2Warehousing

Logistics and Physical Distribution PART I Warehousing 1.Decisions • Strategic Level: n Allocation of logistics resources over an extended time n Support enterprise policies and objectives n e.g., choice of a warehousing logistics system design n e.g., consolidation of branch warehouses into a regional DC • Operational: n Manage or control logistics performance n Routine decisions n One year or less Has more certainty than n strategic decisions n e.g how to utilize labor in the shipping department 2.Uses of Warehousing • Manufacturing support n Warehouses often play as consolidation points n Raw materials from suppliers are shipped to a warehouse, consolidated, and then shipped to the manufacturing plants • Outbound consolidation n Truckload (TL) or carload (CL) shipments are made to a central warehouse n Warehouse consolidates or combines products from various plants into a single shipment to the customer • Breakbulk Shipment at the warehouse is broken down into smaller shipments which are then sent to customers in different places 3 Important Relationships • Warehousing andtransportation n Economies ofscale Small orders from a number of suppliers may be shipped to a warehouse near the supply Benefit? The producer can achieve a TL or CL shipment to the plant, which is normally situated relatively far away from the warehouse 3.Important Relationships Warehousing and production Short production runs (e.g hour) with relatively small amount of outputs minimize the amount of inventory but they carry increased setup cost and cost of “line change” (change of production line) Long production runs (e.g 12 hours) with large amount of outputs result in lower the per-unit production cost (ref: line change and setup costs) but they require more inventory and hence increasing the warehouse requirements Quantity discount: A larger order quantity, a higher discount Keep more in warehouse 3 Important Relationships • Warehousing andcustomer service Quickdelivery standard : n Requires manyfieldwarehouses Avoiding stockout : n Demand uncertainty (customers ) Latearrivalof supplies ? (manufacturers ) u u Warehousing and least total cost n Using warehousing to accomplish least total cost logistics at a certain level of customer service Types of Warehousing Crossdocking “Distribution mixing centers” n Not for storage, immediately break down and mix the shipments Contract warehousing n A long term mutually beneficial arrangement which provides unique and specially tailored warehousing and logistics services to a client 4 Types of Warehousing Private warehousing n Owning the warehouse All costs within this system are internal company costs, provided that handling equipment is not leased or rented Owning both warehouse and equipment introduces a substantial fixedcost level, especially when the storage system is an automated handling storage system (e.g., computer supported technologies) Seasonal variations in warehouse usage cause capacity under and overutilization 4 Types of Warehousing Public warehousing n Do not own the warehouse No fixed investment: can be preferred when a firm has other preferred uses of the capital or simply does not have the capital to invest in this manner Lower costs: when the utilization of private space is low, as when seasonable inventories must be stored With the exception of a few states (e.g., Washington and Minnesota) where public warehouse rates are disclosed to the public, warehouse rates are confidential Classification of public warehousing : Types of Warehousing Commodity warehouses Limit services to storing and handling certain commodities; n Such as cotton, tobacco, grain, and other products are easily spoil Bulk storage warehouses n Offer storage and handling of products in bulk Such as liquid chemicals, oil, highway salt, and syrups Also mix products and break bulk as part of their service Temperature-controlled warehouses n Control the storage environment Both temperature and humidity may be regulated Perishables, such as fruits, vegetables, and frozen foods, as well as n comechemicals anddrugs Types of Warehousing Classification of public warehousing: Household goods warehouses n Storage and handling of household items and furniture Although furniture manufacturers may use these warehouses, the major users are the household goods moving companies Central merchandise warehouses n The most common type Handle a broad range of merchandise Usually does not require the special facilities or the special Types of Warehousing Classification of public warehousing: Mini warehouses n Small warehouses Having unit space from 20 to 200 square feet n Often grouped together in clusters n Intended as extra space, and few services are provided n Convenient location to renters is an attraction But security may be a problem Extension: virtual warehousing: Types of Warehousing Virtual warehouses n Virtual inventories: Not all items for sale are stocked in a company’s warehouse Instead, selected items are shipped directly to the customers from the suppliers or vendors with no intention of a company stocking them Basic Functions Movement n activities: Receiving, transfer, order picking, cross-docking, shipping Storage Temporary storage: Emphasizes the movement function of the warehouse and includes only the storage of product necessary for basic inventory replenishment n Semipermanent storage: Storage of inventory in excess of the required quantity for normal replenishment (e.g safety stock) Reasons: Seasonal demand, special deals in quantity discount, conditioning of products Basic Functions Information transfer Companies need information: Inventory levels, throughput levels (the amount of product moving through the warehouse), stock-keeping locations, inbound and outbound shipments, customer data, facility space utilization, etc Use of computerized information transfer via EDI and bar coding to improve the speed and accuracy of information transfer 6.Inefficiencies Examples of warehousing inefficiencies? 7.Progression of Warehousing Decisions Should warehousing be used? What forms of warehousing should be used (public or private)? What should be the size and number of warehouses utilized? Where should warehouses be located? What warehouse layout and design approach should be followed? What forms of warehousing should be used – public warehousing (PuW) vs private warehousing (PrW) (1) Advantages of PuW Conservation of capital Ability to adjust for seasonality Reduce risk Economies of scale • Specific knowledge of costs for storage and handling (2) Disadvantages of PuW • Communication problems • Lack of specialized services • Shortage of space • Control • Less costly over the long term • Some intangible benefits (2) Disadvantages of PrW • • • Lack of flexibility Financial constraints Rate of return What should be wareho (1)AdvantagesPrW of What forms of warehousing should be used – public warehousing (PuW) vs private warehousing (PrW) 1) Size of a warehouse • Factors affecting warehousing size: Customer service level n n n Market size Demand pattern and fluctuation n No of products marketed n Size of products n Materials handling system used (floor space) n n • Inventory costs: n 2) Number of warehouses • Cost of lost sales: n Warehousing costs: n Extremely important but difficult to estimate n Varies by Increases with the number of warehousing facilities Normally increase with the warehousing facilities n Quantity discounts industry, company, product, customer Where should warehouses be located? Location analysis: n Some important site-selection factors : Quality and variety of transportation carriers u serving the site/location Quality and quantity of available labour Labor rates Cost and quality of the land Potential for expansion Tax Cost of construction u u Distance from the point of production Distance from the customers number u u of What warehouse layout and design approach should be followed? Benefits of good warehouse layout: ncrease output; mprove product flow; educe costs; mprove service ustomers; to rovide better employee working environment Randomized storage: Dedicated storage: Placed items in the closest Products are stored in a available slot, bin, or rack fixed location Retrieval: (FIFO) basis first-in-first-out Storing by: Part number, usage rate, activity levels Maximizes space utilisation, (grouping) but it requires longer travelling times 8.Measuring productivity of warehouse Overall warehouse layout – grouping: • By compatibility: Can products can be stored together harmoniously? • By complementarity: How often products are stored together? • By popularity: High or low demand? Items that are in greatest demand should be stored closest to shipping and receiving docks • Measures: n n n u Productivity: The ratio of real output to real input Utilization: The ratio of capacity used to available capacity (e.g., seasonal) Performance: u u The ratio of actual output to standard output n u Others: Labor cost per unit handled; Amount of space needed to store each unit; Frequency of errors 9.Improving productivity of warehouse • Programs: n Methods-related programs: Consider alternative processes for achieving u desired results n Equipment-related programs: Use of technology such as optical scanners, u automatic labelling devices, etc n Systems-related programs: Use of n u u router/location systems, geographic or zone picking, and random location of products in the warehouse Affect the way different components of the logistics system interact Training-motivation-related programs: Employee training, management development, incentive systems, etc Thank you!