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Chapter 11

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.

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.

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.

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. 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. Explain the rationale for using bar codes to identify packages.

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. 13.6 million square feet in one national distribution center, two regional and six zone distribution centers, and 373 local branches 1.5 million customers, 220k SKUs, $4.5 billion in sales, 60k to 80k daily customer orders

The Nature and Importance of Warehousing

In 1999, $75 billion, or 0.8 percent of GDP was spent on warehousing. The total supply of U.S. warehousing space in 1999 was 6.1 billion square feet, an increase from 1990 of 700 million square feet of space. Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.

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

Table 11-1 Warehouse Value-Adding Roles


Figure 11-1 Transportation Consolidation


Figure 11-2 Supply and Product Mixing


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

Figure 11-3 Basic Warehousing Decisions


The Ownership Decision

Public warehousing costs mostly all variable. Private warehousing costs have a higher fixed cost component. Thus private warehousing virtually requires a high and constant volume.

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

Table 11-2 Firm Characteristics Affecting the Ownership Decision


Public Warehousing

Rationale for Public Warehousing  Limited capital investment  Flexibility Public Warehousing Services  Bonded warehousing  Field warehouses


Public Warehousing

Public warehousing regulation:  Liability  Receipts

Public warehousing rates based upon:  Value  Fragility  Potential damage to other goods  Volume and regularity  Weight density  Services required

Contract Warehousing

Up 23% per year in 2000 to $20.4 billion. Compensation for seasonality in products. Increased geographical coverage. Ability to test new markets. Managerial expertise and dedicated resources. Less strain on the balance sheet. Possible reduction of transportation costs. Other issues discussed in Chapter 11.

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

Table 11-3: Factors Affecting the Number of Warehouses

Factor Substitutability Product Value Purchase Size Special Warehousing Product Line Customer Service Centralized Low High Large Yes Diverse Low Decentralized High Low Small No Limited High

Basic Warehouse Operations

Movement  Receiving  Put-away  Order picking  Shipping Storage  Stock location  Warehouse Management System (WMS)

Figure 11-6 Basic Warehouse Operations


Figure 11-7 The Computerized Warehouse


Warehouse Layout and Design


Develop a demand forecast. Determine each item s order quantity. Convert units into cubic footage requirements. Allow for growth. Allow for adequate aisle space for materials handling equipment.

Warehouse Layout and Design


Provide for the transportation interface. Provide for orderpicking space. Provide storage space. Provide recouping, office, and miscellaneous spaces.

Figure 11-8 Warehouse Space Requirements


Figure 11-9 Principles of Warehouse Layout Design


Warehouse Layout and Design

Basic needs:  Receiving  Basic storage area  Order selection and preparation  Shipping


Warehouse Layout and Design

Layout and Design Principles:  Use one story facilities where possible.  Move goods in a straightline.  Use the most efficient materials handling equipment.  Minimize aisle space.  Use full building height.

Warehouse Layout and Design: Layout and Design Objectives


Cubic capacity utilization Protection Efficiency Mechanization Productivity


Table 11-4: 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

Materials Handling

Definition: Efficient short distance movement in or between buildings and a transportation agency. Four dimensions  Movement  Time  Quantity  Space Coordination

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

Utilization of a Warehouse s Cubic Capacity: Principles of Warehouse Layout Design

Figure 11-12


Guidelines and Principles for Materials Handling

To effectively plan and control materials handling, the logistics manager should recognize some guidelines and principles. Table 11-5 lists 20 of the most commonly accepted principles of effective materials handling. Asterisks mark those deserving special attention.


Table 11-5 Principles of Materials Handling



Interest in packaging is widespread  Logistics  Warehousing  Transportation  Size  Marketing  Production  Legal

The Role of Packaging



Identify product and provide information Improve efficiency in handling and distribution Customer interface Protect product


What Is Packaging?

Consumer packaging  Marketing managers primarily concerned with how the package fits into the marketing mix. Industrial packaging  Logistics managers primarily concerned with efficient shipping characteristics including protection, ability to withstand stacking when on a pallet, cube, weight, shape and other relevant factors.

Packaging Materials

Table 11-6 presents a comparison of various packing material characteristics. Basic considerations include:  Soft materials  Plastic  Environmental issues  Recycling (reverse logistics)


Table 11-6 Comparison of Cushioning Materials


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 11: Summary and Review Questions

Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 11.

End of Chapter 11 and 11A Slides

Warehousing Decisions