Warehousing Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

10-2 Warehousing overview Strategic warehousing Warehouse operations Warehouse ownership arrangements Warehouse decisions

10-3 Warehousing contributes value in the logistics process Traditionally viewed as a place to hold or store inventory Contemporary view is the warehouse functions to mix inventory arrangements to meet customer requirements –Storage of products is held to a minimum

10-4 Evolution of strategic warehousing 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

10-5 Warehousing types evolved to accommodate the dynamic aspects Distribution centers Consolidation terminals Break-Bulk facilities Cross-docks

10-6 Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials 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

10-7 Strategic warehousing can provide both economic and service benefits 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

10-8 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

10-9 Illustration of consolidation and break-bulk arrangements Figure 10.1 Consolidation and Break-Bulk Arrangements

10-10 Sorting involves reconfiguring freight as it flows from origin to destination

10-11 Cross-docking is used extensively by retailers to replenish store inventories Cross-docking combines inventory from multiple origins into a prespecified assortment for a specific customer

10-12 Successful cross-docking is highly dependent on information technology WalMart Distribution Center Products are received, selected, repackaged, and loaded for shipment w/o storage

10-13 Mixing is usually performed at an intermediate location between origin and destination Mixing combines inventory from multiple origins (like cross-docking) but also adds items that are regularly stocked at the mixing warehouse Stock Inventory

10-14 Assembly supports manufacturing operations 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

10-15 Seasonal storage provides direct benefit by accommodating production or demand Seasonal production include agricultural products Seasonal demand includes lawn furniture and toys Seasonal storage allows production efficiencies within the constraints of seasonality

10-16 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

10-17 Service benefits of warehousing Full Line Stocking at United Electric’s Distribution Center 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

10-18 Typical list of value-added services Table 10.1 Value-Added Services

10-19 Warehouse operations involve two major activities – handling and storage 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

10-20 Handling 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

10-21 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

10-22 Warehouses must manage two classes of storage 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

10-23 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 Special commodity Household goods and furniture

10-24 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

10-25 Network deployment is the combination of private, public and contract facilities used by a firm 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

10-26 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

10-27 Site selection is driven by service availability and cost factors 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

10-28 Warehouse management systems encourage best practices 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

10-29 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

10-30 Safety and maintenance issues must also be considered when planning warehouse designs Accident prevention –Comprehensive safety programs and training, accident investigation and follow up Environmental protection –Spill ( leak ) kits and spill plans Maintenance –Scheduled maintenance of building, material handling equipment, and collision damage prevention