CHAPTER 9: Warehousing

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Warehousing overview
Strategic warehousing Warehouse operations Warehouse ownership arrangements Warehouse decisions

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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
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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

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Warehousing types evolved to accommodate the dynamic aspects

Distribution centers Consolidation terminals Break-Bulk facilities Cross-docks

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Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials
Warehousing is integral to justin-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

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Strategic warehousing can provide both 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

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Consolidation and break-bulk reduce transportation cost

Consolidation occurs when a warehouse receives materials from a number of sources and combines them into exact quantities for a specific destination Break-bulk occurs when a warehouse receives a single large shipment and arranges for delivery to multiple destinations

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Illustration of consolidation and break-bulk arrangements

Figure 9.1 Consolidation and Break-Bulk Arrangements

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Figure 9.2 - Sorting involves reconfiguring freight as it flows from origin to destination

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

Cross-docking combines inventory from multiple origins into a prespecified assortment for a specific customer

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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

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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 regularly stocked at the mixing warehouse

Stock Inventory

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Assembly supports manufacturing operations

Assembly occurs when products or components from second-tier suppliers are assembled by a warehouse located near manufacturing plant Common assembly processes are packaging and color customizing

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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

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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

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Illustration of reverse logistics flow

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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 Table 10.1 for examples

Full Line Stocking at United Electrics Distribution Center

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Typical list of value-added services

Table 10.1 Value-Added Services

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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

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Handling
Handling must optimize movement continuity and efficiency
ReceivingUnloading the arriving vehicles In-Storagemoving goods for storage (transfer) or order selection (picking) Shippingverifying the order and loading the departing vehicles
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Storage plans should make product velocity a major factor

Slotting determines specific locations for the product based on
Velocityhow fast the goods move Weighthow heavy is the product Special Characteristicshow large or small, does it require rack or bin storage

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Illustration of storage plan based on product movement velocity

Figure 9.3 Storage Plan Based on Product Movement Velocity

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Warehouses must manage two classes of storage

Active Storagestorage for basic inventory replenishment
Focuses on quick movement Includes flow-through or crossdock distribution

Extended Storagestorage for inventory held in excess of period for normal replenishment
E.g. seasonal, speculative, or even commodities
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Warehouse ownership arrangements

Privatewarehouse operated by the firm owning the product
Building may be owned or leased

Publicservice company owns warehouse and hires out space and services
Usually classed as
General merchandise Refrigerated Bonded Special commodity Household goods and furniture

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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 firms employees will work alongside the contract warehouses Example is Kraft Foods who has contracted with AmeriCold Logistics since the late 1990s

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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
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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
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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

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Illustration of straight-line product flow to facilitate velocity

Figure 9.4 Basic Warehouse Design

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Two examples illustrating the integration of handling equipment with final layout

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Figure 9.5 Layouts A and B

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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 is when a specific customers 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

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Illustration of the range of activities coordinated by an advanced WMS

Figure 9.6 Warehouse Management System Functionality

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A summary of WMS functionality and decision support benefits

Table 9.2 WMS Functionality and Decision Support

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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
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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

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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

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