CHAPTER 9:

Warehousing

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Warehousing overview
Strategic warehousing
Warehouse operations
Warehouse ownership
arrangements
Warehouse decisions

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Warehousing contributes value in the

logistics process
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
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Evolution of strategic warehousing

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

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Warehousing types evolved to

accommodate the dynamic aspects

Distribution centers
Consolidation terminals
Break-Bulk facilities
Cross-docks

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Strategic warehousing offers manufacturers a way

to reduce dwell time of parts and materials
Warehousing is integral to justin-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

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Strategic warehousing can provide both

economic and service benefits
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

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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

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Illustration of consolidation and

break-bulk arrangements

Figure 9.1 Consolidation and Break-Bulk Arrangements

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Figure 9.2 - Sorting involves reconfiguring

freight as it flows from origin to destination

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Cross-docking is used extensively by

retailers to replenish store inventories
Cross-docking combines inventory from multiple origins
into a prespecified assortment for a specific customer

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Successful cross-docking is highly

dependent on information technology
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.)

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Mixing is usually performed at an intermediate

location between origin and destination
Mixing combines inventory from multiple origins (like
cross-docking) but also adds items that are regularly
stocked at the mixing warehouse

Stock
Inventory

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Assembly supports manufacturing

operations
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

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Seasonal storage provides direct benefit by

accommodating production or demand
Seasonal production
include agricultural
products
Seasonal demand includes
lawn furniture and toys
Seasonal storage allows
production efficiencies
within the constraints of
seasonality

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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

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Illustration of reverse logistics flow

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Service benefits of warehousing

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

Full Line Stocking at

United Electrics
Distribution Center

See Table 10.1 for examples

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Typical list of value-added services

Table 10.1 Value-Added Services

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Warehouse operations involve two major

activities handling and storage
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

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Handling
Handling must optimize
movement continuity and
efficiency
ReceivingUnloading the
arriving vehicles
In-Storagemoving goods
for storage (transfer) or order
selection (picking)
Shippingverifying the
order and loading the
departing vehicles

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Storage plans should make product

velocity a major factor
Slotting determines
specific locations for the
product based on
Velocityhow fast the goods
move
Weighthow heavy is the
product
Special Characteristics
how large or small, does it
require rack or bin storage

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Illustration of storage plan based on

product movement velocity

Figure 9.3 Storage Plan Based on Product Movement Velocity

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Warehouses must manage two classes

of storage
Active Storagestorage for
basic inventory replenishment
Focuses on quick movement
Includes flow-through or crossdock distribution

Extended Storagestorage
for inventory held in excess of
period for normal
replenishment
E.g. seasonal, speculative, or
even commodities
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Warehouse ownership arrangements

Privatewarehouse operated
by the firm owning the product
Building may be owned or leased

Publicservice company owns

warehouse and hires out space
and services
Usually classed as

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General merchandise
Refrigerated
Bonded
Special commodity
Household goods and furniture

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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 firms employees will work
alongside the contract warehouses
Example is Kraft Foods who has
contracted with AmeriCold Logistics
since the late 1990s

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Network deployment is the combination of private,

public and contract facilities used by a firm
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
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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

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Site selection is driven by service

availability and cost factors
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

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Illustration of straight-line product flow to

facilitate velocity

Figure 9.4 Basic Warehouse Design

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Two examples illustrating the integration of

handling equipment with final layout

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Figure 9.5 Layouts A and B

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Warehouse management systems

encourage best practices
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 customers 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

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Illustration of the range of activities

coordinated by an advanced WMS

Figure 9.6 Warehouse Management System Functionality

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A summary of WMS functionality and

decision support benefits
Table 9.2 WMS Functionality and Decision Support

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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
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Safety and maintenance issues must also be

considered when planning warehouse designs
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

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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

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