1. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 9: Warehousing

2. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Strategic warehousing Warehouse operations Warehouse ownership arrangements Warehouse decisions Warehousing overview

3. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 contributes value in the logistics process

4. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Evolution of strategic warehousing

5. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Warehousing types evolved to accommodate the dynamic aspects Distribution centers Consolidation terminals Break-Bulk facilities Cross-docks

6. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Warehousing is integral to just- in-time (JIT) and stockless production strategies –Requires strategically located warehouses across the globe An important goal in warehousing is to maximize flexibility –Respond to ever-changing customer demand Product assortments Value-added services Shipment sequencing Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials

7. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 –Spot-stocking –Full line stocking –Value-added services Strategic warehousing can provide both economic and service benefits

8. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Consolidation and break-bulk reduce transportation cost Consolidation occurs when a warehouse receives materials from a number of sources and combines them into exact quantities for a specific destination Break-bulk occurs when a warehouse receives a single large shipment and arranges for delivery to multiple destinations

9. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Illustration of consolidation and break-bulk arrangements Figure 9.1 Consolidation and Break-Bulk Arrangements

10. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 9.2 - Sorting involves reconfiguring freight as it flows from origin to destination

11. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Cross-docking combines inventory from multiple origins into a prespecified assortment for a specific customer Cross-docking is used extensively by retailers to replenish store inventories

12. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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.) Successful cross-docking is highly dependent on information technology WalMart Distribution Center

13. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Mixing combines inventory from multiple origins (like cross-docking) but also adds items that are regularly stocked at the mixing warehouse Mixing is usually performed at an intermediate location between origin and destination Stock Inventory

14. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Assembly occurs when products or components from second-tier suppliers are assembled by a warehouse located near manufacturing plant Common assembly processes are packaging and color customizing Assembly supports manufacturing operations

15. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Seasonal production include agricultural products Seasonal demand includes lawn furniture and toys Seasonal storage allows production efficiencies within the constraints of seasonality Seasonal storage provides direct benefit by accommodating production or demand

16. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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

17. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Illustration of reverse logistics flow

18. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Spot-stocking is the positioning of inventory for seasonal or promotional demand Full line stocking provides one-stop shopping capability for goods from multiple suppliers Value-added services include any work that creates a greater value for customers –See Table 10.1 for examples Service benefits of warehousing Full Line Stocking at United Electric’s Distribution Center

19. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Typical list of value-added services Table 10.1 Value-Added Services

20. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Warehouse operations involve two major activities – handling and storage

21. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Handling

22. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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

23. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Illustration of storage plan based on product movement velocity Figure 9.3 Storage Plan Based on Product Movement Velocity

24. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Warehouses must manage two classes of storage

25. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Bonded Special commodity Household goods and furniture

26. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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

27. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Network deployment is the combination of private, public and contract facilities used by a firm

28. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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

29. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Site selection is driven by service availability and cost factors

30. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Illustration of straight-line product flow to facilitate velocity Figure 9.4 Basic Warehouse Design

31. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Two examples illustrating the integration of handling equipment with final layout Figure 9.5 Layouts A and B

32. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 Warehouse management systems encourage best practices

33. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Illustration of the range of activities coordinated by an advanced WMS Figure 9.6 Warehouse Management System Functionality

34. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin A summary of WMS functionality and decision support benefits Table 9.2 WMS Functionality and Decision Support

35. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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

36. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Accident prevention –Comprehensive safety programs and training, accident investigation and follow up Environmental protection –Spill kits and spill plans Maintenance –Scheduled maintenance of building, material handling equipment, and collision damage prevention Safety and maintenance issues must also be considered when planning warehouse designs

37. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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 http://www.youtube.com/watch?v=ZbPMaxNl3J4