1. Warehousing Decisions
Chapter 8
Warehousing Decisions

2. Contents: Warehousing
General concept of warehousing
A) Deciding warehousing..
B) Its environment …
Basic Warehouse Operations
Warehouse Layout and Design
Materials Handling
Chapter 8
Management of Business Logistics, 7th Ed.

3. Management of Business Logistics, 7th Ed.
1. Warehousing
Why we need warehousing
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.
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.
Chapter 8
Management of Business Logistics, 7th Ed.

4. Management of Business Logistics, 7th Ed.
A general environment of Warehouse in a business setting, how complex is it …
Chapter 8
Management of Business Logistics, 7th Ed.

5. 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
Chapter 8
Management of Business Logistics, 7th Ed.

6. Management of Business Logistics, 7th Ed.
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
Chapter 8
Management of Business Logistics, 7th Ed.

7. A) Deciding warehousing..
The role of warehousing in:
1. Transportation
Inbound Versus outbound logistics
….see next slide
2. Supply and product mixing
Product mix Versus Supply mix
Chapter 8
Management of Business Logistics, 7th Ed.

8. Figure 8-1 Transportation Consolidation
Chapter 8
Management of Business Logistics, 7th Ed.

9. Figure 8-2 Supply and Product Mixing
Chapter 8
Management of Business Logistics, 7th Ed.

10. Managerial Questions:
The ownership of Warehousing:
Shall we own or rent a warehouse, how to management them?
Based on “trade-off” vlaue
Chapter 8
Management of Business Logistics, 7th Ed.

11. Basic Warehouse Decisions: A Cost Trade-off Framework
1. Ownership
1a Public versus 1b contract versus 1c private
2. Centralized or Decentralized Warehousing
How many
Location
Size
Layout
What products where
Chapter 8
Management of Business Logistics, 7th Ed.

12. The Ownership Decision: 1a Versus 1c
1a. Public warehousing costs mostly all variable.
1c. Private warehousing costs have a higher fixed cost component.
Thus private warehousing virtually requires a high and constant volume.
Chapter 8
Management of Business Logistics, 7th Ed.

13. The Ownership Decision: 1a Vs 1c
Other Factors to consider for 1a or 1c:
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
Their characteristics … see next slide
Chapter 8
Management of Business Logistics, 7th Ed.

14. Table 8-2 Firm Characteristics Affecting the Ownership Decision
Chapter 8
Management of Business Logistics, 7th Ed.

15. Management of Business Logistics, 7th Ed.
1a Vs 1b
characteristics of:
1a Public Warehouse
1b contract Warehouse
Chapter 8
Management of Business Logistics, 7th Ed.

16. Management of Business Logistics, 7th Ed.
1a. Public Warehousing
Rationale for Public Warehousing
Limited capital investment
Flexibility
Public Warehousing Services
Bonded warehousing tax/tariffs deferment pay only when ready to sell
Field warehouses co uses inventory as a form of collateral for a loan
its regulations & rate based requirement
… next slide
Chapter 8
Management of Business Logistics, 7th Ed.

17. Management of Business Logistics, 7th Ed.
1a. 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
Chapter 8
Management of Business Logistics, 7th Ed.

18. 1b.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.
Chapter 8
Management of Business Logistics, 7th Ed.

19. 2a Centralized Vs 2b Decentralized Warehousing
Their decision features include:
Substitutability alternative choices
Product Value capital cost
Purchase Size dimensional of goods
Special Warehousing special facility
Product Line special equipment?
Customer Service % of customer satisfaction
See next slide for comparison ….
Chapter 8
Management of Business Logistics, 7th Ed.

20. 2a Centralized Vs 2b Decentralized Warehousing
Factor
Centralized
Decentralized
Substitutability
Low
High
Product Value
Purchase Size
Large
Small
Special Warehousing
Yes No
Product Line
Diverse
Limited
Customer Service
Chapter 8
Management of Business Logistics, 7th Ed.

21. How many warehouses should we have?
Their decision features include:
Inventory costs
Warehousing costs
Transportation costs
Cost of lost sales
Maintenance of customer service levels
Service small quantity buyers
Their comparison ….
Chapter 8
Management of Business Logistics, 7th Ed.

22. 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
Chapter 8
Management of Business Logistics, 7th Ed.

23. Management of Business Logistics, 7th Ed.
The logical flow for selecting type of warehousing…..
Chapter 8
Management of Business Logistics, 7th Ed.

24. Figure 8-3 Basic Warehousing Decisions
Chapter 8
Management of Business Logistics, 7th Ed.

25. Management of Business Logistics, 7th Ed.
B) Its environment …
B1. Basic Warehouse Operations
B2. Warehouse Layout and Design
B3. Materials Handling + appendix
B4. Packaging
B5. Bar Codes
Chapter 8
Management of Business Logistics, 7th Ed.

26. B1. Basic Warehouse Operations
Movement
Receiving
Put-away
Order picking
Shipping
Storage
Stock location
Warehouse Management System (WMS)
Chapter 8
Management of Business Logistics, 7th Ed.

27. Figure 8-6 Basic Warehouse Operations
Chapter 8
Management of Business Logistics, 7th Ed.

28. Figure 8-7 The Computerized Warehouse
Chapter 8
Management of Business Logistics, 7th Ed.

29. B2. 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.
Chapter 8
Management of Business Logistics, 7th Ed.

30. B2. Warehouse Layout and Design
6. Provide for the transportation interface.
7. Provide for order-picking space.
8. Provide storage space.
9. Provide recouping, office, and miscellaneous spaces.
… see next slide for layout ….
Chapter 8
Management of Business Logistics, 7th Ed.

31. Figure 8-8 Warehouse Space Requirements
Chapter 8
Management of Business Logistics, 7th Ed.

32. Principles of 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.
Chapter 8
Management of Business Logistics, 7th Ed.

33. Management of Business Logistics, 7th Ed.
Their level of significant ……
Chapter 8
Management of Business Logistics, 7th Ed.

34. Figure 8-9 Principles of Warehouse Layout Design
Most
Common
Acceptable
priority
(see next slide)
Chapter 8
Management of Business Logistics, 7th Ed.

35. The flow of Warehouse Layout and Design
Basic needs:
Receiving
Basic storage area
Order selection and preparation
Shipping
One dimensional design
Chapter 8
Management of Business Logistics, 7th Ed.

36. Warehouse Layout and Design: Layout and Design Objectives
Cubic capacity utilization
Max use od space
Protection
Stay away hazardous materials
Efficiency
1 space, 2 labor cost
Mechanization
Automation vs obsolescence
Productivity
Materials/labor cost
See next slide …..
Chapter 8
Management of Business Logistics, 7th Ed.

37. Table 8-4: Warehouse Productivity Metrics
Pound handled
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
Labor cost
Chapter 8
Management of Business Logistics, 7th Ed.

38. Management of Business Logistics, 7th Ed.
B3. Materials Handling
Definition: Efficient short distance movement in or between buildings and a transportation agency.
Four dimensions
Movement
Horizontal vs vertical
Time
Traveling time between locations
Quantity
How much can carry/various of goods
Space
Required space
Coordination – between all parties involved
Chapter 8
Management of Business Logistics, 7th Ed.

39. B3. Objectives of Materials Handling
Increase effective capacity see next slide
Minimize aisle space
Reduce product handling
Develop effective working conditions
Reduce heavy labor
Improve logistics service
Reduce cost
Chapter 8
Management of Business Logistics, 7th Ed.

40. Management of Business Logistics, 7th Ed.
Figure Utilization of a Warehouse’s Cubic Capacity: Principles of Warehouse Layout Design
Chapter 8
Management of Business Logistics, 7th Ed.

41. B3. Guidelines and Principles for Materials Handling
To effectively plan and control materials handling, the logistics manager should recognize some guidelines and principles.
Table 8-5 lists 20 of the most commonly accepted principles of effective materials handling. Asterisks mark those deserving special attention. …. See next slide….
Chapter 8
Management of Business Logistics, 7th Ed.

42. Table 8-5 Principles of Materials Handling
Chapter 8
Management of Business Logistics, 7th Ed.

43. Management of Business Logistics, 7th Ed.
B4. Packaging
Interest in packaging is widespread
1. Logistics
Warehousing
Transportation
Size
2. Marketing attractiveness
3. Production related costs on how goods are placed
4. Legal confine with env. Rules and regulations
Chapter 8
Management of Business Logistics, 7th Ed.

44. Management of Business Logistics, 7th Ed.
B4. The Role of Packaging
Identify product and provide information
Make it more appearing to customers
Improve efficiency in handling and distribution
physical dimensions, strength, shapes
Customer interface
Integrate/compatible with customers’ handling systems
Protect product
Adequate of product production
Chapter 8
Management of Business Logistics, 7th Ed.

45. Management of Business Logistics, 7th Ed.
What Is Packaging?
1. Consumer packaging
Marketing managers primarily concerned with how the package fits into the marketing mix.
2. 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.
Chapter 8
Management of Business Logistics, 7th Ed.

46. Management of Business Logistics, 7th Ed.
Packaging Materials
Table 8-6 presents a comparison of various packing material characteristics.
Basic considerations include:
Soft materials
Plastic
Environmental issues
Recycling (reverse logistics)
Chapter 8
Management of Business Logistics, 7th Ed.

47. Table 8-6 Comparison of Cushioning Materials
Chapter 8
Management of Business Logistics, 7th Ed.

48. Management of Business Logistics, 7th Ed.
B5. 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
An important system for SCM
environment
Chapter 8
Management of Business Logistics, 7th Ed.

49. Chapter 8: Summary and Review Questions
Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 8.

50. Table 8-1 Warehouse Value-Adding Roles
Chapter 8
Management of Business Logistics, 7th Ed.

51. End of Chapter 8 and 8A Slides
Warehousing Decisions