SUPPLY CHAIN MANAGEMENT

Transportation and Warehousing

WAREHOUSING
NOTABLE QUOTE

Because of the value of strategic storage was not well

understood, warehouses were often considered ‘necessary evils’
that added cost to the distribution process

Trade is not about goods. Trade is about information. Goods sit

in the warehouse until information moves them
THE ROLE OF TRANSPORTATION IN SUPPLY
CHAIN
• Transportation refers to the movement of product from one location to another as it makes its
way from the beginning of a supply chain to the customer.
• Transportation is an important supply chain driver because products are rarely produced and
consumed in the same location.
• Transportation is a significant component of the costs incurred by most supply chains
IKEA, THE SCANDINAVIAN
HOME FURNISHINGS RETAILER

• Global network, with about 450 stores in 42 countries, primarily on the basis of effective
transportation.
• IKEA’s sales for the year ending 2020 reached 39.6 billion Euros/ 45 Billion Dollars.
• Its strategy is built around providing good-quality products at low prices—in fact, its goal is to
cut prices by 2 to 3 percent each year.
• As a result, IKEA works hard to find the least expensive global source for each of its products.
• Modular designs coupled with effective sourcing and inexpensive transportation allow IKEA to
provide high-quality home furnishings at low prices globally.
DESIGN OPTIONS FOR A TRANSPORTATION
NETWORK
• The shipper is the party that requires the movement of the product between two points in the supply chain.
• The carrier is the party that moves or transports the product.
• For example, when Carrefour uses Leopards to ship its products from the warehouse to the customer, Carrefour
is the shipper and Leopards is the carrier.
• Besides the shipper and the carrier, two other parties have a significant impact on transportation:

• The owners and operators of transportation infrastructure such as roads, ports, canals, and airports
• The bodies that set transportation policy worldwide.
• Actions by all four parties influence the effectiveness of transportation.
DESIGN OPTIONS FOR A TRANSPORTATION
NETWORK
• Three basic questions need to be considered when designing a transportation network between
two stages of a supply chain:
• Should transportation be direct or through an intermediate site?
• Should the intermediate site stock product or only serve as a cross-docking location?
• Should each delivery route supply a single destination or multiple destinations?
DIRECT SHIPMENT NETWORK TO SINGLE
DESTINATION
• With the direct shipment network to a single destination option, the buyer structures the
transportation network so that all shipments come directly from each supplier to each buyer location
• Trade-off between inventory and Transportation cost
• Quantity and mode to be decided

• The major advantage of a direct shipment transportation network is the elimination of intermediate
warehouses and its simplicity of operation and coordination
• justified only if demand at buyer locations is large enough that optimal replenishment lot sizes are
close to a truckload from each supplier to each location.
DIRECT SHIPPING WITH MILK RUNS
• A milk run is a route on which a truck either delivers product from a single supplier to multiple
retailers or goes from multiple suppliers to a single buyer location
• Milk runs make sense when the quantity destined for each location is too small to fill a truck but
multiple locations are close enough to each other such that their combined quantity fills the truck
ALL SHIPMENTS VIA INTERMEDIATE
DISTRIBUTION CENTER WITH STORAGE
• Product is shipped from suppliers to a central distribution center, where it is stored until needed
by buyers when it is shipped to each buyer location
• Storing product at an intermediate location is justified if transportation economies require large
shipments on the inbound side or shipments on the outbound side cannot be coordinated
ALL SHIPMENTS VIA INTERMEDIATE
TRANSIT POINT WITH CROSS-DOCKING
• Under this option, suppliers send their shipments to an intermediate transit point (which could be
a DC), where they are cross-docked and sent to buyer locations without storing them
PROS AND CONS OF DIFFERENT
TRANSPORTATION NETWORKS
WAREHOUSING AND DISTRIBUTION

• Warehousing provides a very strategic supply chain service, in that it enables firms to store their
purchases, work-in-progress and finished goods, as well as perform break-bulk and assembly
activities, while allowing faster and more frequent deliveries of finished products to customers,
which in turn results in better customer service when the system is designed and managed
correctly
FUNCTIONS OF WAREHOUSE

• Inventory holding point-

• Consolidation Centre
• Cross-dock centre
• Sortation centre
• Assembly facility
• Trans-shipment point
• Returned goods centre
CROSS-DOCKING

• In many cases today, warehouses aren’t used to store things, but rather to
• receive bulk shipments
• break them down
• repackage various items into outgoing orders
• distribute these orders to a manufacturing location or retail center.
• These activities are collectively referred to as cross-docking
THE THREE LOGISTICAL PHASES

Logistics delivers value to the customers through thee logistical phases

i. Inbound Logistics
ii. Process Logistics
iii. Outbound Logistics
THE IMPORTANCE OF WAREHOUSES

• Firms hold inventories for a number of reasons wherein warehouses are used to support
purchasing, production and distribution activities.
• Firms order raw materials, parts and assemblies, which are typically shipped to a warehouse
location close to or inside the buyer’s location, and then eventually transferred to the buyer’s
various operations as needed
• In a retail setting, the warehouse might be regionally located, with the retailer receiving bulk
orders from many suppliers, breaking these down and reassembling outgoing orders for delivery
to each retail location, and then using a private fleet of trucks or for-hire transportation providers
to move orders to the retail locations
THE TYPES OF WAREHOUSES

Private Warehouses
• Just as with the private forms of transportation, private warehouses refer to warehouses that are
owned by the firm storing the goods
• For firms with large volumes of goods to store or transfer, private warehouses represent an
opportunity to reduce the costs of warehousing
• Private warehousing can also enable the firm to better utilize its workforce and expertise in terms
of transportation, warehousing and distribution center activities
THE TYPES OF WAREHOUSES

Public Warehouses
• As the name implies ,public warehouses are for profit organizations that contract or lease a
wide range of light manufacturing, warehousing and distribution services to other companies
• Public warehouses provide a number of specialized services that firms can use to create
customized services for various shipments and goods
THE TYPES OF WAREHOUSES

Public Warehouses
• Breakbulk—large-quantity shipments are broken down so that items can be combined into specific
customer orders and then shipped out.
• Repackaging—after breakbulk, items are repackaged for specific customer orders. Warehouses can also
do individual product packaging and labeling.
• Assembly—some public warehouses provide final assembly operations to satisfy customer requests and to
create customized final products.

• Quality inspections—warehouse personnel can perform incoming and outgoing quality inspections.
• Material handling, equipment maintenance and documentation services.

• Short- and long-term storage.

WAREHOUSE LOCATION
• One of the more important decisions regarding private warehouses is where to locate them
• This decision will affect the number of warehouses needed, required capacities, system inventory levels,
customer service levels and warehousing system costs
• For a given market area, as the number of warehouses used increases, the system becomes more
decentralized.
• In a decentralized warehousing system, responsiveness and delivery service levels will increase since goods
can be delivered more quickly to customers; however, warehousing system operating and inventory costs
will also increase. Other costs that come into play here are outgoing transportation costs to customers and
the transportation costs associated with the incoming deliveries of goods to each warehouse. Thus, the
trade-off between costs and customer service must be carefully considered as the firm makes its warehouse
location decisions. This brings up the very important topic of risk pooling,
WAREHOUSE LOCATION STRATEGIES
• German economist Johann Heinrich von Thunen, who is often regarded as the “father of location
theory,” argued in the 1820s that transportation costs alone should be minimized when
considering facility locations.
• His model assumed that market prices and manufacturing costs would be identical regardless of
the location of the warehouse, so the optimum location would be the one that resulted in the
minimum transportation costs
• Another German economist a century later, Alfred Weber, proposed an industrial location theory
very similar to von Thünen’s; he argued that the optimum location would be found when the sum
of the inbound and outbound transportation costs was minimized
THREE TYPES OF LOCATION STRATEGIES

• The Market Positioned strategy locates warehouses close to customers, to maximize customer service levels
• This strategy is recommended when high levels of distribution flexibility and customer service
• The Product Positioned strategy locates warehouses close to the sources of supply to enable the firm to collect
various goods while minimizing inbound transportation costs
• This strategy works well when there are large numbers of goods purchased from many sources of supply and
assortments of goods ordered by customers
• The Intermediately Positioned strategy places warehouses midway between the sources of supply and the
customers.
• This strategy is recommended when distribution service requirements are relatively high and customers order
product assortments purchased from many suppliers
REFERENCE

• Chapter 9, Domestic U.S. and Global Logistics : Supply Chain Management by Joel Wisner
• Chapter 11, Transportation and Freight Management: Supply Chain Management by V.V Sople
• Research Article : Impact of Transport Cost and Travel Time on Trade under China-Pakistan
Economic Corridor (CPEC) by Khalid Mehmood Alam , XuemeiLi, and Saranjam Baj