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Jnis B iseniek s', Edgars Ozols^Latvia University of
Agriculture, Faculty of Econom ics (Latvia)THE PROBLEM OF WAREHOUSE
OPERA TION, ITS IMPROVEM ENT A ND DE-VELOPMENT IN COM PANY S
LOGISTICS SYSTEMAbstract. In the artiele author analyzes nature of
warehouse in the company's logistics system, identifies main basic
problemswith what businesses faees, while grappling with warehouse
system tasks, as well as gives improvement and
optimizationrecommendations of w arehouse operation.The basic
problems with what faces warehouse logistics, is closely related to
the business management and its leadership?! inan appropriate
levels, where the most significant aspect of the problem is related
to the warehouse network foundation, what isfollowed by warehouse
mnage elaboration and finally operational level - the management of
logistics process in the ware-house. In order to successfully
grapple with warehouse mnage challenges, there must be given
answers to a whale of ques-tions such as: option of warehouse
ownership form, determination of amount of warehouses, placement of
warehouse networkin definite geographic location, option of
warehouse supply forms etc.The time and resources what allows to
achieve significant results has to be invested in an improvement of
warehouse opera-tion. So that the optimization wou ld be
successful, it is done in eight stages - beginning w ith the
identification of reasons , whatchanged the mnage efficiency of
warehouse and concluding with the development of optimization
project.KEY WORDS: Logistics, Warehouse, Management.
IntroductionMovement of goods and production raw materials in
the logistics chain is not possible without the
necessaryconcentration of the stock in a flxed location and storing
in corresponding warehouses. The movement of rawmaterials of goods
through warehouses is associated with processes that increase the
final value (costs) of goods.Thereby, functioning of warehouses in
the logistics chain has a signiflcant impact on the movement of
materials,vehicle use and tumover costs. In the author's view,
warehouses are needed not only at the point where the pro-
duction takes place, but also in other places, districts,
cities, countries where the company's products are re-quested. In
this case, the manufacturer sells its product to distribution
warehouse which task is to store the prod-ucts and to deliver them
timely in appropriate amounts to customers by offering qualitative
services for service.Object: to analyze and determine what are the
main problems in the warehouses mnage systems of the busi-nesses,
as well as give recommendations to improve the operation.Tasks:I'"
to explore theoretically the guidelines of the wareh ouse
logistics;2" to identify the main problems in the warehouses mnage
systems of the businesses;3" to give recommendations for warehouse
mnage operation improvement and optimization.Research methods:
monographic and abstractedly logical method, statistical analysis,
deductive and induc-tive methods.
1. Nature of warehouse in the company's logistics systemIn
nowadays, storage is a complex technical structure, what consists
of many together to related elements.The warehouse has a definite
specific structure and it implements a range of functions which are
associated withmaterial displacement, loading, unloading,
reprocessing, and distribution of goods among consumers.
Jnis Bisenieks, Mg.oec, Latvia University of Agrieulture,
Faculty of Economics, Riga Teacher Training and
EducationalManagement Academy, Faculty of Social Sciences.
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Also important are the following warehouse system's parameters
as decisions planning what is related totechnology and space
utilization, facility design, multiple loads, which are foreseen
for restructuring in ware-houses, etc. The warehouse is a system of
elements that defines the technical requirements, sets goals and
criteriain order to ensu re optimal functioning of the warehou se
system. (BojirHH B .B. 2007 : 23) Based on the foregoing itis
apparent that the warehouse system in the logistics chain has to be
viewed as an integral part of it. Only in thisway it is possible to
realize the accomplishment of key functions of warehouses and
consequently achieve highprofltability level of logistics.By
author's opinion in practice should be noted that in each
individual case, each particular warehouse hasdifferent warehouse
system's parameters, elements and structure. While building up the
warehouse system it isnecessary to take into account the key
principles, i.e., cost effective operation of the warehouse system
can beachieved only then when the planning and management process
takes into account all those factors that are di-rectly related to
the warehouse system's operation. Prerequisites to ensure a cost
effective operation of the ware-house system are (HHKOJiaiHyK B.E.
2007: 215):1" the exact determination of warehouse functional
tasks;2'"* detailed serviced loads and material flow analysis in
the warehouse and outside of it.Any costs what are resulting in the
course of warehouse functioning must be economically justifled,
i.e., anytechnical or rational implementation of the decision what
is relating to capital investm ents, must be w ell-groundedby
rational and expediency standpoint.In order to understand the
nature of the warehouse system should need to know, what is the
warehouse as thesystem's element key task? Warehouse main task is
the concentration and storage of stock, as well as continuousand
planned (rhythmic) ensuring of the demand (goods and other
materials)(http://www .cfin.ru/press/loginfo/2001-09 /54-56.shtml,
- 2009 . - February 25 ). Basic functions of the warehousecan be
divided in four groups (Bejcikovs J., Praude V. 2003: 355):1. The
transformation of produced assortment of goods and materials
corresponds to consumer's de-mand, i.e., the building of necessary
assortment for customer order's fulfillment. It should be noted
that this fea-ture is particularly important in the distribution
logistics. Classification of demand is as follows (Drury
J.2003:186):a) Quantitative demand - this is required if the supply
of goods and materials happens in quantities and inproduction they
are used temporary;b) Timely demand - it is a demand for goods and
m aterials in order to avoid interruptions (downtime) in
production process;c) Qualitative demand - it is a demand what
is leading the goods and materials to the quality improvementin the
framework of the storage proc ess;d) Demand by value - it divulges
as a goal to achieve cost advantages by not motivating it with the
techni-cally or economically grounded causes.By author's point of
view, if the required assortment is well placed in the warehouse,
it helps to fulfill cus-tomer orders and expectations effectively
and timely, thus supplying products to the extent what is necessary
tothe client. Building of required (demanded) assortment in the
warehouses facilitates efficient customer needsgratiflcation. He re
we can moot two aspe cts (Bejcikovs J., Praude V. 2003: 356):1)
Warehouse functions, ensuring plants with the necessary assortment
of goods and materials;2) Warehouse functions, ensuring customers
with goods and materials.2. Placing and storing allows to offset
the difference between output of production and materials and
con-sumption, as well as to implement a continuous production and
make a stock of produced goods. The storage ofgoods is required due
to definite type of goods consumption's seasonal character.3.
Freight transportation and consolidation. This is explained by the
fact that often there are situationswhen customers do not need the
amount of goods or materials what are capable of providing
efficient use oftransport, i.e., not provided a full freight. The
author in his working practice often had to face such situations.
Inorder to resolve this issue and reduce transport costs,
warehouses can implement merging functions. In otherwords , the
author had to think how to replenish smaller freights for several
clients sim ultaneously.4. Possible services. To offer maximum
amount of services, what would provide to the company a high
levelof customer service, thus making the company more competitive.
Services include (Bejcikovs J., Praude V. 2003:356): Preparation of
goods for sale; Functioning test and assembly of devices;
Pretreatment and sha pe's creation of goods; Transport services,
etc.Usually warehouse process at least three types of material flow
(Bejcikovs J., Praude V. 2003: 356):
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As the material base for production process ensttring serves
warehouse mnage. Warehouse mnage includes:site and buildings for
storage of stocks of material resources, equipment for warehouse
processing; devices ofweighing and measuring, fire safety
equipment, systems for information collection and processing and
tools. Thisis necessary (HHKOJianyK B.E. 2007:156): For material,
product, structure, raw material, fuel stock storage. To ensure
continuous supply of objects and configuration of stock. For
loading - unloading and rational organization of warehouse work
with minimal expense s. For proper use of the warehouse space and
operation of wareho use equipment. For implementation of
preparation and consum ption of production of material resou rces.
For organization of centralized supply of materials and goods to
consum ption places. To ensure the security of material value. For
timely detection of surplus of material value.In practice, there
are several problems what are associated with the successful
functioning of the warehouse.Main of them is (HHKOJianyK B.E.
2007:176): The choice between private and public wareho uses; Numb
er of warehouses and warehouse network placement; The size and
location of wareho use; The choice of warehouse systems.Storage and
processing systems in specialized logistics complexes and
manufacturing businesses may includethe following typ es of wareh
ouse s (HHKOJiaHyK B.E. 200 7:21 9; ) http://ww w.aq z.ru/sk lad_lo
g.htm , - 2009 -March 09):1. Material warehouses. They incorporate
in the subsystem of preparation business and are provided
forstorage of materials what are in the stage of the production
stock. Central warehouses. Usually, warehouses of this group
receive material resources from the suppliersand when they are
recycled as needed forward them to the dealing out warehouses;
Dealing out warehouses. They ensure manufacturing processes with
materials, assembly componentsand labor resources; Joint venture,
dealing out warehouses which exist mainly in small and medium sized
businesses andcombines a central warehouse and dealing out
warehouse.2. Manufacturing warehouses. Such warehouses are in the
business structure of production's subunits. Tothem concems:
Workshop warehouses; Storage comp artments; Tool wareho uses.3. The
warehouses of finished products. It is a large group of warehouses
and complexes, production stor-ing and processing systems which
operates in the movement field. They ensure material flow
advancement alongthe chains of mac ro-logistics.
2. The problem of warehouse in logisticsThe business what has a
warehouse mnage in a form of broad network, consist of individual
elements -warehouses, and business can be attributed to the systems
of micro-logistics. The formation of warehouse networkis a problem
of strategic level and it is addressed, usually, in connection with
the change of business strategy.Most often this occurs if changes
are done to a market conquest strategy or sale amounts increases.
In this case,landmark of warehouse capacity's distribution in
"service site" is perspective market region and determination
ofsales volume in each region. This is done by the marketing
department (/^bicKan B.B., 3aiueB E.H., CepreeBB.H., CTepjiHroBa
A.H. 2008: 392)In the appropriate period the business practically
addresses the task of establishment of optimal logistics sys-tem.
To solve this task, on the one hand, have to ensure minimiim costs
which are associated with the advance-ment of freight flow to the
end user, but on the other hand - have to ensure gu arantee serv
ice of each cu stomer toa necessary level.According to considered
methodology which is based on a system approach, all warehouse
logistics tasks re-quire precise successive solution. It is well
shown in Figure 1.
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Figure 1. The main problems of warehouse logistics
Strategical level
Strategical and tactical level The optimization issue
Operational level Logistics managem entorganization in the
warehouseSource: JJbicKaH B.B., 3aifee E.M., Cepzeee B.M.,
Cmepjiuzoea A.H. 2008: 392
From the Figure 1. can see with what challenges of warehouse
logistics have to face professionals of logis-tics. Obviously, the
challenges are different and depend on the solution -making level.
In the strategic level thebusiness has to address the problem of
storage network formation. Has to be determined exactly how many
ware-houses will be required for successful product distribution.
The optimization issue is addressed in strategic andtactical
levels. Every business wants so that the warehouse mnage would be
profitable and not loss making.In operational level business is
deciding how can be organized the logistics management in the
warehouse sothat it would be effective and successful. While
determining the contours of the warehouse network, have to moveto
micro-projecting stage, the place have to be chosen where to build
or locate warehouse complex. This solutionmaking stage also refers
to the solution-making at the strategic level. Warehouse tasks,
intensity of freight flowand the warehouse's average level of goods
stocks define the area of warehouse and spot size where will be
builtthe warehouse mnage. Micro-projection's final stage is the
choice of optimal solutions for volume planning bytaken into
account the specificity of warehouse freights and customer
requirements for order completion(/l,bi6cKafl B.B., 3aHueB E.H.,
Cept^eeB B.H., CTepnHroBa A.H. 2008: 393).
By the author's experience, location of the warehouse complex
has important role. If the warehouse is locatedat the place where
concentrates the largest number of consumers, it allows to save
business resources becausethere will be consumed less fuel, the
mileage of vehicles will be insignificant etc. This is not
happening always.The building of warehouses is very difficult in
such places because beforehand you have to get a lot of
coordina-tion documents. Usually in the places where is the most
concentrated number of customers are located residentialhomes or
other buildings. The operation of warehouse may disturb such
objects. Another reason is related to thefact that purchasing the
land area what is necessary for warehouse building is difficult.
Even in that case if theentrepreneur got lucky and found a piece of
land which can be rented for warehouse utilization, it is difficult
tostart the business here. The reason of that is the high rents
what increases the already high cost. By the author'sobservations,
usually warehouses are located outside the city limits.
Tactical planning sphere in the logistics is, e.g., the loads of
producing capacities and distribution planning tocoordinate a
buying plan, storing, management of stock and transportation. In
the tactical level of warehouse lo-gistics, specialists of
logistics are dealing with the optimization issues o already
existing warehouses. The optimi-zation of warehouse operations will
depend on the logistics process management in the warehouse.The
solutions of warehouse logistics tasks always are practically
associated with the selection of optimalvariant. The procedure of
selection in simplified form includes flve stages: problem
identification, the formationof constraints and criteria for
decision-making, the search for alternatives, alternative
evaluation and final selec-tion. From the positions of logistics
the decision making during selection process should be optimal. And
prob-lems of logistics have to be solved in a strict order: from
strategic to operational level (Drury J. 2003: 444).While solving
these problems answers are given to the questions which are related
to warehouse logistics
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Figure 2. The main questions while solving the problems of
warehouse logistics
Whatkiiid?How much?Where?How to supply?
How much?Wliatkiiid?Wliat Capacity':'What aiKl Where?How to set
up?
HowtoMeas iue? H o w t o s e a u e ?How to organize?
|bo giStils ma na gementI organization in theI warehouse
Source: B.B., 3aitee E.M., Cepzeee B.H., C mepnuzoea A.H. 2008:
393On basis of the system approach principles for the analysis and
synthesis of micro-logistics system, the tech-nology of system
approach can be used to solve all problems of warehouse logistics,
starting with the fonnation ofthe warehouse network and ending with
the management of logistical process in the warehouse.Any business
that has a warehouse or even a whole network of warehouses faces
the problems of differentlevels, from strategic to operational
level. All tasks which are solved within problems like these
closely are linked
among them and should be viewed in a precise order: strategic
level of decision-making is related to the ware-house network
formation (macro-projection) and with the establishment of a
warehouse mnage in the buildingarea (micro-projection) (flbiocKaa
B.B ., 3aHueB E.H., CepreeB B.H., dep jiHr oB a A.H. 20 08:
394).The management of business with such problems is dealing
accordingly to the corporate strategy and datawhat are prepared by
the management of logistics service. In the case of existence of
working warehouse mnage,its functioning problem of optimization is
solved already in tactical level logistics department is dealing
with thefollowing problems. The last problem of the warehouse
logistics and all tasks (management of logistics process
inwarehouse) what are related to it is deah with the help of
logistics specialists together with the main manager ofthe
warehouse and they have operational character.By the author's work
experience functions of warehouse logistics, as well as other
realization of logisticalfunctions in practice requires precise
interaction of logistics department with other departments of the
business.Coordination's ensuring with other departments is the base
of effective functioning of any business structure.The planning of
warehouse logistics begins with the solving of strategic tasks, the
structures of warehousenetwork, which are necessary for
implementation of business goals has being defined. In fact, the
fonning ofwarehouse network helps business to cover a maximum
outlet to adapt to changes of external environment withminimal
damage from lost sales.The first and main problem which is being
addressed at the strategic level - it is the forming of w
arehousenetwork. In this stage of planning business practically
solves the task of establishment of optimal logistics system.To
solve this task has to ensure, on the one hand, the minimal costs
which are associated with freight flow ad-vancement to the end
consumer, but on the other - guarantee service of each customer to
a necessary level. Thisstage can be described as a warehouse netwo
rk macro-projection stage in the outlet.The strategy of warehouse
network's forming requires solving of following tasks (/l,bi6cKaa
B.B., 3aHueBE.H., CepreeB B.H., CTepjiHroBa A.H. 2008: 398): The
choice of storage strategy of warehouse stocks in warehou ses (the
choice of warehouse property
form, which is intended for stocks accumulation); The definition
of number of warehou ses to ensure all regional sales coverag e, by
taking into account con-
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The optimal resolution of pointed tasks is the basis for
effective functioning of the business and its competi-tiveness in
the market.A second problem of warehouse logistics is related to
the development of warehouse mnage project what isensuring the
establishment of warehouse and adequate infrastructure taking into
account the economic advisabil-ity and technically - technological
necessity. In this stage is solved micro projection problem what
includes a gen-eral plan the development of warehouse structural
area. In case of inefficient work of warehouse mnage the busi-ness
is dealing with the problem of warehouse and its infi-astructure
optimization. List of tasks and solution se-quence is similar,
however, will have to begin the dissection of planned activities
and compliance of the adoptedoptimization criteria.The basis of
effective work of wareho use m nage is rational solving of such
tasks as (/JbiGcKaa B .B., 3aHueBE.H., CepreeB B.H., CTepjinroBa
A.H. 2008: 398): Dev elopm ent of the general plan;
Choosing the warehouse type; The calculation of wareh ouse
capacity requiremen ts, taking into account com pany's prospec ts;
The choice of optimal system of warehou se storing which will
provide capacity of warehou se for max i-mum us, if the total
expenses are minimized for the system's establishment and
exploitation.Management of logistics process in the warehouse is
the final problem within warehouse logistics which im-plementation
is related to solving of the following tasks: Providing of the man
agem ent of the logistics process in the ware house ; Ach ieving
logistics coordination with other departm ents that provide
advancem ent of goods through thewarehouse (procurement, m
arketing, sales and other departments); The organization of freight
handling in the wareh ouse.It may be noted that solving of any
warehouse logistics task is closely related to other tasks and
requires acomplex and methodical approach. While solving localized
tasks without guidance on the offering methodologywill not be able
to provide optimal conditions of warehouse, mnage of warehouse and
functionality of warehousenetwork.
3. The optimization of warehouse mnageWith the tasks of
warehouse mnage optimization deals the management of logistics
department in the tacti-
cal level. Logistics must deal with the optimization problems of
warehouse mnage in the result of externalchanges, what puts the
other goals and tasks, both for the business logistics system, and
the warehouse. The opti-mization process of warehouse mnage can
affect the building, its technical equipment and storage
infrastructure,as well as organization of technological processes
in the warehouse.Procedure of solution development optimization
takes place in this order (/lucKaa B.B., 3aMueB E.H.,CepreeB B.H.,
CTepjinroBa A.H. 2008: 444):1) Are defining the reasons that
changed the warehouse mnage efficiency in the logistics system;2)
Are assigned a new functionality warehouse mnage aims in the
company's logistics systems range. Whilesetting the goals on which
must be oriented operation of the warehouse mnage, it needs to
formulate them quitespeciflcally with direct evaluation
possibility. For example: Increasing of the number of orders in one
hour for3% , reducing of wareh ous e's costs for 2% , service level
increasing to 87% . Defining of aims covering global ob-jectives
which are related to the business logistics system and concrete
localized aims of warehouse mnage func-tionality;3) The
restrictions are defining for the warehouse functioning which are
introducing in the operation of logis-tics system. These may
include:
Impo ssibility of wareh ouse renovation; Shortage of a barcode
on incoming products; Usage of existing facilities; Fixed stock
levels in the wareh ouse; W arehouse work in two shifts; Impo
ssibility of changes of wareho use staff plan;4) The parameters are
designed for the warehouse operation evaluation and the criteria
are selected for opti-mization.Evaluation parameters should be
measurable: The size of wareh ouse's costs - LVL / 1 ; Tim e of
order comp letion - one hour;
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7) Development of the optimization proposals. Technically -
economic justiflcation development for optimi-zation and
reorganization (designing of warehouse, technological and
logistical processes in the warehouse) inorder to optimize the
warehouse mnage. Processes that are related to the warehouse mnage
reorganization areconducted according to the warehouse mnage
designing algorithm;8) Development of the optimization project:
The defining of work schedule with references of phase
completion terms, funding phase amoun ts andterms defining;
Outcomes of the project phases; The resotirces needed for project
implem entation; Budget of the project.While developing some
alternative options there is necessity to choose an optimal design
solution options ac-cording to certain criteria. On the conclusion
phase of the design wo rks may be promp ted efficiency rating of
thereviewing optimization variants.
Optimization of warehouse mnage requires a full analysis of all
warehouse mnage. The analysis is per-formed, by taking into
account: The flow of goods which pass through the warehouse; The
master plan of warehouse mnage; Solutions of the warehouse block
planning (basic kinds of prem ises); Freight handling technologies;
Information systems provided to wareho use manag emen t; Structure
of the warehouse personnel organization and used motivation system;
Used accounting system for warehouse work and its evaluation while
serving clients; Developm ent and execution of plans; Wareho use
costs.
ConclusionsThe main objective of logistics is the advancement of
work's efficiency, the expansion of outlets, and the ad-vancement
of competitiveness and profit's maximization;The main objective of
warehouse logistics is the creation of warehouse network and the
optimization of logis-
tical process in the warehouse;The forming of warehouse network
is a problem of strategic level, and it is handled, usually, in
connectionwith the changes of business strategy;Problems of
logistics have to be solved in a strict order: from strategic to
operational level;Any solving of warehouse logistics task is
closely related to other tasks and requires a complex and
methodi-cal approach;Warehouse network is a complicated technically
- economic system which analysis and synthesis should bebased on a
system approach and appropriate logistics methodology;The
specialization of warehouse affects objects of production and
consumption, as well as physically-chemical properties of
materials;All warehouses, irrespectively of their characteristics
can be fixed as a minimum of three types of materialflow: ingoing,
outgoing and intemal;Irrespectively ofthat the storage function is
realized or not, the material flows in warehouses, usually,
trans-forms by its own characteristics;The process of warehouse
mnage optimization can affect as building, its technical equipment
and infrastruc-ture of warehouse, as well as the organization of
technological processes in the warehouse.
Suggestions Entrepreneurs who are making warehouse system must
have higher education and meaningful w orkexperience in logistics
so that they could properly organize warehouse mnage and follow the
mainbasic principle while building warehouse system; While
addressing the question about the choice of warehouse type, all
business leaders should analyzetheir production's demand and
tumover, as well as other product-specific features, which can
affect
the choice of warehouse type; The designers of the warehouses
has to be able not only to calculate the required area, but also to
ad-
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There are many formulas to determine the location of warehouse.
However, for the business directorswould be good to know a few of
them, so they understand the benefits of the chosen warehouse
place.There are many specialized economical literature with which
it can be done;Often the problems of logistics have to address not
only the professionals of business department oflogistics, but also
specialists from other departments. It is important that the
manager of each depart-ment gives its employees a clear description
of tasks what will help to grapple with logistics
problems.References:
1. Belikovs J., Praude V. (2003). Logistika: M cbu grmata. -
Rga: Vaidelote;2. Drury J. (2003). Building and planning for
industrial storage and distribution: Learning bo ok for students a
ndbusinessmen - second edition - Oxford: Arehitectural Press;3.
HHKOJiaHHyK B.E. (2007). TpaHcnopmno - CKJiadcKan jiozucmuKa:
yHeOHoe nocone. - MocKBa: H3aaTejibCK0 -ToproBaa KopnopauHJi
,JlamKOB H K " ;4. Pojib u (pyHKiiuu cKada. (2009, February 25):
[Online] / KopnopaTHBHbiii MeHe>KMeHT.
-http://www.cfin.ru/press/loginfo/2001-09/54-56.shtml ;5. CKJiadbi
8 jiozucmuKe (20 09 , M areh 9) : [O nline] / JIorHCTHKa: 3aflaHH H
(JiyHKUHH. -http://www.aqz.ru/sklad_log.htm ;6. flbicK ad B.B .,
3aHiieB E.H., CepreeB B.H., CTepjiHroBa A.H. (200 8). JlozucmuKa:
YqeHHK. - MocKBa: 3KCMO.
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