1. CHAPTER 10 Warehousing

2. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-2 Cost trade-offs in Marketing and Logistics Product Order processing and information costs Inventory carrying costs Place/customer service levels Order processing and information costs Price Lot quantity costsWarehousing costs Transportation costs LOGISTICS MARKETING

3. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-3 Uses of Warehousing Manufacturing support Product - mixing Consolidation Breakbulk

4. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-4 Factors Influencing Warehousing in the Future Time - The best warehouse operations are those designed to reduce every aspect of order cycle time. Quality - Users now expect performance that approaches perfection. Asset productivity - Reduce total cost, reuse, and recycle. New kind of workforce - Requirements for both management and labor will change significantly.

5. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-5 Advantages of Public Warehousing Conservation of capital Use of space to meet peak requirements Reduced risk Economies of scale Flexibility Tax advantages Specific knowledge of storage and handling costs

6. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-6 Disadvantages of Public Warehousing Effective communication may be difficult because of system incompatibility Specialized services may not always be available. Space may not be available on demand.

7. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-7 Advantages of Private Warehousing Control Flexibility Less costly Better use of human resources Tax benefits Intangible benefits

8. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-8 The Relationship of Demand to Warehouse Size Time (months) Inventory (‘000 units) Public warehousing Private warehousing

9. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-9 Determinants of Storage Space Requirements Inflation/forward buying These Situations Increase the Need for Storage Space Market or company expansion Shorter product life cycle Increase in number of SKUs Cross-docking Elimination of distributors Expansion into specialized products Import/export items Lengthened production process Increase in minimum manufacturing lot size Requirement for faster response time Carrier performing consolidation These Situations Decrease the Need For Storage Space Decrease in production or sales Decrease in number of SKUs Less volatile demand (including longer product life cycles) Customer handles store delivery Smaller manufacturing lot sizes Smaller purchase amounts Higher inventory turns Better information Direct store delivery on a quick response basis Quicker transportation

10. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 10-10 Comparison of Traditional Costing Versus Activity-based Costing General ledger view of warehousing costsActivity-based view of warehousing costs Storage and handling……………...$40.1 General and administration………...30.9 Trucking and delivery………………14.5 Freight consolidation……………….. 2.4 Value-added services………………...3.3 Total ……………………………...$91.2 Dry storage………………………...…$25.0 Refrigerated storage………………….…8.1 Receiving………………………………20.0 Shipping…………………………...…..18.8 Billing…………………………………...3.2 Delivery…………………………………6.0 Packaging/stenciling…...……………….1.8 Freight consolidation……………………3.0 Material handling equipment…………...5.3 Total………………………………….$91.2 Source: Terrance L. Pohlen, “Activity Based Costing for Warehouse Managers,” Warehousing Forum 9, no. 5 (May 1994), p. 1.