Chapter 8Warehousing Decisions

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*The Nature and Importance of WarehousingIn 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.

Chapter 8Management of Business Logistics, 7th Ed.*The Role of the Warehouse in the Logistics System: A Basic Conceptual RationaleThe warehouse is where the supply chain holds or stores goods.Functions of warehousing include:Transportation consolidationProduct mixing Cross-dockingServiceProtection against contingenciesSmoothing

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Table 8-1Warehouse Value-Adding Roles

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-1Transportation Consolidation

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-2Supply and Product Mixing

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Basic Warehouse Decisions: A Cost Trade-off FrameworkOwnershipPublic versus contract versus privateCentralized or Decentralized WarehousingHow manyLocationSizeLayoutWhat products where

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-3Basic Warehousing Decisions

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*The Ownership DecisionPublic warehousing costs mostly all variable.Private warehousing costs have a higher fixed cost component.Thus private warehousing virtually requires a high and constant volume.

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*The Ownership DecisionFactors to considerThroughput volumeStability of demandDensity of market area to be servedSecurity and control needsCustomer service needsMultiple use needs of the firm

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Table 8-2 Firm Characteristics Affecting the Ownership Decision

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Public WarehousingRationale for Public WarehousingLimited capital investmentFlexibilityPublic Warehousing ServicesBonded warehousingField warehouses

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Public WarehousingPublic warehousing regulation:LiabilityReceipts

Public warehousing rates based upon:ValueFragilityPotential damage to other goodsVolume and regularityWeight densityServices required

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Contract WarehousingUp 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.

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*The Number of WarehousesFactors Affecting the Number of WarehousesInventory costsWarehousing costsTransportation costsCost of lost salesMaintenance of customer service levelsService small quantity buyers

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Table 8-3: Factors Affecting the Number of Warehouses

FactorCentralizedDecentralizedSubstitutabilityLowHighProduct ValueHighLowPurchase SizeLargeSmallSpecial WarehousingYesNoProduct LineDiverseLimitedCustomer ServiceLowHigh

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Basic Warehouse OperationsMovementReceivingPut-awayOrder pickingShippingStorageStock locationWarehouse Management System (WMS)

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-6 Basic Warehouse Operations

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Warehouse Layout and DesignDevelop 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.

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Warehouse Layout and DesignProvide for the transportation interface.Provide for order-picking space.Provide storage space.Provide recouping, office, and miscellaneous spaces.

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-8 Warehouse Space Requirements

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-9 Principles of Warehouse Layout Design

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Warehouse Layout and DesignBasic needs:ReceivingBasic storage areaOrder selection and preparationShipping

Management of Business Logistics, 7th Ed.

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

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Warehouse Layout and Design: Layout and Design ObjectivesCubic capacity utilizationProtectionEfficiencyMechanizationProductivity

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Table 8-4: Warehouse Productivity MetricsPounds or units per dayEmployees per unit movedUnits unloaded per hourUnits picked per hourUnits loaded per hourPercentage of orders correctly filledProductivity ratio = units handled/day divided by labor hours/dayThroughput = amt of material moved through the system in a given time period

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Materials HandlingDefinition: Efficient short distance movement in or between buildings and a transportation agency.Four dimensionsMovementTimeQuantitySpaceCoordination

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Objectives of Materials HandlingIncrease effective capacityMinimize aisle spaceReduce product handlingDevelop effective working conditionsReduce heavy laborImprove logistics serviceReduce cost

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Figure 8-12 Utilization of a Warehouses Cubic Capacity: Principles of Warehouse Layout Design

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*PackagingInterest in packaging is widespreadLogisticsWarehousingTransportationSizeMarketingProductionLegal

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*The Role of PackagingIdentify product and provide informationImprove efficiency in handling and distributionCustomer interfaceProtect product

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*What Is Packaging?Consumer packagingMarketing managers primarily concerned with how the package fits into the marketing mix.Industrial packagingLogistics managers primarily concerned with efficient shipping characteristics including protection, ability to withstand stacking when on a pallet, cube, weight, shape and other relevant factors.

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Packaging MaterialsTable 8-6 presents a comparison of various packing material characteristics.Basic considerations include:Soft materialsPlasticEnvironmental issuesRecycling (reverse logistics)

Management of Business Logistics, 7th Ed.

Chapter 8Management of Business Logistics, 7th Ed.*Bar CodingStandard 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:VendorProduct typePlace of manufactureProduct price

Management of Business Logistics, 7th Ed.

End of Chapter 8 Warehousing Decisions

Management of Business Logistics, 7th Ed.