Warehousing

Reference Lecture 9 PMM

Additional Functions

CONSOLIDATIONA form of warehousing that pulls together small shipments from a number of sources (often plants) in the same geographical area and combines them into larger, more economical, shipping loads intended for the same area (Like carpooling)• Consolidation warehouses are constructed at a strategic location

between manufacturers and customers

• Third-Party Logistics Providers (3PLs) manage and maintain the consolidation warehouse and the information system needed to run it– Goal: Maximize transportation utilization and minimize costs

• Warehouses can either be client-dedicated or multi-user facilities

CONSOLIDATION – How it Works?

CUSTOMER

Product A

Product B

Product C

Product D

Product E

Places Small Orders

Product A

Product B

Product C

Product D

Product E

LTL

Truc

ks

Product X

Product Y

Product Z

CONSOLIDATION WAREHOUSE MANAGED BY

A 3PL

A, B, C, D, E

A, B, X, Y, Z

D, E, F, Y, Z

AREA

Benefits & Concerns With Consolidation?

Example

Additional Functions (contd…)

BREAK BULKWarehouses that receive product in bulk, and then repackage the product based on customer requirements. In the case of containers with imported products, this generally requires the inspection and relabeling of product. Generally, special billing rules apply.

Example

Additional Functions (contd…)

CROSS DOCKINGCross docking is a logistics procedure where products from a supplier or manufacturing plant are distributed directly to a customer or retail chain with marginal to no handling or storage time. Cross docking takes place in a distribution docking terminal; usually consisting of trucks and dock doors on two (inbound and outbound) sides with minimal storage space. The name ‘cross docking’ explains the process of receiving products through an inbound dock and then transferring them across the dock to the outbound transportation dock.

Additional Functions (contd…)

POSTPONEMENT OF PRODUCTION PROCESSING• This Functionality of warehousing enables postponement of

commitment of products to customer until orders are received from them. This is utilized by manufacturers or distributors for storing products ready up to packaging stage. These products are packaged and labelled for the particular only on receipt of the order.

• For e.g. Asian Paints has 1000s of SKUs and its literally impossible to store all the SKUs in all of their retail stores. Basically, Asian Paints postpones the “coloring” part to last stage and hence any dealer/retailer when they order a color, can receive the paint within a days time

Additional Functions (contd…)

STOCK PILING• This function of warehousing is related to seasonal

manufacturing or demand. In the case of seasonal manufacturing, certain raw materials are available during short periods of the year. Hence, manufacturing is possible only during these periods of availability, while the demand is full year around. This requires stockpiling of the products manufactured from these raw materials.

• An example is mango pulp processing. On the other hand, certain products like woolens are required seasonally, but are produced throughout the year, and thus need to be stockpiled as such.

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Factors Influencing Warehousingin 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.

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Basic Warehousing Decisions

1. Which logistics system design should be adopted?2. Should warehousing be owned, leased, rented, or some

combination of these?3. Should warehousing functions be subcontracted to a third

party?4. Should new materials handling equipment, or use labour

intensive materials be installed?5. How much capacity is required?6. Where should warehouses be located?7. What type of warehousing layout is appropriate?

Warehouse Strategies – Qualitative Decision Factors

• A warehouse designed for full-capacity will be utilized between 75% and 85% of the time. Thus 15% to 25% of the time, warehouse space will not be utilized to meet peak requirements (Similar to Pareto Principle?)

• Adjust internal policies and procedures to meet product and customer needs

• Ability to reduce material-handling and storage through application of advanced technologies

• Inventory located within proximity of the enterprise• Co-locating with other firms serving the same industry

• Prompt adjustment with warehouse location and numbers in accordance to seasonal or permanent demand

Number of Warehouses

Types of Warehouses

Warehouse Location

Warehouse Layout & Design

Please Note: There are more points. Find them!

Warehouse Strategies – Qualitative Decision Factors

• Location of major markets• Nature of products being distributed• Quality and variety of carriers serving the proposed site• Quality & Quantity of labour available• Cost of industrial land• Potential for expansion• Local tax structures• Cost of construction• Cost & availability of utilities• Local government tax concessions or incentives

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Types of Warehousing

• Direct Store Delivery (market products directly to customers)

• Public Warehousing (to rent space)• Private Warehousing (to own or lease space)

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Six types of Public Warehousing

• General Merchandise Warehouses for manufactured goods• Refrigerated or Cold Storage Warehouses• Bonded Warehouses• Household Goods and Furniture Warehouses• Special Commodity Warehouses• Bulk Storage Warehouses

Other options• Cross-docking• Contract Warehousing

Factors influencing Warehousing

Two Aspects covered • Size of Warehouses

– Measured in terms of square footage or floor space

– Measured in terms of cubic space of the entire facility

• Number of Warehouses

Factors Affecting the Size1. Customer service levels

– Higher the level, carry more stock2. Size of market (served)

– Wider the market, carry more stock3. Number of products marketed

– Full range of product need more space4. Size of the products

– Bulky one requires more space5. Materials handling system used

– Prepare turn round basin, aisle width6. Throughput rate (i.e. inventory turnover)

– Dedicated location for package/dispatch

7. Production lead time

8. Economies of scale

9. Stock layout

10. Aisle requirement

11. Office area in warehouse

12. Type of racks and shelves used

13. Level of pattern of demand

Determining Warehouse Size1. Obtain monthly sales projection in the planning period2. Convert sales revenue into volume by product group by months3. Get the average inventory volume by considering turnover rate4. Sum the total volume5. Convert into area requirements by dividing the total volume by

ceiling height6. Discount by the utilization factor: aisle, gangway7. Once a monthly figure on area requirement is obtained, a range

of sizes is obtained8. Match the range with the sales volume. Anything over a

particular size is outsourced9. Quantify the use of private and outsourced warehouse in dollars10.The size that results in the least total warehouse operating expenses is the right size

Determinants of Storage Space Requirements

These Situations Decrease the Need For Storage Space These Situations Increase the Need for Storage Space

Decrease in production or salesDecrease in number of SKUsLess volatile demand (including longer product life cycles)Customer handles store deliverySmaller manufacturing lot sizesSmaller purchase amountsHigher inventory turnsBetter informationQuicker transportationCross-dockingCarrier performing consolidation

Market or company expansionShorter product life cycleIncrease in number of SKUsDirect store delivery on a quick response basisElimination of distributorsExpansion into specialized productsImport/export itemsLengthened production processIncrease in minimum manufacturing lot sizeRequirement for faster response timeInflation/forward buying

Deciding Number of Warehouses

• Costs of Lost Sales

• Inventory Costs

• Warehousing costs

• Transportation costs

Relationship Between Total LogisticsCost and the No. of Warehouses

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source

http://books.google.co.in/books?id=sHzM4kaGTusC&pg=PA13&lpg=PA13&dq=stockpiling+as+warehousing+function&source=bl&ots=v0iSBhLj4x&sig=eXv46HGKfTxysXhNVQsnEjX9mXk&hl=en&sa=X&ei=dXLaU-epL9GzuAS6j4DoDQ&ved=0CC4Q6AEwAg#v=onepage&q=stockpiling%20as%20warehousing%20function&f=false

http://logisticssupplychainforum.blogspot.in/2010/03/logistics-warehouse-management-part-i.html