1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 27

9-2 CR (2004) Prentice Hall, Inc. Costs Relevant to Inventory Management Procurement Costs Carrying costs Out-of-stock costs

11-3 The Storage and Handling System CR (2004) Prentice Hall, Inc. “The day soldiers (subordinates) stop bringing you their problems is the day you have stopped leading them.” Colin Powell

11-4 CR (2004) Prentice Hall, Inc. PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process PLANNING ORGANIZING CONTROLLING Transport Strategy Transport fundamentals Transport decisions Customer service goals The product Logistics service Ord. proc. & info. sys. Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Location Strategy Location decisions The network planning process Storage Fundamentals in Inventory Strategy

11-5 The Storage System Except where customer service is a concern: Storage is an economic convenience, not a necessity Reasons for storage  Transportation and production costs can be reduced  Better coordination of supply and demand  Storage can be an integral part of the production process  Storage may enhance sales Storage Functions  Holding  Consolidation  Break-bulk  Mixing (merge-in-transit)

11-6 CR (2004) Prentice Hall, Inc. The Storage System (Cont’d) Storage Space Alternatives  Ownership  Leasing  Rental  In-transit Note Storage functions are performed in an attempt to reduce transportation, production, and purchasing costs, which justify their added expense.

Consolidation warehouse A ABCD B C D Manufacturer A Manufacturer B Manufacturer C Manufacturer D 10,000 lb. 8,000 lb. 15,000 lb. 7,000 lb. 40,000 lb. Customer Consolidation Warehouse Similar to a merge-in- transit facility 11-6

CR (2004) Prentice Hall, Inc. Distribution warehouse ManufacturerCustomer B Customer C Customer A Low rate TL shipment LTL Distribution, Break Bulk, or Pool Point Warehouse Warehouse may or may not hold inventories 11-7

CR (2004) Prentice Hall, Inc. Storage Cost Savings Direct shipments to customers MANUFACTURER SHIPPING WEIGHT (lb.) LTL RATE TO CUSTOMERCOST A 10,000 $2.00/cwt. $200 B 8, C 15, D 7, Total $

Storage Cost Savings (Cont’d) Shipments through a distribution center MANUFACTURER SHIPPING WEIGHT (lb.) LTL RATE TO DISTRIBUTION CENTER TOTAL LTL A 10,000 $0.75 $75 B 8, C 15, D 7, Total 40,000 DISTRIBUTION WAREHOUSE CHARGE TL RATE FROM DISTRIBUTION WAREHOUSE TO CUSTOMERTOTAL TLCOST $10 $1.00/cwt. $100 $ $

11-11 CR (2004) Prentice Hall, Inc. Space Comparison Ownership alternative Less expensive under high utilization High degree of control over operations Benefits of real estate ownership Space may be converted to uses other than storage Rental alternative No fixed investment Lower cost under seasonal or low utilization of an owned facility Location flexibility

11-12 CR (2004) Prentice Hall, Inc. The Materials Handling System Materials Handling Functions  Loading and unloading  Movement to and from storage  Order filling Materials-Handling Considerations  Load unitization  Space layout  Storage equipment  Movement equipment

11-13 CR (2004) Prentice Hall, Inc. A Low Throughput, Holding Warehouse Semipermanent storage bay Product Inbound and outbound

CR (2004) Prentice Hall, Inc. Semi-permanent storage bay Product Order picking and product mixing bays Inbound Outbound A B C D CA Replenishment Order-picking route A High Throughput, Distribution Warehouse 11-13

11-15 CR (2004) Prentice Hall, Inc. Storage/Handling Systems  Manual handling system  Forklift truck-pallet system  Conveyorized system  Automated storage and retrieval system

11-16 Semipermanent storage bay Product Inbound and outbound A B C Order-picking route Order Picking  Area System CR (2004) Prentice Hall, Inc.

Semipermanent storage bay Product Order picking and product mixing bays Inbound Outbound A B C D C A Replenishment Order-picking route Order Picking  Modified Area System 11-16