Storage and Warehousing Techniques: Links

3/23/2021
CRITICAL
LINKS
Discover what extends and
sustains your supply chain
and what will ultimately
break it!
Storage and Warehousing Techniques

A Role Beyond Storage
Unit-10
By: Faisal Jalal
What are the roles of a warehouse in

your view?
Except where customer service is a concern:
Storage is an economic convenience, not a necessity
Reasons for storage
· Transportation-Production Costs Reduction:
Economies of Scale
· Coordination of Supply and Demand:

Seasonality, Speculation
· Production needs:
Storage can be an integral part of the production process, Cheese,
Cigarette
· Marketing Considerations:
Storage may enhance sales
Warehousing is needed to deliver rapidly to the customers and improve customer services (out of stock)
Dynamics of Distribution and Logistics
faisaljalal@iba.edu.pk
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What are the roles of a warehouse in

your view?
Except where customer service is a concern:
Storage is an economic convenience, not a necessity
Reasons for storage
The supply lead time is greater than the demand lead time.
For example, if goods are offered to customers on a next-day-delivery
lead time, it is often the case that materials cannot be sourced, goods
manufactured and transport undertaken within this timescale. In this
situation, the goods must be supplied from inventory.

Warehouse Definition
“Warehouses are typically viewed as a temporary place to

store inventory and as a buffer in supply chains.
They serve as static units matching product availability to
consumer demand and as such have a primary aim which is
to facilitate the movement of goods from suppliers to
customers, meeting demand in a timely and cost effective
manner”.
Primarily a warehouse should be a trans-shipment area
where all goods received are despatched as quickly,
effectively and efficiently as possible.
Van den Berg (2012)

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Warehouse Definition
Modern warehousing is in the process of an evolutionary

change from emphasis on storage to emphasis on flow
through, from inventories at rest to inventories at motion.
In a logistical system the role of warehouse is that of a

switching facility rather than a storage facility.
A flow-through entity is a legal business entity that passes income on

to the owners and/or investors.

Warehousing
“ Because of the value of strategic storage was not

well understood, warehouses were often considered
‘necessary evils’ that added cost to the distribution
process”.
- Donald J. Bowersox

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Whether they’re old….

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Or ultra-modern
they have the majority of processes in common

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Terminology
ABC Activity based costing / ABM (Activity Based Management)
ABC Method of prioritising items (Always Better Control)
AIDC Automatic Identification and Data Collection
AS/RS Automated storage and retrieval system
CMI Co-managed inventory
CPFR Collaborative Planning, Forecasting and Replenishment
EDI Electronic Data Interchange
EPOS Electronic Point of Sale
ERP Enterprise Resource Planning e.g. SAP, Oracle
FLT Fork lift truck
JIT Just in Time
OTIF On time in Full
PPT Powered pallet truck
RFID Radio Frequency Identification
SAP A well-known ERP system
SKU Stock keeping unit
VMI Vendor Managed Inventory
WMS Warehouse Management System
The Classification of Warehousing

The nature of warehouses within supply chains may vary tremendously, and there
are many different types of classification that can be adopted, for example:
by the stage in the supply chain: materials, work-in-progress, finished goods
or returned goods;
by geographic area: for example, a glob al warehouse may serve the whole
world, a regional warehouse may serve a number of countries, a national
warehouse may serve just one country, or a local warehouse may serve a
specific region of a country;
by product type: for example, small parts, large assemblies (eg car bodies),
frozen food, perishables, security items and hazardous goods;
by function: for example, inventory holding or sortation (eg as a ‘hub’ of a

parcel carrier);

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The Classification of Warehousing

The nature of warehouses within supply chains may vary tremendously, and there
are many different types of classification that can be adopted, for example:
by ownership: owned by the user (eg the manufacturer or retailer) or by a
third-party logistics company;
by company usage: for example, a dedicated warehouse for one company, or

a shared-user warehouse handling the supply chains for a number of
companies;
by area: ranging from 100 square metres or less to well over 100,000 square
metres;
by height: ranging from warehouses about 3 metres high through to ‘high-

bay’ warehouses that may be over 45 metres in height;
by equipment: from a largely manual operation to a highly automated

warehouse.
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The Objectives of Warehousing

 The primary objective of warehousing is to maximize the
effective use of the operational resources while
satisfying customer requirements.
 Match product availability to customer demand
 Maximum customer satisfaction at Minimum cost
 Ensure visibility and accuracy of stock
 Six Basic Principles
Accuracy, Cost Control, Cleanliness,
Efficiency, Safety & Security

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It Means
Warehousing is the major component of physical distribution.
Warehousing management has two distinct and equally

important parts:
1. The physical job of creating and running the network of

storage points.
2. The managerial task of controlling inventory levels
without sacrificing service level.

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Warehouse Trade-Offs
Speed Accuracy
Time Space
Cost
Cost
V Service
Accuracy
Efficiency Responsiveness
Volume purchases Storage costs

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Key Warehouse Challenges

Challenge Operational Requirements

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Warehouses in the Supply Chain

Raw materials
Disposal
Re-process Component manufacture D

i
r
Product assembly /manufacture e
c
R c t
e Wholesalers/Dealerships Retailers
e
t n s
u t a
r r l
n e e
s s s
Consumers
- Warehouse requirement

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Possible distribution structures with

central depot

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Role of the Warehouse

To facilitate getting the product to the customer:
• On time (OT)
• In Full (IF)
• To the right place
• In the right condition
• With the right paperwork
• At the right cost
• As environmentally friendly as possible

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Why do we need to hold stock?

Sub assembly Buffer in the supply chain or
manufacturing process
Holding stock in numerous locations
Satisfy demand – can be erratic
Ability to increase production runs
Buy low sell high – precious metals, oil,
Humanitarian storage coffee etc.
Archive storage Shortage or unreliability in supply
Smooth the flow of goods Cope with peak demand - seasonality
Packaging material Maintenance parts
Store returns Quality control cover
Promotions and Product launch Customer and supplier lead times
Cover for production shutdowns
Lower unit cost if bought in large
quantities and if transported in large
quantities
Production breakdown
Ripening products, cheese, meats
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Designing a Warehouse

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Logistics - cost factor
Holding cost includes loss, obsolescence, interest,

insurance and depreciation

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Designing a Warehousing System
In designing a warehousing system, the following basic

questions relating to this flow become significant.
1. Where should we locate them?

2. How many warehouses should we have?
3. What should be the size or capacity of each of them?

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Warehouse Location

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Warehouse Location
Exercise
Cost of transport = $5 per kilometre
70 loads per day into Customer area A
30 loads per day into Customer area B
200 Days per annum
Customer area A
Customer area B
30% 70%
volume volume
20 40 60 80 100 80 60 40 20
(Kilometres)
Where would you site a distribution centre to economically supply both customer
areas?
What if it costs an additional $350,000 to operate a warehouse within 10 kms of
customer area A? Minimum distance away is 1 km.
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Warehouse Location
Answers
Loads Days Kms $ per km Total SubTotal Additional Total
cost
70 200 1 $5 $70,000
30 200 199 $5 $5,970,000
$6,040,000 $350,000 $6,390,000
70 200 10 $5 $700000
30 200 190 $5 $5700000
$6,400,000 $350,000 $6,750,000
70 200 11 $5 $770,000
30 200 189 $5 $5,670,000
$6,440,000 $6,440,000
70 200 60 $5 $4,200,000
30 200 140 $5 $4,200.000
$8,400,000 $8,400,000
70 200 100 $5 $7,000,000
30 200 100 $5 $3,000,000
$10,000,000 $10,000,000

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Factors affecting Warehouse location

What other factors do you need to take into account when
making this decision?
Companies
• Access to transport networks e.g. parcel and pallet
hubs
• Availability of trained labour
• Transport links for staff
• Availability of funding, grants etc
• Use of suitable existing buildings
• Availability of utilities including telecoms
• Availability of finance and resources
• Goods traffic flows
• Proximity to ports and airports
• Where are our suppliers and manufacturing points?
• No weather issues such as flooding

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Factors affecting Warehouse location

What other factors do you need to take into account when
making this decision?
Of importance to Local Government Planners
• Utilisation of brown field sites
• Build in areas of high unemployment
• Appropriate mix of industry

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Port centric Logistics

“The provision of distribution and other value adding logistics
services at a port.”
Advantages:
• Faster unloading (emptying) of containers as long journeys from
• ports to DCs eliminated.
• Subsequent empty running between the DC and the port
• eliminated.
• Lower demurrage fees
• No need to worry about landside weight restrictions on
imported containers allowing them to be filled to capacity.
• Faster repositioning of ‘empties’.
• Reduced carbon footprint.
Example: Asda Walmart at Teesport

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Location determination
Quantitative techniques for warehouse site selection:
1. For Single Depot Location

▪ Center of Gravity of Area Model
▪ Center of Gravity of Load Model
▪ Center of Gravity of MT-KM Model
2. For Multiple Depot Location

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Center of Gravity of Area Model
A map of marketing areas may be drawn and a sheet

representing the area may be balanced. The point where
the sheet gets balanced is the site for warehouse
location. This point is expected to be at minimum average
distance from all the locations in the area.

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Center of Gravity of Area Model

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Center of Gravity of Load Model
This may be illustrated visually by imagining a sheet having

holes representing the customer locations and their demand
load of annual purchases. Weights are hung on each hole in
proportion to the demand load. The points at which the
model sheet gets balanced gives the center of weights.

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Center of Gravity of Load Model

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Center of Gravity of MT-KM Model
This model takes into consideration both loads and

distances to arrive at the optimum transportation cost.
The final solution is obtained after applying trail and error

methods several times.

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1. For Multiple Depot Location
For planning the chain of warehouse the management will have to

do a cost-benefit analysis.
The factors influencing a decision on multiple
warehouses locations are:
❖ Market Size
❖ Area Coverage by each warehouse
❖ Product type
❖ Demand pattern- continuous or seasonal
❖ Customer service level

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Warehouse location criteria

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Centre of Gravity
 Volume Centre of Gravity
Locates warehouse at the centre of supply & demand by
minimizing distances to customers
 Cost Centre of Gravity

Locates warehouses at the centre of supply or demand by
minimizing transportation costs

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Conclusion
For the cost reduction firms may try to move towards the
centralized warehouse system, but the decision depends on
the nature of the product and its movement through the
supply chain.
For auto manufacturing companies a centralized warehouse

for spare parts is an ideal system but this is not applicable for
FMCG product, which need to be moved in large quantities
and with speed, wherein the system of scattered warehouse is
the right solution.

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Global land and rent costs

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Global land and

rent costs
SOURCE DTZ Research, www.dtz.com

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Global land and

rent costs
Demirel et al (2010) provide a
comprehensive list of criteria for
location decision making. In a Savills
(2013) survey, the top nine
requirements for e-retailing
operations in terms of location were
as follows:
• land/rent/lease costs;
• access to affordable labor;
• expansion space available;
• close proximity to parcel hub;
• close to motorway network;
• central location (covering all
United Kingdom);
• close proximity to consumers;
government incentive; and
• close proximity to higher skilled
labor.
SOURCE DTZ Research, www.dtz.com

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Thank you

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3/23/2021

Storage and Warehousing Techniques

By: Faisal Jalal

What are the roles of a warehouse in

· Coordination of Supply and Demand:

What are the roles of a warehouse in

Dynamics of Distribution and Logistics

“Warehouses are typically viewed as a temporary place to

Dynamics of Distribution and Logistics

Modern warehousing is in the process of an evolutionary

In a logistical system the role of warehouse is that of a

A flow-through entity is a legal business entity that passes income on

Dynamics of Distribution and Logistics

“ Because of the value of strategic storage was not

Dynamics of Distribution and Logistics

Whether they’re old….

Dynamics of Distribution and Logistics

they have the majority of processes in common

The Classification of Warehousing

by function: for example, inventory holding or sortation (eg as a ‘hub’ of a

Dynamics of Distribution and Logistics

The Classification of Warehousing

by company usage: for example, a dedicated warehouse for one company, or

by height: ranging from warehouses about 3 metres high through to ‘high-

by equipment: from a largely manual operation to a highly automated

The Objectives of Warehousing

Dynamics of Distribution and Logistics

Warehousing is the major component of physical distribution.

Warehousing management has two distinct and equally

1. The physical job of creating and running the network of

Dynamics of Distribution and Logistics

Volume purchases Storage costs

Dynamics of Distribution and Logistics

Key Warehouse Challenges

Dynamics of Distribution and Logistics

Warehouses in the Supply Chain

Re-process Component manufacture D

Dynamics of Distribution and Logistics

Possible distribution structures with

Dynamics of Distribution and Logistics

Role of the Warehouse

Dynamics of Distribution and Logistics

Why do we need to hold stock?

Dynamics of Distribution and Logistics

Logistics - cost factor

Holding cost includes loss, obsolescence, interest,

Dynamics of Distribution and Logistics

Designing a Warehousing System

In designing a warehousing system, the following basic

1. Where should we locate them?

Dynamics of Distribution and Logistics

Dynamics of Distribution and Logistics

Dynamics of Distribution and Logistics

Factors affecting Warehouse location

Dynamics of Distribution and Logistics

Factors affecting Warehouse location

Dynamics of Distribution and Logistics