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Warehousing

What is a warehouse?Traditional concept of warehouse• Store or godown• Place where unneeded items are stored• A place where things are dumpedModern concept of warehouse• A facility – where value addition takes place• Storage is only one function

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Development of modern concept of warehouse as facility Consumer maintained store• Compulsion of infrastructure during monsoon and winterManufacturer’s store• Concept of factory as investment opportunity • Concept of productivity & growing volumes• Buffer between factory and market

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Marketing warehouse• Shrinking inventory & growing variety• Location to stock products and support marketing effortsProduction warehouse• Holding inventory of standard items for variety production• Production optimization [minimize cost]

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Modern warehouse• Engineering focus on material handling, storage & information in 1960 & 70• Concept of JIT needs dependable delivery system of which warehouses are by now an integral part• TQM in warehouses - 1980

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Warehousing Costs• Handling • Holding• Order Processing• Packaging• Admin• Maintenance

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Functions of warehouse [warehousing operations]

1. Receiving goods – receive and accept responsibility

2. Identifying goods – place, label, color code3. Sorting goods- sort out the received goods for

appropriate storage area4. Dispatching goods to storage- for temporary

storage with easy accessibility5. Holding goods- security against pilferage and

deterioration

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6. Selecting, retrieving, packing- items are retrieved and grouped according to customer order for dispatch

7. Marshaling goods- check the items of a single order for completeness and order records are updated

8. Dispatching goods- consolidated order is packaged and directed to right transport

9. Preparing records and advices- of stocks and replenishment requirements

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Economic and service benefits of

WarehousesEconomic benefits - Consolidation, Break bulk, Cross Dock, processing postponement, stock piling[seasonal storage] Service benefits - spot stocking, Assortment, mixing, production support, market presence

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Economic benefits

Consolidation warehouse

Plant B[Product B forCustomer X]

Plant C[Product C forCustomer X]

Customer X[Product A+Product B+ Product C]

Plant A[Product A forCustomer X]

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Plant A [Product A

forCustomers X+Y+Z]

Break bulk warehouse

Customer X

Customer Y

Customer Z

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Plant A [Product A]

For W, X, Z

Plant B [Product B]

ForW,X,Y,Z

Cross Dock warehouse

Customer W[A+B+C]

Customer X[A+B]

Customer Y[B+C]

Customer Z A+ C

Plant C [Product C]

ForW, Y, Z

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Service benefits

In transit mixing Warehouse

[transit mixing point, mix & make product

C]

Plant A [Product A]

Plant B [Product B]

Customer XProducts A+ B+ C

Customer YProducts

A+B

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Manufacturing Warehouse

Vendor A[part A]

Vendor B[part B]

Vendor C[part C] Assembly Line X

Assembly Line Y

Assembly Line Z

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Operating principles of Warehouse/warehouse design

1. Design criteria product flow, ware house should be designed round

material handling flow

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No of stories, one is ideal as against limitations of space, cost of landHeight utilization, principle of cubic space, principle of ‘go vertical’, limitation on height utilization due to fire safety and insurance regulations 2. Handling Technology Movement continuity• Reducing runs• Reducing short runs with intermediate stops• Ensuring longer runs

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Movement scale economies

• Movement in large bulk

• Moving material in cases strapped on pallets or Containers Handling technology is addressing these issues

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3. Storage PlanCharacteristics of productOpen air storage for bulky productsHeavy items closer to floorLight items on higher rungsFast moving items in large bulk closer to aislesHazardous items

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Warehousing alternatives1. Private Warehouses Owned or leased by the product owner Control is fully with the product owner Changes can be made to integrate the warehouse with rest of the logistical system Provides market presence to the product ownerThere is no profit to be added to the cost

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2. Public WarehousesAvailable to companies on hireOverheads get distributed over a large customer baseAs warehousing is their core business public warehouses offer expertise in managementFlexibility of location Significant scale economies, several users and resultant volume, benefits in transportation costs

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3. Contract warehouses• Contract warehouse operators take over logistics responsibility from manufacturing company• Long term relationship and customized service• Expertise of management• Shared resources with several clientsGeneral classification of Public warehouses1. General merchandise2. Refrigerated3. Special commodity4. Bonded

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Warehousing strategy

Where? How many? Of what type?

Private Contract Public

Market Presence

Industry synergies

Operating flexibility

Location flexibility

Scale economies

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Site selectionLocation considerations

1. Cost of distribution to market area2. Transport requirement and facilities &

Transport cost3. Competition, presence of others4. Availability of utilities [power, water, gas,

sewerage disposal and cost]5. Labour supply and cost6. I - R climate, labour productivity7. Customer expectation of ‘D’8. Company specific commitments9. Local taxation

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10. Community attitude• Restrictions associated with warehouses• Future expansion• Cost of land• Topography and soil condition• Possibility of title change to the land

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Ideal warehouse location1. Protection of stock against moisture, insects,

dust, fumes, pests, thieves, fire etc.2. Provides facilities for ware housing activities3. Economics of operation4. Offers water for drinking and fire fighting5. Away from sources of detrimental conditions6. Easy access, proximity to ‘A’ customers7. No geographic barriers

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Inventory at various locations, the square root lawInventory reduction and customer serviceHow much to hold and in how many locations to hold?The square root lawX2 =[X1] [√n2/n1] X1 = total inventory in existing facilities X2 = total inventory in future facilities

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n1 = number of existing facilities [warehouses]

n2 = number of future facilities [warehouses]

If a company distributes 40,000 units using 8 existing facilities and plans to reduce the inventory in their future facilities to 20,000 units, then what should be the number of facilities in their future network without compromising the customer service? If we use the square root formula, the answer is 2 facilities