Warehousing

Warehousing overview Strategic warehousing Warehouse operations Warehouse ownership arrangements Warehouse decisions

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 assortments to meet customer requirements Storage of products is held to a minimum

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

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

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 Product assortments Value-added services Shipment sequencing

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

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

Illustration of consolidation and break-bulk arrangements

Sorting involves reconfiguring freight as it flows from origin to destination

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

Successful cross-docking is highly dependent on information technology 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.) WalMart Distribution Center

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

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

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

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

Illustration of reverse logistics flow

Service benefits of warehousing 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 1 for examples Full Line Stocking at United Electric’s Distribution Center

Typical list of value-added services Table 1 Value-Added Services

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

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

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

Illustration of storage plan based on product movement velocity Figure 3 Storage Plan Based on Product Movement Velocity

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

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

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

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

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

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

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

Illustration of the range of activities coordinated by an advanced WMS

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

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 kits and spill plans Maintenance Scheduled maintenance of building, material handling equipment, and collision damage prevention