Warehousing

What is a warehouse?
Traditional concept of warehouse
• Store or godown
• Place where unneeded items are stored
• A place where things are dumped
Modern concept of warehouse
• A facility – where value addition takes place
• Storage is only one function

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 Development of modern concept of
warehouse as facility
 Traditionally, consumer maintained his own
store
 Gradually, concept of factory developed as an
investment opportunity
 Taylorian principles promoted productivity
 Manufacturer visualized the need of a buffer
between factory and market as productivity
improved

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 Post war, inventory shrank
Production became streamlined to demand
Demand for variety in every product increased
Marketing experienced the need of a warehouse
to stock products and support marketing efforts
Production units started using the concept of
warehouse as a facility to optimize production
[minimize cost]

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Decades of 1960 & 70 saw engineering focus on
material handling, storage & information
 Concept of JIT production system needs
dependable delivery system of which warehouses
are by now an integral part
 As we have discussed earlier decade of 1980
was a decade of TQM

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 Warehousing Costs
Handling
Holding
Order Processing
Packaging
Admin
Maintenance

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 Functions of warehouse [warehousing
operations] [physical distribution management:
logistical approach by K.K.Khanna – page #
57]
1. Receiving goods – receive and accept
responsibility
2. Identifying goods – place, label, color code
3. Sorting goods- sort out the received goods for
appropriate storage area
4. Dispatching goods to storage- for temporary
storage with easy accessibility
5. Holding goods- security against pilferage and
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deterioration 6
 6. Selecting, retrieving, packing- items are
retrieved and grouped according to customer
order for dispatch
7. Marshaling goods- check the items of a single
order for completeness and order records are
updated
8. Dispatching goods- consolidated order is
packaged and directed to right transport
9. Preparing records and advices- of stocks and
replenishment requirements

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 Economic and service benefits of
Warehouses
Economic benefits - Consolidation, Break bulk,
Cross Dock, processing postponement, stock
piling[seasonal storage]
 Service benefits - spot stocking, Assortment,
mixing, production support, market presence

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 Plant A
[Product A for Economic benefits
Customer X]

Customer X
Plant B Consolidation [Product A+
[Product B for Product B+
warehouse
Customer X] Product C]

Fig [1]
Plant C
[Product C for
Customer X]

Customer X
Plant A
[Product A
Break bulk
for
warehouse Customer Y
Customers
X+Y+Z]
Fig. [2]
Customer Z

Plant A
[Product A] Customer X
[A+B+C]

Cross Dock Customer Y

Plant B
warehouse [A+B]
[Product B]
Customer Z
Fig. [3]
[B+C]
Plant C
[Product C] Customer W
Products
A+B+ C
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 Plant A Service benefits Customer X
[Product A] Products
A+ B+ C+D
In transit mixing
Warehouse
Plant B [transit mixing point, Customer Y
[Product B] mix & make product D] Products
A+B+ C

Vendor A
[part A]
Assembly Line X

Vendor B Manufacturing
[part B] Assembly Line Y
Warehouse

Vendor C Assembly Line Z

[part C]

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 Principles of Warehouse design
Design criteria
product flow, ware house should be designed round
material handling flow

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  No of stories, one is ideal as against limitations of
space, cost of land
Height utilization, principle of cubic space, principle of
‘go vertical’, limitation on height utilization due to fire
safety and insurance regulations
Handling Technology
Movement continuity and movement scale economics
• Movement continuity is ensuring less number of long
movements rather than large number of short movements
•Movement scale economies depend on
movement in large bulk
• Moving material in cases strapped on pallets or
containers rather than moving material
in small packages.
• Handling technology is addressing these issues
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 Storage Plan
Characteristics of product
Open air storage for bulky products
Heavy items closer to floor
Light items on higher rungs
Fast moving items in large bulk closer to aisles
Hazardous items

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 Warehousing alternatives
Private Warehouses
 Owned or leased by the product owner
 Control is fully with the product owner
 Changes can be made to integrate the
warehouse with rest of the logistical system
 Provides market presence to the product owner
There is no profit to be added to the cost

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 Public Warehouses
Available to companies on hire
Overheads get distributed over a large customer
base
As warehousing is their core business public
warehouses offer expertise in management
Flexibility of location
 Significant scale economies, several users and
resultant volume, benefits in transportation costs

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 Contract warehouses
• Contract warehouse operators take over logistics
responsibility from manufacturing company
• Long term relationship and customized service
• Expertise of management
• Shared resources with several clients
General classification of Public
warehouses
1. General merchandise
2. Refrigerated
3. Special commodity
4. Bonded
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 Warehousing strategy
Where? How many? Of what type?
Private Contract Public
Market Presence

Industry synergies

Operating flexibility

Location flexibility

Scale economies
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 Site selection
Location considerations
1. Cost of distribution to market area
2. Transport requirement and facilities
3. Transport cost
4. Competition, presence of others
5. Availability of utilities [power, water, gas,
sewerage disposal and cost]
6. Labour supply and cost
7. I - R climate, labour productivity
8. Customer expectation of ‘D’
9. Company specific commitments
10. Local taxation
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 11. Community attitude
12. Restrictions associated with warehouses
13. Future expansion
14. Cost of land
15. Topography and soil condition
16. Possibility of title change to the land

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 Ideal warehouse location
1. Protection of stock against moisture, insects,
dust, fumes, pests, thieves, fire etc.
2. Provides facilities for ware housing activities
3. Economics of operation
4. Offers water for drinking and fire fighting
5. Away from sources of detrimental conditions
6. Easy access, proximity to ‘A’ customers
7. No geographic barriers

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 Inventory at various locations,
the square root law
Inventory reduction and customer service
How much to hold and in how many locations
to hold?
The square root law
X2 =[X1] [√n2/n1] 
X1 = total inventory in existing facilities 
X2 = total inventory in future facilities

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 n1 = number of existing facilities [warehouses]
n2 = number of future facilities [warehouses]
If a company distributes 40,000 units using 8
existing facilities and plans to reduce the
inventory in their future facilities to 20,000 units,
then what should be the number of facilities in
their future network without compromising the
customer service? If we use the square root
formula, the answer is 2 facilities

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