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

Shipping

- Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment

Receiving

- Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports

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

Traditional Warehouses

- Receiving - Put-away - Storage Operations - Picking - Packing - Shipping

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: 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

Distribution Centers

- Scheduled Cross-docking - Special Handling - Kitting Operations - Returns Handling - "Postponed" Manufacturing Steps - Other value added services

Service Benefits of Warehousing

- Spot-stocking is 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. See list of value-added services on the next slide

Storage

- Storage plans should consider product velocity as a major factor in determining the warehouse layout. - It is essential that products be assigned a 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

Seasonal Storage

- Storage provides direct benefit by accomdoatig seasonal demand and/or production: - Accommodates seasonal demand such as lawn furniture and toys - Accommodates seasonal production such as agricultural products - Storage provides and inventory buffer, which allows production efficiencies within the constraints imposed by material sources and consumers

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 - Requires strategically located warehouses across the globe - An important goal in warehousing is to maximize flexibility - Respond to ever-changing customer demand - Product assortments - Value-added services - Shipment sequencing - Strategic warehousing can provide both economic and service benefits: - Economic benefits of warehousing occur when overall logistics costs are reduced: 1. Consolidation and break-bulk 2. Sorting 3. Seasonal storage 4. Reverse logistics - Service benefits are justified by sales improvements that more than offset added cost: 1. Spot-stocking 2. Full line stocking 3. Value-added services

Sorting

- The basic benefit of sorting is to reconfigure freight as it is being transported from origin to destination - Three basic types sorting: 1. Cross-docking 2. Mixing 3. Assembly

Sorting: Cross Docking

- 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 - Note: Suppliers and Customers can be internal or external

Storage

- The safe and secure retention of parts or products for future use or shipment.

Sorting: Mixing

- Usually performed at an intermediate location between origin and destination, such as a cross-docking operation - Combines inventory from multiple origins (like cross-docking) but also add items that are regularly stocked at the mixing warehouse

Break-Bulk

- Warehouse operation that divides full truckloads of items from a single source or manufacturer into smaller, more appropriate quantities for use or further distribution - Located closer to the customer base so that the smaller LTL shipments travel the shorter distance, while the larger FTL shipments from the single source travel the longer distance before arriving at the break-bulk

Assembly Operation

- Warehouse operation that puts products together with other items/components before shipping them out to the final customer - Examples: 1. Literature 2. Spare parts 3. Advertising materials

Consolidation

- Warehouse operation that receives products from different plants or suppliers, sorts them, and then combines them with similar shipments from other plants or suppliers for further distribution - Located closer to the supply base so that smaller LTL shipments travel shorter distance and can be consolidated into larger FTL shipments traveling longer distance to the customer

Warehouse Operations

- 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

Storage Alternatives

- 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

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

Warehousing Value

- Warehousing contributes value in the logistics process - Traditional view: a place to hold or store inventory - Contemporary view: the warehouse functions to mix inventory assortments to meet customer requirements - Storage of products is held to a minimum - Storage of inventory is waste in the LEAN warehouse

Warehousing Types

- Warehousing types evolved to accommodate dynamic aspects of logistics - Distribution centers - Consolidation terminals - Break-Bulk facilities - Cross-docks

Picking

- Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer

Repackaging

- for specific customer orders

Private Warehouses

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. Can be operated as a separate division within a company Can be co-located on-site with manufacturing, or off-site

Contract Warehouses

A variation of public warehousing that handles the shipping, receiving, and storage of goods on a contract basis 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 The fee structure may be fixed cost, cost-plus, or a combination of both. The company providing the space handles the employees, equipment, and maintenance.

Warehouse Network

A warehouse network is simply the number of, and the relationship between, the warehouses that a company has in their organizational structure. The fundamental questions to be answered in establishing a warehouse network are: How many warehouses does the company need? Where should they be located? 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 and (2) the amount of inventory the company is willing to invest in

Market Positioned Strategy

Close to customers to maximize distribution services and improve delivery. Few suppliers; many customers

Product Positioned Strategy

Close to supply source to collect goods and consolidate before shipping products out to customers. Many suppliers; few customers

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.

Private Warehouses 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.

Warehouse Network: Hybrid Approach

Hybrid Approach - Companies may choose to do some type of a hybrid approach to balance costs and inventory against customer service. 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 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.

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

Intermediately Positioned Strategy

Midway between supply source and customers, when distribution requirements are high and product comes from various locations Relatively equal number of suppliers and customers

Warehouse Network: Multiple Warehouses

Multiple Warehouses (versus single warehouse) 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.

Advantages of Public Warehouse

No capital investment or property taxes Flexibility: Can be short or long term contract For seasonal products Add storage capacity even on short notice Lower costs and reduced risk Access to special features and services: Temperature-controlled storage Customer Service, Inventory Ordering, etc. Office space for customer's sales, accounting, etc.

Disadvantages of Public Warehouses

Potential for incompatible computer systems Specialized services may not be what is required/needed Space may not be available when/where needed

Warehouse Designs

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 Maintenance Scheduled maintenance of building, material handling equipment, and collision damage prevention

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

Warehouse Network: Single Warehouse

Single Warehouse (versus multiple warehouses) 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: However, the centralized network may take longer to deliver product to some customers who are remote from the central location

Warehouse Management Systems

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 is when a specific customer's order is selected and prepared for shipment as a single work assignment Wave or batch selection is when orders are processed through zones of the warehouse assigned to specific employees

Handling and Storage Efficiency

Warehouse decisions that determine handling and storage efficiency Site Selection Design Product Mix Expansion Material Handling Layout Sizing Warehouse Management System Accuracy and Audit Security Safety and Maintenance