WAREHOUSING Q1. Define Warehousing or what is Warehousing?

Definition  Warehousing is that part of firm’s logistics System that stores products at and between point-of-origin and point of consumption, and provides information to management of the status, condition, and disposition of items being stored. A warehouse is a point in the logistics system where a firm stores or holds raw materials, semifinished goods, or finished goods for varying periods of time. In the macroeconomic sense, warehousing performs a vital function. It creates time utility for raw materials, industrial goods and finished products. The proximity of market-oriented warehousing to the customer allows a firm to serve the customer with shorter lead times. This warehousing function continues to be increasingly important as companies and industries use customer services as a dynamic, value-adding competitive tool. Q2. What is the importance of warehousing? (Rationale for Warehouses)


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Achieve transportation economics Achieve production economics Take advantage of quantity discounts Accomplish least total logistics cost Maintain steady source of supplies Support customer service policies Meet changing demand(market) conditions Reduce time & space distance between supplier & customer

Q3. What is the need for warehousing? A)


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Conventional Approach: (Push Concept) Protection against delays & uncertainty in transportation Availability of products on desired time & at desired place Provide adjustment between the time of production & use of the product Serve as a reservoir of goods

B) Modern Approach: (Pull Concept) Movement of products • Warehouse is a location where inputs received from production are converted into outputs to the customers, at shortest possible time • Warehouse is defined as a location of temporary storage facility & from where they are dispatched with main objective of maintaining the flow of goods throughout the logistics system( cross docking) • Warehouse adds to the cost of distribution but the financial overall benefits over weigh the cost • Relationship between warehousing & transportation/ production/ customer service/ least total cost logistics. Q4. The Role of Warehouse A role plays a multifaceted role in the integrated logistics system. It can serve as a transportation consolidation facility. It also acts as a reservoir for production overflow. This function known as “Stock piling” can take a variety of forms:(i) Seasonal production level demand (ii) Level production seasonal demand Warehouse also acts as:a) Production Mixing Sites: - Variety of products can be stocked and when orders are received for a particular “Mix” they are sent from warehouse. b) Warehouse can also facilitate production: - Some final operation like writing name of the customer or coloring can be done there. c) As a safety during strikes, more rejections etc. d) Smoothening production runs.

and warehousing is no exception.Warehouse equipment includes materials handling devices. Benefits realized from strategic warehousing ECONOMIC BENEFITS (5 basic economic benefits) a) Consolidation b) Break bulk c) Cross dock d) Processing/postponement e) Sock pilling SERVICE BENEFITS (Five basic service benefits) 1) Spot Stock 2) Assortment 3) Mixing 4) Production Support 5) Market Presence (B) Warehouses can also be classified on the basis of Ownership:• Private • Public . Warehouse versus Godown The concept of warehouse is vastly different from the earlier concept a godown for storage because the godown is merely a dumping place. A primary reason for establishing a warehouse is to increase customer service levels. This often requires individual attention to special customer requests like final subassembly.Space allows for the storage of goods when demand and supply are unequal. dock and conveyor equipment and information processing system. Q6.e) The primary role is to provide customer service. specialized packaging. People play critical role in every part of the supply chain. What are the basic components of a warehouse? There are 3 basic components: i) Space: . which is maintained only for storage of surplus goods. or price making of shipments. Space and equipment mean nothing without competent people. The equipment helps in product movement.People are the most critical component of a warehouse. storage racks. iii) People: . Customer requests can request standardization in the warehouse.Long Term • Contract or third party The different types of Public Warehouses are: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) General Merchandise Refrigerating Warehousing (frozen/chilled) Special Commodity Warehouses Bonded Warehouses Household Goods and Furniture Warehouses Field Warehouses Agriculture Warehouses Distribution Warehouses Buffer Storage Warehouses Export and Import Warehouses (C) Warehouses can also be classified on their locations/positions:• Production Positioned . Q5.Short Term . storage and tracking. making complete automation impossible. Types of Warehouses:(A) Warehouses can also be classified on the basis of benefits realized from them. ii) Equipment: .

• There is less difficult in tracking. (B) Break Bulk: . PLANT A PLANT B PLANT C CONSOLIDATION WAREHOUSES CUSTOMERS A C B Features:• Allows both inbound movement from manufacturer to the warehouse and outbound movement from warehouse to the customer to be consolidated into longer shipments.Here the consolidation warehouse receives and consolidates materials from a number of manufacturing plants destined to specific customer on a single transportation shipment. What are the benefits realized from Strategic Warehousing? A Warehouse should not be included in a logistical system unless it is fully justified on a cost benefit basis.It is similar to consolidation except that no storage is performed. FIVE BASIC ECONOMICS BENEFITS Consolidation Break Bulk Cross Dock Processing/ Postponement Stock Pilling (A) Consolidation: . It is not difficult to quantify the return on investment of an economic benefit because it is reflected in a direct cost to cost trade-offs. Features: • In break bulk operations combined customer orders are received from manufacturers and are arrange for local customers. • Lower distribution cost for manufacturer or distributor as number of firms may join together and use for-hire consolidation service. the transportation cost per unit is lowers. • Reduced congestion at customer receiving deck. . Benefits:• Realization of lowest possible transportation rate. Benefits:• As there are long distance transportations from Manufacturing Plant to Break Bulk Warehouse which cover large shipments.• • Intermediate Positioned Market Positioned Q7. Economic Benefits:Benefits Realized from strategic warehousing Economic Benefits Service Benefits Economic Benefits result when overall logistical costs are reduced by utilizing by one or more facilities. • Combines logistical flow of several small shipments to a specific market area. • They split individual order arrange for local delivery.

In essence.In a cross-docking concept warehouses serve primarily as ‘distribution mixing center’. COMPANY A OR PLANT A CUSTOMER X COMPANY B OR PLANT B DISTRIBUTION CENTRE CUSTOMER Y COMPANY C OR PLANT C CUSTOMER Z . • More effective use of dock facilities because all vehicles are fully loaded. • After receiving. Products usually come boxed for individual stores from the supplier’s location. the product never enters the warehouse. • Firm’s distribution center is near capacity • Some of the inventory is pre-priced Features: • Full trail loads of product arrive from multiple manufactures. • Product is then moved across the dock to be loaded into trailer destined for appropriate customer. Cross-docking should be considered as an option by firms meeting following criteria: • Inventory destination is known when received. then remix and immediately ship to individual store locations. • Some inventory is time sensitive. • The trailer is then released for transportation after it has been filled with mixed products from multiple manufacturers. Product arrives in bulk and is immediately broken down and is mixed in the proper range and quantity of products for customer shipment. who can order TL.CUSTOMER X PLANT A BREAK BULK WAREHOUSE CUSTOMER Y CUSTOMER Z (C) Cross dock: . • The Shipments are for fewer locations. • The Customer is ready to receive inventory immediately. Benefits: • Full trailer movements from manufactures to cross-dock warehouse and then to retailers. it is sorted by and allocated to customers. thus maximizing loading dock utilization. • Inventory arrives at firm’s docks pre-labeled. • Reduced handling cost since the product is not stored. • The Large quantities of individual items can be received by firm. Cross-docking is becoming is becoming popular among retailers.

No pre attached labels mean the product does not have to be committed to a specific customer. .g. C ii) Assortment: An assortment warehouse which may be utilized by a manufacturer.(D) Processing/Postponement: . It is difficult to quantify the return on investment of such a benefit because it involves cost-to-cost trade-offs.It provides an inventory buffer which allows production efficiencies within the constraints imposed by material sources and the customer. • Combination of lower risk and inventory level often reduces total system cost even if cost of packaging at the warehouse is more expensive than it would be at the manufacturing facility. Service Benefits It may or may not reduce the cost.g. e. wholesaler or retailer stocks product combinations in anticipation of customer orders.g. A CENTRAL WAREHOUSE SPOT STOCK WH. vegetable processing. FIVE BASIC SERVICE BENEFITS ACHIEVED THROUGH WAREHOUSING SPOT STOCK MARKET ASSORTMENT MIXING PRODUCT SUPPORT PRESENCE i) Spot Stock: Manufacturers with limited or highly seasonal product lines use stock spotting most often in physical distribution of the products. It allows inventories to be placed in a variety of markets adjacent to key customers just prior to a maximum period of seasonal sales. • The required level of total inventory can be reduced by using basic products for a variety of labeling and configurations. SPOT STOCK WH. Q7. B SPOT STOCK WH. Benefits: • Risk is minimized because final packaging is not complete until an order for a specific label and package has been recycled. (E) Stock pilling: . Such a facility would be added only if the net effect would be profit-justified. It is required to support marketing efforts of either seasonal goods manufacturing e. A warehouse justified on service basis allows improvement in the time and place capability of overall logistical system.Warehousing can also be used to postpone or delay production by performing processing and light manufacturing activities. Under this concept a selected amount of a firm’s product line placed or spot stocked in a warehouse to fill customer orders during a critical marketing period. A warehouse with packaging or labeling capability allows postponement of final production until final demand is known. The assortments may represent multiple products from different manufacturers or special assortments as specified by customers. Blankets are sold in winter period. Vegetables can be processed and canned at the manufacture’s end without pre attached labels. Agricultural products which are harvested at specific times with subsequent consumption occurring throughout the year or goods manufactured year round but sold seasonally. e.

• Combined assortments allow large shipments that reduce transport cost per unit. • Inventory is stored to precise customer specifications. • • • A product line. CUSTOMER X A B C D CUSTOMER Y A B C CUSTOMER Z A B PLANT B VENDOR A VENDOR B VENDOR C v) Market Presence: Market presence benefits are basically from the local warehouses’. Functional year round. Benefits: • It allows supplying or ‘feeding’ processed materials. Large number of small warehouse. Safely stocks on items purchased from outside vendors may be justified because of long lead or signified variations in usage. However. dedicated to specific markets. Limited to a few strategic locations abroad iii) Mixing: . MANUFACTURING WAREHOUSE ASSEMBLY PLANT . which are more responsive to customer needs and offer quicker delivery than more distant warehouses.Benefits: • Improved service by reducing the number of suppliers that a customer must deal with. Spot Stock v/s Assortment SPOT STOCKING COMPLETE LINE ASSORTMENT • • • A narrow product Assortment Functional for limited time period. Truckloads of products are shipped to the mixing warehouse where the desired combination of products for each customer or market is selected. CUSTOMER W A B C D PLANT A WAREHOUSE TRANSIT MIXING POINT PRODUCT ID PLANT C Benefits: • Reducing the overall product storage in a logistical system. a little solid research exists to confirm it’s actually benefit impact. Benefits: • It can enhance market share and potentially increase profitability. components and sub-assemblies into the assembly plant in an economic and timely manner. iv) Production Support: It provides a steady supply of components and materials to assembly plants.It is similar to break except that it involves many different manufactures’ shipments.

Disadvantages of Private Warehouses:o Lack of geographical flexibility o Prohibitive costs may preclude some firms from generating enough capital to build or buy a warehouse (Huge Financial requirements) o Permanent liability (b)Public Warehouses: It is operated as an independent business offering a range of services such as storage. o If the volume is sufficient. o They are more flexible as they offer different plans to different customers o Facilities can be given up when not required. In general. Cost Involved: • • • • • • Fixed capital expenses in building. Insurance premium. there is no error or handling damages. Maintenance and repair cost. This facility may be owned or leased as per the decision about the strategy. size and number of facility. this may workout cheaper. etc. Costs involved: • • Rent of the space hired. Payment of charges towards use of other facilities Advantages of public warehousing o Less expensive as fixed costs are distributed over many customers. o Public warehousing may also have lower variable cost than comparable privately operated facilities. an efficient warehouse should be planned around a material handling system in order to encourage maximum efficiency of product flow. o Offer greater operating and management expertise since warehousing is their core business. Cost of material handling machinery and equipment. Advantages of private Warehousing: o Flexibility to design to specifications. handling and transportation on the basis of a fixed or variable free. .Q8. o It is easy to ascertain the storage costs. which best fits the financial aspect of the firm. or economic of scale. better productivity.Special design and material handling equipments to suit the company’s product can reduce the storage costs. o Housing of other offices. o As company’s trained employees handle the goods. Cost of manpower. land. Due to this they can also invest in better material handling equipments. Office and other facilities expenses. o For some products public warehouses may not be available in some strategic locations. They generally offer relatively standardized services to all clients. The lower variable cost may be the result of lower pay scales. o It is easy to change location. o Greater direct control on warehousing activities. The three types are: (a) Private (b) Public (c) Contract (a)Private Warehouses: Private warehousing facility is owned and managed by same enterprise that owns the merchandise handled and stored at the facility. WAREHOUSING ALTERNATIVES OR TYPES OF WAREHOUSES ON THE BASIS OF OWNERSHIP.

WHERE INTERIOR LAYOUT WHERE? (LOCATION) . flexibility and economy of scale by sharing management. ECONOMIES OF SCALE v. OWNERSHIP ii. SCALE OF OPERATIONS (C) Contract Warehouses: They combine the best characteristics of both private and public warehouse operations. and information resources across a number of clients. inventory control. RANGE OF SERVICES vi. size stocking and location that is what type organization. Space may not be available where and when needed. labor. how many. • They are expanding the scope of their services to include other logistics activities such as transportation. order processing. Q8. what products and where. COMPARE PUBLIC WAREHOUSE AND PRIVATE WAREHOUSE: PARAMETERS PUBLIC WAREHOUSE BY GOVERNMENT (RENTED) HIGHLY FLEXIBLE CONTRIBUTES A CONSIDERABLE AMOUNT LOW OPERATING COST YES GRATER LARGE PRIVATE WAREHOUSE BY FIRMS OWNING THE PRODUCT RIGID CONTRIBUTES LESS HIGH OPERATING COST NO LESSER SMALL i. OWNERSHIP PRIVATE PUBLIC HOW MANY? CENTRALIZED DECENTRALIZED WHAT SIZE? WHAT PRODUCTS. equipment. Contract warehousing is a “long term.” Benefits: • They provide expertise. including ownership. mutually beneficial arrangement which provides unique and specially tailored warehousing and logistics services exclusively to one client where the vendor and client share the risk associated with the operations. BASIC WAREHOUSING DECISIONS The basic warehousing decisions are: Warehousing management involves a number of important decisions. FLEXIBILITY RETURN ON INVESTMENT iii. number. customer service and returns processing. what size. Specialized services may not always be available in the desired location. COST iv.Disadvantages of public Warehousing o o o Effective communications may be a problem.

An integrated warehouse strategy focuses on two questions. they are usually perceived to demonstrate more operating flexibility. the building has the firm’s name on the door). The second question concerns which warehouse types should be used to meet market requirements. a public warehouse often employs policy and procedures that are consistent across its client to minimize operating confusion. (5) Scale economies. A private or contract facility may be used to cover basic year-round requirements. (3) operating flexibility (4) location flexibility and. On the other hand. it may be more efficient to build private facilities to cover the 75% requirement and use public facilities to accommodate peak demand. For example. Since private warehouses operate under the complete control of the enterprise. and contract facilities. The first concerns how many warehouses should be employed. the space needed to meet peak requirements is not utilized. are (1) presence synergies. Products and customers that benefit form local presence should be served from private or contract facilities. A firm may find that private warehousing is justified at specific locations on the basic of distribution volume. (2) industry synergies. the answer is the combination that can be differentiated by customer and product. Specifically. while market area or field warehouses are public facilities. In such situation. Reduced transportation cost is the major benefit since joint use of same public warehouse allows frequent delivery of consolidated loads from multiple suppliers. In logistical system design the objective is to determine whatever combination of warehouses strategies most economically meets customer service objectives.g. It is widely thought that customers are more comfortable when suppliers maintain inventory in nearby locations. Private Present synergies Industry synergies Operating flexibility Location flexibility Scale of economies Qualitative decision factors The figure presents a strategy continuum ranging from private to contract to public. Public and contract warehousing increases the potential for industry synergy. A contract facility could be used in either case. In other situations. while public facilities are used to handle peak seasons. The second form of combined public warehousing may result from market requirements. public. central warehouses maybe private.Warehousing strategy As would be expected. a warehouse designed for full capacity utilization will be in fact be fully utilized between 75 and 85 percent of the time. some customer groups may be served best from a private warehouse. (1) Presence synergies: Presence synergies refer to the marketing benefits of having inventory located nearby in a building that is clearly affiliated with the enterprise (e. Thus from 15 to 25 percent of the time.. While conventional wisdom would suggest that private Contract Public . In other markets. For many firms. Full warehouse utilization throughout a year is a remote possibility. Each consideration and its rationale are discussed. (2) Industry synergies: Industry synergies refer to the operating benefits of collocating with another firm serving the same industry. firms in the grocery business often receive substantial benefits when they share public warehouse facilities with other suppliers serving the same industry. while a public warehouse may be appropriate for others. public facilities may be the least cost option. listed on the vertical dimensions. many firms utilize a combination of private. As a planning rule. Qualitative considerations. (3) Operating flexibility: Operating flexibility refers to the ability to adjust internal policies and procedure to meet product and customer needs.

inventory levels will decrease. the desirable strategy is to be able to open and close local facilities seasonally. Outside the growing season. or 10.000) = (40. grater the number of stocking locations. as inventories are consolidated into fewer stocking locations. If the company designed them to be of equal size. in-season demand for agricultural chemicals requires that warehouses to be located near markets that allow customer pickup. the total amount of inventory in two facilities is computed as follows: N2 N1 INVENTOR A 2 F Y T ACILITIES W OULD BE (X2) = (40. For example. there are many public and contract warehouse operations that have demonstrated substantial flexibility and responsiveness. . if for some reason the company considered increasing the number of distribution centers from 8 to 32. • Lead times do not vary. The Square Root Law helps to determine the extent to which inventories may reduce through such a strategy assuming that the total customer demand remains the same. however. The inventory level is normally proportional to the number of the number of warehouses. the model is based on reasonable assumptions: • Inventory transfers between stocking locations at same level are not common practice. total inventory needs would double from 40. (5)Scale economies: Scale economies refer to the ability to reduce material handling and storage cost through application of advanced technologies. The extent to which these changes will occur is understood through the application of the Square Root Law. grater is the amount inventory needed to maintain customer service levels. thus inventory centralization is not affected by supply uncertainties.000 to 80. the SRL estimates the extent to which aggregate inventory needs will change as a firm increases or reduces the number of stocking locations.5) = 20. Thus.000 units.000 units. Conversely. Public and contract warehouses offer the location flexibility to accomplish such requirements. aggregate. The company is evaluating an opportunity to consolidate its operations into two facilities.000 units. and if market demand was equal for the geographic areas.000) 2 8 (0.000 units of product its customers from a total of eight facilities located through out the country. Conversely. Assumptions: Although the square root formula is simply stated. Using the square root law. N1 = Number of existing facilities X2 = (X1) N2 =Number of future facilities X1 =Total inventory in existing facilities X2 = Total inventory in future facilities Example: Consider a company that presently distributes 40. The square root law states that the total safety stock in a future number of facilities can be approximated by multiplying the total amount of inventory at existing facilities by the square root of the numbers of future facilities divided by the number of existing facilities. In general. each of these distributions would carry one-half of this total. these local warehouses are unnecessary. capital investment in mechanized or automated equipment and information technology can reduce direct variable cost. High volume warehouse generally have a greater opportunity to achieve these benefits because they can spread technology’s fixed cost over larger volumes. (4)Location flexibly: Location flexibly refers to the ability to quick adjust warehouse location and number in accordance with seasonal or permanent demand changes. Inventory at Multiple Locations – The Square Root Law (SRL) Currently popular approach is to consolidate inventories into fewer stoking locations in order to reduce aggregate inventories in their associated costs. Public and contract warehouses are generally perceived to offer better scale economies since they are able to design operations and facilities to meet higher volumes of multiple clients.000 UNITS Thus the two future facilities would carry a total inventory of 20. In addition.warehouses can offer more operating flexibility. Where.

levies. etc. etc. size and shape of the products to be stored and for what period  Material handling system to be used  Product throughput (sales volume) present and future  Production lead time  Economies of scale  Stock layout arrangements  Aisle and gangways required for movement of goods  Office area requirement  Fluctuations in demand (high inventory required to meet erratic demand)  Activities to be performed in warehouse Factors determining warehouse layout (design):  Types of products to be stored  Company’s financial resources  Competitive environment Warehousing storage principles:  Grouping by product compatibility  Grouping by complimentarily (functionally rated items)  Grouping by physically similar items  Grouping by popularity (fast moving items to closer exit points and slow moving items at remote place in warehouse)  Working stocks and buffer stocks are to be kept separately  To minimize workload (time) for order picking and shipping aisles are redesigned to facilitate more efficient flow of products to and from dock areas Advantages of layout:  Increase in output  Improved product flow  Reduced cost of operations  Improvement in customer service level  Provide better employee working conditions Conclusion: • . • Demand at each location is normally distributed. taxes. etc. Factors determining Area of Warehouse:  Desired customer service level  Size of market to be served  Number of products marketed  Types.  Labor supply situation and wage structure  Government rules.  Potential for further expansion of warehouse  Re-sale value in future  Possibility of change in the use of facility at later stage  Geographical hazards like flood. water. is constant regardless of the number of stocking locations. Points to be considered while deciding a warehouse location (Selecting location of a warehouse): (Market/ Production/ Intermediary Positioned)  Cost of the warehouse  Order cycle time  Desired customer service level  Nature of the products (seasonal/ perishable)  Market service area and cost of distribution  Cost and availability of transport facilities  Location of competitors warehouses  Availability of basic infrastructure such as power. earthquakes.Customer service levels as measured by inventory availability.

part of warehouse management. computers have played a more significant role as logistics executives attempt to optimize warehouse operations Thus a warehouse plays a multi-faceted role in the integrated logistic system.The entire area of facilities development that is size and number of warehouses. warehouse layout and design is an important factor yet complex. . location analysis. In recent years.