Introduction Progression of Warehousing Decisions Why Use Warehouses? Types of Warehousing Warehouse Operations Warehousing Innovations Warehouse Layout Packaging

Progression of Warehousing Decisions. Should Warehouses Be Used? If Warehouses are Used, Should they be Public or Private? Where Should they be Located? What Should be their Capacities? How Many Should You Have? What Should be their Layout and Design?

Why Use Warehouses? Cope with Variable Market Conditions Cope with Variable Sources of Supply Production Economies Purchasing Economies Transportation Economies Customer Service

Warehouse Operations Planning, Organizing, Staffing, Equipping, and Controlling Human Resource Management Billing and Inventory Control Order Filling Local Delivery Material Handling Packaging Safety, Security, Maintenance Measuring Warehouse Efficiency

Warehouse Safety J.N. Devin, "Cowboy After OSHA,“ 1972.

Warehousing Innovations WERC – Established 1978 Housekeeping Storage Heights Automated Retrieval Systems Bar Codes, Scanners, EDI, RFID, etc. Narrow Aisle Equipment, Conveyors, etc. The Distribution Center Concept Assembly, Product Maintenance, Repair, etc. Management Controls Cross Docking

Costs of Increasing Storage Heights $ Total Cost Labor & Insurance C1 Construction & Finance Storage Height H1

Costs of Increasing Storage Heights Effects of New Technology $ Total Cost Labor & Insurance C1 Construction & Finance Storage Height H1

Costs of Increasing Storage Heights Effects of New Technology $ Total Cost Labor & Insurance C1 C2 Construction & Finance Storage Height H1 H2

Warehousing Innovations WERC – Established 1978 Housekeeping Storage Heights Automated Retrieval Systems Bar Codes, Scanners, EDI, RFID, etc. Narrow Aisle Equipment, Conveyors, etc. The Distribution Center Concept Assembly, Product Maintenance, Repair, etc. Management Controls Cross Docking

Types of Warehousing Private Warehousing Public Warehousing 8 4 Types of Warehousing Private Warehousing Public Warehousing Contract Warehousing Cross-Docking

Private vs Public Warehousing (Without Cost of Capital) Public $ (All Variable Cost) Private (Fixed + Variable Cost) Prefer Public Indifferent Prefer Private Volume

(Without Cost of Capital) Indifference Point Between Public and Private (Without Cost of Capital) Private = Fixed Costs + Variable Costs Public = Variable Costs Example: Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Indifference point is where both costs are equal 500,000 + .15X = .25X 500,000 = .10X X = 5,000,000 pounds ROI = 0

Private vs Public Warehousing (With Cost of Capital) $ Public Savings (All Variable Cost) Private (Fixed + Variable Cost) Prefer Public Indifferent Prefer Private Volume

Indifference Point Between Public and Private (With Cost of Capital) Private = Fixed Costs + Variable Costs Public = Variable Costs Example: Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Indifference point is where savings = desired ROI Savings Average Investment = ROI

Indifference Point Between Public and Private (With Cost of Capital) Desired ROI = Hurdle Rate Savings = Public – Private Average Investment = Initial Investment /2 Example: Hurdle Rate = 10% Investment = $8,000,000 Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound

Indifference Point Between Public and Private (With Cost of Capital) Hurdle Rate = 10% Investment = $8,000,000 Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Savings = Public - Private .25X - (500,000 + .15X) 4,000,000 = .10

Indifference Point Between Public and Private (With Cost of Capital) Savings = Public – Private .25X - (500,000 + .15X) 4,000,000 = .10 .25X - (500,000 + .15X) = .10 * 4,000,000 .25X - 500,000 - .15X = 400,000 .25X - .15X = 400,000 + 500,000 .10X = 900,000 X = 9,000,000

Advantages of Private Warehousing Greater Control Flexibility (CS Needs, Space Use, etc.) Tax Benefits (Depreciation) Image to Customers Potentially Lower Cost

Disadvantages of Private Warehousing Lack of Flexibility (Fixed Size/Location) Capital Requirements Equipment Maintenance/Training Potential Labor Problems

Advantages of Public Warehousing Capital Conservation Ability to Meet Peak Demand Reduced Risk Flexibility WRT Volume Avoidance of Property Taxes Avoidance of Labor Problems Potentially Lower Cost Knowledge of Exact Costs

Disadvantages of Public Warehouses Lack of Control Difficult Communications Not Always Available Potentially Higher Cost

Cross-Docking An operations procedure that allows product to be delivered and received on one side of a facility, undergoes internal handling procedures at the receiving dock, distributing unit loads and moving the product to shipping docks on the other side of the facility where trucks or rail cars are waiting to be loaded for customer delivery.  

Cross-Docking

Cross-Docking

Warehouse Layout Angling vs On-the-Square Fixed vs Variable Slots Space Loading Techniques Item Popularity Item Size Cube per Order Index Family Groupings Linear Programming Simulation

Cost of Fixed vs Variable Storage Slots $ Total Cost Labor C1 Space Utilization V1 Percent Variable

Cost of Fixed vs Variable Storage Slots Effects of New Technology $ Total Cost Labor C1 Space Utilization V1 Percent Variable

Cost of Fixed vs Variable Storage Slots Effects of New Technology $ Total Cost Labor C1 C2 Space Utilization V1 V2 Percent Variable

Warehouse Layout Angling vs On-the-Square Fixed vs Variable Slots Space Loading Techniques Item Popularity Item Size Cube per Order Index Family Groupings Linear Programming Simulation

Functions of Packaging Marketing Information Promotion Logistics Containment Protection Apportionment Unitization Convenience Communication

Postponement What is it? Why do we do it? Examples

Postponement What is it? A delayed differentiation strategy to reduce uncertainty and cost while satisfying customer needs. Activities in the supply chain are delayed until a demand is realized. Bucklin (1965) Model of Postponement /Speculation

Postponement Why do we do it? It has the potential to improve responsiveness while reducing inventory, transportation, storage, and obsolescence. Insufficient inventory early in the product cycle can cost market share. Products at the end of life cycle lose value quickly and risk obsolescence, which can lead to large inventory write-offs.