BASIC CONCEPT OF

WAREHOUSE MANAGEMENT
M O D U L E 1 – p a r t 2
I N T E R N AT I O N A L C O M M E R E C I A L L O G I S T I C S
B Y A N A M E L I S S A M O N T E N E G R O
 CONTENT
BASIC CONCEPT OF
WAREHOUSEMANAGEMENT

1. Warehousing’s role in the supply chain. (Chapter 1 “The

definitive guide to warehousing)

2. Modern warehouse concept (Chapter 1 “Almacenes”)

3. Types of warehouse (Chapter 3 “Almacenamiento de materiales”)

4. General warehousing and distribution center strategies

5. Warehouse capacity structure. (Chapter 4 “Almacenes”)

Add a Footer 2
 GE N E RAL
WA REH OUS I N G AN D
D I ST RIBUT ION
ST RAT EGIES
I n t r o d u c ti o n
• This chapter discusses the quantitative and
qualitative distinguishing traits of public,
contract and private warehouses.
• Also cost comparison example to convey the
concept of the cost point of indifference.
• A warehouse may function as a general
public warehouse for multiple clients while
also operating as a contract warehouse for
an individual client requiring more
specialized product handling, value-adding
processes, and dedicated.

Add a Footer 3
 PUBLIC WAREHOUSING

U ti l i t y
Storage area
• Offer storage and general handling services for a variety of clients and products.

• The capability for a public warehouse to shift available space, equipment, and
personnel allows the provider to offer lower cost for servicing all clients.

When to consider
• May be used to service products with demand patterns that are predictable
and to be contrary: unpredictable, unknown, minimal, or declining in demand.

4
 PUBLIC WAREHOUSING

C o n s i d e r a ti o n s
Storage area

• Long-term or short term storage

• Increasing, decreasing or fluctuating product demand.

• Positioning low-volume inventory widely geographically.

• Value-added services

• Client possessing little to no warehouse operating skill.

• Client waiting to minimize capital investment and risk

• Client wanting to minimize personnel cost and management

5
 CONTRACT WAREHOUSING

U ti l i t y
Storage area

• Agreements are long term due to the specific nature of the services performed
and the investment in space, equipment, and employee training to provide the
specific needs – all of which are solely dedicated to servicing the client.

When to consider

• The level of throughput is steady and potentially increasing.

• The fixed costs required to set up for the client’s needs would reduce per unit as
throughput increased.

6
 CONTRACT WAREHOUSING

C o n s i d e r a ti o n s
Storage area

• Value-added service or special handling needed

• Significant and steady product throughput

• Postponement strategies

• Positioning inventory for single or multiple markets

• Client possessing little to no warehouse operation skills

• Client waiting to minimize capital investment and risk

• Client wanting to minimize personnel cost and management

7
 PRIVATE WAREHOUSING

U ti l i t y
Storage area

• Private warehousing strategies are necessary when manufacturers

believe that service and cost to distribute can be accomplished in-
house better than outsourcing the responsibilities to 3PL warehouse.

When to consider

• Private warehouse must have strengths in managing people and process

effectively and efficiently to keep service high and cost-to-serve low.

8
 PRIVATE WAREHOUSING

C o n s i d e r a ti o n s
Storage area

• High service quality needed

• Significant and steady product throughput

• User possesses strong warehouse operating skills

• User service and quality more than offset capital investment and risk.

• User possesses strong skills to hire, train, and effectively manage personnel and associated costs.

• Special handling and value-added services needed.

• Postponement strategies

• Positioning inventory for single or multiple markets

9
 TITLE
Cost points of
Practical cost differences
indifference

• Public warehousing provides minimal • User can estimate the fixed and
commitment to long-term storage variable cost associated with each
cost including those associated with alternative.
the building, labor, equipment,
Warehouse FC + VC(U) = FC + VC(U) Point of
administration, and others. comparissons indifference
Public = Contract $4(U) = $30,000 + $2,5(U) 20,000 units
• Private warehouse operation would
Contract = $30,000 + $2,5(U)= 56,000 units
bear all the fixed and variable cost Private $100,000 + $1,25(U)

associated with procuring the facility

and equipment prior to any activity
moving through the facility.

Add a Footer 10
 EXAMPLE - FC + VC(U) = FC +VC(U)
• Public=contract Replace the units and use the cheaper
0,22 (U) = $520,000 + 0,16 (U)
0,22 * 6,000,000 = 520,000 + 0,16*6,000,000
U= 8,666,6666
1,320,000 = 1,480,000
• Contract=Private
$520,000 + 0,16 (U) = 1,400,000 + 0,09 (U)
U= 12,571,428
• Public=private
$0,22 (U) = 1,400,000 +0,09 (U)
U= 10,769,230

• PUBLIC: VC USD 0,22

• CONTRACT: FC USD 520,000 - VC USD 0,16
• PRIVATE: FC USD 1,400,000 – VC USD 0,09
• NEED TO LOCATE: 6,000,000

Add a Footer 11
 SWEET DEAL
COST OF BAD SERVICE COST UNITS Important information:
4 months of operation
Returns $100 200 20,000 Units: 1,833,333 for new rate calculation
Destroyed cases $150 298 44,700 - Public
VC: 0,19
Damaged cases $95 175 16,625
- Private
Back Order $65 220 14,300
FC : 1,500,800
Late delivery $100 190 19,000 VC: 385,000 for total 5,500,000 unit

- Contract
FC: 430,000
Total cost of bad service : $114,625
VC: 814,900
Total variable cost for 4 months: 0,19 * 1,833,333 = $348,333
New rate: 114,625 + 348,333 = $462,958/1,833,333 = USD
0,25

12
 TITLE

CASE STUDY
SWEET DEAL DISTRIBUTION, INC. (SDD) – WAREHOUSE
SELECTION AND DISTRIBUTION QUALITY CASE
TO BE DELIVERY

Add a Footer 13
 CONTENT
BASIC CONCEPT OF
WAREHOUSEMANAGEMENT

1. Warehousing’s role in the supply chain. (Chapter 1 “The

definitive guide to warehousing)

2. Modern warehouse concept (Chapter 1 “Almacenes”)

3. Types of warehouse (Chapter 3 “Almacenamiento de

materiales”)

4. General warehousing and distribution center strategies

5. Warehouse capacity structure. (Chapter 4 “Almacenes”)

Add a Footer 14
 MAINTENACE
AND STORAGE
WAREHOUSE TECHNIQUES
CAPACITY AND
STRUCTURE
CHAPTER 4 – Estructura y
capacidad de almacenaje
“A l m ac e n e s a n ál i s i s , Storage
diseño y organización”
A u to r : Ju l io An aya Te j e i ro capacity
concept

Add a Footer 15
 STORAGE CAPACITY CONCEPT

Storage capacity = is the maximum number of “containment units”

(storage spaces) that could be inside the warehouse facility.

Each business sector have different units of measurement depending

on the stored merchandise. EX: For Iron storage they will use tons,
other sectors will use sq. meters or pallets.

The warehouse capacity will depend of:

The area destined for the products storage
Hallways width
Stacking levels
Pallets measures
Pallets per space (rack/shelves)

Add a Footer 16
 STORAGE CAPACITY CONCEPT
Capacity will be affected by the technology used in the warehouse.

You can not compare warehouses that used different technologies

of organization inside the same sector.

To calculate available capacity, it will be necessary to fill the

following forms:
• Area for pallets racks

1 2 3 4 5 6
Linear Base Location Pallets per Available Meters
Capacity spaces levels space Capacity occupied
6 20 4 2 960 800

Add a Footer 17
 STORAGE CAPACITY CONCEPT
• Area for racks without pallets
Zone B: Loose cargo with no pallets
Employed technology: Manual pallet jacks– 3,5 meters of
hallways

1 2 3 4 5 6
Linear Base Location Pallets per Available Meters
Capacity spaces levels space Capacity occupied
4 20 2 3 480 535

•
Area for block storage
Zone C: Block palletizing storage 1 x 1,2 mts
1 2 3 4 5 6
Linear Base Location Available Meters
Capacity spaces levels Capacity occupied
2 20 3 120 120

Add a Footer 18
 STORAGE CAPACITY CONCEPT

Warehouse/Storage
capacity

Nominal/available Average used

capacity capacity
 STORAGE CAPACITY CONCEPT
Nominal Nominal/available
capacity
It is the maximum number of pallets or Tons that
could be stored inside the warehouse, with defined
technological characteristics. Its calculation comes
Concept SQM Pallets SQM/
from the information of the previous forms. Pallet
Area of palletized products 800 960 0,83
The relation between square meters/pallets is
Area of non palletized 635 480 1,11
called “Occupational ratio”, and is used to know products
the sqm occupied per pallet. Area for block storage 260 120 2,17
TOTAL 1.695 1.560 1,09
The occupation ratio (OR) is lower when you have
compacted storage and use major height.

Add a Footer 20
 STORAGE CAPACITY CONCEPT
Average used
Average used
• It is the average of pallets or tons storage for a year.
capacity
• To get this number we based on Average Stock and
convert to pallets or tons.

• Supposing and Av. Used cap of 1.027 pallets. The Index

will be 66%, we are not using 34% of our stored capacity.
Occupational INDEX = (Av. Used
• Before to talk about under-used, we should focus on our cap/Nominal Cap) x 100
stock flows (see the next chart)

• It is healthy that a warehouse could have an under-used

level between 10% and 15% to absorb special situations.

Add a Footer 21
 STORAGE CAPACITY CONCEPT

Volume Volume
UNDER-USED NON UNDER-USED
EXAMPLE Nominal EXAMPLE Nominal
cap. cap.
Under-
used Stocks
Average flow Average
Stocks
stock stock
flow
Stocks Stocks
STORAGE CAPACITY CONCEPT
EXERCISE 1
1 2 3 4 5 6
HELLO company’s warehouse just have Linear Base Location Pallets/product Available Meters
Capacity spaces levels s per space Capacity occupied
two areas of storage, area for palletized 8 20 6 2 1000
product and area for block storage.
Taking into account the following 1 2 3 4 5 6

Linear Base Location Available Meters

information please calculate the Capacity spaces levels Capacity occupied
available capacity of HELLO company. 2 15 3 100

Add a Footer 23
STORAGE CAPACITY CONCEPT
Concept SQM Pallets SQM/
EXERCISE 1 Pallet
Area of palletized products
With the information of the previous analysis
Area of non palletized n/a n/a n/a
please calculate the nominal capacity for products
HELLO warehouse. Area for block storage
TOTAL
Once you get this information, calculate the
occupational INDEX. Please take into account
the following details:
Occupational INDEX = (Av. Used
- Average stock = 22500 cap/Nominal Cap) x 100
- Products per pallet = 22

Add a Footer 24
STORAGE CAPACITY CONCEPT
EXERCISE 1 (Answer)

HELLO company’s warehouse just have 1 2 3 4 5 6

two areas of storage, area for palletized Linear Base Location Pallets/product Available Meters
Capacity spaces levels s per space Capacity occupied
product and area for block storage. 8 20 6 2 1920 1200

Taking into account the following

1 2 3 4 5 6
information please calculate the
Linear Base Location Available Meters
available capacity of HELLO company. Capacity spaces levels Capacity occupied
2 15 3 90 100

Add a Footer 25
STORAGE CAPACITY CONCEPT Concept SQM Pallets SQM/
Pallet
EXERCISE 1 (Answer) Area of palletized products 1200 1920 0,62
Area of non palletized n/a n/a n/a
With the information of the previous analysis products
please calculate the nominal capacity for Area for block storage 100 90 1,1
HELLO warehouse. TOTAL 1300 2010 1,72

Once you get this information, calculate the

occupational INDEX. Please take into account
Occupational INDEX = (Av. Used
the following details: cap/Nominal Cap) x 100

- Average stock = 29500

Occupational INDEX = (1341/2010) x
- Products per pallet = 22 100 = 67%

Average stock/Products per pallet = 1341 pallets

Add a Footer 26
STORAGE CAPACITY CONCEPT
EXERCISE 2

DIANA company’s warehouse just have 1 2 3 4 5 6

two areas of storage, area for palletized Linear Base Location Pallets/product Available Meters
Capacity spaces levels s per space Capacity occupied
product and area for block storage. 7 15 5 2 1050 920

Taking into account the following

1 2 3 4 5 6
information please calculate the
Linear Base Location Available Meters
available capacity of DIANA company. Capacity spaces levels Capacity occupied
2 20 2 80 85

Add a Footer 27
STORAGE CAPACITY CONCEPT
Concept SQM Pallets SQM/
EXERCISE 2 Pallet
Area of palletized products 920 1050 0,87
With the information of the previous analysis
Area of non palletized n/a n/a n/a
please calculate the nominal capacity for products
DIANA warehouse. Area for block storage 85 80 1,06
TOTAL 1130
Once you get this information, calculate the
occupational INDEX. Please take into account
the following details:
Occupational INDEX = (Av. Used
- Average stock = 22500 cap/Nominal Cap) x 100
99,5%
- Products per pallet = 20

AV USED CAP = 1,125 pallets

Add a Footer 28