This document discusses storage fundamentals in inventory strategy. It explains that warehouses and material handling are needed to maintain inventories in order to improve coordination between supply and demand. Specific reasons for storage include reducing transportation and production costs, coordinating supply and demand, and assisting production and marketing processes. The document also describes different types of warehouses based on the products stored, the level of storage, and product flows. It discusses storage functions like holding, consolidation, and break-bulk and analyzes alternatives for warehouse ownership, leasing, and rental.

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1
Warehouse management
(Manajemen Pergudangan)
Week 5
Storage Fundamentals in Inventory
Strategy4-37
PLANNING
ORGANIZING
CONTROLLING
Transport Strategy
• Transport fundamentals
• Transport decisions
Customer
service goals
• The product
• Logistics service
• Ord . proc. & info. sys.
Inventory Strategy
• Forecasting
• Inventory decisions
• Purchasing and supply
scheduling decisions
• Storage fundamentals
• Storage decisions
Location Strategy
• Location decisions
• The network planning process
PLANNING
ORGANIZING
CONTROLLING
Transport Strategy
• Transport fundamentals
• Transport decisions
Customer
service goals
• The product
• Logistics service
• Ord . proc. & info. sys.
Inventory Strategy
• Forecasting
• Inventory decisions
• Purchasing and supply
scheduling decisions
• Storage fundamentals
• Storage decisions
Location Strategy
• Location decisions
• The network planning process

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2
Why firm need storage and material
handling?11-38
 Do firm really need storage and
material handling as a part of the
Logistics system?
 Storage is an economic convenience not
a necessity
 Inventory to improve supply and
demand coordinations  warehouse
and material handling are needed
maintaining inventories
Reasons for storage
11-39
 To reduce transportation-production costs
 To coordinate supply and demand
 To assist in the production process
 To assist in the marketing process

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Transportation-production costs
reductions11-40
Ship Direct
from Plant
Ship through 35
warehouses
Change in
costs
Production costs 500,000 425,000 -75,000
Transportation costs
- To warehouse 0 50,000 50,000
- To local area 250,000 100,000 -150,000
Warehouse costs 0 75,000 75,000
Total 750,000 650,000 -100,000
Coordination of supply and demand
 Food, beverage and cigarette
 Steel industry
11-41

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Production needs
 Warehousing may be part of the production
process
 Wine, cheeses
 Cigarette
11-42
Marketing considerations
 Warehousing is needed to deliver rapidly to the
customers and improve customer services (out of
stock)
11-43

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Storage functions
 Holding
 Consolidation
 Break-bulk
 Mixing (merge in translit)
11-44
Consolidation
warehouse
A
A B C D
B
C
D
Manufacturer A
Manufacturer B
Manufacturer C
Manufacturer D
10,000 lb.
8,000 lb.
15,000 lb.
7,000 lb.
40,000 lb.
Customer
Consolidation Warehouse
Similar to a merge-in-
transit facility

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Storage Cost Savings
Direct shipments to customers
MANUFACTURER
SHIPPING
WEIGHT
(lb.)
LTL RATE TO
CUSTOMER COST
A 10,000 $2.00/cwt. $200
B 8,000 1.80 133
C 15,000 3.40 510
D 7,000 1.60 112
Total $966
Storage Cost Savings (Cont’d)
Shipments through a distribution center
MANUFACTURER
SHIPPING
WEIGHT (lb.)
LTL RATE TO
DISTRIBUTION
CENTER
TOTAL LTL
A 10,000 $0.75 $75
B 8,000 0.60 48
C 15,000 1.20 180
D 7,000 0.50 35
Total 40,000
DISTRIBUTION
WAREHOUSE CHARGE
TL RATE FROM
DISTRIBUTION
WAREHOUSE TO
CUSTOMER TOTAL TL COST
$10 $1.00/cwt. $100 $185
8 1.00 80 136
15 1.00 150 345
7 1.00 70 112
$778 11-9

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Distribution
warehouse
Manufacturer Customer B
Customer C
Customer A
Low rate TL
shipment
LTL
Distribution, Break Bulk, or Pool Point
Warehouse
Warehouse may or
may not hold
inventories
Distribution
warehouse
Manufacturer B
Customer Y
Customer X
Product B
Product Mixing
Manufacturer A
Manufacturer C

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Warehouse functions
 as buffer stock to anticipate fluctuations
/uncertainties demands
 to consolidate transportations for economic scale
 to minimise response time for demand fulfillments
 to keep quality and safety of raw
material/parts/finished products that are stored
 Storage functions are performed in an attempt to
reduce transportation, production, and purchasing
costs, which justify their added expense.
Storage alternatives
 Ownership
 Leasing
 Rental
 In-transit
11-51

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Types of Warehouse (types of products)
• raw materials
• finished goods
• supplies
• repair/spare parts
Arnold and Chapman 2008
Types of Warehouse (types of level)
• Main warehouse
 Consumable Item Storage
 Critical item storage
 Cool room
• Secondary warehouse
 Customs Process Storage
 Empty basket storage
 Chemical Storage
 Temporary storage
 Lube oil storage
 Drilling and Completion Storage
 Pipe yard
Case in oil company

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Types of Warehouse (flows)
 Mixing or consolidation warehouse
 Breakbulk warehouse
Drilling and Completion Storage

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Pipe Yard
Manufacturer A
Manufacturer A & B
Manufacturer A, B & C
Manufacturer A, B, C & D
Percentageofusable
warehousecapacity
Time, months
Balancing the Load on a Public
Warehouse
0
20
40
60
80
100
120
J F M A M J J A S O N D
Ballou (2004) Prentice Hall, Inc.

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Space Comparison
Ownership alternative
•Less expensive under high utilization
•High degree of control over operations
•Benefits of real estate ownership
•Space may be converted to uses other than storage
Rental alternative
•No fixed investment
•Lower cost under seasonal or low utilization of an owned facility
•Location flexibility
Ballou (2004) Prentice Hall, Inc.
Ballou (2004) Prentice Hall, Inc.
A Low Throughput, Holding Warehouse
Semipermanent
storage bay Product
Inbound and
outbound

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Semi-permanent
storage bay
Product
Order picking and product mixing bays
Inbound
Outbound
A
B
C
D
C A
Replenishment
Order-picking
route
A High Throughput, Distribution
Warehouse
Ballou (2004) Prentice Hall, Inc.
END