Chapter 8

Warehousing Decisions

The Nature and Importance of Warehousing

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. 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.
Management of Business Logistics, 7th Ed. 2

Chapter 8

The Role of the Warehouse in the Logistics System: A Basic Conceptual

Rationale

Functions of The warehouse is warehousing include: where the supply Transportation chain holds or stores consolidation goods. Product mixing Cross-docking Service Protection against contingencies Smoothing
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Chapter 8

Table 8-1

Warehouse Value-Adding Roles

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Figure 8-1

Transportation Consolidation

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Figure 8-2

Supply and Product Mixing

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Basic Warehouse Decisions:

A Cost Trade-off Framework

Ownership Public versus contract versus private Centralized or Decentralized Warehousing How many Location Size Layout What products where
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Chapter 8

Figure 8-3

Basic Warehousing Decisions

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The Ownership Decision

Public warehousing costs mostly all variable. Private warehousing costs have a higher fixed cost component. Thus private warehousing virtually requires a high and constant volume.
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The Ownership Decision

Factors to consider 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
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Chapter 8

Firm Characteristics Affecting the Ownership Decision

Table 8-2

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Public Warehousing

Rationale for Public Warehousing Limited capital investment Flexibility Public Warehousing Services Bonded warehousing Field warehouses

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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
13

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Management of Business Logistics, 7th Ed.

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. 14

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
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Chapter 8

Management of Business Logistics, 7th Ed.

Table 8-3: Factors Affecting the

Number of Warehouses
Factor
Substitutability Product Value Purchase Size Special Warehousing

Centralized
Low High Large Yes

Decentralized
High Low Small No

Product Line Customer Service

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Diverse Low
Management of Business Logistics, 7th Ed.

Limited High
16

Basic Warehouse Operations

Movement Receiving Put-away Order picking Shipping Storage Stock location Warehouse Management System (WMS)
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Chapter 8

Figure 8-6

Basic Warehouse Operations

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Figure 8-7

The Computerized Warehouse

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Warehouse Layout and Design

Develop a demand forecast. Determine each items order quantity. Convert units into cubic footage requirements. Allow for growth. Allow for adequate aisle space for materials handling equipment.
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Chapter 8

Management of Business Logistics, 7th Ed.

Warehouse Layout and Design

Provide for the transportation interface. Provide for orderpicking space. Provide storage space. Provide recouping, office, and miscellaneous spaces.
Chapter 8 Management of Business Logistics, 7th Ed. 21

Figure 8-8

Warehouse Space Requirements

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22

Principles of Warehouse Layout Design

Figure 8-9

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Warehouse Layout and Design

Basic needs: Receiving Basic storage area Order selection and preparation Shipping

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Warehouse Layout and Design

Layout and Design Principles: Use one story facilities where possible. Move goods in a straightline. Use the most efficient materials handling equipment. Minimize aisle space. Use full building height.
Chapter 8 Management of Business Logistics, 7th Ed. 25

Warehouse Layout and Design:

Layout and Design Objectives

Cubic capacity utilization Protection Efficiency Mechanization Productivity

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26

Table 8-4: Warehouse

Productivity Metrics

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
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Chapter 8

Materials Handling

Definition: Efficient short distance movement in or between buildings and a transportation agency. Four dimensions Movement Time Quantity Space Coordination
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Objectives of Materials Handling

Increase effective capacity Minimize aisle space Reduce product handling Develop effective working conditions Reduce heavy labor Improve logistics service Reduce cost
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Chapter 8

Figure 8-12

Utilization of a Warehouses Cubic Capacity: Principles of Warehouse Layout Design

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30

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.

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Table 8-5

Principles of Materials Handling

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32

Packaging

Interest in packaging is widespread Logistics Warehousing Transportation Size Marketing Production Legal
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Chapter 8

The Role of Packaging

Identify product and provide information Improve efficiency in handling and distribution Customer interface Protect product

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What Is Packaging?

Consumer packaging Marketing managers primarily concerned with how the package fits into the marketing mix. 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.
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Chapter 8

Packaging Materials

Table 8-6 presents a comparison of various packing material characteristics. Basic considerations include: Soft materials Plastic Environmental issues Recycling (reverse logistics)

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Table 8-6

Comparison of Cushioning Materials

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37

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
Management of Business Logistics, 7th Ed. 38

Chapter 8