SLDS - LM Obt 1.4 (WH-4)

Warehousing - IV
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Warehousing by khalid_sheikh / LM 1.3.1 of 57

Options for Acquiring Warehouse Space:
A Strategic Decision
 Owning/Leasing for Long-Term
(Private Warehouses)
 Hiring Storage Space as a Service
(Public Warehouses)
 Contracting Warehousing Services
(Product-/Industry-Specific Warehouses
- Contracted for Medium-Term; and
- Operated by 3PL Providers* as Dedicated
or Shared-User Operations)
*Third-Party Logistics (Service) Providers

The Choice Depends on:
 The demand patterns/seasonality,
volumes, geographical location, and
packaging of the products
 The financial strength of the firm
 The service levels expected

by the customer
• The selection is a strategic decision
having long-term implications
for the efficiency and effectiveness
of the logistics system of the firm.

Warehouse Options
Factors Private WH Public WH Contract WH
Investment Very high None Very less
Offers Material Handling, Storage,
Location Location
Flexibility in Throughput Planning
Cost per unit Inversely related Inversely related
Low
stored to volumes to volumes
Storage and Customized, Product-Specific, General, Product-Specific,
Operation Centralized & Stable Dispersed Dispersed
Control over
High Low Medium
the Operations
High, due to changes in market
Risk Minimal Medium
demand or consumption centers
Suitable for Stable, Mass Production Seasonal Medium Term

Warehouse and Distribution Center
 Although the terms “Warehouse”
and “Distribution Center (DC)”
are used interchangeably,
there are significant differences
between the two.

Warehouse and Distribution Center
Activity Warehouse Distribution Center
Storage: Proportion of Less than 50% of Greater than 50% of

Fast-Moving Items the Total Inventory the Total Inventory
Stock Turns
(Annual Sales ÷ Less than 8 Times More than 8 Times
Average Inventory Level)
More than 90% of the Items More than 50%

Dominant Mode of
Involve Receiving, Storing, of the Items Involve
Order Handling
Picking and Dispatching Cross-Docking Only
Communications Mode Batch Data Collection Real-Time Data Collection

Factors to Consider while Deciding Number of
Warehouses for a Multiple Depot Network
 Market Size
 Area to be Covered by Each Warehouse
 Types of Products to Be Stored
 Demand Pattern (Continuous or Seasonal)
 Customer Service Level (Higher customer service levels
and shorter lead times require more warehouses)
 Competition
 Establishment and Operating Costs

Effect of Increasing Number of Stocking Locations
(Warehouses) on Inventory: The Square-Root Rule
 The Square-Root Rule Introduced by

David Maister in 1976 States that:
 The Total Safety Stock of Inventory (I)
in a Supply Chain is Proportional
to the Square Root of the Number (n)
of Stocking Locations (I α √n)
 Ip /Ie = √(np /ne), or Ip = Ie * √(np /ne)
 The Rule is Based on several Assumptions.

The Square-Root Rule Is Based
on the Following Assumptions
 Inventory transfers between stocking locations
(warehouses) are not common practice
 Lead times do not vary
 Customer service levels, as measured
by inventory availability, are constant
regardless of the number of warehouses
 Demand at each location is normally distributed
 The amount of safety stock in each existing
warehouse is approximately the same.

Ip = Ie * √(np/ne)
Where:
Ip = Total Inventory in Proposed Warehouses
Ie = Total Inventory in Existing Warehouses
np = Number of Proposed Warehouses
ne = Number of Existing Warehouses
Reduction in Stockholding = [(Ie - Ip)/Ie] * 100%
= [1- √(np/ne)] * 100%

Warehouse Network—Cost Implications
Inbound (Primary)
Transportation Costs
Total
Inventory
Cost + Facilities
+ System Costs
Outbound (Secondary)
Transportation Costs
Cost
Number of warehouses

Factors to Be Considered for
Warehouse Site Selection
 Availability of Skilled Labor and Infrastructure
(Utilities, Communication, Transport Links for Staff)
 Proximity to the Suppliers, Manufacturing Points,
Markets or Consumption Sites, etc.
 Access to the Site (Approach Roads,
Ports, Rail Terminals, Freeways)
 Primary/Secondary Transportation Cost
 Availability of Space (Cost of Land, Rent, and Rates)
 Products to Be Stored (Perishable/Hazardous/Bulky)
 Regulations
 Local Taxes and Levies (Sales Tax, Govt. Incentives, etc.)

Quantitative Techniques for Warehouse Site
Selection for Single Depot Location
 Centre of Gravity of Market Area
 Centre of Gravity of Annual Loads
at Different Customer Locations
 Centre of Gravity of Load*Distance
(Tonnes-Kilometres, or Pallets-Kilometres)
from Different Sites

An Example of Center of Gravity Method
Distance (km) on Distance (km) on Demand (D)
Retail
the X-Axis (X) of the Y-Axis (Y) of in Pallets X*D Y*D
Outlet
the District Map the District Map per Week
A 15 12 100 1500 1200
B 05 08 150 0750 1200
C 16 05 120 1920 0600
D 07 08 090 0630 0720
E 02 18 080 0160 1440
F 09 11 140 1260 1540
G 12 13 110 1320 1430
TOTALS ( ∑D, ∑X*D, & ∑Y*D ) 790 7540 8130

Recommended Warehouse Location
(Distances on X and Y Axes of the District Map)
Distance on X-Axis = ∑X* D / ∑D = 7540/790 = 09.54 km
Distance on Y-Axis = ∑Y* D / ∑D = 8130/790 = 10.29 km

Warehouse Layout Design
An important factor in designing
the layout is whether the warehouse
is to be used predominantly:
 For storing goods
for relatively longer periods, or
 For frequent put-away and picking

Storing versus Picking
 The functions of storage and picking
have opposite requirements

Layout Requirements for Storage and Picking
Aspect Efficient Storage Efficient Picking
Large Areas: Requires longer Small Compact Areas: Can be

Storage Areas
distances to be covered located close to the dispatch area
Focus on High Utilization: Focus on Easier Movement of

 Less number of Pickers and Equipment:
Space Utilization narrow aisles desired  Large number of wide aisles
for Storage and cross aisles desired
 Pallets/containers can be
stacked over one another  Storage in racks for easy retrieval
Slotting Strategy Dynamic/Random Allocation Static/Fixed Allocation

(Locations for Storing  Each time a pallet arrives,  Each SKU is assigned
Different SKUs inside a location is determined a dedicated, fixed location
the Warehouse) to maximize space utilization where it will always be found

Storage Requirements and Picking Activity
High Pick, But Low Storage High Pick, and High Storage
High  Picking areas
(e.g., a Large Distribution Center)
Picking should be compact  High-tech automated picking
Activity
 Low-tech/manual storage  High-density, high rise storage
 Partial automation  Mechanized handling
for picking desirable
Low Pick, and Low Storage Low Pick, But High Storage
 Does not require  Manual or semi-automatic
high-tech automation, or picking
material handling equipment
Low  High-density storage
 Stacked pallets, floor storage, with high bays, multiple levels,
Picking
and racks & shelves and dense packing
Activity
 Manual material handling
Low Storage Requirements High Storage Requirements

Typical Warehouse Site Requirements
As Percentage of
Area Designated for  Area (sq m)
the Total Site Area
Floor Area of the Warehouse 10,000 33% to 34%
Expansion Allowance 3,000 10%
Car Parking 3,000 10%
Truck Turning 4,500 15%
Building Services 300 1%
Landscaping and Open Space
9,000 30%
(for Truck Queuing and Parking)
Total Site Area Required

29,820 100%
(for a 10,000 sq m Warehouse)

Warehouse Layout Design Guidelines
 Make the best use of available space
 Use a “unitized” load system suitable for storage
 Minimize the movement of goods
by allotting proper storage areas/locations
for slow-moving and fast-moving items
(Fast-moving items should be located together
and close to the despatch area)
 Provide flexibility for changing future needs

 Design safe, secure, and clean working conditions

Detailed Layout Design Steps
 Define a location for receiving
and shipping functions
 Allocate separate areas for slow-,
medium-, and fast-moving items
 Define locations for fixed obstacles,
such as building columns, staircases,
elevator shafts, toilets, etc.

Detailed Layout Design Steps (continued)
 Define the shortest paths
for the movement of equipment
and personnel for faster storage
and retrieval
 Determine the locations for stationary
material handling equipment
(overhead cranes, conveyors)
 Determine the locations
for storage equipment

Detailed Layout Design Steps (continued)
 Generate alternative layouts
by repeating the above process steps
 Evaluate alternative layouts

Evaluation Criteria of Alternative Layouts
 Item Turnover
(particularly the speed and cost at which
high turnover items can be put away and picked up)
 Space Utilization
(The ratio <utilized-space/open-space>
inside the Warehouse (not inside the warehouse site)
for semi-automated warehouses varies
between 70/30 to 75/25, and for fully automated
warehouses it could be as high as 85/15)

Evaluation Criteria of
Alternative Layouts (continued)
 Product Configurations
(Accessibility and ease of moving large and heavy items;
special arrangements for fragile and odd-shaped items;
open yards for large/heavy items that are
not affected by elements of nature)

Evaluation Criteria of
Alternative Layouts (continued)
 Product Characteristics
(e.g., facilitation of fast stock rotation
for items having shorter shelf life)
 Conducive to Good Housekeeping
 Safety and Security for People,
Equipment, and Products
(avoiding sharp blind bends; easy
detection of pilferage, damages, etc.)

Storage Systems
 Pallet Storage/Retrieval Systems
 Block Stacking, Stacking Frames,
Single-Deep Selective Pallet Rack, Double Deep Rack,
Drive-in Rack, Drive-thru Rack,
Pallet Flow (FIFO) Rack, Push-Back (LIFO) Rack
 Bin Shelving Systems

 Modular Storage Drawers and Cabinets
 Gravity Flow Racks
 Carousels (Vertical / Horizontal)

Hazardous Materials (Hazmats)
 Hazmats (such as, explosives,
flammable liquids, flammable solids)
need special attention because:
 They can cause Ill health, injuries,
death, and property damage.
 Shipping documents must indicate the hazardous

nature of the materials being transported.
 Warehouse employees should note
these warnings when receiving
and shipping Hazmats.

Material Safety Data Sheets (MSDS)
 Many countries require that organizations
create a Material Safety Data Sheet (SDS) for
each Hazmat to be stored in a facility.
 The MSDS contains information about

the physical/health hazards associated
with a particular product and also
information about its proper storage.

Material Safety Data Sheet (MSDS)
(aka Safety Data Sheet, or Product Safety Data Sheet)
 Provides workers and emergency personnel
with procedures for handling or working with
a substance in a safe manner; it forms a part of
product stewardship and occupational safety and
health data, and includes information such as:
 Physical data (melting point,
boiling point, flash point, etc.)
 Toxicity, health effects, first aid, reactivity
 Storage, disposal, protective equipment,
and Spill-handling procedures

Design Elements for the Storage of Hazmats
 Specially constructed areas that ensure
that the materials can be contained
in the case of an accident.
 Walls and doors that can withstand
several hours of intense fire
 Proper sprinkling systems
and excellent ventilation

Warehouse
Warehouse Decision Model Facility Planning
Decisions
Product Type Objectives Resources Strategic
• Solid • Cost • Finance • Layout
• Liquid Reduction • System • Handling
• Gaseous • Stock • Competency
Equipment
Turnover • Storage
Product Schemes
• Customer
Characteristics
Satisfaction Tactical
• Value • Storage
Density • Productivity Warehouse
Allocation
• Logistical Network
• Order Picking
Reach (Numbers and
• Packing
• Perishability Locations)
Operational
/Shelf Life • Private
• Work
• Hazardous • Public Allocation
• Contract • Job Scheduling
• Performance
Monitoring
Examples of Warehouse Layouts
Material Inward and Inspection
Bulk Storage Rack/Bin Storage

Place Place
Order Picking Section
Packaging Section
Material Dispatch Section

U-Flow Warehouse
Low Usage (Slow-Moving) Items
Medium Usage Items
High Usage (Fast-Moving) Items

Sortation &
QA Consolidation
Empty Cross Dock

Pallets
Goods Inwards Dispatches

Through-Flow Warehouse
Medium Usage Items

Goods Inwards
Dispatches
High Usage (Fast-Moving) Items
Medium Usage Items

Trade-offs in Warehouse Management
(Trade-offs within warehouse itself and also between
warehouse operation and other logistics services)
 Cost versus Service
(Inventory Holding Costs versus Cost of Stock outs
Labor Cost Reduction versus Increasing Throughput)
 Speed versus Accuracy

(Increased Pick Rates versus Accuracy)
 Speed versus Safety

 Efficiency versus Responsiveness
(Storage Density versus Quicker Pallet Extractions)
 Volume Purchase Discounts versus Storage Cost

To Balance the trade-offs and
to remain competitive, companies follow various
Warehousing Strategies, for example:
 Capacity Switching
 Hub Networking
 Cobbling
 Outsourcing

 Capacity Switching: in the face of
fluctuating or seasonal demand, the warehouse capacity
is planned on the basis of average demand;
the excess space requirement is taken care of
through public or contract warehouses.

Warehouse Capacity Planning
Public or Contract Warehouse

for 25% of Capacity Reqts.
Storage
Capacity Private Warehouse
Requirements for 75% of Capacity Reqts.
J F M A M J J A S O N D
Months

 Hub Networking: Instead of establishing
warehouses for each small region (state),
warehousing hubs are established at fewer
strategic locations (e.g., at/near metro cities) to take
advantage economies of scale and risk pooling

 Hub Networking
 Cobbling: Companies serving noncompeting products
to similar customer segments through
similar market channels cobble together
to have common warehouses and logistics
to exploit economies of scale and scope

 Hub Networking
 Cobbling
 Outsourcing to Logistics Service Providers
that Have Warehousing as Their Core Competency
and Economies of Scale and Scope

Warehouse Performance Parameters
 Warehouse Cost-to-Sales Ratio
 Warehouse Cost per Unit Handled
 Occupancy Rate of Warehouse Space
 Stock Turn-Over Ratio

 Dock-to-Stock Time (DTS). The lapsed time from
when a receipt arrives until it is ready for picking
 Warehouse Order Cycle Time (WOCT).

The lapsed time from when an order is released to the
warehouse until it is picked, packed, and ready for shipping

Warehousing Key Performance Indicators (WKPIs)
Function  Financial Productivity Utilization Quality Cycle Time
Receiving Cost % Receipts Receipt

Receipts per % Dock Door
Receiving per Receiving Processed Processing Time
Man-Hour Utilization
Line Accurately per Receipt
% Utilization
Put-away Cost Put-aways Put-away
of Put-away % Perfect
Put-away per per Cycle Time
Labor and Put-aways
Put-away Line Man-Hour per Put-away
Equipment
% Locations
Inventory % Locations
Storage Space without Inventory Days
Storage per Square and Cube
Cost per Item Inventory on Hand
Foot Utilization
Discrepancies

Warehousing Key Performance Indicators (WKPIs) (continued)
Function  Financial Productivity Utilization Quality Cycle Time
Picking Cost Order Lines % Utilization of % Perfect Order Picking

Order
per Order Picked per Picking Labor Picking Cycle Time
Picking
Line Man-Hour and Equipment Lines per Order
Shipping Orders
% Utilization Warehouse
Cost per Prepared for % Perfect
Shipping of Shipping Order
Customer Shipment per Shipments
Docks Cycle Time
Order Man-Hour
Total Cost Total Lines % Utilization of Total

% Perfect
per Order, Shipped per Total Throughput Warehouse
TOTAL Warehouse
Line, and Total and Storage Cycle Time
Orders
Item Man-Hour Capacity = DTS + WOCT
DTS = Dock-to-Stock Time; WOCT = Warehouse Order Cycle Time (Described Earlier)

Warehousing Challenges
Warehousing
# Operational Requirements
Challenge
1 Reducing Increase productivity: improve space, staff, and

Operating Costs equipment utilization; evaluate outsourcing
2 Achieving the Increase productivity, increase accuracy,

Perfect Order* improve handling, and invest in systems
*Perfect Order is one delivered on time, in full, in perfect condition

and accompanied with the correct documentation
(preferably in electronic format rather than paperwork)

Warehousing Costs

Warehousing Challenges (continued)
# Warehousing Challenge Operational Requirements
Improve processes and

3 Reducing order lead times
increase productivity
Selling and delivering Improved picking strategies

4 through multiple channels; (e.g., bulk picking) and
smaller more frequent orders greater use of technology

Warehousing
Challenge
Handle fluctuating Flexible working hours and

5
demand improved forecasting
Improved use of equipment such carousels,

Handle large
A-Frames, and flow racks; improve picking
number of Stock
6 process to increase efficiency;
Keeping Units
reduce SKUs to basic components; and, use
(SKUs)
postponement to bundle or finish to order

Warehousing
Challenge
Staff retention through

Increased cost
excellent working conditions,
7 and shortage of
flexible hours, training and
skilled labor
improved productivity

Warehousing
Challenge
Manage energy consumption in lighting,

mechanical handling equipment (MHE),
Increasing cost heating/cooling more efficiently.
of energy and
8 The waste generated in warehouse (e.g.,
environmental
issues stretch-wraps, cardboards, tapes, pallets, etc.)
should be tightly controlled, recycled,
reused, or converted into energy.

Warehousing
Challenge
Data accuracy
Introduce Warehouse Management System
9 and speed of
(WMS) and real-time data transfer.
data transfer

Supply Chain Trends Affecting Warehouses
# Supply Chain Trends Effect on Warehouses
Increase Requirements of Fulfilment

1 Growth of e-Commerce
and Returns Processing Centers
Increased Competition Need for Making Warehousing

2
Requiring Lower Prices More Efficient and Cost Effective
Increased use of transshipment,

Retailers Attempting
3 consolidation centers,
to Reduce Stock
and cross-docking

Manufacturing Being Moved Closer Near-Shoring and In-Shoring

4 to the Consumer to Reduce leading to reduced demand
Transportation and Inventory Costs for warehousing space
Large warehouses being

5 Increase in Port-Centric Logistics
built near ports of entry
Miniaturization of some product Lesser space required

categories such as mobile devices in warehouses for
6
and PCs, and digitization of audio, these type of products
video, and software products

Development of Brown Field Sites,

Linkages to Rail and Inland Waterways,
Emphasis on Self-sufficiency in Terms of Energy Use—
7
Sustainability Having Own Means of Power Generation
(Solar, Wind, etc.), and
Expectation to Be Carbon Positive
Greater Vertical/Horizontal Increase Shared-User Operations

Collaboration in/among Leading to a Reduction in
8
Supply Chains Leading to the Number of Warehouses
Greater Consolidation

THE END

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Warehousing - IV

For VIDEO LECTURE

Warehousing by khalid_sheikh / LM 1.3.1 of 57

*Third-Party Logistics (Service) Providers

Warehousing by khalid_sheikh / LM 1.3.2 of 57

 The financial strength of the firm

 The service levels expected

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Storage: Proportion of Less than 50% of Greater than 50% of

More than 90% of the Items More than 50%

Communications Mode Batch Data Collection Real-Time Data Collection

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 The Square-Root Rule Introduced by

 The Rule is Based on several Assumptions.

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TOTALS ( ∑D, ∑X*D, & ∑Y*D ) 790 7540 8130

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Distance on X-Axis = ∑X* D / ∑D = 7540/790 = 09.54 km

Distance on Y-Axis = ∑Y* D / ∑D = 8130/790 = 10.29 km

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Large Areas: Requires longer Small Compact Areas: Can be

Focus on High Utilization: Focus on Easier Movement of

Slotting Strategy Dynamic/Random Allocation Static/Fixed Allocation

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Low Storage Requirements High Storage Requirements

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Total Site Area Required

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 Provide flexibility for changing future needs

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 Bin Shelving Systems

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 Shipping documents must indicate the hazardous

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 The MSDS contains information about

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Material Inward and Inspection

Bulk Storage Rack/Bin Storage

Order Picking Section

Material Dispatch Section

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Low Usage (Slow-Moving) Items

Medium Usage Items

High Usage (Fast-Moving) Items

Empty Cross Dock

TOTALS ( ∑D, ∑XD, & ∑YD ) 790 7540 8130