Chapter 09 - Warehousing

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

CHAPTER 9:Warehousing


McGraw-Hill/Irwin

• Strategic warehousing • Warehouse operations• Warehouse ownership

arrangements• Warehouse decisions

Warehousing overview


McGraw-Hill/Irwin

• Traditionally viewed as a place to hold or store inventory

• Contemporary view is the warehouse functions to mix inventory assortments to meet customer requirements– Storage of products is held

to a minimum

Warehousing contributes value in the logistics process


McGraw-Hill/Irwin

• Warehouses were once viewed as a necessary evil, used to coordinate product supply with customer demand

• The explosion of the consumer economy after WWII saw the rise of distribution networks for consumer goods

• Warehousing shifted from passive storage to strategic assortment

Evolution of strategic warehousing


McGraw-Hill/Irwin

Warehousing types evolved to accommodate the dynamic aspects

• Distribution centers• Consolidation terminals• Break-Bulk facilities• Cross-docks


McGraw-Hill/Irwin

• Warehousing is integral to just-in-time (JIT) and stockless production strategies– Requires strategically located

warehouses across the globe• An important goal in

warehousing is to maximize flexibility– Respond to ever-changing

customer demand• Product assortments• Value-added services• Shipment sequencing

Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials


McGraw-Hill/Irwin

• Economic benefits of warehousing occur when overall logistics costs are reduced – Consolidation and break-bulk– Sorting– Seasonal storage– Reverse logistics

• Service benefits are justified by sales improvements that more than offset added cost– Spot-stocking– Full line stocking– Value-added services

Strategic warehousing can provide both economic and service benefits


McGraw-Hill/Irwin

Consolidation and break-bulk reduce transportation cost

• Consolidation occurs when a warehouse receives materials from a number of sources and combines them into exact quantities for a specific destination

• Break-bulk occurs when a warehouse receives a single large shipment and arranges for delivery to multiple destinations


McGraw-Hill/Irwin

Illustration of consolidation and break-bulk arrangements

Figure 9.1 Consolidation and Break-Bulk Arrangements


McGraw-Hill/Irwin

Figure 9.2 - Sorting involves reconfiguring freight as it flows from origin to destination


McGraw-Hill/Irwin

• Cross-docking combines inventory from multiple origins into a prespecified assortment for a specific customer

Cross-docking is used extensively by retailers to replenish store inventories


McGraw-Hill/Irwin

• Products are received, selected, repackaged, and loaded for shipment w/o storage– Used with general merchandise

& food• Enabled by conveyors &

sortation equipment• Used in large distribution

centers (800K to 1,200K sq.ft.)

Successful cross-docking is highly dependent on information technology

WalMart Distribution Center


McGraw-Hill/Irwin

• Mixing combines inventory from multiple origins (like cross-docking) but also adds items that are regularly stocked at the mixing warehouse

Mixing is usually performed at an intermediate location between origin and destination

Stock

Inventory


McGraw-Hill/Irwin

• Assembly occurs when products or components from second-tier suppliers are assembled by a warehouse located near manufacturing plant

• Common assembly processes are packaging and color customizing

Assembly supports manufacturing operations


McGraw-Hill/Irwin

• Seasonal production include agricultural products

• Seasonal demand includes lawn furniture and toys

• Seasonal storage allows production efficiencies within the constraints of seasonality

Seasonal storage provides direct benefit by accommodating production or demand


McGraw-Hill/Irwin

Reverse logistics processing

• Reverse logistics include activities supporting– Returns management

• Recalls or product that did not sell– Remanufacturing and repair

• Repairing/refurbishing equipment– Remarketing

• Selling used equipment– Recycling– Disposal


McGraw-Hill/Irwin

Illustration of reverse logistics flow


McGraw-Hill/Irwin

• Spot-stocking is the positioning of inventory for seasonal or promotional demand

• Full line stocking provides one-stop shopping capability for goods from multiple suppliers

• Value-added services include any work that creates a greater value for customers– See Table 10.1 for examples

Service benefits of warehousing

Full Line Stocking at United Electric’s

Distribution Center


McGraw-Hill/Irwin

Typical list of value-added services

Table 10.1 Value-Added Services


McGraw-Hill/Irwin

• Objective is to– Efficiently receive inventory– Store it as required– Assemble it into complete

orders– Make a customer shipment

• Operations will therefore emphasize product flow

Warehouse operations involve two major activities – handling and storage


McGraw-Hill/Irwin

• Handling must optimize movement continuity and efficiency– Receiving—Unloading the

arriving vehicles– In-Storage—moving goods

for storage (transfer) or order selection (picking)

– Shipping—verifying the order and loading the departing vehicles

Handling


McGraw-Hill/Irwin

Storage plans should make product velocity a major factor

• Slotting determines specific locations for the product based on– Velocity—how fast the goods

move– Weight—how heavy is the

product– Special Characteristics—

how large or small, does it require rack or bin storage


McGraw-Hill/Irwin

Illustration of storage plan based on product movement velocity

Figure 9.3 Storage Plan Based on Product Movement Velocity


McGraw-Hill/Irwin

• Active Storage—storage for basic inventory replenishment– Focuses on quick movement– Includes flow-through or cross-

dock distribution• Extended Storage—storage

for inventory held in excess of period for normal replenishment– E.g. seasonal, speculative, or

even commodities

Warehouses must manage two classes of storage


McGraw-Hill/Irwin

Warehouse ownership arrangements

• Private—warehouse operated by the firm owning the product– Building may be owned or leased

• Public—service company owns warehouse and hires out space and services– Usually classed as

• General merchandise• Refrigerated• Bonded• Special commodity• Household goods and furniture


McGraw-Hill/Irwin

Contract warehousing combines elements of private and public operations

• Usually a long-term relationship or contract between a firm and the warehousing owner/operator– Long-term cost savings compared

with public warehouse– Often a firm’s employees will work

alongside the contract warehouse’s – Example is Kraft Foods who has

contracted with AmeriCold Logistics since the late 1990’s


McGraw-Hill/Irwin

• Network deployment strategy requires answering two questions– How many warehouses should

be established?– Which warehouse ownership

types should be used in specific markets?

• For example, when warehouse utilization is not full throughout the year – Use private or contract

warehouse to cover 75 percent requirement

– Public facilities used to accommodate peak demand

Network deployment is the combination of private, public and contract facilities used by a firm


McGraw-Hill/Irwin

Warehouse decisions that determine handling and storage efficiency

• Site Selection• Design• Product-Mix Analysis• Expansion• Materials Handling• Layout• Sizing• Warehouse management system• Accuracy and audit• Security• Safety and maintenance


McGraw-Hill/Irwin

• Identify broad geography where an active warehouse meets service, economic and strategic requirements

• Selection and number of retail outlets drives location of support warehouses

• Final selection should be preceded by extensive analysis

Site selection is driven by service availability and cost factors


McGraw-Hill/Irwin

Illustration of straight-line product flow to facilitate velocity

Figure 9.4 Basic Warehouse Design


McGraw-Hill/Irwin

Two examples illustrating the integration of handling equipment with final layout

Figure 9.5 Layouts A and B


McGraw-Hill/Irwin

• Warehouse management systems (WMS) integrate procedures and software support to standardize storage and handling work procedures

• One main use of WMS is to coordinate order selection– Discrete selection is when a specific customer’s order is

selected and prepared for shipment as a single work assignment – Wave or batch selection is when orders are processed through

zones of the warehouse assigned to specific employees

Warehouse management systems encourage best practices


McGraw-Hill/Irwin

Illustration of the range of activities coordinated by an advanced WMS

Figure 9.6 Warehouse Management System Functionality


McGraw-Hill/Irwin

A summary of WMS functionality and decision support benefits

Table 9.2 WMS Functionality and Decision Support


McGraw-Hill/Irwin

Other warehouse planning issues

• Inventory accuracy is typically maintained by annual physical counts or counting portions of inventory on a planned basis– Cycle counting is the audit of selected

inventory on a cyclic schedule • Audits are common to maintain

safety, assure compliance to regulations and help improve procedures

• Security issues involve protection from pilferage and damage


McGraw-Hill/Irwin

• Accident prevention– Comprehensive safety programs

and training, accident investigation and follow up

• Environmental protection– Spill kits and spill plans

• Maintenance– Scheduled maintenance of

building, material handling equipment, and collision damage prevention

Safety and maintenance issues must also be considered when planning warehouse designs


McGraw-Hill/Irwin

What is the future of warehouse management?

• Will warehouses grow smaller in the future?– Offer a wider range of services?– Will final assembly of goods be increasingly done in

warehouses?• What is your solution to the “challenge of the last

mile” posed by Dr. Patrick Dixon?– Video link (7:45 min.)

http://www.youtube.com/watch?v=ZbPMaxNl3J4

http://www.youtube.com/watch?v=ZbPMaxNl3J4

Documents

Chapter 09 - Warehousing