Chapter 8

Warehousing Decisions

Learning Objectives 

After reading the chapter, you should be able to do the following: Discuss the strategic value-adding role warehousing plays in the logistics system. Explain the basic rationale for warehousing in light of transportation consolidation, product mixing, service, contingency protection, and smoothing. Develop an analytical framework for basic warehousing decisions.
Management of Business Logistics, 7th Ed. 2

Chapter 8

Learning Objectives


Distinguish between the different warehouse activities requiring space in the warehouse design. Discuss the major principles of warehouse layout design. Compare the use of private versus public warehousing. Explain public warehousing services, regulations, and pricing.
Management of Business Logistics, 7th Ed. 3

Chapter 8

Learning Objectives


Describe the decision-making approach used to determine the number of warehouses in the logistics system. Discuss the effect of materials handling and packaging on logistics. Describe the four dimensions and the objectives of materials handling.

Chapter 8

Management of Business Logistics, 7th Ed.

Learning Objectives


Discuss the different types of materials handling equipment and the criteria used to select this equipment. Explain the cross-functional role of packaging in a company. Discuss the role of packaging in the logistics system.

Chapter 8

Management of Business Logistics, 7th Ed.

Learning Objectives


Describe the various types of packaging materials available and their relative advantages and disadvantages. Explain the rationale for using bar codes to identify packages.

Chapter 8

Management of Business Logistics, 7th Ed.

Logistics Profile: Grainger Industrial Supply



Grainger is dedicated to providing excellent customer service using an effective network of warehouses and distribution centers providing same day or next day service. 13.6 million square feet in one national distribution center, two regional and six zone distribution centers, and 373 local branches 1.5 million customers, 220k SKUs, $4.5 billion in sales, 60k to 80k daily customer orders
Chapter 8 Management of Business Logistics, 7th Ed. 7

The Nature and Importance of Warehousing



In 1999, $75 billion, or 0.8 percent of GDP was spent on warehousing. The total supply of U.S. warehousing space in 1999 was 6.1 billion square feet, an increase from 1990 of 700 million square feet of space. Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.
Management of Business Logistics, 7th Ed. 8

Chapter 8

The Role of the Warehouse in the Logistics System: A Basic Conceptual Rationale
  Functions of The warehouse is warehousing include: where the supply  Transportation chain holds or stores consolidation goods.  Product mixing  Cross-docking  Service  Protection against contingencies  Smoothing
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Chapter 8

Table 8-1 Warehouse Value-Adding Roles

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Figure 8-1 Transportation Consolidation

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Figure 8-2 Supply and Product Mixing

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Basic Warehouse Decisions: A Cost Trade-off Framework



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

Figure 8-3 Basic Warehousing Decisions

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The Ownership Decision



Public warehousing costs mostly all variable. Private warehousing costs have a higher fixed cost component. Thus private warehousing virtually requires a high and constant volume.
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Chapter 8

Management of Business Logistics, 7th Ed.

The Ownership Decision



Factors to consider  Throughput volume  Stability of demand  Density of market area to be served  Security and control needs  Customer service needs  Multiple use needs of the firm
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Chapter 8

Table 8-2 Firm Characteristics Affecting the Ownership Decision

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Public Warehousing


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

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Public Warehousing


Public warehousing regulation:  Liability  Receipts

Public warehousing rates based upon:  Value  Fragility  Potential damage to other goods  Volume and regularity  Weight density  Services required
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Chapter 8

Management of Business Logistics, 7th Ed.

Contract Warehousing
       

Up 23% per year in 2000 to $20.4 billion. Compensation for seasonality in products. Increased geographical coverage. Ability to test new markets. Managerial expertise and dedicated resources. Less strain on the balance sheet. Possible reduction of transportation costs. Other issues discussed in Chapter 11.
Chapter 8 Management of Business Logistics, 7th Ed. 20

The Number of Warehouses



Factors Affecting the Number of Warehouses  Inventory costs  Warehousing costs  Transportation costs  Cost of lost sales  Maintenance of customer service levels  Service small quantity buyers
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Chapter 8

Management of Business Logistics, 7th Ed.

Table 8-3: Factors Affecting the Number of Warehouses

Factor Substitutability Product Value Purchase Size Special Warehousing Product Line Customer Service
Chapter 8

Centralized Low High Large Yes Diverse Low

Decentralized High Low Small No Limited High

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Management of Business Logistics, 7th Ed.

Basic Warehouse Operations



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

Figure 8-6 Basic Warehouse Operations

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Figure 8-7 The Computerized Warehouse

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Warehouse Layout and Design



 

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

Management of Business Logistics, 7th Ed.

Warehouse Layout and Design



 

Provide for the transportation interface. Provide for orderpicking space. Provide storage space. Provide recouping, office, and miscellaneous spaces.
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Figure 8-8 Warehouse Space Requirements

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Figure 8-9 Principles of Warehouse Layout Design

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Warehouse Layout and Design



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

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Warehouse Layout and Design



Layout and Design Principles:  Use one story facilities where possible.  Move goods in a straightline.  Use the most efficient materials handling equipment.  Minimize aisle space.  Use full building height.
Chapter 8 Management of Business Logistics, 7th Ed. 31

Warehouse Layout and Design: Layout and Design Objectives



   

Cubic capacity utilization Protection Efficiency Mechanization Productivity

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Table 8-4: Warehouse Productivity Metrics

      

Pounds or units per day Employees per pound moved Pounds unloaded per hour Pounds picked per hour Pounds loaded per hour Percentage of orders correctly filled Productivity ratio = pounds handled/day divided by labor hours/day Throughput = amt of material moved through the system in a given time period
Management of Business Logistics, 7th Ed. 33

Chapter 8

Materials Handling


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

   

  

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

Figure 8-12

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

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Guidelines and Principles for Materials Handling



To effectively plan and control materials handling, the logistics manager should recognize some guidelines and principles. Table 8-5 lists 20 of the most commonly accepted principles of effective materials handling. Asterisks mark those deserving special attention.

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Table 8-5 Principles of Materials Handling

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Packaging


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

The Role of Packaging

 

 

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

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What Is Packaging?


Consumer packaging  Marketing managers primarily concerned with how the package fits into the marketing mix. Industrial packaging  Logistics managers primarily concerned with efficient shipping characteristics including protection, ability to withstand stacking when on a pallet, cube, weight, shape and other relevant factors.
Management of Business Logistics, 7th Ed. 41

Chapter 8

Packaging Materials


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

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Table 8-6 Comparison of Cushioning Materials

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Bar Coding


Standard markings that can be read by automatic or handheld scanners that allow for labor saving logistical activities for all supply chain members. Bar Codes contain information regarding:  Vendor  Product type  Place of manufacture  Product price

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Chapter 8: Summary and Review Questions

Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 8.

End of Chapter 8 and 8A Slides

Warehousing Decisions