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Chapter 8

Warehousing Decisions

Learning Objectives - After reading
the chapter, you should be able to do the
following:

 Discuss the strategic value-adding role
warehousing plays in the logistics
system.
 Explain the basic rationale for
warehousing in light of transportation
consolidation, product mixing, service,
contingency protection, and smoothing.
 Develop an analytical framework for
basic warehousing decisions.
Chapter 8 Management of Business Logistics, 2
7th Ed.

Learning Objectives
 Distinguish between the different
warehouse activities requiring space in
the warehouse design.
 Discuss the major principles of
warehouse layout design.
 Compare the use of private versus
public warehousing.
 Explain public warehousing services,
regulations, and pricing.

Chapter 8 Management of Business Logistics, 3
7th Ed.

Learning Objectives
 Describe the decision-making approach
used to determine the number of
warehouses in the logistics system.
 Discuss the effect of materials handling
and packaging on logistics.
 Describe the four dimensions and the
objectives of materials handling.

Chapter 8 Management of Business Logistics, 4
7th Ed.

5 7th Ed. .Learning Objectives  Discuss the different types of materials handling equipment and the criteria used to select this equipment.  Explain the cross-functional role of packaging in a company. Chapter 8 Management of Business Logistics.  Discuss the role of packaging in the logistics system.

Learning Objectives  Describe the various types of packaging materials available and their relative advantages and disadvantages. . Chapter 8 Management of Business Logistics. 6 7th Ed.  Explain the rationale for using bar codes to identify packages.

220k SKUs.  13. . two regional and six zone distribution centers. and 373 local branches  1.6 million square feet in one national distribution center. $4. Logistics Profile: Grainger Industrial Supply  Grainger is dedicated to providing excellent customer service using an effective network of warehouses and distribution centers providing same day or next day service. 60k to 80k daily customer orders Chapter 8 Management of Business Logistics.5 million customers.5 billion in sales. 7 7th Ed.

an increase from 1990 of 700 million square feet of space. warehousing space in 1999 was 6.8 percent of GDP was spent on warehousing. Chapter 8 Management of Business Logistics.  Warehousing provides time and place utility for raw materials.  The total supply of U.S.The Nature and Importance of Warehousing  In 1999. and finished products. $75 billion. industrial goods. . 8 7th Ed. or 0. allowing firms to use customer service as a dynamic value-adding competitive tool.1 billion square feet.

 Product mixing  Cross-docking  Service  Protection against contingencies  Smoothing Chapter 8 Management of Business Logistics. . 9 7th Ed.The Role of the Warehouse in the Logistics System: A Basic Conceptual Rationale  The warehouse is  Functions of where the supply warehousing include:  Transportation chain holds or consolidation stores goods.

.Table 8-1 Warehouse Value-Adding Roles Chapter 8 Management of Business Logistics. 10 7th Ed.

Figure 8-1 Transportation Consolidation Chapter 8 Management of Business Logistics. 11 7th Ed. .

Figure 8-2 Supply and Product Mixing Chapter 8 Management of Business Logistics. 12 7th Ed. .

13 7th Ed.Basic Warehouse Decisions: A Cost Trade-off Framework  Ownership  Public versus contract versus private  Centralized or Decentralized Warehousing  How many  Location  Size  Layout  What products where Chapter 8 Management of Business Logistics. .

.Figure 8-3 Basic Warehousing Decisions Chapter 8 Management of Business Logistics. 14 7th Ed.

Chapter 8 Management of Business Logistics. 15 7th Ed. .  Thus private warehousing virtually requires a high and constant volume.The Ownership Decision  Public warehousing costs mostly all variable.  Private warehousing costs have a higher fixed cost component.

The Ownership Decision  Factors to consider  Throughput volume  Stability of demand  Density of market area to be served  Security and control needs  Customer service needs  Multiple use needs of the firm Chapter 8 Management of Business Logistics. 16 7th Ed. .

Table 8-2 Firm Characteristics Affecting the Ownership Decision Chapter 8 Management of Business Logistics. . 17 7th Ed.

.Public Warehousing  Rationale for Public Warehousing  Limited capital investment  Flexibility  Public Warehousing Services  Bonded warehousing  Field warehouses Chapter 8 Management of Business Logistics. 18 7th Ed.

Public Warehousing  Public warehousing  Public warehousing regulation: rates based upon:  Liability  Value  Receipts  Fragility  Potential damage to other goods  Volume and regularity  Weight density  Services required Chapter 8 Management of Business Logistics. . 19 7th Ed.

 Compensation for seasonality in products.  Managerial expertise and dedicated resources. Contract Warehousing  Up 23% per year in 2000 to $20.  Less strain on the balance sheet.  Increased geographical coverage. .  Other issues discussed in Chapter 11.4 billion.  Possible reduction of transportation costs.  Ability to test new markets. Chapter 8 Management of Business Logistics. 20 7th Ed.

The Number of Warehouses  Factors Affecting the Number of Warehouses  Inventory costs  Warehousing costs  Transportation costs  Cost of lost sales  Maintenance of customer service levels  Service small quantity buyers Chapter 8 Management of Business Logistics. . 21 7th Ed.

22 7th Ed. . Table 8-3: Factors Affecting the Number of Warehouses Factor Centralized Decentralized Substitutability Low High Product Value High Low Purchase Size Large Small Special Yes No Warehousing Product Line Diverse Limited Customer Service Low High Chapter 8 Management of Business Logistics.

.Basic Warehouse Operations  Movement  Receiving  Put-away  Order picking  Shipping  Storage  Stock location  Warehouse Management System (WMS) Chapter 8 Management of Business Logistics. 23 7th Ed.

. 24 7th Ed.Figure 8-6 Basic Warehouse Operations Chapter 8 Management of Business Logistics.

25 7th Ed. .Figure 8-7 The Computerized Warehouse Chapter 8 Management of Business Logistics.

26 7th Ed. .  Allow for adequate aisle space for materials handling equipment.  Convert units into cubic footage requirements.  Determine each item’s order quantity.Warehouse Layout and Design  Develop a demand forecast.  Allow for growth. Chapter 8 Management of Business Logistics.

office. Chapter 8 Management of Business Logistics. and miscellaneous spaces.  Provide for order- picking space. 27 7th Ed.  Provide recouping.  Provide storage space. Warehouse Layout and Design  Provide for the transportation interface. .

Figure 8-8 Warehouse Space Requirements Chapter 8 Management of Business Logistics. 28 7th Ed. .

29 7th Ed.Figure 8-9 Principles of Warehouse Layout Design Chapter 8 Management of Business Logistics. .

30 7th Ed.Warehouse Layout and Design  Basic needs:  Receiving  Basic storage area  Order selection and preparation  Shipping Chapter 8 Management of Business Logistics. .

Chapter 8 Management of Business Logistics.  Minimize aisle space. Warehouse Layout and Design  Layout and Design Principles:  Use one story facilities where possible. 31 7th Ed. .  Use the most efficient materials handling equipment.  Use full building height.  Move goods in a straight- line.

32 7th Ed. .Warehouse Layout and Design: Layout and Design Objectives  Cubic capacity utilization  Protection  Efficiency  Mechanization  Productivity Chapter 8 Management of Business Logistics.

Table 8-4: Warehouse Productivity Metrics  Pounds or units per day  Employees per pound moved  Pounds unloaded per hour  Pounds picked per hour  Pounds loaded per hour  Percentage of orders correctly filled  Productivity ratio = pounds handled/day divided by labor hours/day  Throughput = amt of material moved through the system in a given time period Chapter 8 Management of Business Logistics. . 33 7th Ed.

Materials Handling  Definition: Efficient short distance movement in or between buildings and a transportation agency.  Four dimensions  Movement  Time  Quantity  Space  Coordination Chapter 8 Management of Business Logistics. . 34 7th Ed.

Objectives of Materials Handling  Increase effective capacity  Minimize aisle space  Reduce product handling  Develop effective working conditions  Reduce heavy labor  Improve logistics service  Reduce cost Chapter 8 Management of Business Logistics. . 35 7th Ed.

Figure 8-12 Utilization of a Warehouse’s Cubic Capacity: Principles of Warehouse Layout Design Chapter 8 Management of Business Logistics. . 36 7th Ed.

Asterisks mark those deserving special attention. 37 7th Ed. Chapter 8 Management of Business Logistics.Guidelines and Principles for Materials Handling  To effectively plan and control materials handling.  Table 8-5 lists 20 of the most commonly accepted principles of effective materials handling. . the logistics manager should recognize some guidelines and principles.

Table 8-5 Principles of Materials Handling Chapter 8 Management of Business Logistics. . 38 7th Ed.

Packaging  Interest in packaging is widespread  Logistics  Warehousing  Transportation  Size  Marketing  Production  Legal Chapter 8 Management of Business Logistics. 39 7th Ed. .

40 7th Ed. .The Role of Packaging  Identify product and provide information  Improve efficiency in handling and distribution  Customer interface  Protect product Chapter 8 Management of Business Logistics.

. Chapter 8 Management of Business Logistics. ability to withstand stacking when on a pallet. 41 7th Ed. weight.  Industrial packaging  Logistics managers primarily concerned with efficient shipping characteristics including protection. cube.What Is Packaging?  Consumer packaging  Marketing managers primarily concerned with how the package fits into the marketing mix. shape and other relevant factors.

 Basic considerations include:  Soft materials  Plastic  Environmental issues  Recycling (reverse logistics) Chapter 8 Management of Business Logistics. . 42 7th Ed.Packaging Materials  Table 8-6 presents a comparison of various packing material characteristics.

43 7th Ed.Table 8-6 Comparison of Cushioning Materials Chapter 8 Management of Business Logistics. .

.Bar Coding  Standard markings that can be read by automatic or handheld scanners that allow for labor saving logistical activities for all supply chain members.  Bar Codes contain information regarding:  Vendor  Product type  Place of manufacture  Product price Chapter 8 Management of Business Logistics. 44 7th Ed.

. Chapter 8: Summary and Review Questions Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 8.

End of Chapter 8 and 8A Slides Warehousing Decisions .