Professor / Ph.D.

1. Basics of Warehousing
2. Warehouse Processes
3. Warehouse Design & Layout
4. Inventory Management
5. Warehouse Cost
6. Warehouse Safety
7. Material Handling
8. Material Handling Equipment

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❖ The Concept of the Warehouse

Definition
- A place for storing large amounts of products (wares).
- In logistics, a place where products go to from the manufacturer before going to the retailer“
- A warehouse should be viewed as a temporary place to store inventory and as a buffer in supply
chains. It serves, as a static unit – in the main – matching product availability to consumer demand
and as such has a primary aim which is to facilitate the movement of goods from suppliers to
customers, meeting demand in a timely and cost-effective manner. Van Den Berg (2013)

WARE + HOUSE
+ →
倉 + 庫
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❖ The Concept of the Warehouse

Trade-offs within & between the Warehouse

▪ Cost versus Service

▪ Storage Capacity versus Speed of Retrieval

▪ Speed versus Accuracy

▪ Lower Inventory versus Availability

▪ Efficiency versus Responsiveness

▪ Volume Purchases versus Storage Cost & Availability.

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 ❖ The Concept of the Warehouse

Challenges on Warehousing
▪ Improving Efficiency and Productivity
whilst Reducing Costs
▪ Improving Quality and Accuracy
▪ Reduced Lead Times from Customers
▪ Technological Advancements
▪ Workforce Availability and Management
▪ Health and Safety
▪ Effects on the Environment
Source : Warehouse Management_Gwynne Richards 5 / 21
❖ The Role of the Warehouse

Functions of the Warehouse

▪ Storage of Goods (planned storage, extended storage)

▪ Movement of Goods
▪ Information Management
▪ Protection of Goods
▪ Risk Bearing
▪ Financing
▪ Processing
▪ Grading and Branding
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 ❖ The Role of the Warehouse

Warehouse in the Supply Chain

Source : Warehouse Management_Gwynne Richards 7 / 21

❖ The Role of the Warehouse

Types of Warehouse Operation

Owner Operated
Warehouse
Operation Subcontracted to Third -party Logistics Provider

1. Raw Materials Storage

2. Intermediate, Postponement, Customization or Sub-assembly Facilities

Postponement and sub-assembly activities can include the following:

▪ specific packaging or labelling being changed or added, eg for storeready items or printing
in different languages;
▪ computer assembly to include different graphics cards, memory chips, software, etc;
▪ product bundling for promotional activity;
▪ country-specific items being added such as electrical plugs; and
▪ special messages being added, eg stencilling of greetings messages on mobile phones.

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❖ The Role of the Warehouse

Types of Warehouse Operation

3. Finished Goods Storage

4. Consolidation Centers and Transit Warehouse

5. Cross-dock Centers

6. Sortation Centers

7. Fulfilment Centers

8. Reverse Logistics Centers

9. Public Sector Warehousing

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❖ The Role of the Warehouse

The Purpose of Warehousing

▪ Optimizing the logistic performance

▪ Ensuring the productivity

▪ providing additional services

▪ Reducing transport costs

▪ Balancing required and delivered quantities

▪ Using the market position

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❖ Warehouse Location

Deciding Warehouse Location

near to the closer to the

Motorway Fulfilment Center Grocery Retailer
Customers

to delay the latest collection time

from the parcel companies different temperature regimes of
products being delivered
to introduce late order Cut-off time

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❖ Warehouse Location

Factors on Deciding Warehouse Location

▪ cost of land, rent and rates
▪ access to transport networks
▪ availability of affordable skilled labor
▪ transport links for staff
▪ availability of funding, grants, etc.
▪ availability of existing buildings
▪ availability and cost of utilities including telecoms
▪ availability of finance and resources
▪ goods traffic flows
▪ proximity to ports and airports
▪ location of suppliers and manufacturing points
▪ the potential neighbors (eg proximity to oil storage depots can be a negative factor).
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❖ Warehouse Location

Requirements for e-retailing operations in terms of location

per
Highest U$ 313/㎡ annum
▪ land/rent/lease costs
·London Heathrow
▪ access to affordable labor ·Hongkong ·Zurich
·Singapore ·Oslo
▪ expansion space available
▪ close proximity to parcel hub
▪ close to motorway network
▪ central location
(covering whole country) per
▪ close proximity to consumers
U$ 70/㎡ annum

·Chinese Tier 2 cities

▪ government incentive (武汉, 沈阳, etc.)
▪ close proximity to ·Atlanta·Marseille
higher skilled labor
Lowest

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 ❖ Warehouse Location

Warehouse
Costs
Globally

Source : Warehouse Management_Gwynne Richards 14 / 21

❖ Warehouse Location

Selection Criteria for Warehouse Location

Macro Labor Environment Markets

Cost Infrastructure
Environment Characteristics

• Land cost • Government • Labor • Existence of • Geography • Proximity to

policies availability modes of • Away from customers
• Labour costs
• Industry • Skilled labor transport flood plains • Proximity to
• Transportation
regulations availability • Telecommuni- • Away from supplier/
cost
• Enterprise • Transport links cation systems subsidence producer
• Tax incentives
zones and for staff • Energy and • Weather • Traffic flows
• Tax structures construction water utilities
• Industrial • Neighbors • Leadtime and
• Financial plans relations record • Quality and responsiveness
incentives • Planning reliability of • Congestion
• Handling costs regulations modes of
• Political stability transport

• Security • Proximity to
ports
• Intermodal
terminals and
airports
• Existing sites

Adapted and reprinted from Expert Systems with Applications, Multi-criteria warehouse location selection using Choquet integral, Tufan Demirel, Nihan Çetin Demirel,
Cengiz Kahraman, May 2010, with permission from Elsevier
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❖ Number of Warehouses

Increase Reduce
?
Increase Increase
number of
warehouse ? number of
warehouse
number of
warehouse
size of
warehouse

•
•
•

Comparison between many and fewer warehouses

Many Fewer
Criteria
warehouses warehouses

Inventory cost Higher Lower

Customer reaction time Quicker Slower
Facility costs Higher Lower
Inbound transport cost Higher Lower
Outbound transport cost Lower Higher
Systems cost Higher Lower
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❖ Number of Warehouses

Square Root Rule

– David Maister(1976)
- enables companies to calculate the reduction or increase in safety stock required
when the number of warehouses is changed.
- the total safety stock in a supply chain is proportional to the square root of the
number of locations at which a product is stored

* This calculation cannot be used in isolation. Other factors, such as supplier and customer
lead times, the product itself (different types of electrical plug for example), transport costs
and distribution center costs also have to be taken into account.
* The rule is based on the assumption that the amount of safety stock in each existing warehouse
in the system is approximately the same.
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❖ Supply chain trends affecting warehouses

More fulfilment Retailers and

Continuous centers manufacturers will
growth of continue to look for further
and returns cost savings as markets
e-Commerce processing become even more
facilities competitive

The cost of Retailers will continue

transport and to take stock out of the Warehouses will be
stock-reduction supply chain, leading expected to be more
targets could to increases in efficient and cost-
potentially bring stockless depots, effective, with the
manufacturing transhipment and likely closure of
closer to the consolidation centres inflexible buildings and
consumer and cross-dock inefficient operations.
operations

Greater collaboration Reduction in the

Port-centric within the supply chain number of
logistics both vertically and warehouses
& horizontally will lead to &
Miniaturization greater consolidation and Construction of
of products an increase in shared- purpose-built
user operations. centers
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❖ The growth of e-fulfilment and its effect on the warehouse

e-Commerce

10 Best selling items

1. Fashion
2. Electronics
3. Cosmetics
4. Souvenir
5. House appliances
6. phone apps & software
7. Books
8. Food
9. Education
10.Travelling service
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Categories of transactions in e-commerce
Collaborative Commerce

B2B Intrabusiness
BUSINESS
B2G

CONSUMERS EMPLOYEES
C2C

G2B

GOVERNMENT
G2G

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❖ The growth of e-fulfilment and its effect on the warehouse

Pure internet traders :

have an advantage in developing purpose-built facilities
Warehousing for Existing retailers and manufacturers who are selling online :
need to adapt existing logistics systems and facilities to meet
new demands or create new ones to accommodate the move
to multichannel retailing.

Significant impact on seasonality

Challenges
for operating Efficient process of low-value, single-item order
e-fulfilment Accuracy and on-time delivery become paramount
warehouse
Large percentage of returns

Integrated fulfilment
3 types of
Dedicated fulfilment
e-fulfilment
Store fulfilment
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