Chapter 9

1. After opening the 4 or 5 warehouse in your network, the benefit derived from each
th

th

additional warehouse flattens out as it pertains to average transit time & total
distance to customers.
2. Remote areas of the U.S. that have low population density will almost always have
significantly longer order lead times than major metropolitan areas.
3. Transportation costs are driven by distance and density. The shorter the distance,
and the greater the population density (hence demand, leading to higher average
truck weights), the lower the transportation cost to serve. And the more frequent the
delivery service.
For our discussion: warehouses, regional distribution centers, and -stock-keeping locations
all have the same meaning.
As the number of warehouses in a network increases, the following effects typically occur:

1. Total Transportation costs decrease. (shorter distances between sourcing origins and
2.
3.
4.
5.
6.

customers)
Inventory increases. (increased safety stock and deployment error probability)
Customer order lead time decreases. (less transit time from warehouse)
Total Warehouse costs increase. (redundant overheads and infrastructure)
Business Risk decreases. (especially disaster recovery and alternate shipping flexibility)
Business Complexity increases. (especially vendor management and demand
management)

Note: the above outcomes reverse as the # of warehouses in a network decrease.

Deming states that management must be focused on the long-term. Few companies do
that today. He argued that business must have a relentless focus on quality and
customer satisfaction, and embed a continuous improvement process throughout the
organization. Companies struggle to do this today. He states that slogans, quota
systems, barriers between departments, inspections, and boring/repetitive tasks impede
progress and are a waste of time and resources.
Deming advocates for innovation, training and research. Managers are leaders, NOT
supervisors. Statistical process control, root cause analysis and achieving goals via
concrete methodology produces results, not arbitrary number goals. Teamwork,
driving out fear in the workplace, and involving everyone to implement change is
essential. MANAGEMENT IS RESPONSIBLE.
There are three basic type of warehouse commercial arrangements:

1.
2.
3.

Public Warehousing (transportation = Common Carriage)

Dedicated Contract Warehousing (transportation = Contract Carriage)
Private Warehousing (transportation = Private Fleet)

Note: the pros and cons of these 3 warehouse types are very similar to the transportation
characteristics that we discussed and covered earlier in the semester.

Each type of commercial warehouse agreement has its strengths and weaknesses relative to
each other. Typically, it will look like the chart below. Note: A = best in category

"Type"
Public
Contract
Private

Quality

Cost

C
B
A

A
B
C

Operationa
Business
l
Service
Risk
Flexibility Timeframe Control
C
B
A

C
B
A

C
B
A

Short
Medium
Long

C
B
A

Be aware that the above chart does NOT mean that private warehouses always
have better service than public warehouses. It is meant as a guide to indicate the
general characteristics that each type of commercial arrangement. It is similar to renting
a car for a week, or leasing a car for three years, or purchasing a car and owning the
asset.
Cross Docking - combines inventory from multiple origins into a pre specified
assortment for a specific customer
at

Mixing - combines inventory from multiple origins but also adds that are regularly stocked
the mixing warehouse
Assembly -

occurs when products or components from second-tier suppliers are assembled by a

warehouse located near manufacturing plant

Reverse Logistics includes (1) returns management; (2) remanufacturing and
repair; (3) remarketing; (4) recycling; and (5) disposal.
Value Added Services - any work that creates a greater value for the customer

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Warehousemanagementsystems(WMS)integrate procedures and software

support to standardize storage and handling work procedures
One main use of WMS is to coordinate order selection

Discrete selection is when a specific customers order is selected and prepared for shipment as a single work
assignment

Wave or batch selection is when orders are processed through zones of the warehouse assigned to specific
employees
Warehouses are considered fully utilized when the available storage capacity is
between 85-90%. The remaining open of empty space is needed for operational
flexibility and to prevent gridlock from occurring. Think of a public bus that has every
seat occupied and every standing room space occupied it is very challenging to be fast
and efficient, with high quality performance in that type of an environment.
YMS - yard management systems
TMS - transportation management systems
When analyzing a business issue, it is sometime useful to use the SMEAC model used by the
U.S. Marine Corps. It is:

1.
2.
3.
4.
5.

Strategy
Mission
Execution
Administration (Logistics)
Communication
Warehouses must also be concerned with and manage Security (theft, contamination,
terrorism); Damage (packaging, handling, temperature, infestation); and
Safety/Maintenance.
Chapter 10
Packaging efficiency and competitive advantage is driven by two primary activities: (1)
upfront SCM involvement with packaging design, characteristics, and purpose; (2) Green
initiatives, namely, eliminate, minimize, re-use, re-purpose, and re-cycle.
Know what the terms cube utilization and weight utilization mean; they are
closely associated with unitization/containerization - grouping master cartons into larger
units for handling.
Know what pallets and slipsheets are, and how they are used. We noted in class that the
average pallet weighs about 53 lbs, while the average slipsheet weighs about 3 lbs.
UPC - universal product code 12 digits
EPC - electronic product code 14 digits ( RFID used with it frequently)
Know what the term RFID means (Radio-Frequency Identification) is, and how it is used.
Most distribution centers struggle to implement E-Fulfillment effectively. This is due to three
main factors: (1) it usually involves a large number of VERY small orders; (2) a wide range

of products are handled, which makes consolidation and efficient handling practices
difficult/impossible; (3) customer expectations are very high, and require a high degree of
electronic scanning, tracking and real-time status updates.

E-Commerce and mail-order companies tend to use standardized packaging for both
purchasing and operational efficiency. However, this can lead to oversized packages,
excessive dunnage (pellets, airbags, paper-wrap, shrink-wrap, etc) and increased
shipping costs.

AS/RS = automated storage and retrieval system. It is basically a highly automated and
robotic warehouse that replaces warehouse labor with assets and technology. It allows
for a very small warehouse footprint and maximizes space utilization. It is used
primarily in Japan and Western Europe where land availability is limited, and land prices
that are very expensive.