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Consolidation Warehousing

Aubrey Blacker Brigham Young University

Define Consolidation Warehousing How can it be used in your organization? Nuts and Bolts How it Works Real-World Example Exercise

What is Consolidation Warehousing?

A form of warehousing that pulls together small shipments from a number of sources (often plants) in the same geographical area and combines them into larger, more economical, shipping loads intended for the same area
-Like Carpooling!

Small, flexible shipments inLarge, economical shipments out

How can Consolidation Warehousing be used in your organization?

How would implementing Consolidation Warehousing affect your organizations

Profitability? Delivery Time? Inventory Levels? Customer Satisfaction? Reputation within the industry?

Nuts and Bolts

Consolidation warehouses are constructed at a strategic location between manufacturers and customers Third-Party Logistics Providers (3PLs) manage and maintain the consolidation warehouse and the information system needed to run it
Goal: Maximize transportation utilization and minimize costs

Warehouses can either be client-dedicated or multiuser facilities

How it Works:
1.Customer places several small orders from multiple manufacturers in the same area

How it Works
2. Several Less-than-truckloads (LTL) of product from manufacturers in the same area arrive at the consolidation warehouse

How it Works
3. The 3PL strategically consolidates these small orders from multiple manufacturers into one full Truck Load (TL) headed to the customer using tactical transportation modeling tools

How it Works
Tactical Transportation Modeling Tools
Input = Customer and purchase order date requirements Look to minimize cost by selecting:
Most appropriate mode of transportation Most appropriate carrier within that mode of transportation

Optimize routes and generate a detailed load plan

How it Works
4. Customer receives product orders from various manufactures in one transaction
-As load size increases, shared transportation costs among manufactures decreases

Benefits of Consolidation Warehousing

Lower shipping costs for participants More efficient transportation No capital investment required
Reduces risk

Allows manufactures to focus on their core competencies Lower product costs for customers Lower inventory levels required

Concerns associated with Consolidation Warehousing

Manufactures and customers information systems must be aligned with the 3PLs
Could be costly

Takes immediate control of product transportation out of the manufacturers hands Requires collaboration among suppliers, customers and carriers
May be hard to coordinate

A Real World Example

Frozen Food Industry

A Real World Example

Situation: Retailers wanted smaller, more frequent shipments
More profitable because it keeps inventory levels down

Truck shortage
Shipping LTLs became very costly

A Real World Example

3PLs provided dry, refrigerated/frozen warehouse space to keep products fresh
Managed required product information by using:
Barcodes Scanning Instant Messaging Internet Other internet-based information systems

A Real World Example

Multiple Manufacturers in the same area used these consolidation warehouses to combine LTL deliveries to retailers

A Real World Example

Result: CW maximized truck utilization
Solved capacity shortage issue in the trucking industry

And minimized costs/maximized profitability

Decreased shipping costs Helped retailers maintain low inventories and retain high profits

An Exercise

The Penny Game!

Consolidation Warehousing = pulling together small shipments from a close geographical area and combining them to make larger, more economical, shipments to the customer
Used to minimize transportation costs and maximize efficiency Beneficial for manufacturers and retailers Applicable across many industries

Readings list
Bozarth, Cecil C., Handfield, Robert B. Introduction to Operations and Supply Chain Management. Pearson Prentice Hall, United States of America, 2005.

Frazelle, Edward H. Supply Chain Strategy. Blacklick, OH, USA: McGraw-Hill Education Group, 2001. p 228.
Chill Challenge. Food Logistics Age. July 2005. Cygnus Business Media Inc. US Logistics 2005. Transport Intelligence Ltd. June 2005 USL0506. Warehousing Education and Research Council (WERC):