Part 4: Warehousing and Storage

Chapter 15: Principles of Warehousing

I. Introduction

What is Warehousing and Storage?

Warehousing defines the act or a process to store the commodities in a storage place
specifically known as a warehouse. Storage refers to the action or method of stocking
something.
Warehouses are crucial components of most modern supply chains. Warehouses
are an integral part of the supply chains in which they operate, and therefore recent trends,
such as increasing market volatility, product range proliferation and shortening customer
lead times, all have an impact on the roles that warehouses are required to perform.

II. The Role of Warehouses

The prime objective of most warehouses is to facilitate the movement of goods through
the supply chain to the end consumer. Th ere are many techniques used to reduce the need
to hold inventory, such as flexible manufacturing systems, supply chain visibility and
express delivery, and many of these have been encompassed in a range of supply chain
initiatives, for example just-in-time (JIT), efficient consumer response (ECR) and
collaborative planning, forecasting and replenishment (CPFR).
The role of warehouses it is often necessary to hold inventory, particularly where the
following two conditions apply:
￮ The demand for the product is continual. In some industries, such as fashion, a
particular style may be manufactured on a one-off basis. Under these circumstances,
the goods can be ‘pushed’ through the supply chain to the stores where they are
sold, and there is therefore no need to hold inventory in warehouses.
￮ The supply lead time is greater than the demand lead time. Where goods are ‘pulled’
through the supply chain, this can only be achieved without inventory where the
supply can take place within the lead time offered to the customer.
The holding of inventory is just one of a variety of roles that a warehouse may perform.
Th us, with the increasing emphasis on the movement of goods through the supply chain,
many of the roles may be related to the speed of movement as well as to inventory holding.
Th e following list highlights some of the common roles performed
1. Inventory holding point. This is commonly associated with the decoupling point
concept may involve the holding of substantial inventory.
2. Consolidation center. Customers often order a number of product lines rather than
just one and would normally prefer these to be delivered together.
3. Cross-dock center. If goods are brought from elsewhere in the supply chain
specifically to fulfil a customer order, then they are likely to be cross-docked.
4. Sortation center. This is basically a cross-dock center, but this term tends to be used
for parcel carrier depots, where goods are brought to the warehouse specifically for
the purposes of sorting the goods to a specific region or customer.
 5. Assembly facility. This is often useful in postponing production as far as possible
down the supply chain in order to minimize inventories.
6. Trans-shipment point. These are particularly common to serve outlying regions of a
country. In a typical scenario, orders would be picked at a national distribution
center and transported to a ‘stockless’ trans-shipment depot, where the goods are
sorted to smaller vehicle loads for immediate delivery to customers.
7. Returned goods center. The handling of returned goods is becoming increasingly
important.

III. Strategic Issues Affecting Warehousing

Since warehouses operate as an integral component of the supply chain, the wider business
context must be taken into account when making key decisions about these facilities. Th e
areas that should be considered are very wide-ranging and include the following:
1. Market/Industry Trends. Almost all industries have seen dramatic changes in their
marketplaces, as well as in the technology available to them.
2. Corporate Objectives. Different companies often have quite different objectives, in
terms of their market positioning, staff policies, and shareholder expectations.
3. Business plan. Th e business plan will include factors such as new markets and sales
projections, as well as the degree of certainty of the projections. Th ese will affect
design features such as the expansion potential that needs to be incorporated into
the warehouse and the degree of flexibility that should be allowed for.
4. Supply Chain Strategy. Each warehouse will be one component in the overall supply
chain strategy and therefore needs to be designed accordingly. This strategy will
determine factors such as the roles, location and size of each ware house.
5. Other related strategies. The business plan will need to be implemented through
various departmental strategies, as well as that of the supply chain.
6. Customer Service Levels. A number of the strategies previously described,
particularly those of marketing and the supply chain, will determine the service
levels that the warehouse needs to provide
7. External Factors. There are likely to be constraints imposed by external factors,
particularly in terms of regulation
IV. Warehouse Operations

Every warehouse should be designed to meet the specific requirements of the supply chain
of which it is a part. Nevertheless, there are certain operations that are common to most
warehouses. Th ese tend to apply whether the warehouse is manual in nature with fairly
basic equipment or whether it is highly automated with sophisticated storage and handling
systems. For an inventory holding warehouse, typical warehouse functions and material
flows are shown in Figure 15.1
These functions are as follows:
￮ Receiving. This typically involves the physical unloading of incoming transport,
checking against purchase orders and recording the incoming goods into the
computer system
￮ Receive store. This area holds the bulk of warehouse inventory in identifiable
locations.
￮ Order picking. Order picking is a key warehouse operation, both in terms of cost and
service, as a significant proportion of the warehouse staff is normally required for
this function and it is critical to achieving high levels of order accuracy.
￮ Sortation. For small sizes of order, it is sometimes appropriate to batch a number of
orders together and treat them as ‘one’ order for picking purposes.
￮ Marshalling & dispatch. Goods are marshalled together to form vehicle loads in the
dispatch area and are then loaded on to outbound vehicles for onward dispatch to
the next ‘node’ in the supply chain.

The main functional areas of a cross-dock operation are as follows:

 Receiving. Goods may be received in a condition ready for immediate dispatch to the
 customer or may require labelling or some other form of activity.
 Sortation. Th e goods then need to be sorted to their destinations. Th is may be
undertaken manually or by the use of high-speed sortation equipment. In the case of
the latter, the incoming goods may be already bar-code-labelled by the sender so
that they can be put directly on to the sortation machine and sorted into specific
customer orders or destinations.
 Marshalling and dispatch. The goods are then marshalled into vehicle loads and
loaded on to the vehicles. In the case of parcels, the warehouse may be equipped
with boom conveyors that extend directly into the vehicles.

V. Costs

The detailed breakdown of warehouse costs varies by the nature of the operation, but
typical figures from past studies of ‘conventional’ warehouse operations (eg adjustable
pallet racking served by reach trucks with case picking at ground level) are as follows:

These figures demonstrate the importance of the effective use of both building space and
staff in the design and operation of warehouses. In terms of staffing, the efficiency of the
order picking operation is particularly significant.

VI. Packaging and Unit Loads

Most supply chains are structured around the unit load concept, whereby goods are
transported, stored and handled in standard modules. Again, these may be at different
levels, for example with goods being placed in cartons, which are placed on pallets, which
in turn may be loaded in ISO containers for export shipping. Th e use of such unit loads
enables transport, storage and handling systems to be designed around modules of
common dimensions. In warehousing, some of the most frequently used unit loads are as
follows:

1. Pallets. These are the most common form of unit loads stored in warehouses. They
are basically raised flat platforms, on which goods can be placed, and into which
truck forks can be inserted to lift and move them.
2. Cage and box pallets. These are used to contain goods that may otherwise fall off a
standard pallet. They have solid or mesh sides and may be constructed of, for
example, steel or plastic.
 3. Roll-cages. These are normally constructed of steel and often comprise mesh
bottom, sides and shelves. Wheels are fitted to each corner so that the roll cages can
be pushed.
4. Tote bins. Plastic tote bins are used in many warehouses for the storage and
handling of small parts. They vary in size but a typical bin may be 600 millimeters
long by 400 wide by 300 high.
5. Dollies. These comprise bases fitted with wheels, on which plastic trays and tote
bins may be stacked. Again, these are common in retail distribution.
6. Intermediate Bulk Containers (IBCs). These are normally used for storing and
transporting liquids and solid particulate products in unit loads of about one or two
tones
7. Wooden pallet. Most significant unit load in warehousing

VII. Summary

This chapter examined the key rationale for warehouses and summarized the different
roles that they may perform. It highlighted some wider industry, business and regulatory
issues that impact on the design and management of warehouses. Th ese must be
considered if warehouses are to function effectively within the wider context of the supply
chain.
The normal activities that take place within inventory holding and non-inventory
holding warehouses were described, together with a typical cost breakdown of a
warehouse operation. Finally, the importance of packaging and unit loads was explored and
a brief introduction to some unit load types was provided.
In conclusion, warehouses are key components of many supply chains, and their roles
and objectives should be determined by the overall context within which they operate. Th
ey should integrate closely with the other components in the supply chain. Th ey are
expensive and should be well designed and effectively managed, as the way they operate
will have an immediate impact on both customer service and costs.