Warehousing
The Logistics System09/05/12                          2
Overview              We will examine the functional nature of               warehouses              We will discuss som...
Introduction           A warehouse is more than just a place            to store inventory while we wait to use it       ...
Introduction            Warehousing is involved in four supply-            chain process:             – Sourcing/inbound ...
Strategic Role of Warehousing              We invest in warehouses or a distribution               center (DC) to:       ...
Strategic Role of Warehousing            As with any other function of the             logistics system, management must ...
Functions of Warehousing            1.    Receiving            2.    Put-Away            3.    Storage            4.    Re...
Functions of Warehousing09/05/12                              9
Functions of Warehousing              Not all functions are necessarily performed in               every warehouse       ...
Functions of Warehousing           A warehouse strategy that minimizes            inventory results in requirement for le...
Warehousing Roles            1. Gathering facilities               • Smaller quantities gathered for manufacturing or     ...
Warehousing Roles            1. Breakdown centers              • Bulk quantities broken down, repackaged and              ...
Warehousing Roles            1. Multi-functional roles               • Both gathering and breakdown may be                ...
Warehouse Location Issue            Whether   you are operating globally or             domestically, managers must decid...
Warehouse Location Issue            Ofcourse, in reality, a mix of these            strategies may be necessary in order ...
Warehouse Location Issue              Centralizing the warehouse function has a               number of advantages and di...
Warehouse Location Issue            – Disadvantages to centralization include:               • Increased inbound shipping ...
Warehouse Location Issue            Ingeneral, centralization can results in             decreased inventory holding cost...
Warehouse Location Issue              Basically a management decision that should               be made under the same co...
Warehouse Location Issue            For a global company, the decision can             become extremely complex          ...
Selecting the Warehouse           Location              Once the firm decides on a strategy, one still               must...
Selecting the Warehouse           Location            Basic questions to be addressed in a            location decision i...
Selecting the Warehouse           Location            Early location theory focused on             transportation cost mi...
Approaches for Selecting the           Warehouse Location               Three basic approaches:               1. Optimiza...
Approaches for Selecting the           Warehouse Location               Three basic approaches:               1. Optimiza...
Approaches for Selecting the           Warehouse Location            2. Simulations               • Mathematical/logical m...
Approaches for Selecting the           Warehouse Location            3. Heuristics              •   Systems that are highl...
 Warehouse   location has a direct impact            on the entire logistics system             – Number of warehouses af...
 Mostsignificantly, location affects            customer service             – Order cycle times and variability of that ...
Warehousing Alternatives              Private Warehouse (company owned and               operated)               – Advant...
Warehousing Alternatives Contract         Warehousing (operated by a 3rd    party)      – Advantages:           • Similar...
Warehousing Alternatives Contract         Warehousing (operated by a 3rd    party)      – Disadvantages:           • Some...
Warehousing Alternatives            PublicWarehousing operated by a 3rd            party receiving, storing and shipping ...
Warehousing Alternatives              Public Warehousing operated by a 3rd party               receiving, storing and shi...
Warehousing Strategies              Decision to utilize private, public or contract               warehousing should be b...
Concerns in Overseas Markets            Myriadof issues facing new market            development for any company         ...
Concerns in Overseas Markets            In general, for a company servicing a             global market, warehousing poli...
Summary              Warehousing is an important logistics               function              Long term cost and custom...
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Classpptassignment scm

  1. 1. Warehousing
  2. 2. The Logistics System09/05/12 2
  3. 3. Overview  We will examine the functional nature of warehouses  We will discuss some reasons for having warehousing as a component of our logistics system  We will review several different ways of accomplishing the warehouse function  We will briefly discuss the warehouse location problem and solution approaches09/05/12 3
  4. 4. Introduction A warehouse is more than just a place to store inventory while we wait to use it or ship it  The warehousing function can have a significant impact on both the cost and operation of our logistics system and thus the firm’s business09/05/12 4
  5. 5. Introduction  Warehousing is involved in four supply- chain process: – Sourcing/inbound logistics – Processing/manufacturing – Outbound distribution – Reverse Logistics09/05/12 5
  6. 6. Strategic Role of Warehousing  We invest in warehouses or a distribution center (DC) to: – Provide local inventory – Perform value-added services for our customers – Operate near vital suppliers – Consolidate outbound orders – Protect against manufacturing lead-times – Handle reverse logistics – Perform quality inspections – Enable manufacturing economics – Enable procurement efficiencies, etc.09/05/12 6
  7. 7. Strategic Role of Warehousing  As with any other function of the logistics system, management must make decisions about warehousing based on the overall system impact – Benefits must outweigh the costs  If the cost are greater than the benefits…find another way to do business09/05/12 7
  8. 8. Functions of Warehousing 1. Receiving 2. Put-Away 3. Storage 4. Replenishment 5. Order Selection/Order Picking 6. Checking 7. Packing and Labeling 8. Staging and Consolidation 9. Shipping 10. Clerical/Office Administration09/05/12 8
  9. 9. Functions of Warehousing09/05/12 9
  10. 10. Functions of Warehousing  Not all functions are necessarily performed in every warehouse  Notice that the majority of these functions revolve around the movement of product  The layout in the previous diagram is aimed at minimizing wasted product movement09/05/12 10
  11. 11. Functions of Warehousing A warehouse strategy that minimizes inventory results in requirement for less storage and smoother flows  Warehouses with “0” inventory are essentially cross-docking operations – FedEx, UPS, DHL, etc. do a good job of this09/05/12 11
  12. 12. Warehousing Roles 1. Gathering facilities • Smaller quantities gathered for manufacturing or repackaging • Less-Than-Load quantities from a variety of sources reshipped as Full-Load (TL originally Truck-Load) • Freight forwarding operations09/05/12 12
  13. 13. Warehousing Roles 1. Breakdown centers • Bulk quantities broken down, repackaged and shipped in smaller quantities (typical of DCs) • May be TL inbound and TL or LTL outbound • Wal-Mart DCs for example09/05/12 13
  14. 14. Warehousing Roles 1. Multi-functional roles • Both gathering and breakdown may be necessary in a global logistics environment09/05/12 14
  15. 15. Warehouse Location Issue  Whether you are operating globally or domestically, managers must decide on a warehousing strategy with respect to warehouse location that best serves their customers  There are two basic strategies: – Centralized facility – Facilities in each markets served09/05/12 15
  16. 16. Warehouse Location Issue  Ofcourse, in reality, a mix of these strategies may be necessary in order to deliver the appropriate level of customer service in varied specific markets09/05/12 16
  17. 17. Warehouse Location Issue  Centralizing the warehouse function has a number of advantages and disadvantages – Advantages include: • Simplified order processing • Elimination of nationally (locally) based operations • Reduced capital requirements • Reduce inventory holding costs • Reduced outbound shipping costs • Increased opportunity for use of intermodal transport • Opportunity to simplify channel network09/05/12 17
  18. 18. Warehouse Location Issue – Disadvantages to centralization include: • Increased inbound shipping cost • Possibly means larger, more complex and thus more costly warehousing facilities and systems – Market specific product packaging – Market specific safety and physical requirements • Negative customer perceptions • Negative marketing, sales and channel associate perceptions • Increased dependence on channel intermediaries09/05/12 18
  19. 19. Warehouse Location Issue  Ingeneral, centralization can results in decreased inventory holding costs  Square Root Law of inventory n2 X 2 = X1 n1 where : n1 ≡ number of existing facilities n2 ≡ number of future facilities X 1 ≡ total inventory in existing facilities X 2 ≡ total inventory in future facilities09/05/12 19
  20. 20. Warehouse Location Issue  Basically a management decision that should be made under the same constraints as all other logistics system decisions (i.e. total system cost minimization, profit maximization and customer service constraints)  However, once again, government laws and regulations may dictate what approach we take in any single market09/05/12 20
  21. 21. Warehouse Location Issue  For a global company, the decision can become extremely complex  Like all other strategies, warehouse location is one that must be reexamined on a period basis09/05/12 21
  22. 22. Selecting the Warehouse Location  Once the firm decides on a strategy, one still must choose specific locations for each facility  Numerous variables must be considered, but the task not too difficult if you only have one product…but with even a small variety of products, the problem can become unwieldy very quickly09/05/12 22
  23. 23. Selecting the Warehouse Location  Basic questions to be addressed in a location decision include: – How many warehouses? – How will we allocate customer demand? – How will we allocate production/supplier output?  Notice that all the issues address customer service09/05/12 23
  24. 24. Selecting the Warehouse Location  Early location theory focused on transportation cost minimization…  Focus was on minimizing time of transport or cost of transport – Can’t ignore these factors, but it is customer service that must come first09/05/12 24
  25. 25. Approaches for Selecting the Warehouse Location  Three basic approaches: 1. Optimizations • Mathematical models (Linear Programming) • Provide an optimal solution • But, require a great deal of abstraction to develop the model and the resulting solution must be critically reviewed • Very good approach for well understood systems and particularly where transportation cost are a primary consideration.09/05/12 25
  26. 26. Approaches for Selecting the Warehouse Location  Three basic approaches: 1. Optimizations (continued) • Extremely expensive if you must develop a custom application/solution • May lose some important focus when using an existing solution software package including contribution to revenue, lot-sizing and timing, for-hire vs. private transportation, issues pertaining to customer service and dynamic considerations09/05/12 26
  27. 27. Approaches for Selecting the Warehouse Location 2. Simulations • Mathematical/logical models generally implemented on a computer • They don’t provide an optimal solution except by chance • Very flexible and capable of addressing many of management’s “what-if” questions…if properly constructed • Can be a significant undertaking to develop and maintain in both time and money • Excellent approach for organizations that are expanding either in terms of markets and/or products/services09/05/12 27
  28. 28. Approaches for Selecting the Warehouse Location 3. Heuristics • Systems that are highly dependent on management (or other expert) opinion/input • May be effectively used to bound optimization and simulation modeling efforts • Increase the probability of missing a “good” solution09/05/12 28
  29. 29.  Warehouse location has a direct impact on the entire logistics system – Number of warehouses affects overall level of safety stock – Allocation of markets to warehouses affects the level of inventories at each warehouse – Location of warehouses affect all transportation times09/05/12 29
  30. 30.  Mostsignificantly, location affects customer service – Order cycle times and variability of that time – Product availability – Replenishment lead times and their variability09/05/12 30
  31. 31. Warehousing Alternatives  Private Warehouse (company owned and operated) – Advantages: • Custom designed to meet our needs • Highest level of management control • Conveys a commitment to the market • Can house other organizational functions – Disadvantages: • High capital cost and operations costs • Decreased flexibility to meet product mix and market changes09/05/12 31
  32. 32. Warehousing Alternatives Contract Warehousing (operated by a 3rd party) – Advantages: • Similar to owner-operated warehouse • Generally contracted for a specific level of activity and services over a specified period of time • Can provide specialized services and handling • Dedicates personnel to the company’s products thus assuring some level of customer service commitment09/05/12 32
  33. 33. Warehousing Alternatives Contract Warehousing (operated by a 3rd party) – Disadvantages: • Somewhat less direct managerial control • Sharing of customer information • Risk associated with a deteriorating relationship, rapidly changing market/customer needs, and/or evolving product lines09/05/12 33
  34. 34. Warehousing Alternatives  PublicWarehousing operated by a 3rd party receiving, storing and shipping goods for multiple customers – Advantages: • Only pay for what you use • Capital and operating cost are of no concern • Know what the cost will be each month09/05/12 34
  35. 35. Warehousing Alternatives  Public Warehousing operated by a 3rd party receiving, storing and shipping goods for multiple customers – Disadvantages: • Little control over operations • Higher cost on a unit basis (generally) • Less emphasis on your customers’ service requirements • Lower level of customization for your goods • Risk with respect to flexibility09/05/12 35
  36. 36. Warehousing Strategies  Decision to utilize private, public or contract warehousing should be based on the total system cost and benefit considerations – Must assess the firm’s ability to perform the function – Compare to outsourcing based on factors such as: • Cost • Ability to meet customer needs • Control • Environmental concerns • Confidentiality • Market conditions • Level of service assurances09/05/12 36
  37. 37. Concerns in Overseas Markets  Myriadof issues facing new market development for any company – Finding facilities may be challenging – May not be able to legally own the facilities – Quality of care in public/contract facilities – Quality of customer service from 3rd party providers09/05/12 37
  38. 38. Concerns in Overseas Markets  In general, for a company servicing a global market, warehousing policy will inevitably vary from market to market.  Those just going international are often confounded when trying to implement the same warehousing strategy they use domestically.09/05/12 38
  39. 39. Summary  Warehousing is an important logistics function  Long term cost and customer service impacts  Location of facilities involves more than just the cost/time minimization of transportation  Outsourcing of the warehousing function is an increasingly attractive alternative strategy for many organizations, but you must understand the total cost of alternatives09/05/12 39

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