Chapter 3 Warehousing 97 03 Format

WAREHOUSING
-Scientific procedure of stocking goods, be it raw

materials, semi finished goods or finished goods
ppt slides are for reference purpose only. Please refer books to make notes for examination
Functions / Benefits of Warehouse

1) Economic benefits
2) Service benefits
Economic benefits of warehouse result when
overall logistical cost reduces by using one or
more warehouse unit
Service benefits may or may not reduce cost, but

are justified when they offer the required service
powerpoint slides are for reference purpose only. Please refer books to make notes for examination
4 Economic benefits / functions of warehouse

Economic benefit 1) Consolidation
PLANT A
PLANT B
PLANT C
CUSTOMER A
CONSOLIDATION
WAREHOUSE
CUSTOMER B
CUSTOMER C
- Avoids movement of goods in small quantities thereby

resulting in economic benefits

Economic benefit 2) Break bulk & cross dock
Customer A
PLANT A
BREAK BULK
WH
Customer B
Customer C

Economic benefit 3) Processing / postponement
(eg: labelling)
Economic benefit 4) Stock piling

(eg: seasonal goods)
4 Service benefits / functions of warehouse

1) Spot stock (critical periods inventories to be
placed in mkts adjacent to key customers
2) Assortment
3) Production support (steady supply of
components and materials to assembly plant)
4) Market presence
Functions / Benefits of warehousing

Economic benefits
Consolidating
Break bulk and cross
dock
Processing &
postponement
Stock Piling
Service benefits
Spot stock
Assortments
Production support
Market presence
powerpoint slides are for reference

purpose only. Please refer books to make
notes for examination
Basic Warehousing decision

OWNERSHIP
PRIVATE
PUBLIC
NO OF WAREHOUSES
CENTRALIZED
DECENTRALIZED
Basic warehousing decision
No of warehouses and inventory in each

What size? Where to locate?
Interior layout ?
Which type of material handling equipment to
be used?
Which market to be serviced from the
warehouse?
Three types of warehouses

1) Private warehouse
2) Public warehouse
3) Contract warehouse

Private warehouse
Operated by the firm owning the product stored
Advantages:
Better control on warehousing activity
If the volume is sufficient, this may work out cheaper
Special design and MH equipments can be used
For some products, public WH may not be available
at strategic locations
There would be less damage of goods since
companys trained employees would be handling
materials
Advantages of public warehouse

Less expensive as fixed costs are distributed
over many customers
Since WH is core business, greater operating &
mgmt expertise is possible
Easy to change location, size & no of facilities
More flexible as they offer different plans to
different customers
Can be given up when not required
Easy to ascertain storage cost
Contract warehouse
Combines best characteristics of both public
and private WH
Hired for long time
Benefits like expertise, flexibility, economy of
scale etc.
Concept of value added warehousing
Repacking / refining / removal of protective
packaging /
Deciding the number of warehouses

Costs Involved:
Inventory carrying cost
Warehousing cost
Transportation cost
Cost of lost sales

The curve As the no of WH increases.
Inventory carrying cost increases

Warehousing cost increases
Transportation cost reduces
Cost of lost sales reduces
(All these shown in the
graph)
Efficient transportation can reduce the no of WH

while maintaining customer service
With fewer warehouses increase in inventory turn
Increase in inv turn reduction in inv carrying cost
Square root formula for deciding the

number of ware houses
Current trend: consolidate inv into fewer
stocking locations
Assuming the total customer order (demand)
remains same, The sq.root law, estimates the
extent to which aggregate inventory needs will
change, as the firm increases or reduces the
number of stocking locations
In General:
Greater the no of stocking locations, greater is the amount of
inventory needed to maintain service level..
Converse, as inventories are consolidated into fewer stocking
locations, aggregate inventory level will decrease.
Application of the Sq.root formula:
X2 = X1 multiplied by root of (N2/N1)
X2 = no of units to be stocked in proposed N2 warehouses OR
total inventory in future facilities.
X1 = Total inventory in existing facilities OR no of units stocked
in N1 warehouses.
N2 = no of future facilities (proposed no of Warehouses)
N1 = existing no of warehouses
Example:
A company is having 8 warehouses and these warehouses are
holding 40,000 units of a product. The company now wants to
reduce its number of warehouses to 2. How many units should
be held by these units together?
i.e. X1 = no of units stocked in ne warehouses = 40,000 units.
N1 = existing no of warehouses = 8
N2 = proposed no of warehouses = 2
Calculate X2 ie no of units to be stored in 2 warehouses.

X2 = 40,000 x root of (2/8) = 20,000 units
Assumptions of the model:

1) Inventory transfers between stocking locations are
not a common practice
2) Lead time does not vary & thus inventory
centralization is not affected by uncertainty
3) Customer service levels are measured by inventory
availability in constant, regardless of the number of
stocking locations
4) Demand at each location is normally distributed
Classification of warehouses
General merchandise
Refrigerated ware house
Special commodity warehouse
Bonded warehouse
Household goods and furniture warehouse
Field warehouse
Buffer stock warehouse
Most public warehouses offer combination of
these operations


Chapter 3 Warehousing 97 03 Format

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 3 Warehousing 97 03 Format

Uploaded by

Copyright:

Available Formats

WAREHOUSING

-Scientific procedure of stocking goods, be it raw

Functions / Benefits of Warehouse

Service benefits may or may not reduce cost, but

4 Economic benefits / functions of warehouse

- Avoids movement of goods in small quantities thereby

4 Economic benefits / functions of warehouse

4 Economic benefits / functions of warehouse

Economic benefit 4) Stock piling

4 Service benefits / functions of warehouse

Functions / Benefits of warehousing

powerpoint slides are for reference

Basic Warehousing decision

Basic warehousing decision

No of warehouses and inventory in each

Three types of warehouses

powerpoint slides are for reference

Advantages of public warehouse

Deciding the number of warehouses

powerpoint slides are for reference

The curve As the no of WH increases.

Inventory carrying cost increases

Efficient transportation can reduce the no of WH

Square root formula for deciding the

Calculate X2 ie no of units to be stored in 2 warehouses.

Assumptions of the model:

powerpoint slides are for reference

You might also like