Description
warehousing
Warehousing
Chapter 9 Logistics Management Satish Ailawadi Rakesh Singh Chapter 4 Logistics Management Vinod V Sople
Contents
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Definition – Warehouse, Warehousing Distribution center Need for warehousing Warehousing Functions Role of Warehousing [Economic benefits & Service benefits] Types of warehouses – its advantages & disadvantages Warehouse Location / Warehouse Site Selection Multiple Depot Network / No. of warehouses
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Factors affecting warehousing cost
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Warehousing Strategies Warehouse Operations
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... Contents
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* Principles of Warehouse Design Warehouse Layout Area of warehouse Warehousing Costing Warehousing in India
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* Use the slides of Principles of Warehouse Design for Warehouse Operating Principles
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Warehouse
DEFINITION A warehouse is a storage location where volume shipments are received from a production center, reassembled into combinations representing a particular order or orders and shipped to customer location or locations
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A warehouse is a commercial building for storage of goods In India a warehouse is colloquially known as godown Every firm stores its goods while they wait to be sold, such a location is called a warehouse 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 in contrast to a storage facility
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... Warehouse
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Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc Usually warehouses are large plain buildings in industrial areas of cities and towns Usually warehouses have loading decks to load and unload goods from trucks Sometimes warehouses are designed for the loading and unloading of goods directly from railways, airports, or seaports Often warehouses have cranes and forklifts for moving goods
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Warehousing
Definition The process of storage and holding of goods until they are dispatched to consumers
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Traditionally warehousing services served the purpose of storage which was required to bridge the gap between production & consumption With the arrival of JIT, warehousing in modern times help attain shorter cycle times The warehouse of today is not a long-term storage facility Attention is given to lower operating costs and the speed with which a product moves through a warehouse
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... Warehousing
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In most cases, the shipment is in the warehouse for just a few days or even a few hours The performance of a warehouse is judged by its productivity & cost performance, to achieve the goals of customer satisfaction & lower cost of operation Advancements in IT, communications & networking play a key role in bringing in effectiveness & efficiency
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Warehouse vs. Distribution Center
Warehouse
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Distribution Center
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Provides storage usually on long-term basis Handles products in two cycles of service receive & ship Performs minimal valueadded activities Focuses on the most efficient cost effective methods of storing product
Purpose is product throughput, not storage Handles products in four cycles of service receive, store, pick & ship Offers value-added services such as transportation, crossdocking, order-fulfillment, labeling and packaging Sole mission is to provide outstanding service to its customers
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... Warehouse vs. Distribution Center
Warehouse
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Distribution Center
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Almost no technology or minimal technology deployed Serve a smaller territory compared to a distribution center
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Technology-driven- The distribution center of today must have in place state-of-the-art order processing, transportation management & warehouse management systems to receive, scan bar codes, locate and store product efficiently, pick/pack and process orders, and plan loads Serve a larger territory than a warehouse
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Need for Warehousing
Warehouses are needed for the following reasons
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Seasonal Production Seasonal Demand Large-scale Production
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Quick Supply Continuous Production
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Seasonal Production
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Agricultural commodities are harvested during certain seasons, but their consumption or use takes place throughout the year Therefore, there is a need for proper storage or warehousing for these commodities, from where they can be supplied as and when required
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... Need for Warehousing
Seasonal Demand
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Certain goods, which are demanded seasonally, viz woolen garments in winters or umbrellas in the rainy season. To meet the seasonal demand, the production of these goods long before the season starts Therefore, there is a need to store these goods in a warehouse to make them available at the time of need
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... Need for Warehousing
Large-scale Production
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In case of manufactured goods, production usually takes place to meet the existing as well as future demand of the products Manufacturers produce goods in large quantities to take the benefits of economies of scale The finished products, which are produced on a large scale, need to be stored properly till they are sold
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... Need for Warehousing
Quick Supply
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Both industrial as well as agricultural goods are produced at some specific places but consumed throughout the country Therefore, it is essential to stock these goods near the place of consumption, so that goods are made available to the consumers at the time of their need Continuous production of goods in factories requires adequate supply of raw materials So there is a need to keep sufficient quantity of stock of raw material in the warehouse to ensure continuous production
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Continuous Production
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Warehousing Functions
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A warehouse is a service function that plays an important role in the supply chain of a firm, serves the following functions
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Material Storage Material Handling Information
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... Warehousing Functions
Material Storage
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Primary task of a warehouse is to store material until it has to be shipped to the customer Manufacturing & consumption cycles never match Manufactured material has to be stored somewhere till the demand for the same is generated & delivery is confirmed Storage facilities are designed around the following four functions
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Hold Consolidation Break-bulk Cross-docking
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Mixing Postponement Packing
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... Warehousing Functions
Material Storage Hold
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AKA Stockpiling Demand & supply cycles never match Hence finished goods are held in a warehouse ready for delivery Depending on the demand or order booking pattern & delivery schedules promised to the customer by the marketing department, goods are dispatched from the warehouse
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... Warehousing Functions
Material Storage Hold
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At the warehouse there is a continuous inflow & outflow of goods, hence proper records have to be maintained of what is coming in & going out Function requires proper planning of variables such as product categories, product mix, product characteristics, shipment arrival time, expiry dates etc Stockpiling is beneficial for storage of seasonal products e.g. blankets & woolen products are produced year-round & primarily sold during a short-period e.g. Agricultural produce is harvested at specific times with subsequent consumption throughout the year
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... Warehousing Functions
Material Storage Consolidation ? Shipment consolidation is an economic benefit of warehousing
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With this arrangement, the consolidating warehouse
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Receives materials from a number of manufacturing plants Consolidates materials into a single shipment for delivery to a customer
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Benefits – Cost savings on freight – Reduced transportation costs – Reduced congestion at a customer's receiving dock
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... Warehousing Functions
Material Storage Break-Bulk ? Material arriving in bulk is divided into small shipments for delivering to end customers ? Bulk cargo of fertilizers, oil, chemicals coming from a source is broken into small consignments for customers, as per customers' requirements ? Normally distribution warehouses of manufacturing firms have break bulk as a common facility, firm saves substantially on freight by dispatching the shipment in bulk to its regional distribution center, where it is divided into smaller shipments & dispatched to end user 19
... Warehousing Functions
Material Storage Cross-Docking
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Similar to break-bulk activity Material arriving from multiple suppliers in bulk, is broken into smaller shipments The smaller shipments are further dispatched to customers Stay of material in warehouse is not more than 48 hours Most commonly used in retail chains wherein the warehouse receives material from multiple suppliers, which is broken,assorted & consolidated for dispatch to various retail stores as per requirements 20
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... Warehousing Functions
Material Storage Mixing
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Generally used for a firm having a number of plants manufacturing different ingredients, which are mixed at the warehouse to make the final shipments
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... Warehousing Functions
Material Storage Postponement Postponement is the process of keeping parts & components at strategic warehouses ? Final assembly is done & finished goods are dispatched to the customer when – Customer places or modifies the order or – Critical parts arrive at the warehouse ? Keeping components reduces the risk of holding finished goods or blocking storage space Packing ? Packing Is the process of repackaging material as per the quantities ordered by the customer ? Packing is done after break-bulk or mixing or consolidation is done 22
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... Warehousing Functions
Material Handling Is divided into the following three activities
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Loading & Unloading Material Movement Order Filling
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... Warehousing Functions
... Material Handling Loading & Unloading Unloading
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Is the first function performed when goods arrive at the warehouse Involves offloading goods from the transport vehicle Is the last function performed in the warehouse Involves loading packed material boxes onto the transport vehicle Also involves bracing the load to prevent damage during transport
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Loading
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... Warehousing Functions
... Material Handling
Material Movement ? Involves movement of material to & from storage area ? Material may be moved manually or with the help of material handling equipment ? Incoming material, unloaded from transport vehicle is moved to its assigned storage area in the warehouse ? During order picking, material is moved from the storage area to the packing area ? Packed material is moved to the loading area Order Filling ? Involves selection of material from various lots at various locations in the warehouse as per customer order ? Order cycle time, the most critical parameter in customer service, is dependent on the speed of order picking 25
... Warehousing Functions
Information
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For effective & efficient customer service, sales & marketing personnel must know availability of stocks & likely dispatch schedule To know the impact on cash flow, at any point time, inventory levels information is of crucial importance This is possible with a proper warehouse information system A warehouse information system
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Aids speedy decision making which helps achieve a competitive edge Can considerably enhance the quality of customer service to both internal & external customers, leading to customer satisfaction
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... Warehousing Functions
Information
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Warehouse information system must provide the following
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Goods inward Inspection & auditing Goods outward Stock-outs Excess stocks Invoicing Warehouse expenses Transit damages & breakages Consignment tracking
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Role of Warehousing
Warehousing plays two vital roles in a logistical system
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Economic Benefits Service Benefits
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Economic Benefits Facilities & operations that provide economic benefits to an organization include consolidation, break-bulk, crossdock, postponement & stockpiling
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Benefits of consolidation & break-bulk
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Realization of lowest possible transportation rates Reduction of congestion at customer's receiving dock
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... Role of Warehousing
... Economic Benefits
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Benefits of cross-dock & mixing
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Full trailer movement from manufacturers to warehouse & from warehouse to retailers Reduced handling cost as product is not stored More effective use of dock facilities because all vehicles are full loaded maximizing loading dock utilization Risk is minimized because the final packaging is not done until order is confirmed by a customer In cases where components are stored & final product assembled when order is confirmed by customer, risk of holding finished goods or blocking storage space is reduced
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Benefits of postponement
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... Role of Warehousing
Service Benefits
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Service benefits gained through a warehouse may or may not reduce costs When a warehouse is justified on the basis of service, the reasoning is to improve time & place utilities Five service benefits are achieved through warehousing
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Spot Stock Assortment Mixing Product Support Market Presence
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... Role of Warehousing
... Service Benefits Spot Stock
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A selected amount of a firm's product line is placed or "spot stocked" in a warehouse to fill customer orders during a critical marketing period In particular, manufacturers with limited or highly seasonal product lines prefer this service Spot stocking involves placing inventory close to key customers just prior to a maximum period of seasonal sales e.g. Suppliers of agricultural products to farmers often use spot stocking to position their products closer to a service-sensitive market during the growing season Following the sales season, the remaining inventory is withdrawn to a central warehouse
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... Role of Warehousing
... Service Benefits Assortment
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An assortment warehouse stocks product combinations in anticipation of customer orders The assortments may represent multiple products from different manufacturers or special assortments as specified by customers e.g. an athletic wholesaler would stock products from a number of clothing suppliers so that customers can be offered assortments e.g. the wholesaler would create a specific team uniform including shirt, pants, and shoes Improves service by reducing the number of suppliers that a customer must deal with Combined assortments also allow larger shipments which in turn reduce transportation costs
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... Role of Warehousing
... Service Benefits Mixing (Explained in warehouse functions)
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In a typical mixing situation, truckloads of products are shipped from manufacturing plants to warehouses Each large shipment enjoys the lowest possible transportation rate Upon arrival at the mixing warehouse, factory shipments are unloaded and the desired combination of each product for each customer or market is selected When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing
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... Role of Warehousing
... Service Benefits Production support
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Production support warehousing provides a steady supply of components and materials to assembly plants Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage The operation of a production support warehouse is to supply or "feed" processed materials, components, and sub-assemblies into the assembly plant in an economic and timely manner
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... Role of Warehousing
... Service Benefits Market Presence
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While a market presence benefit may not be so obvious, it is often cited by marketing managers as a major advantage of local warehouses The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses As a result, it is also thought that a local warehouse will enhance market share and potentially increase profitability
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Types of Warehouses
Three types of warehousing strategies / alternatives are available to an organization
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Private warehouses Public warehouses Contract warehouses
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... Types of Warehouses
Private warehouses
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Facility is operated, handled & managed by the same organization that owns the product The actual facility, however, may be owned or leased Often it is not possible to find a warehouse for lease that fits the exact requirements of a firm Hence the organization opts for its own warehouse which is designed to meet its exact requirements Usually organizations with specialized customers or products often develop their own warehouses
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... Types of Warehouses
... Private warehouses Benefits
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Better control of warehouse operations and costs Private warehousing is usually considered less costly than public warehousing because private facility costs do not have a profit markup
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This perceived benefit, however, may be misleading since public warehouses often are more efficient
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Provide more control since the enterprise has absolute decision-making authority over all activities in the facility
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This control facilitates the ability to integrate warehouse operations with the rest of the firm's internal logistics process
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... Types of Warehouses
... Private warehouses Benefits
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Private warehousing also has some intangible benefits, particularly with respect to market presence
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A private warehouse with a firm's name on it may produce customer perceptions of responsiveness and stability This perception sometimes provides a firm with a marketing advantage over other enterprises
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... Types of Warehouses
Public warehouses
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A public warehouse charges clients a basic fee for handling & storage In the case of handling, the charge is based on the number of handling cases or the weight handled For storage, the charge is assessed on the number of cases or storage weight in storage during the month Such charges normally exceed the cost of private warehousing if adequate private facility volume exists However, when economies of scale are not possible in a private facility, public warehousing may be a low-cost alternative Public warehouse operators generally offer relatively standardized services to all clients
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... Types of Warehouses
... Public warehouses
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On the basis of the range of specialized operations performed, public warehouses are classified as
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General merchandise Refrigerated Special commodity Bonded Household goods and furniture
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Each warehouse type differs in its material handling and storage technology which is in keeping with the type of product Many public warehouses offer combinations of these operations
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... Types of Warehouses
... Public warehouses
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General merchandise warehouses are designed to handle general package commodities such as paper, small appliances, and household supplies Refrigerated warehouses (either frozen or chilled) handle and maintain food, medical items, and chemical products with special temperature requirements Commodity warehouses are designed to handle bulk material or items with special handling considerations, such as tyres Bonded warehouses are licensed by the government to store goods prior to payment of taxes or duties They exert very tight control over all movements in and out of the facility since government documents must be filed with each move
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Household goods or furniture warehouse is designed to handle and store large, bulky items such as appliances and furniture
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... Types of Warehouses
... Public warehouses Benefits ? Public warehouses result in lower capital costs ? May have a lower variable cost as compared to private facilities – The lower variable cost may be the result of lower pay scales, better productivity, or economy of scale
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Offers flexibility viz it is easy to change the location, size, and number of facilities, allowing a firm to quickly respond to supplier, customer, and seasonal demands Can also offer significant scale economies since the volume for each customer is leveraged with that of other users Can also leverage transportation by providing delivery of loads that represent many public warehouse customers e.g., rather than have vendor A and vendor B each deliver to a retail store from their own warehouse, a public warehouse serving both vendors could deliver a single combined load more efficiently 43
... Types of Warehouses
Contract warehouses
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Contract warehousing combines the best characteristics of both private and public operations Involves a long-term, mutually beneficial arrangement whereby unique and specially tailored warehousing and logistics services are provided to one customer The service provider and the customer share the risks associated with the arrangement The long-term relationship and shared risk result in lower cost than typical public warehouse arrangements Contract warehouses are designed to adhere to higher standards and specialized handling needs for products such as pharmaceuticals & electronics
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... Types of Warehouses
... Contract warehouses
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Contract warehouse operations can provide benefits of expertise, flexibility, and economies of scale by sharing management, labor, equipment, and information resources across a number of clients Although it is common for contract warehouse operators to share resources across clients in the same industry such as FMCG products, it is not common that direct competitors will want to share resources Contract warehouse operators are also expanding the scope of their services to include other logistics activities such as transportation, inventory control, order processing, customer service, and returns processing Nowadays, the distinction between public and contract warehouses is blurring on account of public warehouses providing superior distribution and warehousing logistics solutions 45
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... Types of Warehouses
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... Warehouse Location / Warehouse Site Selection
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Warehouse site selection revolves around two major factors viz service & cost If warehouse location is close to markets
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Product availability can be greatly enhanced Smaller & frequent deliveries can be organized Results in higher levels of customer satisfaction
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However, transportation cost, which is a major element in the logistical cost, depends on the location of the warehouse Factors affecting warehouse site selection
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Market Access Infrastructure Local Levies
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Product Availability Regulations Transportation Cost
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... Warehouse Location / Warehouse Site Selection
Market
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Distribution warehouses are planned in close proximity to markets or consumption centers for offering better service Provides a small geographical coverage area Frequent deliveries of small quantities as required by customers can be arranged Location of the warehouse has a great impact on the transportation cost Difficulty in access will influence transportation costs
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Access
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... Warehouse Location / Warehouse Site Selection
Infrastructure
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Availability of proper infrastructure such as approach roads, utilities (water, electricity, communication) & labor has a great impact on the efficiency & effectiveness of warehouse operations For a cold storage warehouse, availability of power is a major factor influencing site selection Non-availability of proper roads or rail siding facility affects efficiencies & increases transportation costs Lack of infrastructure such as wagon platform, material handling equipment may pose a problem in loading & unloading of materials Depending on the sales tax & octroi charges in the region, location of a warehouse is planned
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Local Levies
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... Warehouse Location / Warehouse Site Selection
Product
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The type of product has a great effect on the number of warehouses & their locations e.g. perishable products need to be delivered to customers within their expiry time & hence should be located close to consumption centers. Warehouses for such products should be small & numerous in number The availability of warehousing space at cheaper rates in urban areas, particularly in metro cities, is a remote possibility In such cases, the warehouse has to be located in suburbs or areas beyond city municipal limits where space is available at cheaper rates However this arrangement may increase transport costs
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Availability
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... Warehouse Location / Warehouse Site Selection
Regulations
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For certain types of products (explosives, hazardous chemicals & radio active material), which causes damage to human life, the warehouse location is guided by the government In such cases very little options are left for firm from which to choose warehouse location Is the largest component in the product cost, particularly for low unit price products The location of the warehouse will have a great influence on the primary transportation cost Product demand pattern influences transportation costs in two ways
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Transportation Cost
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Frequency of truck trips Loading pattern (full or partial) of the transport vehicle
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No. of Warehouses / Multiple Depot Network
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Cost of warehousing per unit of inventory is directly proportional to the number of warehouses in a given territory If the number of warehouses is increased, sales handled by each warehouse will decrease & warehousing cost per unit of inventory will increase For planning a chain of warehouses, organization must perform a cost-benefit analysis
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Factors influencing a decision on optimum no. of warehouses ? Competition ? Product type
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Customer service level Area covered by each warehouse Market size
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Establishment & operating cost Demand pattern, continuous or seasonal
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... No. of Warehouses / Multiple Depot Network
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Cost of warehousing is directly proportional to number of warehouses whereas the transportation cost goes down with increase in number of warehouses
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... No. of Warehouses / Multiple Depot Network
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Often many manufacturing firms hold too much inventory stock at many warehouses spread across a wide geographical area However due to cost pressures, firms are trying to find alternatives Firms tend to adopt a centralized warehouse but the decision depends on the nature of the product & movement through the supply chain
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For automobile manufacturing companies, a centralized warehouse of spare parts is an ideal system For FMCG products which need to large quantities speedily, a system of scattered warehouses is a better solution
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Read caselet Amway India from Central India to Regional Warehouse System Pg. 63
Square Root Law
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Deals with the relation between no. of warehouses and total inventory in a system The square root law states that “The total inventory in a system is proportional to the Square Root of the Number of Locations at which a product is stocked.” L = [(L1 ) x { ?(W 2 ÷ W 1) }]
Where L= Total inventory in future warehouses L1 = Total inventory in existing warehouses W1 = Number of existing warehouses W2 = Number of future warehouses
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... Square Root Law
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e.g. In a company there are 40 warehouses and the existing inventory is 2,00,000 units. If the number of warehouses are reduced to 10 what will be impact on total inventory. L1 = 2,00,000 W1 = 40 W2 = 10 L= [(2,00,000) x { ? (10 ÷ 40) }] = 1,00,000
Thus, inventory will consist of 1,00,000 units giving a reduction of 50%. Similarly, if the number of warehouses are increased, the total inventory will increase
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No sums on square root law of warehouses for exam. The sum here is only for your understanding 56
... Square Root Law
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Inventory tends to increase as the number of warehouse locations increase Organizations desire reduction of inventory and number of warehouse locations for keeping finished products But this must be done without reducing customer service levels The square root law determines the extent to which inventory reduces by reducing the number of locations Hence if a firm is currently having 5 warehouses and decides to reduce the no. of warehouses to one centralized warehouse, as per square root law, the inventory carried in stock would be reduced by 55% This would result in large savings in inventory carrying cost Some of the savings in inventory carrying costs would be offset by more rapid transport to meet current delivery service levels An important assumption is the total customer demand remains same 57
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Warehousing Strategies
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Warehouse network plays a major role in the success of the physical distribution of products As the no. of warehouses adopted by the firm increase, the logistics cost increases To remain competitive, managers must strike a balance between costs & customer service levels Leading firms adopt & implement the following warehousing strategies
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Capacity Switching Hub Networking Cobbling Outsourcing
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... Warehousing Strategies
Capacity Switching
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... Warehousing Strategies
... Capacity Switching
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For a given market there will be a monthly demand pattern for a product This demand would fluctuate in certain months due to seasonality in product consumption For such products, the capacity of a warehouse maybe planned on the basis of average annual demand During the season, for additional warehousing requirements, a public or contract warehouse maybe used This would reduce the investment in a private warehouse
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... Warehousing Strategies
Hub Networking
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Warehousing hubs are planned at strategic locations, to gain better control on distribution & reduce levels of inventory These hubs are located in strategic locations so as to serve entire market spread over a vast geographical area In the Indian context, most leading firms have regional warehousing hubs located near the four metro cities viz Mumbai, Delhi, Chennai, Kolkata which cater to the demand of four regions West, North, South or East The hub serves as secondary distribution to dealers, stockist or wholesalers in a specified region Each regional hub serves several states covered in their respective regions
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... Warehousing Strategies
... Hub Networking
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Hubs eliminate the need of having distribution centers located in each state Advantages
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Reduction in operating costs Minimization of transportation cost Better control of inventory Improved customer service
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Generally practiced by the FMCG & white goods industries wherein distribution network consists of a large number of dealers, stockist & retailers
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... Warehousing Strategies
Cobbling
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Strategy for players
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Who are not competitors Serve similar group of customers Have similar distribution channels
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e.g. Products of FMCG companies such as HUL, J & J and Nestle can be cobbled together viz warehoused & transported together Approach economizes costs of warehousing & transportation, reducing operating costs which benefits all the cobbled partners Some 3PL are offering such services to FMCG players
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... Warehousing Strategies
Outsourcing
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Most manufacturing firms do not have expertise in warehousing nor is warehousing their core activity For gaining logistical competitiveness, such firms are outsourcing entire warehousing operations to 3PLs
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Warehouse Operations
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... Warehouse Operations
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... Warehouse Operations
Two basic operations carried out in a warehouse – Movement – Storage Movement ? Movement occurs in four operations Receiving – Receiving goods into the warehouse from the transport network Put-away – Transferring goods from receiving dock into a particular location in the warehouse Order picking – Selecting particular combinations of goods for customer orders Shipping – Loading goods for shipping to the customer ? All of the above involve short-distance movement 67
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... Warehouse Operations
Storage
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In case of cross-docking, the storage is for a very short duration, usually stay in warehouse would be less than 48hours Storage duration depends on performance cycle length Divided into two categories Planned Storage
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Deals with items regularly planned & stored in the warehouse Storage facilities should be adequate to handle this
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... Warehouse Operations
Storage Extended Storage
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Deals with items in excess of planned storage, usually more than 90 days This becomes necessary as
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Items stored are raw materials or components of lower value, low risk, do not require specialized storage facility & involve purchase quantity discounts Seasonal items requiring storage until demand for the product (e.g. woolen products) Products involved have a erratic demand or speculative purchases have been made Product requires conditioning (e.g. aging of wine)
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Principles of Warehouse Design
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Once it has been determined to use a warehouse, the next step is designing it Whether the warehouse is a small manual operation or a large automated facility, the following three principles are relevant
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Design criteria Handling technology Storage plan
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... Principles of Warehouse Design Design criteria
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Warehouse design criteria address physical facility characteristics and product movement Three factors to be considered in the design process are
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The number of storeys in the facility Height utilization Product flow
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... Principles of Warehouse Design
... Design criteria The number of storeys in the facility
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The ideal warehouse design is limited to a single storey so that product does not have to be moved up and down The use of elevators to move product from one floor to the next requires time and energy The elevator is also often a bottleneck 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 expensive, warehouses should be limited to a single storey
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... Principles of Warehouse Design
... Design criteria Height utilization
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Regardless of facility size, the design should maximize the usage of the available cubic space by allowing for the greatest use of height on each floor Most warehouses have 20 to 30 feet ceilings Through the use of racking, it should be possible to store products up to the building's ceiling
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Maximum effective warehouse height is limited by the safe lifting capabilities of material-handling equipment, such as forklifts Product flow
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Warehouse design should also allow for straight product flow through the facility whether items are stored or not In 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 minimizes congestion and confusion
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... Principles of Warehouse Design
Design of a typical warehouse
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... Principles of Warehouse Design Handling technology
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The second principle focuses on the effectiveness and efficiency of material-handling technology The elements of this principle concern
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Movement continuity Movement scale economies
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... Principles of Warehouse Design
... Handling technology Movement continuity
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Movement continuity means that it is better for a material handler or piece of handling equipment to make a longer move than to have a number of handlers make numerous, individual, short segments of the same move Exchanging the product between handlers or moving it from one piece of equipment to another wastes time and increases the potential for damage Thus, as a general rule, fewer longer movements in the warehouse are preferred
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... Principles of Warehouse Design
... Handling technology Movement scale economies
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Movement scale economies imply that all warehouse activities should handle or move the largest quantities possible Instead of moving individual cases, warehouse activities should be designed to move groups of cases such as pallets or containers This grouping or batching might mean that multiple products or orders must be moved or selected at the same time While this might increase the complexity 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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... Principles of Warehouse Design
Storage plan ? According to the third principle, a warehouse design should consider product characteristics, particularly those pertaining to volume, weight, & storage ? Product volume is the major concern when defining a warehouse storage plan ? High-volume sales or throughput product should be stored in a location that minimizes the distance it is moved, such as near primary aisles and in low storage racks ? Such a location minimizes travel distance and the need for extended lifting ? Conversely, low-volume product can be assigned locations that are distant from primary aisles or higher up in storage racks 78
Warehouse Layout Design
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For planning the layout & operations of a warehouse the following fundamental principles should be followed – Making the best use of available space – Using 'unitized' load system for storage – Minimizing the movement of goods by allotting proper storage area – Providing flexibility for changing future needs – Providing safe, secure & clean working conditions Location of the stock in the warehouse directly affects the total material handling expenses of all goods moved through the warehouse Balance must be maintained between material handling cost and utilization of space Proper storage & handling equipment should be chosen to improve utilization of cube space 79
... Warehouse Layout Design
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Steps to be followed while designing warehouse layout
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Define location for receiving and shipping function Allocate separate area for slow, medium and fast moving items Identify location of fixed objects building columns, staircase, elevator shafts etc Define a shortest path for movement of material handling equipment, personnel for faster storage and retrieval Assign location of fixed material handling equipment such as cranes & conveyors Assign location for keeping movable storage equipment Repeat the above for generating an alternative plan
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... Warehouse Layout Design
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Evaluation of alternative plan is done based on the following guidelines Item turnover
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Any warehouse stores a large no of items out of which a few have a high turnover Such items should be placed in a location to
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enable quick retrieval Minimizing cross-movement of material handling equipment
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Space Utilization
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Warehouse space (floor and cube) should be utilized efficiently leaving sufficient space for moving and maneuvering material handling equipment Honeycombing (lost) space should be minimal
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... Warehouse Layout Design
Product Configurations
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Heavy and large items
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Should be stored at a place where they can be easily accessed and moved for shipping If not affected by elements of nature maybe kept in an open yard
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Oddly shaped and crushable items subject to stacking limitation need special attention for storage methods and space allocations Shelf-life of a product has an influence on warehouse layout Layout should help stock rotation so that shelf-life problem is automatically taken care of 82
Product Characteristics
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... Warehouse Layout Design
Good Housekeeping
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Clean and safe working conditions help increase labor productivity Warehouse layout should take care of housekeeping Layout should ensure safety of personnel, products and equipment during product storage & movement Layout should ensure ease in proper supervision to detect pilferage or theft of stored material
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Safety & Security
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Warehousing Costing
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Elements of warehousing cost normally accounted for are transportation, storage and administration Inventory carrying cost is not included in warehousing cost Warehousing cost includes fixed and variable cost elements Fixed costs include rental, capital costs, salary & wages of employees and utilities Variable costs include costs of repairs, maintenance, material handling, transportation and packaging which are related load on warehouse Wide variations are noticed in proportion of variable & fixed cost across different warehouses Generally the fixed cost varies from 25% to 45 % of the total cost of the warehousing operations
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Warehousing in India
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Unlike in developed countries, warehousing in India is not used as a strategic area to gain competitive advantage Barring MNCs & few professionally managed companies, warehouses are generally used for extended storage of goods until they are delivered Most warehouses still use manual material handling & do not use IT & communication Indian organizations practice different types of warehousing arrangements
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Captive warehouse located in the manufacturing premises of the firm Network of distribution warehouses at different geographical locations by hiring space from private warehouses Network of stocking points by hiring space from Central Warehousing Corporation [CWC] or State Warehousing Corporations [SWCs] Utilizing godowns available with stockist, distributors or dealers in major market areas 85
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... Warehousing in India
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Each option has its associated costs & advantage & disadvantages CWC & SWC
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The main public warehousing companies in India Governed by the Warehousing Act 1962 Have a network of warehouses spread all over the country Mainly cater to the needs of government bodies Food Corporation of India [FCI] for storing of grains, spices, fertilizers & seeds Also provide warehousing facilities to private firms Perform functions such as storage, stock accounting, insurance & outward delivery Currently have a total storage space of 19.95 million tones spread across 1800 warehouses
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86
... Warehousing in India
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At mandi level, warehousing space for storage is provided by cooperatives, called marketing godowns At village level, warehousing space for storage is provided by cooperatives, called rural godowns Godowns mainly cater to commodities & agriculture produce Private retailers also have very short term storage facilities called kaccha For distribution of food grains in the country, FCI has its own network of warehouses with 13 million tonnes of storage capacity The total storage capacity (FCI, CWC, ARDC & SWCs) of 41.18 million tonnes is around 19% of the total food grain production of 202 million tonnes, which is grossly insufficient Recently the government has allowed participation of private sector in food grain storage
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87
... Warehousing in India
Manufacturing firms adopt a network of warehouses which includes their own establishments, public warehouses & contract storage places Due to liberalization, 3PLs have realized the logistics requirements of their clients due to emerging competition in the market To fulfill needs of their clients, 3PLs have started creating a network of high-capacity mechanized warehouses at strategic locations in the country
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References
Presentation Image ?
Warehouse ?http://en.wikipedia.org/wiki/Warehouse ? Supply chain Management – Altekar ? Logistics Management -Sople Warehousing ?http://business.gov.in/manage_business/warehousing.php ? A logistics Approach to Supply chain Management – Coyle Warehousing Functions ? Logistics Management -Sople Pg 54 ?http://www.gyte.edu.tr/dersler/546/İŞL 654/10-Warehouse Management.ppt Principle of Warehouse Design ? Logistics Management – Ailawadi Pg. 98 ?http://www.gyte.edu.tr/dersler/546/İŞL 654/10-Warehouse Management.ppt Types of Warehouses ? Logistics Management – Ailawadi Pg. 100 ?http://www.gyte.edu.tr/dersler/546/İŞL 654/10-Warehouse Management.ppt Contract warehousing ? A logistics approach to Supply chain Management – Coyle Pg 332 ?http://www.tejaswarehouse.com/Contract.html ?http://www.buzzle.com/articles/contract-warehousing.html
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... References
Role of Warehousing ? Logistics Management – Ailawadi Pg. 93 Warehouse vs. Distribution Center ?http://www.scdigest.com/assets/Experts/Holste_09-12-16.php ? Logistics & Supply Chain Management – Deepak Gupta Pg 48 ?http://en.wikipedia.org/wiki/Distribution_center Need for warehousing ?http://www.nos.org/Secbuscour/cc11.pdf Warehouse Location / Warehouse Site Selection ? Logistics Management -Sople Pg 61 Multiple Depot Network ? Logistics Management -Sople Pg 62 Multiple Depot Network / No. of warehouses, Factors affecting warehousing cost ? Logistics Management -Sople Pg 62 Warehousing Strategies ? Logistics Management -Sople Pg 68 Warehousing Strategies ? A logistics approach to Supply chain Management – Coyle Pg 335 ? Logistics Management – Ailawadi Pg. 103 Warehouse Layout & Design ? Logistics Management -Sople Pg 64 WMS ?http://en.wikipedia.org/wiki/Warehouse_management_system Warehousing in India ? Logistics Management -Sople Pg 71
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doc_246697652.pdf
warehousing
Warehousing
Chapter 9 Logistics Management Satish Ailawadi Rakesh Singh Chapter 4 Logistics Management Vinod V Sople
Contents
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Definition – Warehouse, Warehousing Distribution center Need for warehousing Warehousing Functions Role of Warehousing [Economic benefits & Service benefits] Types of warehouses – its advantages & disadvantages Warehouse Location / Warehouse Site Selection Multiple Depot Network / No. of warehouses
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Factors affecting warehousing cost
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Warehousing Strategies Warehouse Operations
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... Contents
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* Principles of Warehouse Design Warehouse Layout Area of warehouse Warehousing Costing Warehousing in India
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* Use the slides of Principles of Warehouse Design for Warehouse Operating Principles
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Warehouse
DEFINITION A warehouse is a storage location where volume shipments are received from a production center, reassembled into combinations representing a particular order or orders and shipped to customer location or locations
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A warehouse is a commercial building for storage of goods In India a warehouse is colloquially known as godown Every firm stores its goods while they wait to be sold, such a location is called a warehouse 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 in contrast to a storage facility
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... Warehouse
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Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc Usually warehouses are large plain buildings in industrial areas of cities and towns Usually warehouses have loading decks to load and unload goods from trucks Sometimes warehouses are designed for the loading and unloading of goods directly from railways, airports, or seaports Often warehouses have cranes and forklifts for moving goods
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Warehousing
Definition The process of storage and holding of goods until they are dispatched to consumers
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Traditionally warehousing services served the purpose of storage which was required to bridge the gap between production & consumption With the arrival of JIT, warehousing in modern times help attain shorter cycle times The warehouse of today is not a long-term storage facility Attention is given to lower operating costs and the speed with which a product moves through a warehouse
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... Warehousing
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In most cases, the shipment is in the warehouse for just a few days or even a few hours The performance of a warehouse is judged by its productivity & cost performance, to achieve the goals of customer satisfaction & lower cost of operation Advancements in IT, communications & networking play a key role in bringing in effectiveness & efficiency
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Warehouse vs. Distribution Center
Warehouse
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Distribution Center
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Provides storage usually on long-term basis Handles products in two cycles of service receive & ship Performs minimal valueadded activities Focuses on the most efficient cost effective methods of storing product
Purpose is product throughput, not storage Handles products in four cycles of service receive, store, pick & ship Offers value-added services such as transportation, crossdocking, order-fulfillment, labeling and packaging Sole mission is to provide outstanding service to its customers
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... Warehouse vs. Distribution Center
Warehouse
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Distribution Center
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Almost no technology or minimal technology deployed Serve a smaller territory compared to a distribution center
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Technology-driven- The distribution center of today must have in place state-of-the-art order processing, transportation management & warehouse management systems to receive, scan bar codes, locate and store product efficiently, pick/pack and process orders, and plan loads Serve a larger territory than a warehouse
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Need for Warehousing
Warehouses are needed for the following reasons
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Seasonal Production Seasonal Demand Large-scale Production
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Quick Supply Continuous Production
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Seasonal Production
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Agricultural commodities are harvested during certain seasons, but their consumption or use takes place throughout the year Therefore, there is a need for proper storage or warehousing for these commodities, from where they can be supplied as and when required
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... Need for Warehousing
Seasonal Demand
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Certain goods, which are demanded seasonally, viz woolen garments in winters or umbrellas in the rainy season. To meet the seasonal demand, the production of these goods long before the season starts Therefore, there is a need to store these goods in a warehouse to make them available at the time of need
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... Need for Warehousing
Large-scale Production
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In case of manufactured goods, production usually takes place to meet the existing as well as future demand of the products Manufacturers produce goods in large quantities to take the benefits of economies of scale The finished products, which are produced on a large scale, need to be stored properly till they are sold
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... Need for Warehousing
Quick Supply
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Both industrial as well as agricultural goods are produced at some specific places but consumed throughout the country Therefore, it is essential to stock these goods near the place of consumption, so that goods are made available to the consumers at the time of their need Continuous production of goods in factories requires adequate supply of raw materials So there is a need to keep sufficient quantity of stock of raw material in the warehouse to ensure continuous production
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Continuous Production
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Warehousing Functions
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A warehouse is a service function that plays an important role in the supply chain of a firm, serves the following functions
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Material Storage Material Handling Information
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... Warehousing Functions
Material Storage
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Primary task of a warehouse is to store material until it has to be shipped to the customer Manufacturing & consumption cycles never match Manufactured material has to be stored somewhere till the demand for the same is generated & delivery is confirmed Storage facilities are designed around the following four functions
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Hold Consolidation Break-bulk Cross-docking
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Mixing Postponement Packing
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... Warehousing Functions
Material Storage Hold
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AKA Stockpiling Demand & supply cycles never match Hence finished goods are held in a warehouse ready for delivery Depending on the demand or order booking pattern & delivery schedules promised to the customer by the marketing department, goods are dispatched from the warehouse
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... Warehousing Functions
Material Storage Hold
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At the warehouse there is a continuous inflow & outflow of goods, hence proper records have to be maintained of what is coming in & going out Function requires proper planning of variables such as product categories, product mix, product characteristics, shipment arrival time, expiry dates etc Stockpiling is beneficial for storage of seasonal products e.g. blankets & woolen products are produced year-round & primarily sold during a short-period e.g. Agricultural produce is harvested at specific times with subsequent consumption throughout the year
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... Warehousing Functions
Material Storage Consolidation ? Shipment consolidation is an economic benefit of warehousing
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With this arrangement, the consolidating warehouse
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Receives materials from a number of manufacturing plants Consolidates materials into a single shipment for delivery to a customer
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Benefits – Cost savings on freight – Reduced transportation costs – Reduced congestion at a customer's receiving dock
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... Warehousing Functions
Material Storage Break-Bulk ? Material arriving in bulk is divided into small shipments for delivering to end customers ? Bulk cargo of fertilizers, oil, chemicals coming from a source is broken into small consignments for customers, as per customers' requirements ? Normally distribution warehouses of manufacturing firms have break bulk as a common facility, firm saves substantially on freight by dispatching the shipment in bulk to its regional distribution center, where it is divided into smaller shipments & dispatched to end user 19
... Warehousing Functions
Material Storage Cross-Docking
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Similar to break-bulk activity Material arriving from multiple suppliers in bulk, is broken into smaller shipments The smaller shipments are further dispatched to customers Stay of material in warehouse is not more than 48 hours Most commonly used in retail chains wherein the warehouse receives material from multiple suppliers, which is broken,assorted & consolidated for dispatch to various retail stores as per requirements 20
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... Warehousing Functions
Material Storage Mixing
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Generally used for a firm having a number of plants manufacturing different ingredients, which are mixed at the warehouse to make the final shipments
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... Warehousing Functions
Material Storage Postponement Postponement is the process of keeping parts & components at strategic warehouses ? Final assembly is done & finished goods are dispatched to the customer when – Customer places or modifies the order or – Critical parts arrive at the warehouse ? Keeping components reduces the risk of holding finished goods or blocking storage space Packing ? Packing Is the process of repackaging material as per the quantities ordered by the customer ? Packing is done after break-bulk or mixing or consolidation is done 22
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... Warehousing Functions
Material Handling Is divided into the following three activities
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Loading & Unloading Material Movement Order Filling
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... Warehousing Functions
... Material Handling Loading & Unloading Unloading
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Is the first function performed when goods arrive at the warehouse Involves offloading goods from the transport vehicle Is the last function performed in the warehouse Involves loading packed material boxes onto the transport vehicle Also involves bracing the load to prevent damage during transport
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Loading
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... Warehousing Functions
... Material Handling
Material Movement ? Involves movement of material to & from storage area ? Material may be moved manually or with the help of material handling equipment ? Incoming material, unloaded from transport vehicle is moved to its assigned storage area in the warehouse ? During order picking, material is moved from the storage area to the packing area ? Packed material is moved to the loading area Order Filling ? Involves selection of material from various lots at various locations in the warehouse as per customer order ? Order cycle time, the most critical parameter in customer service, is dependent on the speed of order picking 25
... Warehousing Functions
Information
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For effective & efficient customer service, sales & marketing personnel must know availability of stocks & likely dispatch schedule To know the impact on cash flow, at any point time, inventory levels information is of crucial importance This is possible with a proper warehouse information system A warehouse information system
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Aids speedy decision making which helps achieve a competitive edge Can considerably enhance the quality of customer service to both internal & external customers, leading to customer satisfaction
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... Warehousing Functions
Information
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Warehouse information system must provide the following
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Goods inward Inspection & auditing Goods outward Stock-outs Excess stocks Invoicing Warehouse expenses Transit damages & breakages Consignment tracking
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Role of Warehousing
Warehousing plays two vital roles in a logistical system
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Economic Benefits Service Benefits
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Economic Benefits Facilities & operations that provide economic benefits to an organization include consolidation, break-bulk, crossdock, postponement & stockpiling
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Benefits of consolidation & break-bulk
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Realization of lowest possible transportation rates Reduction of congestion at customer's receiving dock
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... Role of Warehousing
... Economic Benefits
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Benefits of cross-dock & mixing
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Full trailer movement from manufacturers to warehouse & from warehouse to retailers Reduced handling cost as product is not stored More effective use of dock facilities because all vehicles are full loaded maximizing loading dock utilization Risk is minimized because the final packaging is not done until order is confirmed by a customer In cases where components are stored & final product assembled when order is confirmed by customer, risk of holding finished goods or blocking storage space is reduced
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Benefits of postponement
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... Role of Warehousing
Service Benefits
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Service benefits gained through a warehouse may or may not reduce costs When a warehouse is justified on the basis of service, the reasoning is to improve time & place utilities Five service benefits are achieved through warehousing
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Spot Stock Assortment Mixing Product Support Market Presence
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... Role of Warehousing
... Service Benefits Spot Stock
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A selected amount of a firm's product line is placed or "spot stocked" in a warehouse to fill customer orders during a critical marketing period In particular, manufacturers with limited or highly seasonal product lines prefer this service Spot stocking involves placing inventory close to key customers just prior to a maximum period of seasonal sales e.g. Suppliers of agricultural products to farmers often use spot stocking to position their products closer to a service-sensitive market during the growing season Following the sales season, the remaining inventory is withdrawn to a central warehouse
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... Role of Warehousing
... Service Benefits Assortment
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An assortment warehouse stocks product combinations in anticipation of customer orders The assortments may represent multiple products from different manufacturers or special assortments as specified by customers e.g. an athletic wholesaler would stock products from a number of clothing suppliers so that customers can be offered assortments e.g. the wholesaler would create a specific team uniform including shirt, pants, and shoes Improves service by reducing the number of suppliers that a customer must deal with Combined assortments also allow larger shipments which in turn reduce transportation costs
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... Role of Warehousing
... Service Benefits Mixing (Explained in warehouse functions)
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In a typical mixing situation, truckloads of products are shipped from manufacturing plants to warehouses Each large shipment enjoys the lowest possible transportation rate Upon arrival at the mixing warehouse, factory shipments are unloaded and the desired combination of each product for each customer or market is selected When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing
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... Role of Warehousing
... Service Benefits Production support
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Production support warehousing provides a steady supply of components and materials to assembly plants Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage The operation of a production support warehouse is to supply or "feed" processed materials, components, and sub-assemblies into the assembly plant in an economic and timely manner
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... Role of Warehousing
... Service Benefits Market Presence
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While a market presence benefit may not be so obvious, it is often cited by marketing managers as a major advantage of local warehouses The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses As a result, it is also thought that a local warehouse will enhance market share and potentially increase profitability
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Types of Warehouses
Three types of warehousing strategies / alternatives are available to an organization
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Private warehouses Public warehouses Contract warehouses
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... Types of Warehouses
Private warehouses
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Facility is operated, handled & managed by the same organization that owns the product The actual facility, however, may be owned or leased Often it is not possible to find a warehouse for lease that fits the exact requirements of a firm Hence the organization opts for its own warehouse which is designed to meet its exact requirements Usually organizations with specialized customers or products often develop their own warehouses
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... Types of Warehouses
... Private warehouses Benefits
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Better control of warehouse operations and costs Private warehousing is usually considered less costly than public warehousing because private facility costs do not have a profit markup
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This perceived benefit, however, may be misleading since public warehouses often are more efficient
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Provide more control since the enterprise has absolute decision-making authority over all activities in the facility
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This control facilitates the ability to integrate warehouse operations with the rest of the firm's internal logistics process
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... Types of Warehouses
... Private warehouses Benefits
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Private warehousing also has some intangible benefits, particularly with respect to market presence
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A private warehouse with a firm's name on it may produce customer perceptions of responsiveness and stability This perception sometimes provides a firm with a marketing advantage over other enterprises
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... Types of Warehouses
Public warehouses
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A public warehouse charges clients a basic fee for handling & storage In the case of handling, the charge is based on the number of handling cases or the weight handled For storage, the charge is assessed on the number of cases or storage weight in storage during the month Such charges normally exceed the cost of private warehousing if adequate private facility volume exists However, when economies of scale are not possible in a private facility, public warehousing may be a low-cost alternative Public warehouse operators generally offer relatively standardized services to all clients
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... Types of Warehouses
... Public warehouses
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On the basis of the range of specialized operations performed, public warehouses are classified as
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General merchandise Refrigerated Special commodity Bonded Household goods and furniture
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Each warehouse type differs in its material handling and storage technology which is in keeping with the type of product Many public warehouses offer combinations of these operations
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... Types of Warehouses
... Public warehouses
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General merchandise warehouses are designed to handle general package commodities such as paper, small appliances, and household supplies Refrigerated warehouses (either frozen or chilled) handle and maintain food, medical items, and chemical products with special temperature requirements Commodity warehouses are designed to handle bulk material or items with special handling considerations, such as tyres Bonded warehouses are licensed by the government to store goods prior to payment of taxes or duties They exert very tight control over all movements in and out of the facility since government documents must be filed with each move
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Household goods or furniture warehouse is designed to handle and store large, bulky items such as appliances and furniture
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... Types of Warehouses
... Public warehouses Benefits ? Public warehouses result in lower capital costs ? May have a lower variable cost as compared to private facilities – The lower variable cost may be the result of lower pay scales, better productivity, or economy of scale
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Offers flexibility viz it is easy to change the location, size, and number of facilities, allowing a firm to quickly respond to supplier, customer, and seasonal demands Can also offer significant scale economies since the volume for each customer is leveraged with that of other users Can also leverage transportation by providing delivery of loads that represent many public warehouse customers e.g., rather than have vendor A and vendor B each deliver to a retail store from their own warehouse, a public warehouse serving both vendors could deliver a single combined load more efficiently 43
... Types of Warehouses
Contract warehouses
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Contract warehousing combines the best characteristics of both private and public operations Involves a long-term, mutually beneficial arrangement whereby unique and specially tailored warehousing and logistics services are provided to one customer The service provider and the customer share the risks associated with the arrangement The long-term relationship and shared risk result in lower cost than typical public warehouse arrangements Contract warehouses are designed to adhere to higher standards and specialized handling needs for products such as pharmaceuticals & electronics
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... Types of Warehouses
... Contract warehouses
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Contract warehouse operations can provide benefits of expertise, flexibility, and economies of scale by sharing management, labor, equipment, and information resources across a number of clients Although it is common for contract warehouse operators to share resources across clients in the same industry such as FMCG products, it is not common that direct competitors will want to share resources Contract warehouse operators are also expanding the scope of their services to include other logistics activities such as transportation, inventory control, order processing, customer service, and returns processing Nowadays, the distinction between public and contract warehouses is blurring on account of public warehouses providing superior distribution and warehousing logistics solutions 45
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... Types of Warehouses
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... Warehouse Location / Warehouse Site Selection
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Warehouse site selection revolves around two major factors viz service & cost If warehouse location is close to markets
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Product availability can be greatly enhanced Smaller & frequent deliveries can be organized Results in higher levels of customer satisfaction
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However, transportation cost, which is a major element in the logistical cost, depends on the location of the warehouse Factors affecting warehouse site selection
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Market Access Infrastructure Local Levies
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Product Availability Regulations Transportation Cost
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... Warehouse Location / Warehouse Site Selection
Market
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Distribution warehouses are planned in close proximity to markets or consumption centers for offering better service Provides a small geographical coverage area Frequent deliveries of small quantities as required by customers can be arranged Location of the warehouse has a great impact on the transportation cost Difficulty in access will influence transportation costs
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Access
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... Warehouse Location / Warehouse Site Selection
Infrastructure
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Availability of proper infrastructure such as approach roads, utilities (water, electricity, communication) & labor has a great impact on the efficiency & effectiveness of warehouse operations For a cold storage warehouse, availability of power is a major factor influencing site selection Non-availability of proper roads or rail siding facility affects efficiencies & increases transportation costs Lack of infrastructure such as wagon platform, material handling equipment may pose a problem in loading & unloading of materials Depending on the sales tax & octroi charges in the region, location of a warehouse is planned
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Local Levies
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... Warehouse Location / Warehouse Site Selection
Product
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The type of product has a great effect on the number of warehouses & their locations e.g. perishable products need to be delivered to customers within their expiry time & hence should be located close to consumption centers. Warehouses for such products should be small & numerous in number The availability of warehousing space at cheaper rates in urban areas, particularly in metro cities, is a remote possibility In such cases, the warehouse has to be located in suburbs or areas beyond city municipal limits where space is available at cheaper rates However this arrangement may increase transport costs
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Availability
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... Warehouse Location / Warehouse Site Selection
Regulations
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For certain types of products (explosives, hazardous chemicals & radio active material), which causes damage to human life, the warehouse location is guided by the government In such cases very little options are left for firm from which to choose warehouse location Is the largest component in the product cost, particularly for low unit price products The location of the warehouse will have a great influence on the primary transportation cost Product demand pattern influences transportation costs in two ways
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Transportation Cost
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Frequency of truck trips Loading pattern (full or partial) of the transport vehicle
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No. of Warehouses / Multiple Depot Network
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Cost of warehousing per unit of inventory is directly proportional to the number of warehouses in a given territory If the number of warehouses is increased, sales handled by each warehouse will decrease & warehousing cost per unit of inventory will increase For planning a chain of warehouses, organization must perform a cost-benefit analysis
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Factors influencing a decision on optimum no. of warehouses ? Competition ? Product type
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Customer service level Area covered by each warehouse Market size
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Establishment & operating cost Demand pattern, continuous or seasonal
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... No. of Warehouses / Multiple Depot Network
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Cost of warehousing is directly proportional to number of warehouses whereas the transportation cost goes down with increase in number of warehouses
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... No. of Warehouses / Multiple Depot Network
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Often many manufacturing firms hold too much inventory stock at many warehouses spread across a wide geographical area However due to cost pressures, firms are trying to find alternatives Firms tend to adopt a centralized warehouse but the decision depends on the nature of the product & movement through the supply chain
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For automobile manufacturing companies, a centralized warehouse of spare parts is an ideal system For FMCG products which need to large quantities speedily, a system of scattered warehouses is a better solution
54
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Read caselet Amway India from Central India to Regional Warehouse System Pg. 63
Square Root Law
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Deals with the relation between no. of warehouses and total inventory in a system The square root law states that “The total inventory in a system is proportional to the Square Root of the Number of Locations at which a product is stocked.” L = [(L1 ) x { ?(W 2 ÷ W 1) }]
Where L= Total inventory in future warehouses L1 = Total inventory in existing warehouses W1 = Number of existing warehouses W2 = Number of future warehouses
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... Square Root Law
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e.g. In a company there are 40 warehouses and the existing inventory is 2,00,000 units. If the number of warehouses are reduced to 10 what will be impact on total inventory. L1 = 2,00,000 W1 = 40 W2 = 10 L= [(2,00,000) x { ? (10 ÷ 40) }] = 1,00,000
Thus, inventory will consist of 1,00,000 units giving a reduction of 50%. Similarly, if the number of warehouses are increased, the total inventory will increase
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No sums on square root law of warehouses for exam. The sum here is only for your understanding 56
... Square Root Law
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Inventory tends to increase as the number of warehouse locations increase Organizations desire reduction of inventory and number of warehouse locations for keeping finished products But this must be done without reducing customer service levels The square root law determines the extent to which inventory reduces by reducing the number of locations Hence if a firm is currently having 5 warehouses and decides to reduce the no. of warehouses to one centralized warehouse, as per square root law, the inventory carried in stock would be reduced by 55% This would result in large savings in inventory carrying cost Some of the savings in inventory carrying costs would be offset by more rapid transport to meet current delivery service levels An important assumption is the total customer demand remains same 57
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Warehousing Strategies
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Warehouse network plays a major role in the success of the physical distribution of products As the no. of warehouses adopted by the firm increase, the logistics cost increases To remain competitive, managers must strike a balance between costs & customer service levels Leading firms adopt & implement the following warehousing strategies
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Capacity Switching Hub Networking Cobbling Outsourcing
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... Warehousing Strategies
Capacity Switching
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... Warehousing Strategies
... Capacity Switching
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For a given market there will be a monthly demand pattern for a product This demand would fluctuate in certain months due to seasonality in product consumption For such products, the capacity of a warehouse maybe planned on the basis of average annual demand During the season, for additional warehousing requirements, a public or contract warehouse maybe used This would reduce the investment in a private warehouse
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... Warehousing Strategies
Hub Networking
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Warehousing hubs are planned at strategic locations, to gain better control on distribution & reduce levels of inventory These hubs are located in strategic locations so as to serve entire market spread over a vast geographical area In the Indian context, most leading firms have regional warehousing hubs located near the four metro cities viz Mumbai, Delhi, Chennai, Kolkata which cater to the demand of four regions West, North, South or East The hub serves as secondary distribution to dealers, stockist or wholesalers in a specified region Each regional hub serves several states covered in their respective regions
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... Hub Networking
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Hubs eliminate the need of having distribution centers located in each state Advantages
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Reduction in operating costs Minimization of transportation cost Better control of inventory Improved customer service
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Generally practiced by the FMCG & white goods industries wherein distribution network consists of a large number of dealers, stockist & retailers
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Cobbling
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Strategy for players
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Who are not competitors Serve similar group of customers Have similar distribution channels
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e.g. Products of FMCG companies such as HUL, J & J and Nestle can be cobbled together viz warehoused & transported together Approach economizes costs of warehousing & transportation, reducing operating costs which benefits all the cobbled partners Some 3PL are offering such services to FMCG players
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... Warehousing Strategies
Outsourcing
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Most manufacturing firms do not have expertise in warehousing nor is warehousing their core activity For gaining logistical competitiveness, such firms are outsourcing entire warehousing operations to 3PLs
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Warehouse Operations
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... Warehouse Operations
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Two basic operations carried out in a warehouse – Movement – Storage Movement ? Movement occurs in four operations Receiving – Receiving goods into the warehouse from the transport network Put-away – Transferring goods from receiving dock into a particular location in the warehouse Order picking – Selecting particular combinations of goods for customer orders Shipping – Loading goods for shipping to the customer ? All of the above involve short-distance movement 67
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... Warehouse Operations
Storage
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In case of cross-docking, the storage is for a very short duration, usually stay in warehouse would be less than 48hours Storage duration depends on performance cycle length Divided into two categories Planned Storage
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Deals with items regularly planned & stored in the warehouse Storage facilities should be adequate to handle this
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Storage Extended Storage
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Deals with items in excess of planned storage, usually more than 90 days This becomes necessary as
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Items stored are raw materials or components of lower value, low risk, do not require specialized storage facility & involve purchase quantity discounts Seasonal items requiring storage until demand for the product (e.g. woolen products) Products involved have a erratic demand or speculative purchases have been made Product requires conditioning (e.g. aging of wine)
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Principles of Warehouse Design
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Once it has been determined to use a warehouse, the next step is designing it Whether the warehouse is a small manual operation or a large automated facility, the following three principles are relevant
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Design criteria Handling technology Storage plan
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... Principles of Warehouse Design Design criteria
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Warehouse design criteria address physical facility characteristics and product movement Three factors to be considered in the design process are
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The number of storeys in the facility Height utilization Product flow
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... Principles of Warehouse Design
... Design criteria The number of storeys in the facility
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The ideal warehouse design is limited to a single storey so that product does not have to be moved up and down The use of elevators to move product from one floor to the next requires time and energy The elevator is also often a bottleneck 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 expensive, warehouses should be limited to a single storey
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... Principles of Warehouse Design
... Design criteria Height utilization
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Regardless of facility size, the design should maximize the usage of the available cubic space by allowing for the greatest use of height on each floor Most warehouses have 20 to 30 feet ceilings Through the use of racking, it should be possible to store products up to the building's ceiling
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Maximum effective warehouse height is limited by the safe lifting capabilities of material-handling equipment, such as forklifts Product flow
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Warehouse design should also allow for straight product flow through the facility whether items are stored or not In 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 minimizes congestion and confusion
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... Principles of Warehouse Design
Design of a typical warehouse
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... Principles of Warehouse Design Handling technology
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The second principle focuses on the effectiveness and efficiency of material-handling technology The elements of this principle concern
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Movement continuity Movement scale economies
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... Principles of Warehouse Design
... Handling technology Movement continuity
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Movement continuity means that it is better for a material handler or piece of handling equipment to make a longer move than to have a number of handlers make numerous, individual, short segments of the same move Exchanging the product between handlers or moving it from one piece of equipment to another wastes time and increases the potential for damage Thus, as a general rule, fewer longer movements in the warehouse are preferred
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... Principles of Warehouse Design
... Handling technology Movement scale economies
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Movement scale economies imply that all warehouse activities should handle or move the largest quantities possible Instead of moving individual cases, warehouse activities should be designed to move groups of cases such as pallets or containers This grouping or batching might mean that multiple products or orders must be moved or selected at the same time While this might increase the complexity 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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... Principles of Warehouse Design
Storage plan ? According to the third principle, a warehouse design should consider product characteristics, particularly those pertaining to volume, weight, & storage ? Product volume is the major concern when defining a warehouse storage plan ? High-volume sales or throughput product should be stored in a location that minimizes the distance it is moved, such as near primary aisles and in low storage racks ? Such a location minimizes travel distance and the need for extended lifting ? Conversely, low-volume product can be assigned locations that are distant from primary aisles or higher up in storage racks 78
Warehouse Layout Design
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For planning the layout & operations of a warehouse the following fundamental principles should be followed – Making the best use of available space – Using 'unitized' load system for storage – Minimizing the movement of goods by allotting proper storage area – Providing flexibility for changing future needs – Providing safe, secure & clean working conditions Location of the stock in the warehouse directly affects the total material handling expenses of all goods moved through the warehouse Balance must be maintained between material handling cost and utilization of space Proper storage & handling equipment should be chosen to improve utilization of cube space 79
... Warehouse Layout Design
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Steps to be followed while designing warehouse layout
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Define location for receiving and shipping function Allocate separate area for slow, medium and fast moving items Identify location of fixed objects building columns, staircase, elevator shafts etc Define a shortest path for movement of material handling equipment, personnel for faster storage and retrieval Assign location of fixed material handling equipment such as cranes & conveyors Assign location for keeping movable storage equipment Repeat the above for generating an alternative plan
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Evaluation of alternative plan is done based on the following guidelines Item turnover
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Any warehouse stores a large no of items out of which a few have a high turnover Such items should be placed in a location to
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enable quick retrieval Minimizing cross-movement of material handling equipment
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Space Utilization
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Warehouse space (floor and cube) should be utilized efficiently leaving sufficient space for moving and maneuvering material handling equipment Honeycombing (lost) space should be minimal
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Product Configurations
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Heavy and large items
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Should be stored at a place where they can be easily accessed and moved for shipping If not affected by elements of nature maybe kept in an open yard
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Oddly shaped and crushable items subject to stacking limitation need special attention for storage methods and space allocations Shelf-life of a product has an influence on warehouse layout Layout should help stock rotation so that shelf-life problem is automatically taken care of 82
Product Characteristics
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Good Housekeeping
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Clean and safe working conditions help increase labor productivity Warehouse layout should take care of housekeeping Layout should ensure safety of personnel, products and equipment during product storage & movement Layout should ensure ease in proper supervision to detect pilferage or theft of stored material
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Safety & Security
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Warehousing Costing
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Elements of warehousing cost normally accounted for are transportation, storage and administration Inventory carrying cost is not included in warehousing cost Warehousing cost includes fixed and variable cost elements Fixed costs include rental, capital costs, salary & wages of employees and utilities Variable costs include costs of repairs, maintenance, material handling, transportation and packaging which are related load on warehouse Wide variations are noticed in proportion of variable & fixed cost across different warehouses Generally the fixed cost varies from 25% to 45 % of the total cost of the warehousing operations
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Warehousing in India
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Unlike in developed countries, warehousing in India is not used as a strategic area to gain competitive advantage Barring MNCs & few professionally managed companies, warehouses are generally used for extended storage of goods until they are delivered Most warehouses still use manual material handling & do not use IT & communication Indian organizations practice different types of warehousing arrangements
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Captive warehouse located in the manufacturing premises of the firm Network of distribution warehouses at different geographical locations by hiring space from private warehouses Network of stocking points by hiring space from Central Warehousing Corporation [CWC] or State Warehousing Corporations [SWCs] Utilizing godowns available with stockist, distributors or dealers in major market areas 85
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Each option has its associated costs & advantage & disadvantages CWC & SWC
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The main public warehousing companies in India Governed by the Warehousing Act 1962 Have a network of warehouses spread all over the country Mainly cater to the needs of government bodies Food Corporation of India [FCI] for storing of grains, spices, fertilizers & seeds Also provide warehousing facilities to private firms Perform functions such as storage, stock accounting, insurance & outward delivery Currently have a total storage space of 19.95 million tones spread across 1800 warehouses
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At mandi level, warehousing space for storage is provided by cooperatives, called marketing godowns At village level, warehousing space for storage is provided by cooperatives, called rural godowns Godowns mainly cater to commodities & agriculture produce Private retailers also have very short term storage facilities called kaccha For distribution of food grains in the country, FCI has its own network of warehouses with 13 million tonnes of storage capacity The total storage capacity (FCI, CWC, ARDC & SWCs) of 41.18 million tonnes is around 19% of the total food grain production of 202 million tonnes, which is grossly insufficient Recently the government has allowed participation of private sector in food grain storage
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Manufacturing firms adopt a network of warehouses which includes their own establishments, public warehouses & contract storage places Due to liberalization, 3PLs have realized the logistics requirements of their clients due to emerging competition in the market To fulfill needs of their clients, 3PLs have started creating a network of high-capacity mechanized warehouses at strategic locations in the country
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References
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... References
Role of Warehousing ? Logistics Management – Ailawadi Pg. 93 Warehouse vs. Distribution Center ?http://www.scdigest.com/assets/Experts/Holste_09-12-16.php ? Logistics & Supply Chain Management – Deepak Gupta Pg 48 ?http://en.wikipedia.org/wiki/Distribution_center Need for warehousing ?http://www.nos.org/Secbuscour/cc11.pdf Warehouse Location / Warehouse Site Selection ? Logistics Management -Sople Pg 61 Multiple Depot Network ? Logistics Management -Sople Pg 62 Multiple Depot Network / No. of warehouses, Factors affecting warehousing cost ? Logistics Management -Sople Pg 62 Warehousing Strategies ? Logistics Management -Sople Pg 68 Warehousing Strategies ? A logistics approach to Supply chain Management – Coyle Pg 335 ? Logistics Management – Ailawadi Pg. 103 Warehouse Layout & Design ? Logistics Management -Sople Pg 64 WMS ?http://en.wikipedia.org/wiki/Warehouse_management_system Warehousing in India ? Logistics Management -Sople Pg 71
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