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Warehouse Management

Is it only a storage facility?


A warehouse is typically viewed as a place to

store inventory.
However, in many logistical system designs,

the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility.

A Sample Warehouse

Video

Benefits of Warehousing
Consolidation Shipment consolidation is an economic benefit of warehousing. With this arrangement, the consolidating warehouse receives and consolidated materials from a number of manufacturing plants destined to a specific customer on a single transportation shipment. he benefits are the reali!ation of the lowest possible transportation rate and reduced congestion at a customer"s receiving doc#.

Consolidation Warehouses

Consolidation Warehouses

he primary benefit of consolidation is that it combines the logistical flow of several small shipments to a specific mar#et area.

&onsolidation warehousing may be used by a single

firm, or a number of firms may 'oin together and use a for(hire consolidation service. hrough the use of such a program, each individual manufacturer or shipper can en'oy lower total distribution cost that could be reali!ed on a direct shipment basis individually.

Break bulk warehouses


*rea# bul# warehouse operations are similar to

consolidation e+cept that no storage is performed. A brea# bul# operation receives combined customer orders from manufacturers and ships them to individual customers. he brea# bul# warehouse sorts or splits individual orders and arranges for local delivery. *ecause the long(distance transportation movement is a large shipment, transport costs are lower and there is less difficulty in trac#ing.

Break bulk warehouses

rocessing! ostponement
Warehouses can also be used to postpone, or delay,

production by performing processing and light manufacturing activities.

A warehouse with pac#aging or labeling capability

allows postponement of final production until actual demand is #nown.

.or e+ample, vegetables can be processed and

canned in /brights/ at the manufacturer.

*rights are cans with no pre(attached labels.


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rocessing! ostponement
he use of brights for a private label product

means that the item does not have to be committed to a specific customer or pac#age configuration at the manufacturer"s plant.
2nce a specific customer order is received,

the warehouse can complete final processing by adding the label and finali!ing the pac#aging.
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rocessing! ostponement
3rocessing and postponement provide two economic

benefits4
.irst, ris# is minimi!ed because final pac#aging is not

completed until an order for a specific label and pac#age has been received.
Second, the re5uired level of total inventory can be

reduced by using the basic product 6brights7 for a variety of labeling and pac#aging configurations.
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Stockpiling

he economic benefit of stoc#piling comes from the need of seasonal storage. .or e+ample, lawn furniture and toys are produced year(round and primarily sold during a very short mar#eting period. 8n contrast, agricultural products are harvested at specific times with subse5uent consumption occurring throughout the year. *oth situations re5uire warehouse stoc#piling to support mar#eting efforts. Stoc#piling provides an inventory buffer, which allows production efficiencies within the constraints imposed by material sources and the customer.
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Video

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Ser"ice Benefits
.ive basic service benefits are achieved

through warehousing4
spot stoc#, assortment, mi+ing, production support, and mar#et presence.

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Spot Stock
9nder spot stoc#ing, a selected amount of a firm"s

product line is placed or /spot stoc#ed/ in a warehouse to fill customer orders during a critical mar#eting period. 8n particular, manufacturers with limited or highly seasonal product lines are partial to this service.
:ather than placing inventories in warehouse

facilities on a year(round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic mar#ets.
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Assortment
An assortment warehouse stoc#s product

combinations in anticipation of customer orders. he assortments may represent multiple products from different manufacturers or special assortments as specified by customers. 8n the first case, for e+ample, an athletic wholesaler would stoc# products from a number of clothing suppliers so that customers can be offered assortments. 8n the second case, the wholesaler would create a specific team uniform including shirt, pants, and shoes.
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Assortment "s# Spot Stock


he difference between spot stoc#ing and complete line assortment is the degree and duration of warehouse utili!ation. A firm following a spot stocking would typically warehouse a narrow product assortment and place stoc#s in a large number of small warehouses dedicated to specific mar#ets for a limited time period. ;istribution assortment warehouse usually has a broad product line, is limited to a few strategic locations, and is functional year(round. he combined assortments also allow larger shipment 5uantities, which in turn reduce transportation cost.

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Mi$ing
8n a typical mi+ing situation, truc#loads of products

are shipped from manufacturing plants to warehouses. <ach large shipment en'oys the lowest possible transportation rate. 9pon arrival at the mi+ing warehouse, factory shipments are unloaded and the desired combination of each product for each customer or mar#et is selected. When plants are geographically separated, overall transportation charges and warehouse re5uirements can be reduced by mi+ing.
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roduction Support
3roduction support warehousing provides a steady

supply of components and materials to assembly plants.

Safety stoc#s on items purchased from outside

vendors may be 'ustified because of long lead times or significant variations in usage. he operation of a production support warehouse is to supply or /feed/ processed materials, components, and subassemblies into the assembly plant in an economic and timely manner.
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Market resence
While a mar#et presence benefit may not be so

obvious, it is often cited by mar#eting managers as a ma'or advantage of local warehouses. he mar#et presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer 5uic#er delivery than more distant warehouses.

As a result, it is also thought that a local warehouse

will enhance mar#et share and potentially increase profitability.

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Warehouse %perating rinciples


2nce it has been determined to use a

warehouse, the ne+t step is designing it. Whether the warehouse is a small manual operation or a large automated facility, the following three principles are relevant4
;esign criteria, Handling technology, and Storage plan.

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&esign Criteria
Warehouse design criteria address physical

facility characteristics and product movement. hree factors to be considered in the design process are4
the number of storey"s in the facility, height utili!ation, and product flow.

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'umber of storey in the facility


he ideal warehouse design is limited to a single storey so that product does not have to be moved up and down. he use of elevators to move product from one floor to the ne+t re5uires time and energy. he elevator is also often a bottlenec# in product flow since many material handlers are usually competing for a limited number of elevators. While it is not always possible, particularly in central business districts where land is restricted or e+pensive, warehouses should be limited to a single story.

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(eight utili)ation
:egardless of facility si!e, the design should

ma+imi!e the usage of the available cubic space by allowing for the greatest use of height on each floor. =ost warehouses have 21( to 31(feet ceilings 60 foot > 02 inch? 0 inch > 2.$4 cm7, although modern automated and high(rise facilities can effectively use ceiling heights up to 011 feet. hrough the use of rac#ing or other hardware, it should be possible to store products up to the building"s ceiling. =a+imum effective warehouse height is limited by the safe lifting capabilities of material(handling e5uipment, such as for#lifts.
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roduct flow
Warehouse design should also allow for straight

product flow through the facility whether items are stored or not.
8n general, this means that product should be

received at one end of the building, stored in the middle, and then shipped from the other end.
Straight(line product flow minimi!es congestion and

confusion.
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(andling technology
he second principle focuses on the

effectiveness and efficiency of material( handling technology.


he elements of this principle concern4

movement continuity and movement scale economies.

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Mo"ement continuity
=ovement continuity means that it is better for a

material handler or piece of handling e5uipment to ma#e a longer move than to have a number of handlers ma#e numerous, individual, short segments of the same move.

<+changing the product between handlers or moving

it from one piece of e5uipment to another wastes time and increases the potential for damage.

hus, as a general rule, fewer longer movements in the warehouse are preferred.
2)

Mo"ement scale economies


=ovement scale economies imply that all warehouse

activities should handle or move the largest 5uantities possible. 8nstead of moving individual cases, warehouse activities should be designed to move groups of cases such as pallets or containers. his grouping or batching might mean that multiple products or orders must be moved or selected at the same time. While this might increase the comple+ity of an individual"s activities since multiple products or orders must be considered, the principle reduces the number of activities and the resulting cost.
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Storage lan
According to the third principle, a warehouse design

should consider product characteristics, particularly those pertaining to volume, weight, and storage. 3roduct volume is the ma'or concern when defining a warehouse storage plan. High(volume sales or throughput product should be stored in a location that minimi!es the distance it is moved, such as near primary aisles and in low storage rac#s. Such a location minimi!es travel distance and the need for e+tended lifting. &onversely, low(volume product can be assigned locations that are distant from primary aisles or higher up in storage rac#s.
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A Sample Storage Area

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Storage lan
Similarly, the plan should include a specific strategy

for products dependent on weight and storage characteristics. :elatively heavy items should be assigned to locations low to the ground to minimi!e the effort and ris# of heavy lifting. *ul#y or low(density products re5uire e+tensive storage volume, so open floor space or high(level rac#s can be used for them. 2n the other hand, smaller items may re5uire storage shelves or drawers. he integrated storage plan must consider and address the specific characteristics of each product.
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Alternati"e Warehouse Strategies


Warehouse alternatives include4 607 3rivate warehouses, 627 3ublic warehouses, and 637 &ontract warehouses. A private warehouse facility is owned and managed

by the same enterprise that owns the merchandise handled and stored at the facility. A public warehouse, in contrast, is operated as an independent business offering a range of services (such as storage, handling, and transportation( on the basis of a fi+ed or variable fee. 3ublic warehouse operators generally offer relatively standardized services to all clients.
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Alternati"e Warehouse Strategies###


Contract warehousing, which is evolving from the public

warehouse segment, provides benefits of both the private and public alternatives.

&ontract warehousing is a long term, mutually beneficial

arrangement which provides uni5ue and specially tailored warehousing and logistics services e+clusively to one client, where the vendor and client share the ris#s associated with the operation.

8mportant dimensions that differentiate contract

warehousing operators from public warehouse operators are the e+tended time frame of the service relationship, tailored services, e+clusivity, and shared ris#.
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ri"ate Warehouses
A private warehouse is operated by the firm owning

the product.

he actual facility, however, may be owned or leased. he decision as to which strategy best fits an individual firm is essentially financial.

2ften it is not possible to find a warehouse for lease

that fits the e+act re5uirements of a firm.

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ublic Warehouses
2n the basis of the range of speciali!ed operations

performed, public warehouses are classified as


607 general merchandise, 627 refrigerated, 637 special commodity, 647 bonded, and 6$7 household goods and furniture.

<ach warehouse type differs in its material handling

and storage technology as a result of the product and environmental characteristics.


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ublic Warehouses
General merchandise warehouses are designed to

hand8e general pac#age commodities such as paper, small appliances, and household supplies.

Refrigerated warehouses 6either fro!en or chilled7

handle and maintain food, medical items, and chemical products with special temperature re5uirements.

Commodity warehouses are designed to handle

bul# material or items with special handling considerations, such as tires or clothing.

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ublic Warehouses
Bonded warehouses are licensed by the

government to store goods prior to payment of ta+es or duties. hey e+ert very tight control over all movements in and out of the facility since government documents must be filed with each move.
.or e+ample, cigarettes are often stored in bonded

warehouses prior to having the ta+ stamp applied. his tactic saves the firm money by delaying ta+ payments? it also reduces inventory value substantially.

3)

ublic Warehouses
.inally, a household goods or furniture

warehouse is designed to handle and store large, bul#y items such as appliances and furniture.
2f course, many public warehouses offer

combinations of these operations.

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Contract Warehouses
&ontract warehousing combines the best

characteristics of both private and public operations.

he long(term relationship and shared ris# result in lower cost than typical public warehouse arrangements.

&ontract warehouse operations can provide benefits

of e+pertise, fle+ibility, and economies of scale by sharing management, labor, e5uipment, and information resources across a number of clients.
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lanning the &istribution Warehouse

he initial decisions of warehousing are related to planning.

A master plan of the layout, space re5uirements, and

material(handling design should be developed first and a specific site for the warehouse selected.

hese decisions establish the character of the warehouse, which, in turn determines the degree of attainable handling efficiency.
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Site Selection
@ocation analysis techni5ues are available to assist in

selecting a general area for warehouse location. 2nce location analysis is completed, a specific building site must be selected. hree areas in a community may be considered for location4

07 commercial !ones, 27 outlying areas served by motor truc# only, and 37 central or downtown areas.

he primary factors in site selection are the availability of services and cost. he cost of procurement is the most important factor governing site selection.

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Site Selection
A warehouse need not be located in a ma'or

industrial area.
8n many cities, one observes warehouses among

industrial plants and in areas !oned for light or heavy industry.


8nterestingly, this is not a legal necessity because

most warehouses can operate under the restrictions placed on commercial property.
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Site Selection
*eyond procurement cost, setup and operating

e+penses such as rail sidings, utility e+penses, ta+es, insurance rates, and highway access re5uire evaluation. hese e+penses vary between sites.
.or e+ample, a food distribution firm recently re'ected

what otherwise appeared to be a totally satisfactory site because of insurance rates.

he site was located near the end of a water main.


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Site Selection
;uring most of the day, ade5uate water supplies

were available to handle operational and emergency re5uirements. he only possible water problem occurred during two short periods each day. .rom %431 to ,431 in the morning and from $ to ) in the evening, the demand for water along the line was so great that a sufficient supply was not available to handle emergencies. *ecause of this deficiency, abnormally high insurance rates were re5uired and the site was re'ected.
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Site Selection
Several other re5uirements must be satisfied

before a site is purchased. he location must offer ade5uate room for e+pansion. Aecessary utilities must be available. he soil must be capable of supporting the structure, and the site must be sufficiently high to afford proper drainage 6su a#BCBna i!in
verme7.
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Warehouse *ayout
@ayout of a warehouse depends on the proposed

material handling system and re5uires development of a floor plan to facilitate product flow. since they must be refined to fit specific needs.

8t is difficult to generali!e about warehouse layouts

8f pallets are to be utili!ed, the first step is to

determine the pallet si!e. A pallet of nonstandard si!e may be desirable for speciali!ed products, but whenever possible, standardi!ed pallets should be used because of their lower cost.
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Warehouse *ayout

he most common si!es are 41 by 4, inches and 32 by 41 inches.

8n general, the larger the pallet load, the lower the

cost of movement per pac#age over a given distance. he pac#ages to be placed on the pallet and the related patterns will determine, to a certain e+tent, the si!e of pallet best suited to the operation.

:egardless of the si!e finally selected, management

should adopt one si!e for the total operation.

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Warehouse *ayout

he second step in planning a layout involves the pallet positioning. he basic method of positioning pallets in a mechani!ed warehouse is a ninety(degree, or s5uare, placement.

S5uare placement means that the pallet is positioned

perpendicular to the aisle.

he s5uare method is widely used because of layout ease.


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Pilferage Protection
3rotection against theft of merchandise has become

a ma'or factor in warehouse operations. Such protection is re5uired as a result of the increased vulnerability of firms to riots and civil disturbances. All normal precautions employed throughout the enterprise should be strictly enforced at each warehouse.

Security begins at the fence. As standard procedure, only authori!ed personnel

should be permitted into the facility and surrounding grounds and entry to the warehouse yard should be controlled through a single gate.
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Pilferage Protection
Without e+ception, no private automobile(regardless

of management ran# or customer status(should be allowed to penetrate the yard ad'acent to the warehouse. o illustrate the importance of the stated guidelines, the following actual e+perience may be helpful. A particular firm enforced the rule that no private vehicles should be permitted in the warehouse yard. <+ceptions were made for two handicapped office employees.

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Pilferage Protection
2ne night after wor#, one of these employees

accidentally discovered a bundle taped under one fender of his car.

Subse5uent chec#ing revealed that the car was

literally a delivery truc#. he matter was promptly reported to security, which informed the employee not to alter any pac#ages taped to the car and to continue par#ing inside the yard. 2ver the ne+t several days, the situation was fully uncovered, with the ultimate arrest and conviction of several warehouse employees who confessed to stealing over $100,000 of company merchandise.
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Pilferage Protection

he firm would have been better off purchasing a small vehicle to provide transportation for the handicapped employees from the regular par#ing lots to the office.

Shortages are always a ma'or consideration in

warehouse operations. =any are honest mista#es in order selection and shipment, but the purpose of security is to restrict theft from all angles.

he ma'ority of thefts occur during normal wor#ing hours.


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Pilferage Protection
&omputeri!ed inventory control and order processing

systems help protect merchandise from being carried out of the warehouse doors.
Ao items should be released from the warehouse

unless accompanied by a computer release document.


8f samples are authori!ed for use by salespersons,

the merchandise should be separate from other inventory.


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Pilferage Protection
Aot all pilferage occurs on an individual basis. Aumerous instances have been discovered where

organi!ed efforts between warehouse personnel and truc# drivers resulted in deliberate over(pic#ing or high(for(low(value product substitution in order to move unauthori!ed merchandise out of the warehouse.

<mployee rotation, total case counts, and occasional

complete line(item chec#s can reduce vulnerability to such collaboration.


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Product Deterioration
Within the warehouse, a number of factors can

reduce a product or material to a non(usable or non( mar#etable state.

he most obvious form of product deterioration is damage from careless transfer or storage.

Another ma'or form of deterioration is non(

compatibility of products stored in the same facility.

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Product Deterioration

he primary concern is deterioration that results from improper warehouse wor# procedures.

A constant concern is the carelessness of warehouse

employees.

8n this respect, the for#lift truc# may well be

management"s worst enemy.

:egardless of how often operators are warned

against carrying overloads, some still attempt such shortcuts when not properly supervised.
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Product Deterioration
8n one situation, a stac# of four pallets was dropped

off a for#lift truc# at the receiving doc# of a food warehouse. Standard procedure was to move two pallets per load. he value of the damaged merchandise e+ceeded the average daily profit of two supermar#ets.

3roduct deterioration from careless handling within

the warehouse is a form of loss that cannot be insured against and constitutes a 011 percent cost with no compensating revenue.

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