Chapter 11

Warehousing Decisions

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Learning Objectives - After reading the chapter, you should be able to do the following:

Discuss the strategic value-adding role warehousing plays in the logistics system.

Explain the basic rationale for warehousing in light of transportation consolidation, product mixing, service, contingency protection, and smoothing.

Develop an analytical framework for basic warehousing decisions.

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Learning Objectives

Distinguish between the different warehouse activities requiring space in the warehouse design.

Discuss the major principles of warehouse layout design.

Compare the use of private versus public warehousing.

Explain public warehousing services, regulations, and pricing.

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Learning Objectives

Describe the decision-making approach used to determine the number of warehouses in the logistics system.

Discuss the effect of materials handling and packaging on logistics.

Describe the four dimensions and the objectives of materials handling.

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Learning Objectives

Discuss the different types of materials handling equipment and the criteria used to select this equipment.

Explain the cross-functional role of packaging in a company.

Discuss the role of packaging in the logistics system.

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Learning Objectives

Describe the various types of packaging materials available and their relative advantages and disadvantages.

Explain the rationale for using bar codes to identify packages.

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Logistics Profile: Grainger Industrial Supply

Grainger is dedicated to providing excellent customer service using an effective network of warehouses and distribution centers providing same day or next day service.

13.6 million square feet in one national distribution center, two regional and six zone distribution centers, and 373 local branches

1.5 million customers, 220k SKUs, $4.5 billion in sales, 60k to 80k daily customer orders

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The Nature and Importance of Warehousing

In 1999, $75 billion, or 0.8 percent of GDP was spent on warehousing.

The total supply of U.S. warehousing space in 1999 was 6.1 billion square feet, an increase from 1990 of 700 million square feet of space.

Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.

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The Role of the Warehouse in the Logistics System: A Basic Conceptual Rationale

The warehouse is where the supply chain holds or stores goods.

Functions of warehousing include: Transportation

consolidation Product mixing Cross-docking Service Protection against

contingencies Smoothing

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Table 11-1Warehouse Value-Adding Roles

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Figure 11-1Transportation Consolidation

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Figure 11-2Supply and Product Mixing

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Basic Warehouse Decisions: A Cost Trade-off Framework

Ownership Public versus contract versus private

Centralized or Decentralized Warehousing How many Location Size Layout What products where

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Figure 11-3Basic Warehousing Decisions

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The Ownership Decision

Public warehousing costs mostly all variable.

Private warehousing costs have a higher fixed cost component.

Thus private warehousing virtually requires a high and constant volume.

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The Ownership Decision

Factors to consider Throughput volume Stability of demand Density of market area to be served Security and control needs Customer service needs Multiple use needs of the firm

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Table 11-2 Firm Characteristics Affecting the Ownership Decision

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Public Warehousing

Rationale for Public Warehousing Limited capital investment Flexibility

Public Warehousing Services Bonded warehousing Field warehouses

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Public Warehousing

Public warehousing regulation: Liability Receipts

Public warehousing rates based upon:

Value Fragility Potential damage

to other goods Volume and

regularity Weight density Services required

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Contract Warehousing

Up 23% per year in 2000 to $20.4 billion. Compensation for seasonality in products. Increased geographical coverage. Ability to test new markets. Managerial expertise and dedicated

resources. Less strain on the balance sheet. Possible reduction of transportation costs. Other issues discussed in Chapter 11.

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The Number of Warehouses Factors Affecting the

Number of Warehouses Inventory costs Warehousing costs Transportation costs Cost of lost sales Maintenance of

customer service levels

Service small quantity buyers

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Table 11-3: Factors Affecting the Number of Warehouses

Factor Centralized Decentralized

Substitutability Low High

Product Value High Low

Purchase Size Large Small

Special Warehousing

Yes No

Product Line Diverse Limited

Customer Service Low High

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Basic Warehouse Operations

Movement Receiving Put-away Order picking Shipping

Storage Stock location Warehouse Management System

(WMS)

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Figure 11-6 Basic Warehouse Operations

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Figure 11-7 The Computerized Warehouse

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Warehouse Layout and Design

Develop a demand forecast.

Determine each item’s order quantity.

Convert units into cubic footage requirements.

Allow for growth. Allow for adequate aisle

space for materials handling equipment.

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Warehouse Layout and Design

Provide for the transportation interface.

Provide for order-picking space.

Provide storage space. Provide recouping,

office, and miscellaneous spaces.

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Figure 11-8 Warehouse Space Requirements

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Figure 11-9 Principles of Warehouse Layout Design

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Warehouse Layout and Design

Basic needs: Receiving Basic storage

area Order selection

and preparation Shipping

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Warehouse Layout and Design

Layout and Design Principles: Use one story facilities

where possible. Move goods in a

straight-line. Use the most efficient

materials handling equipment.

Minimize aisle space. Use full building height.

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Warehouse Layout and Design: Layout and Design Objectives

Cubic capacity utilization

Protection Efficiency Mechanization Productivity

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Table 11-4: Warehouse Productivity Metrics Pounds or units per day Employees per pound moved Pounds unloaded per hour Pounds picked per hour Pounds loaded per hour Percentage of orders correctly filled Productivity ratio = pounds handled/day

divided by labor hours/day Throughput = amt of material moved through

the system in a given time period

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Materials Handling Definition: Efficient short distance

movement in or between buildings and a transportation agency.

Four dimensions Movement Time Quantity Space

Coordination

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Objectives of Materials Handling

Increase effective capacity Minimize aisle space Reduce product handling Develop effective working conditions Reduce heavy labor Improve logistics service Reduce cost

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Figure 11-12 Utilization of a Warehouse’s Cubic Capacity: Principles of Warehouse Layout Design

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Guidelines and Principles for Materials Handling

To effectively plan and control materials handling, the logistics manager should recognize some guidelines and principles.

Table 11-5 lists 20 of the most commonly accepted principles of effective materials handling. Asterisks mark those deserving special attention.

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Table 11-5 Principles of Materials Handling

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Packaging

Interest in packaging is widespread Logistics

Warehousing Transportation Size

Marketing Production Legal

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The Role of Packaging

Identify product and provide information

Improve efficiency in handling and distribution

Customer interface Protect product

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What Is Packaging?

Consumer packaging Marketing managers primarily

concerned with how the package fits into the marketing mix.

Industrial packaging Logistics managers primarily concerned

with efficient shipping characteristics including protection, ability to withstand stacking when on a pallet, cube, weight, shape and other relevant factors.

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Packaging Materials

Table 11-6 presents a comparison of various packing material characteristics.

Basic considerations include: Soft materials Plastic Environmental issues Recycling (reverse logistics)

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Table 11-6Comparison of Cushioning Materials

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Bar Coding

Standard markings that can be read by automatic or handheld scanners that allow for labor saving logistical activities for all supply chain members.

Bar Codes contain information regarding: Vendor Product type Place of manufacture Product price

Chapter 11: Summary and Review Questions

Students should review their knowledge of the chapter by checking out the Summary and

Study Questions for Chapter 11.

End of Chapter 11 and 11A Slides

Warehousing Decisions