19/09/2021

WAREHOUSE AND DISTRIBUTION IN SC

WAREHOUSE & DISTRIBUTION Chapter 1: Introduction to warehouse

Chapter 2: Warehouse decision
IN SUPPLY CHAIN Chapter 3: Warehouse activities and processes
Chapter 4: Management information system and
technology
Chapter 5: Warehouse safety and Security
Chapter 6: Warehouse performance measurement
Chapter 7: Distribution management
NGUYỄN THỊ THU HÀ
nguyenthithuha.cs2@ftu.edu.vn
Tel/zalo: 0902195657

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Subject planning and assessment

Chapter 1: Introduction to warehouse
● 15 sessions
+ Lectures 11 1.1. Introduction to warehouse
+ Guest speakers 01
1.2. The functions of warehouses
+ Midterm test + Group Presentations 03
1.3. The benefits of warehouses
+ Revision: 01
1.4. The classification of warehouses
● Marking (%): 10/30/60
Attendance/(Contribution in class + midterm test+
Group presentation)/ Final exam
●References: slides and books

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1.1. Introduction to warehouse

What are the reasons for the demand in more
● What is warehouse? warehouses?
The place where the supply chain holds inventory or stores goods
● What is strategic warehouse in supply chain management? What ● Global supply chain
are roles of WH in SC? ● Mass production to meet global demand
- … links suppliers and customers and supports sourcing, making, ● Customer requirements in short self life products, seasonal
delivering activities products,…
- … performs time and place utility ● Demand to speculate products to maximize profit at lower
- …provides desired level of customer service at lowest possible costs
costs ● Ecommerce….

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1.2. The functions of warehouses 1.3. The benefits of warehouses

• Storing products/inventory/seasonal products…..
• Economic benefits:
• Balancing demand and supply
- Consolidation and break-bulk
• Buffering uncertainty and providing continuous production
• Facilitating distribution/transportation - Assortment (cross-docking, mixing and assembly)
• Providing value added services: - Postponement
− Mixing/cross-docking/assembling/break-bulk/consolidation - Stockpiling
− Order picking • Service benefits
− Labeling, packaging, RFID tag application - Reverse logistics
− Customization/postponement - Spot stocking
− Repairing - Full line stocking
− Reverse logistics - Production support
− ………… - Market presence
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Consolidation and break bulk Supply and product mixing

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1.4. Classification of warehouses 1.4. Classification of warehouses

 Based on ownership: Public warehouse, Private warehouse,  Based on stage in SC: Warehouse for raw material,
Contract warehouse (chapter 2) warehouse for work-in-process inventory or warehouse for
 Based on functions finished goods
- Distribution center  Based on product types: General warehouse, warehouse for
- Warehouse for import-export goods: Bonded warehouse, frozen, hazardous, liquid… goods
Tax- suspension warehouse, CFS  Based on location: Central, regional, national, local warehouse
- Transshipment/cross-docking warehouse  Based on management: Centralized, decentralized warehouse
- Seasonal/ speculative/stock pilling, full line stocking, spot

stocking warehouse
- Overflow warehouse

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What are differences between DC and Bonded vs tax suspension vs CFS warehouses
traditional warehouse?
Bonded warehouse
● Services offered ● A warehouse that stores goods that have completed export
● Products/inventory procedures but still wait to be exported, goods imported from
● Velocity of the material flow abroad that are waiting for being exported to a third country or
● Focus imported goods but are not yet completed import procedures
● Customers ● Services: Reinforcement, prepacking, packaging, combining
● Complexity of operation cargo, …, sampling of goods, transferring ownership of goods,
● Technology converting category of goods
● Operators ● Significant benefits: deferring tax-payment, extended time for
restricted goods (12 months and time limit can be extended up to
12 months)
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Tax suspension warehouse CFS – Container Freight Station

● A warehouse used to store imported materials and
manufacturing parts serving production of exported products
that have been cleared from customs but have not been paid
taxes yet
● Goods: Input for production of exported goods
● Benefits of tax-suspension warehouse
- Deferring tax payment
- Extending time for document and legal procedures of
imported/exported restricted goods (12 months and time limit
can be extended up to 12 months)
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● CFS is used for consoling exported or breaking bulk
imported containerized cargoes.
● Services: Consolidation, break-bulk, packing, repacking,
sorting, rearranging, transfer of ownership….
● Time limit: 90 days (time limit may be extended for
maximum another 90 days)
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Questions
Chapter 2: Warehouse decision and designing
1. How important are warehouses for a global supply
chain?
2. Why does the demand in warehouse increase? 2.1. The ownership of warehouse
3. How does the warehouse support JIT strategy? Give 2.2. The number of warehouses
an example. 2.3. Warehouse management
4. What are differences between a DC and a 2.4. The location of warehouses
warehouse? 2.5. The warehouse design and layout
5. What are differences between Bonded/CFS and tax
2.5. The warehouse equipment
suspension warehouse? When to use them?
6. A company is considering to penetrate a new
international market. Should company use DC/ or
traditional warehouse services to realize its plan?

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The warehousing decision
Advantages vs Disadvadvantages of public warehouse
and when to use public WH?
● Advantages
The onwership decision (cont.)
Contracted warehousing
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2.1. The ownership decision
●Public warehouse ● Private warehouse
- A stand-alone company specializing - Private warehousing facilities are
in warehousing and distribution and owned/leased and operated by a
serving various customers company division.
- Public warehouse offers various ways
- Private warehousing often requires a
of storing goods: cold storage, humidity
control, refrigeration, or traditional dry significant front-end investment for
warehousing building, facilities management, and
- A full-service provider offers cross regular maintenance
docking, pick-pack and contract
packaging services to facilitate the
transportation process, inventory
tracking, management technology
- Pricing is based on the level of
service utilized by the customer per
period of time (eg: day/month)
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Advantages vs Disadvadvantages of Private WH. When
to use private WH?
● Disadvantages ● Advantages ● Disadvantages
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The ownership decision (cont.)
Factors - Cost trade-off
- Inventory cost
- Warehousing cost Factors to be considered
- Transportation cost ○ Throughput volume
- Cost of lost sales ○ Stability of demand
- Customer service level
○ Density of market area to be served
- Small quantity
purchase cost ○ Security and control needs
○ Customer service needs
○ Multiple use needs of the firm
○ Capital investment
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The ownership decision:

The ownership decision (Cont.) Public warehouse

Criteria Private Public

Rationale for public - Rate per day/per month
1. Throughput volume High Low warehouse - Rates are based on:
2. Demand variability ● Limited capital investment ● Value of goods

3. Market density ● Flexibility: quantity of ● Fragility of goods

4. Special physical control

goods, type of goods,
time of storage, site of
5. Customer service required
business…
6. Security requirements
Regulation
7. Multiple use needed ● Contract
● Potential damage to
other goods
● Volume and regularity
● Weight density
● Services required

8. Capital investment ● Receipt

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Cost comparision
The ownership decision: Contract warehouse
Cost
Private WH Public WH Contract WH
Component
- A mixed model of public and private warehousing Capital Cost
- A long-term contract and/or services
- Warehouse is owned and operated by a third party
Expenses
- Services:
+ Specialized and customized services as required;
+ Storing goods on the contract basis
- Contact for an entire building or for a defined, fixed portion of Rates/ Fees

square-foot or cubic-foot space

- Contract fees are negotiable and depend on space and services
required. Risk
- A trade-off between location flexibility for assured space over the
contract period and a lower price
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2.2. Decision on the number of warehouses Trade – off between cost and
● Comparison between many and fewer warehouses number of WH
What to consider?
Criteria Many warehouses Fewer warehouses ○ Inventory costs

○ Facility costs
Inventory cost
○ Transportation costs
Cost of lost sales ○ Cost of lost sales

○ Maintenance of
Facility cost
customer service
Inbound transport cost levels

Outbound transport cost

Management cost

Customer reaction time

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Relationship between inventory and number of Inventory and numbers of warehouses – using square
warehouses root rule.
X2 = X1 * (√n2 ÷ n1)
● Square-root rule method: Assuming that the amount of
inventory in all warehouses is the same Where
- X1: Existing quantity of inventory
- X2: Future inventory when number of warehouses increases
● Inventory-throughput curve
from n1 to n2
- n1: the original number of warehouses
- n2: the proposed number of warehouses.

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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Example of Square root method The inventory through-put curve

Current inventory at 3 warehouses is 100,000 units. Compute how

● Using the actual through-put of inventory from the company’s
much inventory the company should hold if:
stock status reports
● Construct a plot of a average inventory (Ii) level against annual
1. The company will consolidate inventory into 1 location
warehouse shipment (Di)
● Each point of the plot represents a single warehouse

2. The company will increase number of warehouses from 3 to 6

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2.3 The warehouse management

1900 ● Centralized warehouse: Inventory is stored at some strategic

centralized warehouse
Decentralized: Inventory is stored at different local warehouses
1300
●

Current
closed to customers
warehouses
● Factor to centralize or decentralize depends on:
- Inventory turnover

- Delivery time
- Cost density
Company inventory throughput is represented in the Figure - Coefficient of variation with sales
Suppose that 2 warehouses with 10,000 and 17,500 units to be consolidated
How much inventory should be stock at the new warehouse?
Should the company consolidate 2 warehouses?
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Centralized warehouse system

Centralization vs decentralization?
Advantages Disadvantages
● The number of warehouses needed will decide whether the
warehousing system is centralized or decentralized.
● Discuss the differences between centralized and decentralized
warehousing systems following these criteria:
- Safety stock and average inventory
- Responsiveness
- Customer service demands
- Transportation cost (Inbound/outbound)
- Warehouse system capital and operating costs

Decentralized warehousing system WH management decision

Advantages Disadvantages
Factor Centralized Decentralized

Substitutability

Product Value

Purchase Size

Special Warehousing

Diversity of product line

Customer Service
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2.4. Location decision

Macro-factors >< Micro-factors

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Data Source: Bureau of Transportation Statistics

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Warehouse location techniques Marking method

● The weighted – factor rating model ( 5 steps) Weighted Maximum marks (10)
N Criteria (%) A B C
1. Identify the factors that are considered important to the facility
1 Land/rent/lease costs 7 7 8 5
location decision
2 Access to affordable labor 12 9 7 5
2. Assign weights to each factor in terms of their relative importance.
3 Expansion space availability 12 8 9 7
Typically, the weights sum to 1
4 Proximity to parcel hub 15 9 7 6
3. Determine a relative performance score for each factor considered. 5 Proximity to motorway network 15 7 8 9
Typically, the scores vary from 1 to 100, although other scoring 6 Central location 12 8 7 9
schemes can be used 7 Proximity to consumers 10 8 7 8
4. Multiple the factor score by the weight associated with each factor 8 Government incentive 10 8 6 5
and sum the weighted scores across all factors. 9 Availability of skilled labor 7 6 8 10
5. The location with the highest total weighted score is the 100
recommended location
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Location decision (cont.)

The Center of Gravity Method
- To compute geographic coordinates for a potential single new

facility instead of existing warehouses that will minimize costs.

- There are 3 dimensions to be considered:

● Markets: Location of existing destination;

● Volume of goods shipped

● Shipping costs/distance

- Benefits:
● Simple to compute;

● Considers existing facilities; and

● Minimizes costs.

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How to calculate Example

Step 1:
• Place existing warehouse, fulfillment center, and distribution center
locations in a coordinate grid.
• Place the grid on an ordinary map and note the relative distances.
● WH 1 has a daily outbound goods volume of 2,500 units
● WH 2 has a daily outbound goods volume of 1,300 units
● WH 3 has a daily outbound goods volume of 5,000 units

Step 2: Calculate coordination of the new location

• Cx= ∑ (Dix * Vi)/ ∑ Vi
• Cy= ∑ (Diy * Vi)/ ∑ Vi
Where:
- Cx: the X (horizontal axis) coordinate for the new facility.
- Cy:the Y (vertical axis) coordinate for the new facility
- Dix - the X coordinate of the existing locations
- Diy - the Y coordinate of the existing locations
- Vi - the volume of goods moved to or from the locations
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Where to locate the new warehouse Load-Distance method

● There are customers A, B, C, D, E, F, G with the
demand as in the table. Where to locate DC to minimize
transport distance?

Coordination A B C D E F G

X 2,5 7 5,5 5 8 2,5 9

Y 4,5 2 4,5 2 5 2,5 2,5

Load
2 20 10 7 10 5 14
(1000 ton)

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Coordination of customers Calculation of the distance between the locations

Dab- Distance between points A&B is

6
Xa = x-coordinate of point A
5
E (8;5)
Yb= y-coordinate of point A
A (2,5;4,5) C (5,5;4,5)
Xa = x- coordinate of point B
Y
4 Yb = y-coordinate of point B
A (X,Y)
3 Ya

2 F (2,5;2,5) G (9;2,5) • Dab= (Xa-Xb) + (Ya-Yb)

D (5;2) B (7;2)

1 • Dab= (Xa-Xb)2 + (Ya-Yb)2 Yb B (X,Y)

0
0 2 4 6 8 10 Xa Xb X

Using rectilinear method to determine whether B Using Euclidean method to determine whether B or C is
or C is the better location. the better location.
Locate at E Locate at B Locate at E Locate at B
Current Coordination Load Current Coordination Load
(8, 5) (7;2) (8, 5) (7;2)
location (L) location (L)
X Y Distance D*L Distance D*L X Y Distance D*L Distance D*L

A 2,5 4,5 2 A 2,5 4,5 2

B 7 2 20 B 7 2 20
C 5,5 4,5 10 C 5,5 4,5 10
D 5 2 7 D 5 2 7
E 8 5 10 E 8 5 10
F 2,5 2,5 5 F 2,5 2,5 5
G 9 2,5 14 G 9 2,5 14

Total Load-distance Total Load-distance

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The Break-even Model Example: The break-even Model

The break-even model is a useful location analysis technique when ● Three locations have been identified as suitable candidates for
fixed and variable costs can be determined for each potential location. building a new factory. The fixed and unit variable costs for each
1. Identify the locations to be considered of three potential have been estimated and are shown in the
2. Determine the fixed cost for each facility. following table.
3. Determine the unit variable cost for each facility. The components of
Location Annual fixed cost Unit variable cost
variable cost are the costs of labour, materials, utilities, and
A 500,000 300
transportation
B 750,000 200
4. Construct the total cost lines for each location on a graph
C 900,000 100
5. Determine the break-even points on the graph. Alternatively, the
break-event points can be solved algebraically. ● Using the break-even model to choose the best location for a
6. Identify the range over which each location has the lowest cost. forecasted demand of 3,000 units per year?

Step 1, 2, 3, 4: The three total cost curves Step 6: determine the break-even points on the graph
● Using the break-even model to choose the best location for a
forecasted demand of 3,000 units per year? ● The break-even point between location A and location B

Annual Annual
Location Annual total cost
fixed cost variable cost
● The break-even point between location B and location C
A 500,000 300
B 750,000 200
C 900,000 100
● The break-even point between location A and location C
● Step 5: construct the total cost lines for each location on a graph.

Conclusion? Exercise 1:
● The Soft Toys Company has identified four locations to set up a new
warehouse. They have determined the fixed and variable costs associated
Total cost A with each location as follows:

Location Annual fixed cost ($) Unit variable cost ($)

B
Pittsburg 10,000 5
C Atlanta 30,000 4
900,000 Miami 60,000 3
750,000 Houston 70,000 6

500,000
a, Plot the total cost curves for the three plant locations on a single graph
b, Find the break-even points and determine the range of demand for which each
location has a cost advantage. Which city has no cost advantage at all?
1000 3000 Volume c, Which plant location is the best if demand is (i) 40,000 and (ii) 15,000 units

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Question 2.5. Warehouse design and layout

=> Objectives:
○ Cubic capacity utilization

○ Protection

○ Efficiency

○ Mechanization

○ Productivity

 Criteria for warehouse design

○ Provide for the transportation interface.

○ Provide the order-picking space.

○ Provide the storage space.

○ Provide recouping, office, and miscellaneous spaces

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Principles of Warehouse Layout Design Facility layout principles

Use one-story facilities
Move goods in a straight
line
Use efficient materials-
handling equipment
Use an effective storage
plan
Minimize aisle space
Use maximum height of
the building
Future expansion in 5-10
years
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Principles Benefits
• Provide more usable space per investment dollar
Use one-story facility
• Result in lower construction costs than multistory one
Use vertical capacity • Reduce building footprint and land requirement
Minimize aisle space • Provide more storage and processing capacity
Use direct product flow • Avoids backtracking and costly travel time
Use efficient material – • Improves labor productivity and safety
handling equipment • Reduce travel time
Use an appropriate
• Maximizes space utilization and product protection
storage plan
Allow for growth: 5-10
• Save costs, continuous operations
years 64

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Key inputs

❑ Data collection and analysis:

▪ Collect the current or historical data and future volumes
and changes in product characteristics;
▪ Analyse and provide different reports on: Types, quantity,
condition of storage, operation process, additional
services, time of storage, velocity of inventory, etc.
▪ Additional data: number of supplier and deliveries per day,
the average intake; number of customer deliveries and the
average order size.
▪ Peak and the way to deal with peaks in the business

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Overall space requirements Overall space requirements

Should we plan for and accommodate peaks in business?

Warehouse Space Requirements

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Common warehouse layout

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Utilization of the Warehouse’s Cubic Capacity

How to improve warehouse space utilization?

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Storage space Space calculation

➢ Receipt and despatch areas:
▪ Analyse assortment of inventory and record the different item
- Using a rule-of-thumb formula for calculating the likely space requirement for
properties to decide on potential storage areas. staging vehicles on arrival and departure
▪ Producing a chart detailing the number of pallet locations
(No of loads x hours to unload)
required and the height requirement for each location Space = x (No of pallets x space per pallet)
▪ Decide the type of storage equipment to use. time of shift

▪ Calculate dock space, number of pallets that can be stored For example: No of vehicles per day - 20, 26 pallets per load with a pallet
within a given cubic area when using standard adjustable pallet size of 1.2 metres by 1.0 metres and it takes 45 minutes per load to unload
racking and 30 minutes per load to check and we operate an 8-hour shift
=> Which size is the pallet floor space?

Racking beam

Total pallet capacity

Total pallet capacity = (No of width modules × pallets in a module width) × (No of
length modules × pallets in module length) × No of height modules
Where:
- Module width = width of aisle + 2 pallet width (short side) + clearance side
between back-to-back pallets
- Module length = width of upright + 3 × clearance + 2 pallets (long side)
- Module height = height of pallet + clearance above pallet plus racking beam
height
- No of width modules = Storage area width/Module width
- No of length modules = Storage area length/Module length
- No of height module = Warehouse high/Module height
Back-to-back pallet
Side clearance clearance
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Calculate pallet capacity Calculation

Aisle width: 3.0 metres Racking beam height: 0.14 metre

Pallet size: 1.20 metres × 1.00 metre Height of goods: 1.20 metres

Width of upright: 0.12 metre Height of pallet: 0.15 metre

Clearance (sides): 0.10 metre Warehouse height: 10 metres

Clearance (height): 0.15 metre Storage area length: 120 metres

Clearance back-to-back pallet clearance:

Storage area width: 48 metres
0.10 metre

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Aisle width
Aisle width

▪ The aisle width is determined by the turning circle of the forklift

truck and the size of pallet being carried.
▪ The safety clearance of 10 cm either side (20 cm in total) of a
typical pallet will need to be added to ensure fast pallet put-away
and retrieval.
▪ The second dimension is the overall width of the truck chassis
when travelling along the stacking aisle.
▪ Aisle width decisions need to achieve the best combination of
productivity, space utilization, flexibility, safety and equipment
costs for the specific application (Piasecki 2002)

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Movement summary and comparison of plans

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2.6. Decision on warehouse material handling

● Live racking: After pallets
equipment (MHE)
are positioned at the end of
● Type 1: Storage and Handling Equipment - shelves and racks (to utilize the racking by, for example,
vertical space), bins, drawers, stacking frames, flow racks, cantilever
a fork-lift truck, the
racks….to hold inventory (Chapter 3)
movement in the racking is
● Type 2: Bulk Material Handling Equipment
facilitated by having a
Stacker-reclaimer, hopper, grain elevator, bucket elevator, conveyor, dump
truck, ….
structure that permits
● Type 3: Industrial Trucks movement horizontally down
Hand truck, side loader, pallet truck, walkie truck, order picker, platform the racking by incorporating
truck, folk-lift rollers on which the pallet
● Type 4: Engineered Systems - https://www.youtube.com/watch?v=smilviq8tv0 slides.
AGVs, conveyor belt or robotic delivery systems (complicated systems that
come in different shapes and sizes), or Automated Storage and Retrieval
System (AS/RS)
91

● Powered mobile racking (PMR) is racking that is fitted onto rails in the
floor. A whole rack is then powered along the rails and opens up
access down the now opened aisle into the, effectively, normal pallet-
racked areas. Once access has been made, that aisle of racking is
closed.
Fork – lift trucks
● The fork-lift truck is the ‘work horse’ of most stores and
warehouses:
● Counter-balance trucks (CBTs): CBTs are the most common
trucks to be found in a warehouse. They can operate inside and
outside the warehouse. CBTs can carry palletized goods to and
from racks up to 7 metres high and require aisles of 3.5 metres or
more in width.

● High bay racking: These consist essentially of massive blocks of

racking, built as an integral structure to a high degree of precision, and
often acting as a support for the building’s roofing and wall cladding

Fork – lift trucks
▪ Reach trucks (RTs): These trucks are ideal for working within
narrower aisles. Transport and stacking in rack areas, reducing aisle
widths from 4.0 to 2.7 m
▪ Narrow aisle trucks (NATs) : These trucks are designed to
operate with little more aisle space than their own width
▪ Hand pallet trucks (HPTs): An HPT has a hydraulic pump to
enable the operator to lift a pallet sufficiently to be able to move it
across the warehouse floor
▪ Powered pallet trucks (PPTs): These are battery operated and
are used for loading, unloading, picking and pallet-transfer duties
to and from the receiving and despatch areas

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▪ Multi-level riser picking trucks (MRPTs): are used in order Articulated fork-lift trucks
selection and are specially designed for manual picking at varied (AFTs): or bendy trucks are a
levels of pallet racking. hybrid combining CBT/NAT
applications. Powered by
battery or LPG, the mast is
fitted with ground wheels
which are fixed to the main
truck body by a swinging
mechanism – hence the name
‘articulated’

At floor level only At higher levels

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Which factors should be considered while making Benefits of using correct

the MHE decision? equipment

● Warehouse function ● Lower unit materials handling costs, reduce

● Stock/inventory (types/value/demand/ energy consumption
● Travel requirements (distance/speed/time)
● Reduce handling time
● Warehouse structure
● Reduce damage to handled inventory
● Staff capability
● Prevent injuries to staff
● Finance (https://www.forklift-international.com/en/for-
sale/pallet-stackers) ● Converse floor space

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Chapter 3: Warehouse operations and
processes
3.1. Receiving and put away/cross docking
3.2. Storage
- Quality control of the inventory
- Methods of storage of inventory
3.3. Order processing and shipping/dispatch
103
warehouse operation management
● WH operation management is the physical management of
inventory (raw material, work-in-process or finished goods,
supplies, repair parts…) covering different areas: receiving
and put-away, storing, order fulfillment, shipping and return
processes
● Warehouse operation management also includes workload
planning, monitoring the movement of goods, training staff,
risk management at the warehouse …..
105
3.1. Receiving and put-away/cross-dock
Receiving
1. What are specific operations that should be done upon
receiving?
https://www.youtube.com/watch?v=ZN6--Xi5lKo
2. How amazon receives your inventory?
https://www.youtube.com/watch?v=dAXdeqcHBp4&t=26s
3. What are factors affecting receiving effectiveness?
https://www.youtube.com/watch?v=Kzl6lEC4qDM
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Scope of warehouse management
● Warehouse facility and staff management including warehouse
decision, staff training and supervising, ensuring safety and proper
handling of inventory and equipment for ensuring successful day-to-
day operations at a warehouse (Chapter 2, 4, 6)
● Warehouse Operations including receiving goods, placing each SKU
in its proper location, and moving those items either within the facility
or outside to the shipping carrier. Warehouse operations deal with the
movement of inventory in – at – out of the warehouse (Chapter 3)
● Warehouse Management Systems - a software used by warehouse
staff to track and manage inventory and warehouse operations that
helps increase efficiency and reduces the time it takes to complete
orders by optimizing inventory storage, workload distributions, and
order shipping (Chapter 5)
104
The warehouse operation process
(2)
(1)
106
Which operations are carried upon receiving?
● Get ASNs and establish the offloading area: safe, suitable for the
operation
● Check and record the arrival of the vehicle, note the seal(s), numbers
● Break the seal(s) with the driver present
● Check the order documentation and record each item against the
consignment note
● Unload the vehicle
● Check the goods for quantity, condition, possible damage
● Carry out required quality checks
● Report any discrepancies and condition/quality at once
● Put away to the storage space/cross-docking areas
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Receiving and offloading

Example of incorrectly size cartons
● A warehouse manager should be involved in specifying and agreeing the
packing (items/carton, cartons/pallet) and any specific labelling required,
together with the mode of transportation.
● Areas that need to be discuss:
- Size and type of cartons;
- Palletized or non-palletized delivery of product;
- Size (length, width and height) and type of pallets;
- Specific labelling such as product description, barcode and quantities;
- Position of label on carton and pallet;
- Carton quantities (inner and outer carton quantities, for example); and
- Mode of transport, delivery quantity and frequency of delivery
- Type of transit packaging –plastic, totes, metal stillages, roll cages,
pallets;

Automated unloading & Boom conveyor unloading

offloading
cartons
● The most common method of unloading palletized vehicles onto a
loading bay is with a powered pallet truck, hand pallet truck or
pallet jack.
● Unloading times will vary depending on the equipment used and
whether the load needs to be staged prior to put-away

Checking on arrival
Robotic palletiser & Robotic unloading of container
with boom conveyor ● Using delivery notes for checklist
● Matching actual information of arrival goods with information in
delivery notes;
● Random checking: 10%, if there is discrepancy => check more
10%, if there is more discrepancy => Check 100% of arrival
● Agreement on GFR (good faith receiving) where the goods are
accepted in to DC without checking on arrival.
● Application of RFID/barcode scanner provide 100% check
number of inventory at the shorter time and the information will
be passed to WMS
● Checking weight for products that are stored and sold by weight

114

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Example of
Example of

Put-away

● Transfer the cargo from staging area to the storage locations

● Objectives: To move goods from the dock to the most optimal
warehouse storage location providing that:
- Cargo is stored fast and efficiently
- Warehouse travel distance is reduced to a minimum
- Security of goods and the safety of warehouse employees are
ensured
- Warehouse space utilization is maximized
- Cargo is easy to find, track within the warehouse and quickly to
retrieve during picking process

115 116

Slotting Slotting (continued…)

● Objectives
- To provide the required customer service
- To keep track of where items are stored
- To minimize effort to receive, put away, and retrieve items
● Basic slotting systems
- Group functionally related items together
- Group fast-moving items together
- Group physically similar items together
- Locate working stock and reserve stock separately
• Fixed Location
- SKU assigned a permanent location, & no other items are stored
there
- Fixed-location systems usually have poor cube utilization
- Usually used in small warehouses where throughput is small, &
there are few SKUs
• Dynamic/Floating/Random Location
- Goods stored wherever there is appropriate space
- Advantage is improved cube utilization
- It requires accurate and up-to-date information
- WH using floating-location systems are usually computer-based

Optimizing put-away
Put-away ● Collect data and conduct real-time analysis:
+ Data on cargo size, weight, height, receiving and shipping
frequency;
+ Cargo type (e.g. Hazardous, perishable, high value, fast moving,
family product group etc.), order/sales volume,
+ Storage availability
● Monitor storage capacity & space availability: using WMS or RFID
● Reduce distance and traveling time by optimizing rout and layout
● Use direct put-away when possible: the cargo is directly moved from
its receiving area to its final location without going through a staging
phase
● Use fixed and dynamic slotting appropriately
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Optimizing Cross-docking
Cross-docking
● Good integration and coordination of appropriate suppliers/customer
interfaces (EDI/email, scanning and barcode technologies..)
● Cross docking is the process where products are move directly
● Destination is know in advance;
from goods-in to the dispatch bay without storing at the
● Customer is ready to receive the goods
warehouse
● Product date recognition to facilitate quick checking/verification
● Arrival must be accurate, on-time with advance notice and
● Cooperative SC
clear labelling;
● Disciplined delivery
● Cross docking requires system to identify the product that
needs to be cross docked and a process needs to be in place Negative factors affecting cross-docking are:
to alert the staff ● Non-receipt of suppliers’ delivery
● All process and details must be recorded in order to provide an ● Short receipt on suppliers’ delivery
audit trail ● Late arrivals of suppliers’ vehicles, bad weather, road traffic delays
● Last minute changes in customer orders
121 122

3.2. Storage 3.2.1. Types of WH storage system

- Shelving: for light, small items (static/fixed and mobile shelving)
3.2.1. Types of WH storage system
- Pallet racking: for inventory that is received/stored in large boxes.
3.2.2. Inventory control
Narrow aisle racking, push-back racking, single/double deep racking,
drive in/through racking, Multi-tier racking, AS/RS racking….
- Floor stacking
- Mezzanine flooring: It’s expensive to build
- Wire Partitions for the items that may need special security
- Type of racking https://www.youtube.com/watch?v=wmnHfs8cXxU

123 124

Pallet Racking types

● Wide aisle pallet racking
● Double deep pallet racking
● Narrow/very narrow aisle
racking
● AS/AR racking
● Dynamic/Pallet flow racking
● Push-back racking
● Drive in/Drive through racking
● Mobile racking
● Cantilever racking
● Shuttle racking

125 126

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Double deep racking AS-AR system

https://www.youtube.com/watch?v=p_OcDE61xxQ

Narrow/very narrow aisle racking system

trade off between cost of space and costs of VNA folk-lift
127 128

Drive-in vs Drive through racking

Dynamic/Pallet flow racking
● The drive-in system: the forklift will only load and unload pallets on one
● Pallet flow allows up to 20 pallets to flow down an incline on a series of side of the racks - the truck drives into the system using only one side.
rollers or wheels. Drive-in pallet racking is best suited to a last in, first out (LIFO) system
● The pallets are loaded on one end of the system and unloaded at the and for slow-medium movers:
other end https://www.youtube.com/watch?v=GEcgwMsYzQE
● It’s optimal for FIFO, for limited SKU in large volume, perishable or time ● High density of storage, homogeneous products
sensitive products
● Expensive, high cost of maintenance
DRIVE-IN

Load Load
Aisle Aisle

129
Double Entry Drive – In (LIFO) 130

DRIVE - THROUGH

Load Pick
Aisle Aisle

Separate load and unload point allow greater flexibility (FIFO)

● The drive-through system: the forklift loads pallets on one side and unloads
pallets on the opposite side. In this system, the truck uses rails to unload and
load product after driving into the racks themselves. Drive-through pallet
racking is best suited to first in, last out (FILO) and fast movers.
https://www.youtube.com/watch?v=Zh5mNA3wpoA Mobile racks
● High density of storage, homogeneous products
131 132

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Racking popularity: https://www.youtube.com/watch?v=5ePDJza5zWY

Cantilever racks

Push back pallet racking system

https://www.youtube.com/watch?v=XkzFqcE2qq4

shuttle racks:
https://www.youtube.com/watch?v=pqqjss4Px3whttps://www.youtube.com/watch?v=pqqjss4Px3w
133 134
https://www.youtube.com/watch?v=K6qlXP78nXU

3.2.2. Inventory control Inventory replenishment

● Inventory replenishment
● ABC analysis ● How much to order? EOQ
● Inventory counting ● When to order? ROP
● Quality control ● Continuous replenishment
● Periodic replenishment

135 136

How much to order? Ex: Adjustment to EOQ in case of discount for large order size

● The Kuantan corporation purchase a component from a supplier who offers

EOQ =
√ 2 xCoxD
Ci xPu
quantity discounts for large order quantities. The supply chain manager of
the company wants to determine the optimal order quantity to minimize the
total annual inventory cost. The company’s annual demand forecast for the
● EOQ is suitable for continuous replenishement item is 15,000 units, its order cost is $40 per order, and its annual holding
rate is 25%. The price schedule is:
● Typical adjustment to EOQ
- Volume transportation rates offer a freight-rate discount for larger Order quantity Price per unit
shipment < 1000 $ 5.00
- Quantity discounts offer a lower per unit cost when larger 1001 – 2000 $ 4.50
quantities are purchase 2001 and above $ 4.00
- Other EOQ adjustments: Production lot size, Multiple-item
purchase, limited capital, edicated trucking, Unitization 1. What is the optimal order quantity?
2. What is the minimum total annual inventory cost?
137

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Solution The economic Manufacturing Quantity ( EMQ) or

production order quantity (POQ)
EOQ (5$) =
√ 2 x 40x15,000
0,25 x5
= 980 units
● The EMQ can be used with the assumptions as follow:
- The demand is known and constant
● EOQ (4,5) =? - order lead-time is known and constant
- Partial delivery
● EOQ (4) =?
- Price is constant
How much to order? - The holding cost is known and constant
- Order cost/change-over cost is known and constant
- Stock-outs are not allowed.

The EMQ/POQ
▪ EMQ : QM ● TAIC min when [QM /2 (1 – d/p) x Ci x Pu] = [D/ QM x Co]
▪ Annual demand: D
▪ Demand rate (demand per day) : d => [QM (1 – d/p) x Ci x Pu]x QM = DxCo
▪ The production rate ( manufacturer’s production per day): p
▪ The inventory builds up at the rate of (p-d) during the production period
(Tp), and the maximum inventory Q, so:
p= QM / Tp,
Therefore:
Qi = (p – d) x Tp
QM =
√
2 xCoxD
Ci. Pu x (1-d/p)
=
√ 2.Co.D.p
Ci.Pu. (p-d)
= ?????

Qi = (p-d) x tp = (p-d) QM /p = QM - QM d/p = QM (1 – d/p)

The average inventory, Qi /2 = QM /2 (1 – d/p)
Total annual inventory cost = annual production cost + annual holding
cost + annual change-over cost
TAIC = [DxPu] + [QM /2 (1 – d/p) x Ci x Pu] + [D/ QM x Co]

Example: calculating the EMQ at the Lone Wild Boar

Corporation
● The Lone Wild Boar Corporation manufacturers a crucial component
internally using the most advanced technology.
● The operations manager wants to determine the economic
manufacturing quantity to ensure that the total annual inventory cost is
minimized.
● The daily production rate (p) for the component is 200 units, annual
demand ( D) is 18,000 units, change-over/setup cost (Co) is $ 100 per
setup, and the annual holding rate (Ci) is 25%.
● The manager estimates that the cost (Pu) of a finish component is $
120. It is assumed that the plant operates year-round and there are 360
days per year.

144

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When to Order? Inventory replenishment is the process of making a decision

relating to inventory: When to order and How much to order?
ROP depends on methods of inventory control
Minimum cost
reorder quantity
● Perpetual Review ● Periodic Review Total cost
ROP = DxLT + SS ROP = D(LT+T) + SS
Where: Where:

Cost
D = Average daily demand (units) D = Daily demand (units)
LT = Average performance cycle (in days) LT = Average performance cycle (in
SS= Safety stock (units) days)
Procurement cost
T= Review period in days
SS=safety stock (units) Stockout cost

145 Replenishment quantity

ROP without SS = DxT Re-order point with safety stock

● Re-order point in case of perpetual review

ROP = D x T + Safety stock
Quantity on-hand
plus on-order Where:
- ROP = periodical/cycle inventory
Q - D = daily demand (unit)
Reorder
point, ROP - T = Performance cycle (days)

0 Lead Lead Time

time time
Order Order Order Order
Placed Received Placed Received

Safety stock technique – 3 methods

● Statistical Method: SS is computed using statistics, based on the
Reorder Point Control for a Single Item
historical demand/lead-time or both
+ + Safety stock = Z x σD x √LT
Quantity on hand

Where: Z = service level,

σD, σLT = standard deviation of demand, lead-time Q
Demand
LT = lead-time Place During
DA = Average demand order LT
Q
+ Safety stock = Z x DA x σLT ROP

Receive
+ Safety stock = Z x √[LT x (σD )²] + [(σLT)²x DA²] order P
0
+ Safety stock = (Z x σD x √LT ) + (Z x DA x σLT )
Stockout
● Time Method: SS = DA x Safety days
LT LT
● Fixed Method: SS = (maximum sale x maximum lead time) – Time
(average sale x average lead time) 149 Reference: Dickson Chiu 2006

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Periodic replenishment
Periodic replenishment
● A variable order quantity (VOQ) that is dependent upon what has
been used since the last fixed time check and what is now needed to
bring stock back to the required level (Max level)
● Use for products of low value, from the same supplier and with
economy of scale in production, purchasing, and transportation
FMCG …
● How much to order: Q = M – q
M= D*LT+ D* T + SS = D (LT+T) + SS
Where:
Q – Order size LT: Lead-time
M - Maximum level of inventory
q - Inventory in hand
Invent
ory-
T – Time to review inventory = EOQ/Annual demand 152
151

Periodic review control with demand uncertainty (2)

Exercise
M
● The company distributes an item known as a Tie Bar. The following data have
been collected for this item:
Quantity on hand

Q2 - Monthly demand forecast, d 11,107 units

Q1 - Sdt.deviation of forecast, sd 3,099 units
- Replenishment lead time 1,5 months
- Item price (Pu) 0.11$/unit
- Ordering cost (Co) 10$/order
~

q
- Carrying cost (Ci) 20%/year
Stock - In-stock probability during LT 75%
level Order
reviewed received
0 1. Calculate EOQ and the Average inventory
Time
LT LT 2. Calculate ROP if there is the perpetual inventory control system applied
T T
M = maximum level
3. Compute the Maximum level of inventory if there is the periodic inventory
T = review interval
M - q = replenishment quantity q = quantity on hand control system used, assuming that there are 365 days/year Invent
LT = lead time ory-
Qi = order quantity 154

ABC analysis
Inventory counting
- What are the purposes of an ABC analysis?
● Annual counting: Physical inventory counting at the end of - How to do an ABC analysis?
year and data is used for financial statement.
● Periodic counting Inventory Proportion Frequency % of
Characteristics
class (%) of checking Availability
● Seasonal counting
Cycle/Perpetual counting = counting by software + random Fast movers Weekly 98%
● A 20
/Monthly
check
Medium movers Monthly/ 90%
B 30 - 35
quarterly
C Slow movers 6 months 85%
Obsolete/dead 45 - 50
D Yearly Scrapped
stock

155 156

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Cycle counting 3.2.2.3. Quality control

Inventory Frequency of Weekly Spot Physical counting of - General cargo warehouses: for storing different types of commodity
class cycle counting physical counting each SKU - Special Commodity Warehouses: for storing a particular type of commodity,
A Monthly 8% once per quarter example: tobacco, cotton, wheat, petrol, fertilizer...
B Quarterly 4% twice per year - Cold Storage or Refrigerated Warehouses:
C + Cool Enclosure (+ 5/+ 15 °c): green pepper, tomato, banana etc. and food
6 months
2% once per year processing areas.
D Or Yearly
+ Cold Housing (-5/+ 5 °c): for the freshly preserved food products are kept in
this temperature range.
Methods of physical checking
- Manual counting – Counters using count sheets and pencils to record + Frozen Enclosure (-15/-25 °c): The storage of all frozen foods is done in this
inventory numbers manually. temperature range. The frozen enclosure is the preservation of the
- Electronic counting – Technology like QR codes, mobile, and cloud temperature of the products that have been decreased to-18 °c by the
software allows businesses to use barcode scanning to send information from central temperature.
a smartphone to the cloud + Deep freeze warehouses (-30/-45 °c)-
157 158

Factors influencing quality of products at the WH 3.3. Order picking and shipping
3.3.1. Order picking
● Condition of storage/warehouse
● Handling methods/MHE
● Time of storage
● Type of products
● Staff training

159 160

Order picking principle 3.3.1. Order picking

▪ FIFO (First-In, First-Out):

▪ LIFO (Last-In, First-Out):

Picker Orders Picking operations

▪ FEFO ( First Expiry, First Out) • Picker to goods • Pick by order • Paper pick
• Goods to picker • Cluster picking • Pick by label
• Automated picking • Batch picking • Scanning
• Robotics • Zone picking • Voice picking
• Wave picking • RFID:
- Automated
- Scanning
• Pick to light
• Put to light

161 162

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Order picking
Order picking
Zone 1 Zone 2 Zone 3
(A, B, C) (D, E, F) (G, H, I, K, L)
Order 1: 2A, 1C, 3 E,1F, 3K, 4L
Order 2: 1A, 1B, 3C, 2D, 2F, 2G, 3I, 1K
Order 3: 5E, 2G, 3H, 3L
Order 4: 4D, 2F, 1G, 2I, 3K

Criteria for choosing order picking methods:

- Picking time
- Travel distance
- Resources: Labor, equipment, ….
164

Order picking Order picking

• Pick by order
• Cluster picking: the picker will pick 4 orders at once using 4 boxes to
contain items of each order
• Batch picking: A picker/pickers will pick all items of a batch of some
orders and resort to orders later
How to assign batches? What would be criteria for assigning batches?
• Wave picking = Zone picking + Batch picking
Similar to batch picking except orders/staff to be assigned in wave
through the day depending on different criteria such as carriers,
customers/destination, packaging….
Ex: wave 1 = Order 1+3 => district 1; Wave 2: order 2+4 to district 5
Pick to cart: https://www.youtube.com/watch?v=uXRl5encVTU

• Zone picking: Pickers are allocated to zones to pick items within the What are advantages and disadvantages of each picking method?
zone and put to boxes - picked items will be re-sorted to orders or When to use them?
orders travel to different zone to be completed.

165 166

Picking process Order-picking methods

• Paper pick: Paper based list of items to be picked
• Pick by label: picker will have labels and stick label on picked items ▪ Paper pick lists: A paper pick list will normally detail the order
number, location, product code, description and quantity to be
• Scanning: the scanning gun connected to WMS to get information
picked.
about orders + products + location….
Paper picking requires little investment; however, it can have low
• Voice picking
accuracy and may require order validation
• Vision picking: https://www.youtube.com/watch?v=gnUK-HTn4ZA
▪ Pick by label: pick lists are a series of labels on a sheet, which are
• RFID/Barcode scanning
printed in pick order. The picker attaches a label to each item picked
• Pick to light and returns any unused labels to the supervisor’s office
• Put to light:
• Pick to cart
• Automated picking
167

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Order-picking methods Order-picking methods

▪ Pick by voice: Operators are issued with a headset and a ▪ Barcode scanning: A barcode consists of a series of vertical bars
microphone together with a small terminal that is attached to a belt or
can be worn on the wrist. The WMS sends messages to the computer of varying widths that represent letters, numbers and other symbols.
via radio frequency (RF) transmissions, utilizing transmitters installed Barcodes are used to identify products, locations in the warehouse,
throughout the warehouse, and these messages are converted into containers (totes, cartons, pallets), serial and batch numbers.
voice commands. The operator also uses voice to communicate back
to the system.

Pick by light/pick to light Put to light

▪ Pick to light or pick by light uses light-indicator, LED or LCD modules
mounted to shelving, flow racks, pallet racks or other storage
locations
▪ To begin the process an operator scans a barcode on an arriving
pick tote or shipping carton which denotes the next order number to
be picked. This communicates to the system that the operator is
ready to pick. The system then sends a message to the zone in
which the operator is stationed and all the pick locations for that
particular order light up at once. Once this has been picked the
operator turns the light off to confirm the pick.
● Once the product has arrived at the ‘put’ station the operator
scans each item and a flashing light displays at each location
indicating which containers (relating to a particular store) require
that product and how many items are required.
● Confirmed ‘put’ results are uploaded to the system in real time to
update the WMS.

RFID
Radio frequency identification

▪ RFID is a means of uniquely identifying an item using radio waves.

Data is exchanged between tags with micro chip and readers and
depending on the frequency, may or may not require line of sight. Date
is accessible through hand-held and fixed-mount readers in real time.
▪ There are two types of RFID tags:
- Passive tags have no power source, limited data storage capacity, are
read only and have a limited read range
- Active tags their own power source, have a larger data-storage
capacity, have a read/write capability and are readable from a greater
distance.

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Pick rate comparison for the various pick technologies (Wulfratt 2013)

175 176

3.3.2 Shipping/dispatch – outbound Packaging

process
● Unitize loading: packaging, cage, stillages, pallet…
● Assemble the goods in the loading/assembly areas or the dispatch docks
● Check the order documentation against the consignment note
● Check the goods for condition, possible damage/marking/…. And report
discrepancies (if any)
● Check the correctness of loading area
● Ensure that the vehicle is safe before loading
● Load the vehicle
● Position/fix the security locking system (seals) with the driver present
● Obtain driver’s signature
● Record the departure of the vehicle and note the security locking/seals
numbers
177

Packaging What Is Packaging?

● Interest in packaging is widespread ● Consumer packaging
- Logistics
Marketing managers primarily concerned
■ Warehousing
with how the package fits into the
■ Transportation
marketing mix.
■ Size

- Marketing
- Production ● Industrial packaging
- Legal Logistics managers primarily concerned
● The Role of Packaging
with efficient shipping characteristics
- Identify product and provide information
including protection, ability to withstand
- Improve efficiency in handling and distribution
stacking when on a pallet, cube, weight,
- Customer interface
- Protect product
shape and other relevant factors.
179 180

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Comparison of cushioning material

Packaging Materials

● Basic consideration for packing

material include:
○ Soft materials
○ Plastic
○ Environmental issues
○ Recycling (reverse logistics)

181 182

Cellulose wadding Packaging

● Packing – pieces/ items: the

operator may package the products
immediately, attach shipping labels
Air bubble
and where required insert despatch
documentation and invoices.

polyurethane packaging ● Packing – cartons: loose cartons or

a palletized load, stretch wrap
Foam in place

183
Molded packaging

Staging Shipment

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3.4. value added services Chapter 4:

Management Information system
● Labelling, relabeling
● Pricing, re-pricing
and technology
● Tagging, kimballing 5.1. Warehouse documentation
● Packing – repacking
5.2. WMS and Information Technology
● Bundling (Ex: promotion buy one get one free)
● Re-configurating
● Sub-assembly
● Repairing and refurbishment
● Processing return

187 188

WH documentation
4.1. Warehouse documentation
 Receiving waybills/notes
● Documents should be maintained (in chronological order) and made  Distribution plans
available for inspection by monitors, program management, and  Dispatch authorizations
auditors.  Dispatch waybills (preprinted and prenumbered), ….
● Documents are used to develop many management and financial  Waybill tracking documentation
reports, procedures  Tally sheets (loading and offloading)
● Document should be in place for adequately safeguarding them  Casual laborer attendance sheets
against improper access and loss:  Stack cards (by commodity and by shipment)
+ Physical restraints (such as locked or secured storage areas);  Separate warehouse ledgers for:
+ Restricted use (any document leaving the WH must be signed for) □ Each commodity type and shipment number
+ Password-controlled computerized accounting systems. □ Damaged/unfit commodities
□ Commodity loans/transfers
189 190

WH documentation 4.2. Warehouse management technology

 Commodity reconstitution records
4.2.1. Warehouse management system (WMS)
 Commodity disposal/destruction records
 Warehouse fumigation records/reports https://www.youtube.com/watch?v=Q3SVPobcmhA
 Warehouse inspection reports ● What is WMS?
 Warehouse physical inventory count sheets/reports ● List some benefits that WMS can bring to a WH?
 Loss (damage) reports (preprinted and prenumbered) ● What can be disadvantages of a WMS?
 Internal loss claim records and backup documents ● How a company can deploy WMS? Advantages and
 Warehouse daily reports disadvantages of each deployment?
 Warehouse monthly reports
 Commodity status reports
 Warehouse assets/equipment list
191 192

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Warehouse management system (WMS) Features of a WMS

- A warehouse management system (WMS) is a software
that supports the entire operation of a warehouse including
inventory management.
- A WMS provides visibility of the organization's inventory at
any location.
- The WMS can also manage the entire supply chain
operation and is often integrated with a Transportation
Management System (TMS), Vendor Managed Inventory
system (VMI)
193
● Warehouse design: Optimize inventory allocation and customize
workflow and picking logic.
● Inventory tracking: Use automatic identification and data capture
(AIDC) technology such as barcodes or RFID to track the location
and level of inventory at any time
● Receiving and putaway: Records and check inventory information
at the arrival, guides inventory putaway to available location
● Picking and packing: Guides warehouse workers to pick items and
pack them in the most efficient way possible often using pick-to-
light or pick-to-voice technology, generates a new order
194

Features of a WMS (cont.) Activities that can be undertaken by WMS

● Shipping: Generates bills of lading, packing lists and invoices for Activity Some possible WMS characteristics
shipments and can send advance shipment notifications (ASN) Receiving ASN
Automatic checking by scanning/input data
● Labor management: Tracks employee performance by key Paperless
performance indicators (KPI) Put away/storage Automated location generation
● Yard and dock: Helps drivers find the correct loading dock and can
assist with the cross-docking operation. Picking Product release prioritization (FIFO, FEFO, LIFO)
Batch and/or wave picking
● Reporting tools: Analyzes warehouse operations to track KPIs and
Real time pick confirmation
see areas for improvement. Automated replenishment activities
● How does WMS work? Despatch Load planning and sequencing
https://www.youtube.com/watch?v=uWAePLEcx88 Automatic checking by scanning
Paperless
195 196

Actual slotting software results Actual slotting software results (cont.)

● Pick labor hours reduced by 11%
● Replenishment labor hours reduce by 23%
● Replenishment labor dollars reduced by 13%
● Retail product grouping improved by 51%
● Reduced total pick path travel by 10%
● Picking labor dollars reduced by 3%
● Annual retail labor savings equivalent to 16 times
investment
197
● Reduced pick labor bay 11%Pick labor hours reduced by 11%
in each –pick area based on full reslot using velocity
sequencing and golden zoning;
● Completed “what-if” scenario analysis to reveal partial reslot
(20% of moves) reduced labor by 9%;
● Replenishment frequency improved bay 300%
● All items slotted with pallet EOQ quantities
● 68% of SKU representing 98% of hit velocity slotted in 43% of
travel path (without congestion)
● 23% improvement in travel distance by order-reduced from
3500 feet to 2700 feet 198

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WMS: Pros and Cons

The key to a successful WMS deployment and
implementation

● Preparation and allocating sufficient time and resource to the

project
● Getting processes right before introducing the system
● Producing a base level so that the full benefits of the system
can be compared
● Getting involvement of senior management and WH staff;
● Choosing the most appropriate supplier and
● Ensuring that all staff are trained to an acceptable level
● SAAS – is an alternative

199 200

Fully automated WH management system

4.2.2. Fully automated warehouse
Advantages:
● Uses robotics to cut down on manual tasks, speed up the - 24/7 operational capability
movement of goods; - Reduces high labor costs + contacts
● Save valuable resources by decreasing product touches, and costs - Maximizes the use of rent per square meter;
associated with product transportation through the warehouse. - Reduces energy for lighting, heating
- Improves security and reduces pilferage;
Example of Zappos: - Useful for dangerous operating environments
+ By employing automation, Zappos grossed over $1 billion in 2009 (chemical)
+ Amazon acquired Zappos and by leveraging robotics and - Reduces errors (in picking/documentation/…..)
automated warehouse systems, Zappos was able to maintain free
shipping, a 365-day return policy and a full-time call center
Example of Vinamilk
https://bangtaihaitan.com/nha-kho-tu-dong-lon-nhat-viet-nam-vinamilk-binh-duong/
201 202

Disadvantages
Chapter 5
● High capital deployment costs (payback period of 3-4 years Warehouse safety and security
minimum) and slow return on investment (7-10 years)
● Difficult to rent out/resell 5.1. Health safety and environment
● Relatively inflexible in terms of throughput/load size, operating 5.2. Warehouse security
term and future changing requirements
● Vulnerable to software failures
● Requires greater care in standardized packaging and bar
codes/product identifications
● Limited ability in identifying damage and handling vulnerable
products

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5.1. Warehouse safety Safety at the WH

● OSHA statistics show that an average of 100 employees are killed each year in forklift
accidents, and as many as 95,000 total forklift accidents occur on an annual basis. In
many cases, these accidents are avoidable.
● The fatal injury rate for the warehousing industry is 5.1% - higher than the national
average for all industries. 206
206

Physical safety Process safety

Physical safety = Measures protecting all stakeholders in the
warehouse (the people, cargo, equipment)
▪ Secure all goods
▪ Aisle lanes marked by yellow lines with signboards
▪ Painted walkways ▪ Clear path
▪ Painted yellow lines on floor around storage racks ▪ Only operate within the operating zone
▪ Bollards around the racks to prevent MHE (material handling
▪ MHE load capacity
equipment) crashing into the rack structures
▪ Ensure all MHE is checked before operation ▪ Floor cleanliness
▪ Fire points (fire extinguishers and fire hose)
▪ Fire evacuation plan
▪ Bright lighting

Process safety 5S

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Personnel safety People safety

▪ PPE ( Personnel Protective Equipment)
▪ Use of MHE, Vehicle, Forklift trucks Musculoskeletal injuries and pains are resulted from:
▪ Safe manual lifting - Repetitive motion, standing in one position, or working overtime.
▪ Slips and trips - Falls and collisions with powered equipment or other workers.
▪ Manual handling - Exposure to hazardous chemicals.
▪ Working at height - Strains and sprains from lifting loads improperly, carrying too large
or too heavy loads
- Cuts and bruises caused by falling materials that have been
improperly stored or by incorrectly cutting ties or other securing
devices.

212

Lift Properly
Risk assessment

A risk assessment can be broken down into five stages:

● Step 1: Identify the hazards.
● Step 2: Decide who might be harmed and how.
● Step 3: Evaluate the risks and decide on precautions.
● Step 4: Record and communicate findings and implement them.
● Step 5: Review your risk assessment regularly and update if
necessary.

Image source
213

Equipment-related risks Fire safety

- Untrained and anauthorized drivers operate
forklifts, other powered truck pallet trucks.
- Lack of attention: do not follow traffic management
rules, signs and flashers; do not listen for forklift
horns; violate the marked traffic routes.
- Do not wear high visibility vest.
- Other risks related to wearing loose fitting clothing,
jewelry, or hair, which may get caught,
A fire risk assessment must be undertaken to ensure that fire safety
procedures, fire prevention measures and fire precautions are all in
place and correct.
The five stages of fire risk assessment are:
● Step 1: Identify fire hazards.
● Step 2: Identify people at risk.
● Step 3: Evaluate, remove, reduce and protect from risk.
● Step 4: Record, plan, inform, instruct and train.
● Step 5: Review and revise risk assessments as necessary

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Fire/explosion and Emergency 5.2. Warehouse security

Preparedness
- Flammable liquids and the way in which
they could catch fire.
- Electrical hazards that could cause fire.
- Toxic chemical vapors in the air.

217

Physical security Process security

▪ The area must be monitored by 24/7 CCTV
▪ All vehicles and the drivers entering the
warehouse must be approved prior entry.
▪ Delivery vehicles are recorded at the guard post
▪ Drivers of vehicles must not be allowed to
wander about.
▪ Internal staff must not be allowed in the
warehouse without a reason.
▪ External visitors must be escorted
▪ Alarms should be installed to prevent intrusion
▪ Only authorized personnel are allowed to receive or release
goods
▪ Goods in the warehouse are to be protected from physical
damage and preserved in their original condition
▪ All goods carried out of the warehouse must be closely
inspected to prevent unauthorized removal.

Personnel security Pilferage

▪ All staff including visitors must have a
pass to be worn at all times
▪ All entries into restricted areas must
be controlled by card or fingerprint
▪ For some warehouses, warehouse
staff may be subjected to body check
to prevent pilferage
▪ No staff with bad records of alcohol
abuse, gambling, financial
irresponsibility
▪ Causes of inventory shrinkage: 80% internal + 20% external
▪ Inventory control and order processing systems help
protecting merchandise from being carried out of the
warehouse unless accompanied by a computer release
document
▪ If samples are authorized for salesperson use, such
merchandise should be maintained in a separate inventory.

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Security and preventing loss from theft

Preventing theft
● Internal theft ● External theft
● Theft: 60% of internal causes - Security system and internal check for - Fit burglar alarms to cover all
● Trouble signs: all staff doors and windows;
- Good lighting and eliminating blind - Fit foils on windows, infrared
+ Checkers and pickers take break together, too frequent smocking
spot beam system, motion detector,
break, cleaning contractor’s staff related with WH staff, drivers load their - Automatic cross checking of working cameras;
own vehicles, staff appear at non-authorized places …. flow - Security patrols (internal and
+ Products are misplaced/have strange sign/partly open/in rubbish - Practice 5S external)
bins,…. - Training/recruiting with model honesty - Fit a modern people access
- Improve working environment control system (card/keypad,…)
+ Documents are missing/skip in order/not checked as requested/with
changes/missing some authorized stamps/signature….
Information security:
+ Windows/emergency doors are not secured, cameras can’t reach all - Backup, firewall, antivirus software/copyright, data protection
corners of WH, - Access to information: Authorization/passwords/ID… 22
223
4

6.1. The importance of measuring

Chapter 6 warehouse performance
Warehouse performance measurement
● The reasons of the need to ● The possible consequences of
measure performance of the not measuring WH performance?
6.1. The importance of measuring warehouse performance WH?
6.2. Criteria for performance measurement - Potential lost of customers to
- To ensure customer
6.3. Bench marking competitors
satisfaction
- Lost of time/money for re
- To ensure there is a
picking repacking/re-delivering
improvement within the
or duplicating activities…
operation
- To discover potential issues - Process return => possible
before they become major product disposal/write off…
problem
225 226

6.2. The criteria for measuring WH performance
● Cost and productivity: cost as a percentage of sale and
productivity against labor hours
● Asset utilization: efficient use of WH space, MHE, Staff and
storage equipment
● Flexibility: Order cycle time (How we handle the order, whether we
have the stock available, how quickly we can process the order and
deliver to the customer, the ability to fulfill backorders…)
● Reliability: On-time delivery, fill rate, inventory, documentation…
accuracy
=> Cost and Service level
How to choose criteria for measuring WH performance? Should any
WH be measured with the same criteria?
How to choose the right performance measures
● Understand the business and its strategy => Decide on the
targets
● Understand which KPIs are likely to assist in meeting the
targets
● Align the KPIs to others within the company
● Ensure that everyone works towards achieving the targets
● Analyze the operation processes to eliminate reasons of failure
and to improve operations continually.
● Replace unrealistic targets (if any)
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Example of

● Try to use common industry KPIs (to benchmark)

● Use only measures that the company can implement, measure
and change: SMART
● Use cost-effective metrics ● Can a WH provide 100% of service?
● Review data regularly ● What is the cost of improving performance?
229 230

Cost and productivity

- Labor hours utilization = (Labor hours used x100)/labor hours

available
- Units picked per hour = unit picked/total hours available
- Cost as % of sale = (Total WH cost x100) ÷Total sale revenue
- Cost per order dispatched = Total WH cost ÷ Total number of
order shipped
- ………………

231 232

Example of trade-off between service level and

distribution cost
Percentage of Order delivered within 1 day
Criteria
50 60 70 80 90 95 100
Estimated annual sales
4.0 8.0 10.0 11.0 11.5 11.8 12
(Million of $)
Cost of distribution
5.8 6.0 6.5 7.0 8.1 9.0 14
(Million of $)

1. What are factors that impact the cost of distribution?

2. What would be reasonable service level in terms of
delivery within 1 day?

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Asset utilization

● Average warehouse area utilization = (Space used x100) ÷

space available
● Warehouse turnover for a year = (space used per year) ÷ total
space of the WH
● Dock rate utilization = (number of docks used x 100) ÷ total
number of docks
● MHE utilization = (MHE hours used x100) ÷ MHE hours
available
● Labor hours used rate = (labor hours used x100) ÷ total labor
hours available
● ……..
235 236

Flexibility
Inventory flexibility
● Dock-to-stock time = time from arrival of the vehicle to the dock
Average Annual sales Inventory Inventory
to the time the stock will be on the system; Items
inventory (in unit) cover (days) turnover
● Order cycle time = time from order to be placed to the time of A 500 4,000

delivery B 1,400 3,250

C 1,000 800
● Inventory cover in days = (current level of stock ÷ total annual
D 30 2,000
sales) x 365 days E 40 50
● Inventory turnover = total number of unit sold ÷ the average F 80 500
inventory G 1,000 400

● Inventory turnover = Cost of goods sold ÷ the average cost of H 16 800

inventory
Compare flexibility of those items?

237 238

Reliability Reliability

● Order accuracy = (Orders picked and dispatched accurately x
100%)/ total orders received
● On-time shipments = (orders delivered as per customers’ requests
100%)÷ total orders received
● In full delivery = (Deliveries in full x100%) ÷ total deliveries
● Damage free rate = (Deliveries with no damage x 100%) ÷ total
deliveries
● Accurate documentation rate = (Documents without errors x100%)
÷total documents (including transport documents, packaging,
labelling, invoice…)
● Location stock accuracy percentage = (N of correct locations ÷ N
of locations counted) x 100
● Stock line accuracy = (N of correct lines ÷ total N of lines counted)
x100
● Stock unit accuracy = (Actual quantity by SKU ÷ expected quantity
by SKU)x100
● Damage items percentage = Item found damaged ÷ Items dispatch
(per month/quarter/year)

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Integrated reliability measurement Calculate the overall average service level

● Perfect order metric is the most popular customer service metric Item Frequency of Probability of Service level of
combination order filling order the order
- On-time delivery = 97% on order complete
- In full delivery = 98.5% (1) (2) (3) (4)=(2)x(3)
- Damage free = 99.5% A 0.1 0.95
- Accurate documentation, labelling and invoicing = 98% B 0.1 0.9
 Perfect order? C 0.2 0,8
 OTIF (on time and in full)?
A, B 0.2 0.95x0.9
A,C 0.1
B,C 0.1
A, B, C 0.2

What is the overall average service level = Sum (4)

241 242

Hard vs soft measurement

Example of soft measurement

● Providing services as promised (time/quality/quantity…)

● Dependability in handling customers’ service problems

● Performing services right the first time;

● Maintaining error-free records

● Customer satisfaction level

● Service quality

=> What are differences between soft and hard measures?

243 244

Top 24 most common warehouse performance measurement Warehouse performance

measurement
Receiving
1. Cost of Receiving Per Receiving Line: Putaway
The expense that the warehouse incurs on the 6. Putaway Cost Per Line:
receiving process of each receiving line including Expenses incurred for putting away stock per line,
handling costs as well. including labor, handling, and equipment costs.
2. Receiving Productivity: 7. Putaway Productivity:
The volume of goods received per warehouse clerk Volume of stock put away per warehouse clerk per
per hour. hour.
3. Receiving Accuracy: 8. Putaway Accuracy:
Percentage of accurate receipts, i.e. the proportion Percentage of number of items put away
of correctly received orders against purchase accurately at the designated location.
orders.
9. Labor and Equipment Utilization:
4. Dock Door Utilization:
Percentage of the labor and material handling
Percentage of how many of the total dock doors equipment utilized during the put-away process.
were utilized.
10. Putaway Cycle Time:
5. Receiving Cycle Time:
Total time taken during the entire process of each
The time taken to process each receipt. put-away task.
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Storage Warehouse performance

11. Carrying Cost of Inventory: measurement
The cost of storage over a particular span of time,
including the cost of inventory, capital costs, service costs, Pick & Pack
damage costs, and costs of obsolescence. 16. Picking and Packing Cost:
12. Storage Productivity: The cost incurred per order line, including handling, labeling, relabeling,
and packing.
Volume of inventory stored per square foot. 17. Picking Productivity:
13. Space Utilization: The number of order lines picked per hour.
Percentage of space occupied by inventory out of the total 18. Picking Accuracy:
space available for storage. The percentage of orders picked and packed without error (in term of
inventory and documents).
14. Inventory Turnover:
19. Labor and Equipment Utilization:
The number of times the entire inventory passes through The percentage of labor & pick/pack equipment out of the total labor and
during a period of time. equipment utilized during the process.
15. Inventory to Sales Ratio: 20. Picking Cycle Time:
Time taken to pick each order.
Measure of stock levels against sales.
247 248

Warehouse performance 6.3. Benchmarking

measurement
● What is benchmarking?
Distribution
● Benchmarking can be internal or external
21. Order Lead Time:
● Principle of benchmarking: Collaboration, Confidentiality,
The average time taken by an order to reach the customer once
Value Flexibility, Honesty, Openness, Reputation
the order has been placed.
● External benchmarking can be done by industry – specific
22. Perfect Order Rate:
Number of orders the warehouse delivered without error
surveys
23. Back Order Rate:
=> For ensuring confidentiality and anonymity there is service of a
The rate at which orders are coming in for items that are out of third party such as a benchmarking group, a consultancy or a
stock. university.
24. Rate of Return:
The rate at which goods, once sold, are being returned. This is
most effectively used when segmented by reason for return.
249 250

Example of
benchmarking

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Chapter 7: Distribution in supply chain 7.1. Overview about distribution

7.1. Overview about distribution ● Logistics = Supply and Materials management + Distribution
- Introduction = Physical and information flow and storage from raw material to the
- The role of distribution final distribution of the finished products
7.2. The distribution channel network Logistics
7.3. Omni channel retailing

Supply and material Distribution:

management - Storage and flow from manufacturers to
- Storage and flow into and through the customers
the production process - Reverse logistics

253 254

Role of distribution in SC 7.2. Distribution channels and distribution network

● Distribution is a key driver of the overall profitability because it
directly affects both the SC cost and the customer value
● In apparel industry: Distribution cost = 35% of the revenue
● 7-eleven, Walmart success: High availability level of common
products at a very low cost
● Dell, Gateway changed the distribution channel to improve their
SC performance
● A distribution channel comprises a set of institutions which perform
all of the activities utilized to move a products from production to
consumption
● Channel members add value to a product by performing certain
channel activities: marketing, Packaging, Financing, Storage,
Delivery, Merchandising, Personal selling
● Intermediaries provide value to producers as they are expertise in
displaying, merchandising, and providing convenient shopping
locations and hours for customers.
=> Adding value through distribution = logistics

255 256

• Decision on types of distribution network

Decisions on distribution channel
2 dimensions of a distribution network:
- A distribution channel is a chain of businesses or intermediaries
through which a good or service passes until it reaches the final Value provide to the customers: Cost of meeting customer needs
buyer or the end consumer. Distribution channels can - Time: Response time, time to - Inventory
include wholesalers, retailers, distributors, agents, brokers and market - Transportation
even the Internet. - Product: variety + availability - Facilities and handling
- 3 Dimensions of channel design - Order visibility - Information
+ Types of distribution network: Direct – via intermediaries? - Customer experience
- Returnability
+ Types of intermediaries involved
+ Distribution Intensity: Exclusive, Selective, Intensive
distribution
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Relationship between number of facilities and other factors Variation in logistics costs and response time with number of
facilities
Response time
Inventory costs

Facility costs Total logistics costs

Response time

Transportation cost

Number of facilities

259 260

Case study
The distribution network Food Freeze plc (FF) are a UK based frozen food manufacturer/packer and have a
major share of the European frozen food market dealing with all major and minor
Two key high-level distribution decisions that a manager must retailers and wholesalers.

make are: Whilst new product development is an important part of their business, they are
relatively stabilized with around a constant of 500 SKU’s at any one time.
- Whether the product will be picked up on-site or delivered They have 03 factories based in the East Anglia/Lincolnshire agricultural
to the customer. producing areas with another factory based in the Northwest in a former re-
development area.
- Whether or not the product will flow through an ● Distribution
- The following flows of goods and materials are involved:
intermediary.
- Raw materials (such as packaging and ingredients) into the factories
- Finished goods from the factories to customers (either as full trailer pallet
loads or as single pallets of one SKU).
- FF deliver to customers on average 120, 000 pallets per month but as a
result of seasonality, the range is from a low of 90,000 to a high of 180,000
pallets per month.
● Problems: Delivering direct from different factories to the same major
261 retailers forced an examination of the physical distribution network. 262

6 major types of basic distribution network
designs
● Type of distribution network
- Manufacturer storage with direct shipping
- Manufacturer storage with direct shipping and in-transit merge
- Distributor storage with carrier delivery
- Distributor storage with last-mile delivery
- Manufacturer/distributor storage with customer pickup
- Retail storage with customer pickup
● Each of these types of distribution network designs have different
impacts on logistics service and cost factors.
Manufacturer storage with direct shipping
● The customer places an order with the retailer, who passes the information along to
the manufacturer. The manufacturer ships the product directly to the customer (drop
shipping)
● Inventory is centralized at the manufacturer warehouses with high level of availability and
low cost;
● Outbound transportation distance is large, thus transportation cost is high
● Requires a good information infrastructure between the retailers and the manufacturer,
such that the retailer can provide product availability information to the customer.
● Response times tends to be long when drop-shipping is used.

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Manufacturer storage with direct shipping & in-transit merge

● In-transit merge combines pieces of the order coming from different locations so that the
customer gets a single delivery.
● There are ability to aggregate inventories and postpone product customization.
● Transportation costs decrease thank to in transit merge
● Requires sophisticated information infrastructure and an increase in coordination
to allow in-transit merge;
● Response times, product variety, availability, and time to market are similar to drop-
shipping.

265 266

Distributor storage with carrier delivery

● Inventory is held at distributors/retailers in intermediate warehouses closed to the
customer.
● Package carriers transport products from the warehouse to the customer.
● Transportation costs are lower because of economic mode of transportation
(e.g. FTL) for inbound shipping to the warehouses
● Facility costs of warehousing are higher because of a loss of aggregation.
● Required less complex information infrastructure.
● Response times are shorter as distributor warehouses are closer to customers.
● This configuration is well suited for slow-to-fast-moving items.

267 268

Distributor storage with last-mile delivery

● The distributor/retailer delivering the product to the customer’s home instead of
using a package carrier.
● Requires a higher level of inventory than the other options (except for retail
stores) because of its lower level of aggregation.
● Among all distribution networks, transportation costs are the highest for last-
mile delivery, especially when delivering to individuals.
● The information infrastructure is similar to that for distributor storage with package
carrier delivery.
● Response times are faster than using package carriers.

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Manufacturer / distributor storage with customer pickup

● Inventory is located at the manufacturer or distributor warehouse;

● Customers place orders with the retailer (e.g. online or on the phone) and then go to
pickup sites to get the product. Orders are shipped from the storage sites to the
pickup sites as needed.
● Inventory costs can be low if aggregation is exploited. However, facility costs are
high, if new pickup sites have to be built.
● A significant information infrastructure is needed to provide visibility of the order until
the customer picks it up

271 272

Retailer storage with customer pickup

● Inventory is stored at retail stores
● Customers walk in, place an order and leave with the goods in hand.
● Inventory and facilities costs are high
● There is inexpensive modes of transport on inbound logistics and no outbound
logistics => Transportation cost is much lower …
● Minimal information infrastructure is needed if customers just walk-in and place
their orders.
● Response times are short.

273 274

Comparative Performance Rank of Delivery Network Designs Performance of delivery network for different customers and products characteristics
Distributor Manufacturer/
Retail Manufacturer Manufacturer Distributor
Manufacturer Manufacturer
Distributor Storage with Distributor
Retail Storage Storage with Distributor Manufacturer/ Storage with Storage Storage with Storage with
Storage Storage with storage with Distributor Storage Factors Package Storage with
Factors with Customer Package Customer with Direct In-Transit Last-Mile
with Direct In-Transit Last-Mile with Customer Carrier Customer
Pickup Carrier Pickup Shipping Merge Delivery
Shipping Merge Delivery Pickup Delivery Pickup
Delivery
High-demand
Response time 1 4 4 3 2 4 +2 -2 -1 0 +1 -1
product
Product variety 4 1 1 2 3 1 Medium-demand
+1 -1 0 +1 0 0
Product 4 1 1 2 3 1 product
availability
Low-demand
Customer Varies From 1 4 3 2 1 5 -1 +1 0 +1 -1 +1
product
experience to 5
Very-low-demand
Time to market 4 1 1 2 3 1 -2 +2 +1 0 -2 +1
product
Order visibility 1 5 4 3 2 6
High product value -1 +2 +1 +1 0 +2
Returnability 1 5 5 4 3 2
Inventory 4 1 1 2 3 1 Quick desired
+2 -2 -2 -1 +1 -2
response
Transportation 1 4 3 2 5 1
Facility and 6 1 2 3 4 5 High product variety -1 +2 0 +1 0 +2
handling
Low customer effort -2 +1 +2 +2 +2 -1
Information 1 4 4 3 2 5 275 276

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• Types of intermediates Distributor vs wholesaler

Intermediates Characteristics

- Do not require the accumulation of a large number of goods in ● Distributors ● Wholesalers

Direct sale
warehouses, but have a limited amount of target markets. - Work closely to manufactures - The wholesaler gets discounts for buying
- Manufacturers organize after-sales support of goods, which
requires additional resources and investments - Can provide logistical and storage large quantities of goods from
Legal entities acting on behalf and at the expense of the principal support for manufacturers distributors/manufactures and resell to
Agent
and receiving remuneration for their services. - Act as sales representatives for retailers in bulk quantities for lower price
The intermediaries establishing links between legal entities the producer that actively look out - The wholesalers’ primary goal is to
Brokers interested in distribution products. Their remuneration is calculated
as a percentage of sales. for orders from various sources in satisfy the needs of the retailers. Thus,
Dealers: purchase products and resale at on their own behalf and at the market, execute the orders they will adjust their products to whatever
Wholesalers
their own expense. and also manage returns the retailers need.
Distributors: distribute product on behalf of the manufacturer at their
- Distributor is actively involved in - They are not responsible for having the
own expense. They don’t own the products and they earn the
Wholesalers/ different of prices promoting a company’s products products sold to the customers or
Retailers Commissioners act on their own behalf, but at the expense of the whether the retailers would sell them all.
manufacturer.
- Ownership of the goods goes to the final consumer after payment
277 278

Agent vs Broker Tasks of Intermediaries

● Agent
- An agent is an intermediary acting
on behalf of a principal and
authorized to make agreements
between customers and those
principals
- Agents receive a payment in form
of a commission
- Captive agents: Work for the
specific principles
- Independent Agents: Work for
different principles
● Broker ● Wholesalers/Distributors: Break down bulk, Buy/receive from
- Brokers are mediators between producers and sell/ship small quantities to retailers, Provide
the buyer and the seller while
storage facilities, Reduces contact cost between producer and
assisting in negotiation.
consumer, take some of the marketing responsibility e.g sales
- Brokers receive a payment in the
form of a commission force, promotions
● Retailers: Hold a variety of products, Offer consumers credit,
Promote and merchandise products, Price the final product, Build
retailer brand in the high street
● Internet: Sell to a geographically disperse market, Able to target
and focus on specific segments, Relatively low set-up costs, Use
of e-commerce technology (for payment, shopping software, etc)
279 280

• Distribution Intensity 7.3. Omnichannel distribution

Number of
Intensity ● It’s a distribution strategy where retail, wholesale and ecommerce
Objective and products intermediaries/
level channels merge together, allowing retailers to offer their products
location
- Achieve mass market selling No cap on stores across multiple integrated channels
Intensive - Mass customers or locations ● The inventory management system focuses on both physical and
- Convenience, FMCG goods online stores as centralized inventory
- Work with selected intermediaries Specific locations ● A sophisticated warehouse management system provides real time
Selective - Target customer and limited inventory visibility and order visibility
- Some specialty goods number of stores ● Omni channel distribution provides flexible order placement, pick-
- Work with single intermediary; Limited outlets up and delivery options to the customers.
- Target customer and locations
Exclusive - High-end and exclusive brands,
specialty goods, industrial
equipment… 281 282

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Alternative in omnichannel retail

283 284

Customer service performance

● Response time: very quick and convenient for customers can
choose home delivery or pick up (1 – 2 hours delivery)
● Product variety
● Product availability
● Customer experience depends on
+ What customer values more: Time or real shopping experience
+ Products (High value/fashion or FMCG….)
+ Internet infrastructure, apps, ….
● Time to market
● Order visibility
● Returnability

285 286

Product demand uncertainty and omni-channel retailing Decision on channel

Predictable demand Unpredictable demand ● Traditional retail:
Channel
product products
- It is ideally suited for predictable demand products at a low
Compete on service for high
price (ex: Instant noodles, detergent)
Traditional retail Compete on price information complexity
products - More price competitive for products that have relatively high
Compete on price and variety shipping cost compered to their value (volume weight product)
Showroom Not suitable for high information - For unpredictable products (eg fashion apparel)
complexity products + it can best compete if customers are willing to pay a premium
Online information + for the in-store service and the ability to try products
Compete on service Compete on price and variety
home delivery
+ It can be price competitive if the rate of product return for the
Compete on ability to
Online information + More competitive on price that online channel is high
provide service at a
pickup home delivery option
lower price
287 288

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● Showrooms ● Online information + Pickup

- It’s ideally suited to compete on price for products with high - It’s ideally complement to the home delivery channel
information complexity, unpredictable and high value because of lower delivery cost;
- Pooled inventory at warehouse decrease logistics cost - It’s more price competitive than home delivery for products
● Online information + Home delivery with unpredictable demand and low information complexity
- It’s ideally suited to compete on price for products with and predictable demand products
unpredictable demand and low information complexity
- It’s more price competitive if the shipping cost is low compared
to its value;
- For predictable demand (FMCG, detergent…) it can compete
for customers who value time more than home shipping costs

289 290

Product value and omni-channel retailing

Channel Low value product
Compete on price for
Traditional retail predictable demand
products
Compete on high
variety at reasonable
Showroom price for high
information complexity
products
Online information +
Compete on service
home delivery
Compete on ability to
Online information +
provide service at a
pickup
lower price
Product Information complexity and omni-channel retailing
High value products
Compete on service for Low information High information
Channel
product with uncertain complexity products complexity products
Compete on price for
demand and high information Compete on service for
Traditional retail predictable demand
complexity products uncertain demand products
products
Compete on price for Compete on price for uncertain
Showroom Not suitable
customizable, high demand products
information complexity
Compete on price for Compete on service in terms of
products Online information
uncertain demand variety and availability for
+ home delivery
products uncertain demand products
Compete on price and variety
Slightly cheaper option to
Compete on price for
Online information compete on service in terms of
More competitive on price that uncertain demand
+ pickup variety and availability for
home delivery option products
291
uncertain demand products 292

The choices of omni channel products

Discussion question
Traditional Online information + Online information +
Products Showroom 1. What differences in the retail environment may justify the fact that the fast-moving
retail home delivery pickup
consumer goods supply chain in India has far more distributors than it has in the US?
Instant noodles
2. A specialty chemical company is considering expanding its operations into Brazil,
Cosmetics
where five companies dominate the consumption of specialty chemicals. What sort of
The piano/Guitar distribution network should this company use?
Dining table 3. A distributor has heard that one of the major manufacturers from which it buys is
Groceries, FMCG considering going direct to the consumer. What can the distributor do about this?
What advantages can it offer the manufacturer that the manufacturer is unlikely to be
Flowers/Plants
able to reproduce?
Television
4. What types of distribution networks are typically best suited for commodity items?
Toys 5. What type of network is best suited to highly differentiated products?
Washing machine 6. In the future, do you see the value added by distributors decreasing, increasing, or
Laptop staying about the same?
7. Is the online channel likely to be more beneficial in the early part or the mature part
Bed sheets
of a product’s life cycle? Why?
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8. Why has the online channel been more successful in the com-puter hardware
industry compared with the grocery industry? In the future, how valuable is the
online channel likely to be in the computer hardware industry?
9. Consider the sale of home improvement products at Home Depot or a chain of
hardware stores such as True Value. Which can extract the greater benefit from
adding the online channel? Why?
Thank You
10. Amazon sells books, music, electronics, software, toys, and home improvement
products online. In which product cate- gory does going online offer the greatest
&
Good Luck
advantage com- pared with a retail store chain? In which product category does
the online channel offer the smallest advantage (or a potential cost disadvantage)
compared with a retail store chain? Why?
11. Why should an online seller such as Amazon build more warehouses as its sales
volume grows?
12. Amazon has opened bookstores and announced the opening of convenience
stores. How can these traditional retail chan- nels allow Amazon to complement
its online channel effectively?
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