WAREHOUSING

Is it only a storage facility? A warehouse is typically viewed as a place to store inventory. However, in many logistical system designs, the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility.

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 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

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

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

Consolidation Warehouses

Consolidation Consolidation Shipment consolidation is an economic benefit of warehousing. With this arrangement, the consolidating warehouse receives and consolidates materials from a number of manufacturing plants destined to a specific customer on a single transportation shipment. The benefits are the realization of the lowest possible transportation rate and reduced congestion at a customer's receiving dock . Deliver at a less congested time in urban environment

Challenges faced in the urban environment

Consolidation Warehouses… The primary benefit of consolidation is that it combines the logistical flow of several small shipments to a specific market area. Consolidation warehousing may be used by a single firm, or a number of firms may join together and use a for-hire consolidation service. a customer could place and order on ebay and expect it to be received together. The role of ebay regional warehouse will be to combine several orders and deliver it to the desired customer. Through the use of such a program, each individual manufacturer or shipper can enjoy lower total distribution cost than could be realized on a direct shipment basis individually.

Break bulk warehouses

Break bulk warehouses Break bulk warehouse operations are similar to consolidation except that no storage is performed. A break bulk operation receives combined customer orders from manufacturers and ships them to individual customers. The break bulk warehouse sorts or splits individual orders and arranges for local delivery. Because the long-distance transportation movement is a large shipment, transport costs are lower and there is less difficulty in tracking.

City Logistics DC Central City Urban Terminal Consider a city environment – Where would break bulk and consolidation operations would fit in the city environment ?????

Processing/Postponement Warehouses can also be used to postpone, or delay, production by performing processing and light manufacturing activities. A warehouse with packaging or labeling capability allows postponement of final production until actual demand is known. For example, vegetables can be processed and canned in "brights" at the manufacturer. Brights are cans with no pre-attached labels. Impact of postponement on maintenance cost

Processing/Postponement… The use of brights for a private label product means that the item does not have to be committed to a specific customer or package configuration at the manufacturer's plant. Once a specific customer order is received, the warehouse can complete final processing by adding the label and finalizing the packaging.

Processing/Postponement… Processing and postponement provide two economic benefits: First, risk is minimized because final packaging is not completed until an order for a specific label and package has been received. Second, the required level of total inventory can be reduced by using the basic product (brights) for a variety of labeling and packaging configurations.

LAWN FURNTIRUE VS AGRICULTURE PRODUCTS Stockpiling The economic benefit of stockpiling comes from the need of seasonal storage. Stockpiling could be done regular basis for round the year used products . It could also be done before market demand for a certain product picks up Stockpiling requires space and adds cost burden on an organization LAWN FURNTIRUE VS AGRICULTURE PRODUCTS For example, lawn furniture and toys are produced year-round and primarily sold during a very short marketing period. In contrast, agricultural products are harvested at specific times with subsequent consumption occurring throughout the year. Both situations require warehouse stockpiling to support marketing efforts. Stockpiling provides an inventory buffer, which allows production efficiencies within the constraints imposed by material sources and the customer.

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 Under spot stocking, a selected amount of a firm's product line is placed or "spot stocked" in a warehouse to fill customer orders during a critical marketing period. In particular, manufacturers with limited or highly seasonal product lines are partial to this service. Rather than placing inventories in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets. Full line stocking – it reduces the number of suppliers a customer has to deal with

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 DELL WAREHOUSE WHERE IT ASSEMBLES PC’S FOR ITS CUSTOMERS

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 Incase of Dell if a customer ask For additional accessories Along with main order this could be done in a mixing warehouse . Stock Inventory

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

Service Benefits Five basic service benefits are achieved through warehousing: spot stock, assortment, mixing, production support, and market presence.

Spot Stock Under spot stocking, a selected amount of a firm's product line is placed or "spot stocked" in a warehouse to fill customer orders during a critical marketing period. In particular, manufacturers with limited or highly seasonal product lines are partial to this service. Rather than placing inventories in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets.

Spot Stock… Utilizing warehouse facilities for stock spotting allows inventories to be placed in a variety of markets adjacent to key customers just prior to a maximum period of seasonal sales. Suppliers of agricultural products to farmers often use spot stocking to position their products closer to a service-sensitive market during the growing season. Following the sales season, the remaining inventory is withdrawn to a central warehouse.

Assortment An assortment warehouse stocks product combinations in anticipation of customer orders. The assortments may represent multiple products from different manufacturers or special assortments as specified by customers. In the first case, for example, an athletic wholesaler would stock products from a number of clothing suppliers so that customers can be offered assortments. In the second case, the wholesaler would create a specific team uniform including shirt, pants, and shoes.

Assortment vs. Spot Stock The differential between stock spotting and complete line assortment is the degree and duration of warehouse utilization. A firm following a stock spotting would typically warehouse a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets for a limited time period. Distribution assortment warehouse usually has a broad product line, is limited to a few strategic locations, and is functional year-round. The combined assortments also allow larger shipment quantities, which in turn reduce transportation cost.

Mixing In a typical mixing situation, truckloads of products are shipped from manufacturing plants to warehouses. Each large shipment enjoys the lowest possible transportation rate. Upon arrival at the mixing warehouse, factory shipments are unloaded and the desired combination of each product for each customer or market is selected. When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing.

Production Support Production support warehousing provides a steady supply of components and materials to assembly plants. Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage. The operation of a production support warehouse is to supply or "feed" processed materials, components, and subassemblies into the assembly plant in an economic and timely manner.

Market Presence While a market presence benefit may not be so obvious, it is often cited by marketing managers as a major advantage of local warehouses. The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses. As a result, it is also thought that a local warehouse will enhance market share and potentially increase profitability.

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

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 High-volume product is placed near the cross-docking area

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 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

Illustration of straight-line product flow to facilitate velocity Figure 10.4 Basic Warehouse Design

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 Figure 10.6 Warehouse Management System Functionality

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 ( oil absorbers ) Maintenance Scheduled maintenance of building, material handling equipment, and collision damage prevention

ISSUE OF LAST MILE Freight Tonnage Increases by 2020 EU 70% by 2020 USA similar World container traffic 8% p.a. growth All culminate in a “last mile”

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