Warehousing

Traditional concept of warehouse as store or

godown
 Development of modern concept of
warehouse as facility
Traditionally, consumer maintained his own
store
Gradually, manufacturer visualized the need
of a buffer between factory and market as
productivity improved
All activities were manual as warehouses did
not receive any engineering attention
06/24/08 1
 Post war thinking made inventory shrink and
production became streamlined to demand and
demand for variety in every product increased
Marketing experienced the need of a warehouse
to stock products and support marketing
Production units started using the concept of
warehouse as a facility to optimize production
[minimize cost]

06/24/08 2
Decades of 1960 & 70 saw engineering focus on
material handling, storage & information
 Concept of JIT production system needs
dependable delivery system of which warehouses
are by now an integral part
 As we have discussed earlier decade of 1980
was a decade of TQM

06/24/08 3
 Warehousing Costs
Handling
Holding
Order Processing
Packaging
Admin
Maintenance

06/24/08 4
 Functions of warehouse [warehousing operations]
[physical distribution management: logistical approach by
K.K.Khanna – page # 57]
 Receiving goods – receive and accept responsibility
 Identifying goods – place, label, color code
 Sorting goods- sort out the received goods for
appropriate storage area
 Dispatching goods to storage- for temporary storage
with easy accessibility
 Holding goods- security against pilferage and
deterioration
 Selecting, retrieving, packing- items are retrieved and
grouped according to customer order for dispatch
06/24/08 5
  Marshaling goods- check the items of a single order
for completeness and order records are updated
 Dispatching goods- consolidated order is packaged
and directed to right transport
 Preparing records and advices- of stocks and
replenishment requirements
Economic and service benefits of
Warehouses
Economic benefits - Consolidation, Break bulk,
Cross Dock, processing postponement, stock
piling[seasonal storage]
 Service benefits - spot stocking, Assortment,
mixing, production support, market presence
06/24/08 6
 Plant A
[Product A for
Customer X] Economic benefits
Customer X
Plant B Consolidation [Product A+
[Product B for Product B+
warehouse
Customer X] Product C]

Fig [1]
Plant C
[Product C for
Customer X]

Customer X
Plant A
[Product A
Break bulk
for
warehouse Customer Y
Customers
X+Y+Z]
Fig. [2]
Customer Z

Plant A
[Product A] Customer X
[A+B+C]

Customer Y
Plant B Cross Dock
warehouse [A+B]
[Product B]
Customer Z
Fig. [3]
[B+C]
Plant C
[Product C] Customer W
Products
A+B+ C

06/24/08 7
 Service benefits
Plant A
Customer X
[Product A] Products
In transit mixing A+ B+ C+D
Warehouse
Plant B [transit mixing point, Customer Y
[Product B] mix & make product D] Products
A+B+ C

Plant C
Fig [4] Customer Z
[Product C]
Products
A+B+ D

Vendor A
[part A]
Assembly Line X

Vendor B Manufacturing
[part B] Assembly Line Y
Warehouse

Vendor C Fig. [5]

Assembly Line Z
[part C]

06/24/08 8
 Principles of Warehouse design
Design criteria
product flow, ware house should be designed round
material handling flow

06/24/08 9
  No of stories, one is ideal as against limitations of
space, cost of land
Height utilization, principle of cubic space, principle of
‘go vertical’, limitation on height utilization due to fire
safety and insurance regulations
Handling Technology
Movement continuity and movement scale economics
• Movement continuity is ensuring less number of long
movements rather than large number of short movements
•Movement scale economies depend on
movement in large bulk
• Moving material in cases strapped on pallets or
containers rather than moving material
in small packages.
• Handling technology is addressing these issues
06/24/08 10
 Storage Plan
Characteristics of product
Open air storage for bulky products
Heavy items closer to floor
Light items on higher rungs
Fast moving items in large bulk closer to aisles
Hazardous items

06/24/08 11
 Warehousing alternatives
Private Warehouses
 Owned or leased by the product owner
 Control is fully with the product owner
 Changes can be made to integrate the
warehouse with rest of the logistical system
 Provides market presence to the product owner
There is no profit to be added to the cost

06/24/08 12
 Public Warehouses
Available to companies on hire
Overheads get distributed over a large
customer base
As warehousing is their core business public
warehouses offer expertise in management
Flexibility of location
 Significant scale economies, several users and
resultant volume, benefits in transportation costs

06/24/08 13
 Contract warehouses
• Contract warehouse operators take over logistics
responsibility from manufacturing company
• Long term relationship and customized service
• Expertise of management
• Shared resources with several clients
General classification of Public
warehouses
1. General merchandise
2. Refrigerated
3. Special commodity
4. Bonded
06/24/08 14
 Warehousing strategy
Where? How many? Of what type?
Private Contract Public
Market Presence

Industry synergies

Operating flexibility

Location flexibility

Scale economies
06/24/08 15
 Site selection
Location considerations
 Cost of distribution to market area
 Transport requirement and facilities
 Transport cost
 Competition, presence of others
 Availability of utilities [power, water, gas, sewerage
disposal and cost]
 Labour supply and cost
 I - R climate, labour productivity
 Customer expectation of ‘D’
 Company specific commitments
 Local taxation
 Community attitude
 Restrictions associated with warehouses
06/24/08 16
 • Future expansion
• Cost of land
• Topography and soil condition
• Possibility of title change to the land

06/24/08 17
 Ideal warehouse location
Protection of stock against moisture, insects,
dust, fumes, pests, thieves, fire etc.
 Provides facilities for ware housing activities
 Economics of operation
 Offers water for drinking and fire fighting
 Away from sources of detrimental conditions
 Easy access, proximity to ‘A’ customers
 No geographic barriers

06/24/08 18
 Inventory at various locations,
the square root law
Inventory reduction and customer service
How much to hold and in how many locations
to hold?
The square root law
X2 =[X1] [√n2/n1]
X1 = total inventory in existing facilities
X2 = total inventory in future facilities

06/24/08 19
 n1 = number of existing facilities [warehouses]
n2 = number of future facilities [warehouses]
If a company distributes 40,000 units using 8
existing facilities and plans to reduce the number
of facilities to 2, then what should be the
inventory in two of their future facilities? If we
use the square root formula, the answer is 20,000

06/24/08 20