An introduction to Warehousing

and the underlying facility design

issues
Pradeep Joshi
 The role of warehousing in
contemporary distribution networks
• Buffer: It holds inventory for downstream stages of the
supply chain, in order to allow the entire production /
distribution network to deal efficiently with the systematic
and random variation in the network operations, or to
exploit significant economies of scale.
– Typical sources/examples of systematic variation
• product seasonalities (e.g., Toys R Us, CVS merchandise)
• cyclical / batched production due to large set-up costs
– Typical sources of random variation
• variations in transportation times due to weather, traffic congestion,
bureaucracy, etc.
• variations in production times due to unreliable operations, unreliable
suppliers
– Typical economies of scale involved
• Price breaks in bulk purchasing
 The role of warehousing in
contemporary distribution networks
(cont.)
• Consolidation center: It accumulates and consolidates
products from various points of manufacture within a
single firm, or several firms, for combined shipment to
common customers.
• Consolidation allows to control the overheads of
transportation operations by:
– allowing the operation of the carriers to their capacity, and
therefore, the more effective amortizing of the fixed transportation
costs
– reducing the number of shipping and receiving operations
• Cross-docking: Consolidation without staging
 The role of consolidation in
contemporary distribution networks
Manufacturers Retailer
s

Manufacturers Consolidato Retailer

r s
 The role of warehousing in
contemporary distribution networks
(cont.)
• Value-Added-Processing (VAP): Increasingly, warehouses
are required to undertake some value-added-processing
tasks like:
– pricing and labeling
– kitting (i.e., repackaging items to form a new item; e.g., “beauty”
products)
– light final assembly (e.g., assembly of a computer unit from its
constituent components, delivered by different suppliers)
– invoicing
• In general, this development is aligned to and suggested by
the idea/policy of postponement of product differentiation,
which allows for customized product configuration, while
maintaining a small number of generic product
components.
 A schematic representation of the
warehouse material flow
Replenishmen Replenishmen
t t
Broken
Case
Reserve Storage Case
Picking
and Picking
Pallet Picking

Accumulation, Sortation &

Direct Packing
Direct
putaway putaway
to to
reserve primary
Receiving Shipping
Cross-docking
 Typical Stock Keeping Units
(borrowed from Bartholdi & Hackman)
Receiving / Shipping Area
Selective Rack-based Storage
Floor stacking-based Storage
Automated Storage / Retrieval Systems
(ASRS)
Flow rack-based picking
 The major warehouse operations
• Inbound processes

– Receiving (~10% of warehouse operating costs): the collection of

activities involved in
• the orderly receipt of all materials coming into the warehouse;
• providing the assurance that the quantity and quality of such materials
are as ordered;
• disbursing materials to storage or to other organizational functions
requiring them.

– Put-away (~15% of warehouse operating costs): the act of placing

merchandise to storage; it includes
• determining and registering the actual storage location(s)
• transportation
• placement
 The major warehouse operations (cont.)
• Outbound processes
– Processing customer orders (typically done by the computerized
warehouse management system of the facility): This set of
activities includes
• checking that the requested material is available to ship;
• if necessary, coordinating order fulfillment with other facilities of the
distribution network;
• producing the “pick” lists to guide the order picking and the
necessary shipping documentation;
• scheduling the order picking and the shipping activity.
– Order-picking (~55% of warehouse operating costs): the set of
physical activities involved in collecting from the storage area the
materials necessary for the fulfillment of the various customer
orders, typically identified as:
• traveling (~55% of the order picking time)
• searching (~15% of the order picking time)
• extracting (~10% of the order picking time)
• documentation and other activities (~20 % of the order picking time)
 The major warehouse operations (cont.)
• Outbound processes (cont.)
– Checking: Checking orders for completeness (and quality of
product)

– Packing: Packaging the merchandise in appropriate shipping

containers, and attaching the necessary documentation / labels.

– Shipping: The activities of

• preparing the shipping documents (packing list, address label, bill of
lading);
• accumulating orders to outbound carrier;
• loading trucks (although, in many instances, this may be the carrier’s
responsibility).

– Others: Handling returns, and performing the additional value-

added-processing supported by contemporary warehouses, as
discussed in a previous slide.
Operational Cost Breakdown

10%
20%
15%

55%
Some facility design problems particular
to Warehousing facilities

• Allocation of a storage medium to various SKU’s

• Design of the forward area: Given a certain storage size,
which SKU’s to include in it and at what quantities?
• Design of a cross-docking facility
 SKU
What Is a Stock Keeping Unit?
A stock-keeping unit (SKU) is a scannable bar code, most often seen printed on product
labels in a retail store. The label allows vendors to automatically track the movement of
inventory. The SKU is composed of an alphanumeric combination of eight-or-so
characters. The characters are a code that the price, product details, and the
manufacturer. SKUs may also be applied to intangible but billable products, such as units
of repair time in an auto body shop

Understanding Stock Keeping Units (SKUs)

SKUs are by stores, catalogs, e-commerce vendors, service providers, warehouses, and
product fulfillment centers to track inventory levels. Scannable SKUs and a POS system
mean that it is easy for managers to determine which products need to be restocked.
When a customer buys an item at the point-of-sale (POS), the SKU is scanned and the
POS system automatically removes the item from the inventory as well as recording other
data such as the sale price.
 SKU
The Importance of Stock Keeping Units
SKUs let shoppers compare characteristics of similar items. For example, when a
shopper buys a specific DVD, online retailers might display similar movies purchased by
other customers based on SKU information. This method may trigger additional
purchases by the customer, thereby increasing a company’s revenue. SKUs also allow
data to be collected on sales. For example, a store can see which items are selling well
and which are not based on the scanned SKUs and the POS data.

Example of SKUs in the Modern World

SKUs are making the shopping experience more efficient than ever before. For example,
when shoe shopping in the past, clerks would have had to visually scour the back
stockroom and hunt for a specific model of shoes in your correct size. Today, many
retailers are equipped with portable scanners enabling salespeople to check back-of-the-
store inventory by simply scanning a floor sample. This is one of the many benefits of the
modern-day SKU system.
SKU Storage Policies and
Location Assignment
 Storage Policies
• Main Issue: Decide how to allocate the various storage
locations of a uniform storage medium to a number of
SKU’s.

I/O
 Types of Storage Policies
• Dedicated storage: Every SKU i gets a number of storage
locations, N_i, exclusively allocated to it. The number of
storage locations allocated to it, N_i, reflects its maximum
storage needs and it must be determined through inventory
activity profiling.
• Randomized storage: Each unit from any SKU can by
stored in any available location
• Class-based storage: SKU’s are grouped into classes. Each
class is assigned a dedicated storage area, but SKU’s
within a class are stored according to randomized storage
logic.
 Location Assignment under
dedicated storage
• Major Criterion driving the decision-making process:
Enhance the throughput of your storage and retrieval
operations by reducing the travel time <=> reducing the
travel distance
• How? By allocating the most “active” units to the most
“convenient” locations...
 “Convenient” Locations
• Locations with the smallest distance d_j to the I/O point!
• In case that the material transfer is performed through a
forklift truck (or a similar type of material handling
equipment), a proper distance metric is the, so-called,
rectilinear or Manhattan metric (or L1 norm):
d_j = |x(j)-x(I/O)| + |y(j)-y(I/O)|
• For an AS/RS type of storage mode, where the S/R unit
can move simultaneously in both axes, with uniform
speed, the most appropriate distance metric is the, so-
called Tchebychev metric (or L∞ norm):

d_j = max (|x(j)-x(I/O)|,|y(j)-y(I/O)|)

 “Active” SKU’s
• SKU’s that cause a lot of traffic!
• In steady state, the appropriate “activity” measure for a
given SKU i:
Average visits per storage location =
(number of units handled per unit of time) /
(number of allocated storage locations) =
TH_i / N_i
 A fast solution algorithm
• Rank all the available storage locations in increasing
distance from the I/O point, d_j.
• Rank all SKU’s in decreasing “turns”, TH_i/N_i.
• Move down the two lists, assigning to the next most highly
ranked SKU i, the next N_i locations.
Design of the fast-pick area
 The “fast-pick” or “forward-pick” or
“primary-pick” area

Primary
Restockin picking
g
Shippin
Receivin
g
g Forward
pick
Area

Reserve
s
picking
Reserve
s
Area
 The major trade-offs behind the
establishment of a “forward pick” area
• A forward pick area increases the pick density by
concentrating a large number of SKU’s within a small
physical space.
• On the other hand, it introduces the activity of restocking.
• Also, in general, a forward pick area concerns the picking
of smaller quantities and involves more sophisticated
equipment than the picking activity taking place in the
reserves area. So, its deployment requires some capital
investment in equipment and (extra) space.
Crossdocking
 The driving idea behind crossdocking
• Crossdocking seeks to eliminate the expensive functions of
inventory holding and order picking from modern
distribution centers by taking advantage of the information
system infrastructure in modern supply chains.
• Hence, at a crossdock, incoming material is already
assigned to a destination, and therefore, the only required
functions are consolidation and shipping.
• In this way, material is staged at the facility for less than
24 hours.
• => Just-In-Time for distribution
 Major requirements for
justifying and effectively deploying
a crossdock operation
• Significant and steady product flow
• easy to handle material / unit-loads
• Good and reliable information flow across the entire
supply chain
– pre-distribution crossdocking: the customer is assigned
before the shipment leaves the vendor, so it arrives to
the crossdock bagged and tagged for transfer.
– post-distribution crossdocking: the crossdock itself
allocates material to its stores.
 Examples
• Home Depot operates a pre-distribution crossdock in
Philadelphia serving more than 100 stores in the Northeast
area.
• Wal-Mart uses
– traditional warehousing for staple stock - i.e., items that customers
are expected to find in the same place in every Wal-Mart (e.g.,
toothpaste, shampoo, etc.)
– crossdocking for direct ship - i.e., items that Wal-Mart buyers have
gotten a great deal on and are pushing out to the stores
• Costco uses pallet-based post-distribution crossdocking
• Computer firms like Dell consolidate the major computer
components in “merge in transit” centers.
• JIT manufacturers consolidate inbound supplies in a
nearby warehouse
• Package carriers (UPS, FedEx) crossdock to consolidate
freight
 Crossdock Operations

Strip doors: doors where full trailers are parked and

unloaded.
Any incoming trailer can be unloaded to any strip door.
Stack doors: doors where empty trailers are put to collect freight for
specific destinations. Each stack door is permanently assigned to a
distinct
Typical material handling modes:
destination.
• manual carts for smaller items
• pallet jacks and forklifts for pallet loads
• cart draglines (reduce walking time but impede forklift
A cart dragline example
 Optimizing the crossdock performance
• The major operational cost for crossdock is the labor cost.
• Hence, the system performance is optimized by seeking to
maximize the throughput of the crossdock operations by
establishing an efficient freight flow.
• Factors affecting the freight flow:
– Long term decisions:
• Number of doors and shape of the building
• Employed material handling systems
• parking facilities
– Medium term decisions:
• Crossdock layout, i.e., the characterization of the various doors as
strip or stack doors, and the assignment of specific destinations to the
stack doors
– Short term decisions
• Inbound Trailer Scheduling
 The number of doors and
the parking lot size
• Number of stack doors: determined by the volume of
freight moved to each customer, and any potential delivery
schedules
• Number of strip doors: since trailer unloading is a faster
job than trailer loading, a common rule of thumb is to have
twice as many stack doors as strip doors, so that you
balance the incoming with the outgoing flow.
• In general the larger the number of doors in the crossdock,
the larger the distances that must be traveled.
• The parking lot should provide parking space for two
trailers per door, so any flow surges can be accommodated
without considerable problems.
 The shape of the crossdock building
• Corners are bad! Specifically:
• Internal corners take away door locations (about 8 doors per corner)
• External corners take away storage space in front of the door (w/2 doors’ worth of
floor space)
• On the other hand, a building shape that minimizes its corners increases
• the travel distances
• the traffic congestion in front of the most centrally located (and therefore,
the best) doors
• Some characterizations of the crossdock building shapes:
• diameter: max door-to-door distance
• centrality: the rate of growth of the diameter for a symmetric
expansion of the building by one door at each “end” of it.
• Suggested building shapes:
• I for small crossdocks (up to 150 doors)
• T for medium size crossdocks (between 150-250 doors)
• H for the largest crossdocks (above 250 doors)
• Frequently, the building shape is determined by other constraints, e.g.,
• available land, an existing building, etc.
 Crossdock layout
• In general, centrally located doors should be reserved for the
uloading activity and for destination with large outgoing flows.
• On the other hand, if the freight on each inbound trailer is
destined to a small and stable set of customers, then the facility
can be decongested by establishing distinct hubs serving clusters
of destinations that tend to have their freight on the same
incoming trailers.
• Two extensively used heuristics are:
– the block heuristic: Assign first the unloading activity to the best doors
(i.e. the doors having the smallest average distances to all other doors).
Subsequently, assign the remaining doors to outbound destinations,
prioritizing them in decreasing order of their flow intensities
– the alternating heuristic: The door assignment alternates between a strip
door and a stack door to the destination with the next highest flow
– => The alternating heuristic produces solutions that are typically 10%
better than the solutions produced by the block heuristic.
Warehousing functions,
Types of warehouses
Warehouse site selection,
Layout design,
Warehouse Decision model.
Warehouse automation, strategies,performance, costing.
Distribution, Role, Importance, Levels, Channels, Structure, Functions.
Channel partners, functions, Tasks, Flows,Strategy.
Free trade zones and special economic zones.
Factors Influencing Distribution
• Response Time
• Product Variety
• Product Availability
• Customer Experience
• Time to Market
• Order Visibility
• Returnability
 Definitions
• Amount of time it takes for a customer to receive the
order
• Number of different products offered by distributor
• Probability that product is available when customer
order arrives
• Ease with which customer can place order and
receive the product
• Time it takes to bring new product to market
• Ability of customer to track his order from placement
to delivery
• Ease with which customer can return unsatisfactory
product
 Impact on Cost
• Inventories
• Transportation
• Facilities and Handling
• Information
 Distribution Options
• Manufacturer storage with direct shipping
• Mfg Storage + direct shipping + in-transit merge
• Distributor storage with package carrier delivery
• Distributor storage with last-mile delivery
• Mfg/Distributor storage with customer pick-up
• Retail storage with customer pick-up
 Distribution Factors and Impact
• Ownership of distribution channel - Manufctrer vs Dealer
• Choice of channel -long term impact - Example -
Automobiles, Computers thru dealer
• Exclusive Distribution Vs. Non-exclusive
• Product price, commoditization, criticality - example
laptop vs pen
• Integrate with internet with existing physical network-
example - supermarkets
 E-Business and Distribution
• Customer Service
• Response Time to Customer
• Product Variety
• Product Availability
• Customer Experience
• Time to market - faster
• Order visibility - higher
• Returnability - harder
• Direct Sales to Customer
• Flexible Pricing, Product Portfolio, Promotion
• Efficient Funds Transfer
E-business Impact on Distribution Cost

• Inventory cost - higher/ lower

• Facility cost - higher/ lower
• Transportation cost -lower
• Information Cost - higher

Let us discuss at 2 examples - computer sales by

Dell and Books sales by Amazon
Special Economic Zones in India
• SEEPZ
• Kandla
• Cochin
• Madras
• Visakhapatnam
• Falta
• Noida
 • Asia's first EPZ set up in Kandla in 1965
• Special Economic Zones (SEZs) Policy was
announced in April 2000.
• The Special Economic Zones Act, 2005, was passed
by Parliament in May, 2005
• came into effect on 10th February, 2006
The main objectives of the SEZ Act are:
● generation of additional economic activity
● promotion of exports of goods and services
● promotion of investment from domestic and foreign
sources
● creation of employment opportunities
● development of infrastructure facilities
The SEZ Rules provide for:

● Simplified procedures for development, operation, and

maintenance of the Special Economic Zones and for setting
up units and conducting business in SEZs;
● Single window clearance for setting up of an SEZ;
● Single window clearance for setting up a unit in a Special
Economic Zone;
● Single Window clearance on matters relating to Central as
well as State Governments;
● Simplified compliance procedures and documentation with
an emphasis on self certification
 Free Trade Zone
A free-trade zone (FTZ) is a class of special economic zone.
It is a geographic area where goods may be landed, stored,
handled, manufactured, or reconfigured and re-exported
under specific customs regulation and generally not subject to
customs duty. Free Trade zones are generally organized
around major sea ports, international airports and national
frontiers—areas with many geographic advantages for trade.
Free trade warehousing zones are a category of special
economic zones set up to improve logistics infrastructure and
facilitate and promote cross-border and international trade.
 Arshiya
Arshiya currently operates two FTWZs — Panvel near
Mumbai spread over 165acre, catering to western India;
and Khurja near Delhi spread over 135acre, catering to
north India.
two operating FTWZs, a pan India rail operations license
with a fleet of 18 rakes and 3500 containers, and an
inland container depot (ICD). Arshiya is the only private
ICD with rail sidings of its own which guarantees quick
and efficient transportation of freight.
Arshiya’s free trading warehouse zones are deemed foreign territories
which help companies efficiently manage their supply chain,
ensure faster turnaround by reducing custom-related formalities and
increase operational efficiencies.
Panvel FTWZ (Mumbai): Located at Sai village in Panvel on the
outskirts of Mumbai, the free trade warehousing zone is located 24km
from Jawaharlal Nehru Port Trust, Spread over 165acre, the Mumbai
FTWZ provides easy access to western freight corridors.
Khurja FTWZ (near Delhi): Located about 80km from India’s capital,
Khurja FTWZ is strategically located close to the eastern and western
dedicated freight corridor (DFC). The free trade warehousing zone is a
part of the 315 acre mega logistics hub which also includes a 50 acre rail
siding and 130 acre distribution hub and 60acre ICD set up by the
company.