Module 2 – Chapter 6

WAREHOUSING
INTRODUCTION

 A warehouse is a place where company’s

goods are stored.

 It is a location with adequate facilities where

volume shipments are received from
production centers, which are then broken
down into particular order and shipped
onwards to the customer

 Stored goods can include any raw materials,

packing materials, spare parts or finished
goods

 Warehousing is the action or process of

storing goods in the warehouse
 SCANNING
DEVICE USED IN
WAREHOUSES
Receiving of goods
Identifying goods
Receive and accept the Sorting goods
Goods to be identified as
responsibility of goods Sort goods for
per place, label, color
delivered to the appropriate storage area
code
warehouse

Dispatching goods Selecting, retrieving,

Holding goods
to storage packing
Security against
Dispatched for Selected, retrieved and
pilferage (theft) and
temporary storage for grouped as per customer
reduction in value
easy accessibility order for dispatch

Marshalling goods Preparing records

Dispatching goods
Checking that all the and advices
Order is packaged and
goods ordered by Recorded for
directed to right
customer are dispatched replenishment and stock
transport
properly or not control
 BENEFITS OF
WAREHOUSING

Economic Service
Benefits Benefits

Consolidation Spot Stock

Breakbulk Assortment

Crossdock Mixing

Postponement/ Production
Processing Support

Stockpilling Market Presence

CONSOLIDATION

• Aggregating the small lots

of materials at a central
point for combining and
sending into large shipment
to the customer.
BENEFITS:
a) Reduction in
transportation cost
b) Reduced congestion at
customer’s receiving dock
since he is receiving
single shipment instead of
number of shipment
BREAK BULK

• Like consolidation except that

storage is not performed.
• Receives large shipment from
manufacturer. After receiving
large consignments, it is
broken down into small
consignments and is
ultimately delivered to
customers.
• Arranges for local delivery
BENEFITS:
a) Reduction in transportation
cost
CROSS DOCK
• Only difference between Cross Dock and Break
Bulk is that Cross Dock receives shipments
from multiple manufacturers but in case of
break bulk, shipments are received from single
manufacturer.
• Materials arrive in large quantity from multiple
manufacturers, broken down into small
shipments, assorted and mixed as per
customer’s order
• Smaller shipments are then released to retail
outlets as per their requirements
BENEFITS:
a) Reduction in handling cost as product is not
stored
b) Dock facilities are fully utilized as vehicles
are fully loaded
c) Reduction in transportation cost
PROCESSING/POSTPONEMENT

• Warehouses can also be used to postpone or

delay production process and ease
manufacturing activities
• A warehouse with packaging & labelling
capability allows delay of final production until
actual demand is known. Example; jeans in
Dharavi
BENEFITS:
a) Risk is minimized because final packaging is
not completed until an order for specific label
& package has been received
b) Required inventory level is reduced with no
pre attached labels
STOCKPILING

• Seasonal storage becomes essential to some

selected business
• Blankets & knitting wool are produced year
round & sold during a very short period
• In contrast, agricultural products are harvested
at specific times but consumption occurs
throughout the year
• In both the cases, stockpiling becomes
necessary to support selling efforts
ASSORTMENT

Stocks product combination in anticipation of

customer orders. Example; Bisleri SKU, Amazon
500 million SKUs online, Walmart 70 million SKUs
online
Assortment may represent multiple products from
different manufacturers or special assortments as
specified by customers

BENEFITS
a) Improves service by reducing the number of
suppliers that a customer must deal with

a) Combined assortments reduces transportation

cost
MIXING

• Truckloads of goods are shipped from

manufacturing plant to warehouses. Each large
shipment enjoys the lowest possible
transportation cost
• Upon arrival at the mixing warehouse, factory
shipments are unloaded and desired
combination of each product for each customer
or market is selected
PRODUCTION SUPPORT
Production support warehousing is used to supply
materials, components and sub-assemblies into
assembly plant in an economic and timely manner

MARKET PRESENCE
 Local warehouse can be more responsive to
customer needs and offer quicker delivery than
distant warehouses
 Helps to enhance the market share and increase
profitability
LOCATION CONSIDERATION / WAREHOUSE LOCATION

Degree of automation
adopted and the type of
material handling
equipment used in the
warehouses also affects the
cost of warehousing.
Example; Coca-Cola 0
employee warehouse
If company intends to provide
superior customer service, the
number of warehouses will
increase which will in turn
increase the cost of
warehousing because of
maintenance & facility costs
associated
Higher the inventory, higher the
warehousing cost and vice-versa
Affects the cost of the warehouse in terms of rent,
capital cost etc. Larger the size, higher the cost
Size of the
warehouse
Few products require rust
preventive oils and greases
to protect the products.
Degree of Type of This will increase the cost
Automation product of preservation and in turn
the cost of warehousing
FACTORS
AFFECTING
WAREHOUSING
COST Initially transportation cost
reduces due to
transportation economies
Customer Transportatio
n obtained by having large
Service level
volume transportation.
However, as the number of
warehouses increases
Inventory beyond a certain level,
transportation cost increase
due to increasing trips
between the warehouses
BOEING EVERETT FACTORY, WASHINGTON
4.3 million square feet
JOHN DEERE WAREHOUSE, ILLINOIS
2.6 million square feet
AMAZON FULFILMENT CENTRE, SCOTLAND
1 million square feet
 NASA VEHICLE ASSEMBLY BUILDING, FLORIDA
 Largest single storey building in the world. Tallest building in USA outside urban areas
 348000 square feet
WAREHOUSES
PRIVATE

TYPES OF PUBLIC

CONTRACT
 ADVANTAGES
PRIVATE WAREHOUSE Greater operational
flexibility
 Operated by the firm owning the
Greater control over its
product
operations
 Often difficult to find a warehouse Tax benefit – claim
that meets the exact requirements of a depreciation
firm. Hence, organization opts for its Suitable for long term
own warehouse which is designed to
meet its exact requirements
DISADVANTAGES
Lacks geographical
flexibility
High operating cost as all
the costs are incurred by
the company
Do not enjoy economies
of scale
 PUBLIC WAREHOUSE  Owned and operated by a 3rd Party

1. GENERAL MERCHANDISE WAREHOUSE

 Most common warehouse
 Used to store any kind of product

2. SPECIAL COMMODITY WAREHOUSE

Used particularly for agricultural products

3. REFRIGERATED WAREHOUSE
Used to handle and maintain food, medical items,
chemical products etc.

4. BONDED WAREHOUSE 5. HOUSEHOLD WAREHOUSE

Licensed by government to store goods Handle and store large bulky items
prior to payment of taxes or duties
PUBLIC WAREHOUSE ADVANTAGES
Geographical flexibility is
high
Operating cost is low
Economies of scale
Provide greater operating and
management expertise

DISADVANTAGES
Operational flexibility is low
Less control over operations
Cannot enjoy tax benefit
Short term
CONTRACT WAREHOUSE

 Combines best features of both public BENEFITS

& private warehouse operations
 Long term, mutually beneficial
arrangement which provides unique
and customized warehousing and
logistical service for a single client
 Provide expertise, flexibility & economies
of scale
 Assumes total logistics responsibility for a
firm that desire only to concentrate on
manufacturing and marketing

GATI-KWE is Joint Venture between Gati Logistics Ltd and Japan’s

freight and warehousing major, Kintetsu World Express.
OPERATING PRINCIPLES

DESIGN Number of
WEAREHOUSE

Height Product Flow

CRITERIA Storeys
HANDLING Movement Movement Scale
TECHNOLOGY Continuity Economies

STORAGE PLAN
I. DESIGN CRITERIA

a) Number of storey

 Ideally should be limited to single storey so that product does

not have to be moved up and down
 Elevator is often a problem as handlers are always competing
for a limited number of elevators

b) Height

 Should be such that it results in optimum utilization of

warehouse space
 With material handling equipment, it would be possible to store
products up to building ceiling

c) Product Flow

 Products should be received at one end of the building, stored

in the middle of the warehouse and then shipped from other end
 Straight line product flow minimizes congestion & confusion
II. HANDLING TECHNOLOGY

a) Movement Continuity

 It means it is better for the material handling

equipment or the person to make a longer
movement rather than many people moving the
goods to shorter distance
 It wastes time and increases the potential for
damage

b) Movement Scale of Economies

 Movement in large quantities

 Instead of moving individual products,
warehouse activities should be designed to move
group of products such as containers
 Reduces number of activities and reduces cost
III. STORAGE PLAN

Various characteristics of the product such as

volume, weight, etc. should be considered

 High volume sales or fast moving products

should be stored in a location that minimizes the
distances it is moved such as near primary aisles.
They should be stored in lower racks

 Low volume or slow moving product should

be stored in higher racks

 Hazardous items stored at safe distance to

reduce damage during dangerous situation
 WAREHOUSING STRATEGIES
1. PRESENCE SYNERGIES
 Refers to marketing benefits of having stocks located near
by the market.
 Customers are happy when suppliers maintain inventory in
nearby location
 Served by Private warehouses or Contract warehouse
3. OPERATING FLEXIBILITY
 Adjust internal policies and procedures basis customer’s
and product needs
 Private warehouse operate under complete control of the
enterprise, they usually have more operational flexibility
 Public warehouse often has standard policies and
procedures, they have less operational flexibility
 Served by Private warehouses
2. INDUSTRY SYNERGIES
 Refers to operating benefits of co-locating (sharing the
locations) with other firms serving the same industry.
 Example; grocery business often receive many benefits
when they share public warehouses facilities with other
suppliers serving the same industries
 Served by Public warehouses or Contract warehouses
4. ECONOMIES OF SCALE
 Refers to reducing material-handling and storage cost
through application of advanced technologies
 Served by Public warehouse or Contract warehouse
since they serve multiple clients and that too in large
quantities
5. LOCATION FLEXIBILITY

 Ability to adjust warehouse location and number in

accordance with seasonal or permanent demand
changes
 Example; agricultural materials like chemicals,
pesticides, etc. may require warehouses to be located
near markets. However, outside the growing season,
these local warehouses are unnecessary
 Served by Public warehouse or Contract warehouse

PUBLIC WAREHOUSE PRIVATE WAREHOUSE CONTRACT WAREHOUSE

PRESENCE SYNERGY - YES YES
INDUSTRY SYNERGY YES - YES
OPERATING FLEXIBILITY - YES -
ECONOMIES OF SCALE YES - YES
LOCATION FLEXIBILITY YES - YES
Question Bank for Module 2 – Chapter 6 – Warehousing

1. What are the functions of warehousing?

2. What are the economic and service benefits of warehousing?

3. What are the ways in which a ware house can be classified and how do you determine the location of the warehouse.