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Chapter 8
Warehousing Decisions
Chapter 8Management of Business Logistics, 7th
Ed. 2
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.
Chapter 8Management of Business Logistics, 7th
Ed. 3
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.
Chapter 8Management of Business Logistics, 7th
Ed. 4
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 8Management of Business Logistics, 7th
Ed. 5
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 8Management of Business Logistics, 7th
Ed. 6
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 8Management of Business Logistics, 7th
Ed. 7
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 8Management of Business Logistics, 7th
Ed. 8
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.
Chapter 8Management of Business Logistics, 7th
Ed. 9
The Role of the Warehouse in the Logistics System: A Basic Conceptual Rationale
The warehouse is where the supply chain holds or stores goods.
Functions of warehousing include: Transportation
consolidation Product mixing Cross-docking Service Protection against
contingencies Smoothing
Chapter 8Management of Business Logistics, 7th
Ed. 10
Table 8-1Warehouse Value-Adding Roles
Chapter 8Management of Business Logistics, 7th
Ed. 11
Figure 8-1Transportation Consolidation
Chapter 8Management of Business Logistics, 7th
Ed. 12
Figure 8-2Supply and Product Mixing
Chapter 8Management of Business Logistics, 7th
Ed. 13
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
Chapter 8Management of Business Logistics, 7th
Ed. 14
Figure 8-3Basic Warehousing Decisions
Chapter 8Management of Business Logistics, 7th
Ed. 15
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.
Chapter 8Management of Business Logistics, 7th
Ed. 16
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
Chapter 8Management of Business Logistics, 7th
Ed. 17
Table 8-2 Firm Characteristics Affecting the Ownership Decision
Chapter 8Management of Business Logistics, 7th
Ed. 18
Public Warehousing
Rationale for Public Warehousing Limited capital investment Flexibility
Public Warehousing Services Bonded warehousing Field warehouses
Chapter 8Management of Business Logistics, 7th
Ed. 19
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
Chapter 8Management of Business Logistics, 7th
Ed. 20
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 8Management of Business Logistics, 7th
Ed. 21
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
Chapter 8Management of Business Logistics, 7th
Ed. 22
Table 8-3: Factors Affecting the Number of Warehouses
Factor Centralized Decentralized
Substitutability Low High
Product Value High Low
Purchase Size Large Small
Special Warehousing
Yes No
Product Line Diverse Limited
Customer Service Low High
Chapter 8Management of Business Logistics, 7th
Ed. 23
Basic Warehouse Operations
Movement Receiving Put-away Order picking Shipping
Storage Stock location Warehouse Management System
(WMS)
Chapter 8Management of Business Logistics, 7th
Ed. 24
Figure 8-6 Basic Warehouse Operations
Chapter 8Management of Business Logistics, 7th
Ed. 25
Figure 8-7 The Computerized Warehouse
Chapter 8Management of Business Logistics, 7th
Ed. 26
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.
Chapter 8Management of Business Logistics, 7th
Ed. 27
Warehouse Layout and Design
Provide for the transportation interface.
Provide for order-picking space.
Provide storage space. Provide recouping,
office, and miscellaneous spaces.
Chapter 8Management of Business Logistics, 7th
Ed. 28
Figure 8-8 Warehouse Space Requirements
Chapter 8Management of Business Logistics, 7th
Ed. 29
Figure 8-9 Principles of Warehouse Layout Design
Chapter 8Management of Business Logistics, 7th
Ed. 30
Warehouse Layout and Design
Basic needs: Receiving Basic storage
area Order selection
and preparation Shipping
Chapter 8Management of Business Logistics, 7th
Ed. 31
Warehouse Layout and Design
Layout and Design Principles: Use one story facilities
where possible. Move goods in a
straight-line. Use the most efficient
materials handling equipment.
Minimize aisle space. Use full building height.
Chapter 8Management of Business Logistics, 7th
Ed. 32
Warehouse Layout and Design: Layout and Design Objectives
Cubic capacity utilization
Protection Efficiency Mechanization Productivity
Chapter 8Management of Business Logistics, 7th
Ed. 33
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
Chapter 8Management of Business Logistics, 7th
Ed. 34
Materials Handling Definition: Efficient short distance
movement in or between buildings and a transportation agency.
Four dimensions Movement Time Quantity Space
Coordination
Chapter 8Management of Business Logistics, 7th
Ed. 35
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
Chapter 8Management of Business Logistics, 7th
Ed. 36
Figure 8-12 Utilization of a Warehouse’s Cubic Capacity: Principles of Warehouse Layout Design
Chapter 8Management of Business Logistics, 7th
Ed. 37
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.
Chapter 8Management of Business Logistics, 7th
Ed. 38
Table 8-5 Principles of Materials Handling
Chapter 8Management of Business Logistics, 7th
Ed. 39
Packaging
Interest in packaging is widespread Logistics
Warehousing Transportation Size
Marketing Production Legal
Chapter 8Management of Business Logistics, 7th
Ed. 40
The Role of Packaging
Identify product and provide information
Improve efficiency in handling and distribution
Customer interface Protect product
Chapter 8Management of Business Logistics, 7th
Ed. 41
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.
Chapter 8Management of Business Logistics, 7th
Ed. 42
Packaging Materials
Table 8-6 presents a comparison of various packing material characteristics.
Basic considerations include: Soft materials Plastic Environmental issues Recycling (reverse logistics)
Chapter 8Management of Business Logistics, 7th
Ed. 43
Table 8-6Comparison of Cushioning Materials
Chapter 8Management of Business Logistics, 7th
Ed. 44
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
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