IBS3002 Logistics & International Trade

Chapter 5
Warehousing management

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Contemporary logistics, Murphy (2015) & International logistics, Pierre David (2011)
Topic areas

 Warehousing
 Warehousing functions
 Location decisions
 Types of warehousing
 Warehouse activities
 Warehouse layout options
 Operational issues in warehousing
 Warehouse as a marketing tool

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Warehousing

 Warehousing refers to that part of a firm’s logistics system that stores products (raw
materials, parts, goods-in-process, finished goods) at and between points of origin and point
of consumption

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Warehousing

 Trade-off between warehousing and transportation

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Warehousing functions

 Warehousing has three functions:

• Inventory holding
• Absorb differences in seasonal sales or input availability
• Prevent disruptions in supply chain
• Support marketing activities
• Shipment consolidation
Goods manufactured in different locations can be shipped to a single customer
from a warehouse
• Additional services
After-sale services, warranty, repairs, labeling, re-packaging, for example. 5
Warehousing functions

 Warehousing facilitates the regrouping function in a supply chain

+ Regrouping function: rearranging the quantities and assortment of products as they move
through the supply chain
+ There are 4 forms of regrouping function:
- Associated with quantity of products – Accumulating & Allocating
- Associated with product assortment – Assorting & sorting out

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Warehousing functions

 Accumulating (as referred to as bulk making): bringing together similar stocks from
different sources
 Allocating (as referred to as bulk breaking): breaking larger quantities into smaller
quantities
 Assorting: building up a variety of different products for resale to particular customers
 Sorting out: separating products into grades and qualities desired by different target market

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Location decisions

A warehouse location decision is based on an analysis conducted at three separate levels:

•A national or regional level
•A municipal level
•A parcel or building level

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Location decisions

 Location decision – National level

To determine which country or region of the world, companies consider:
• Infrastructure of the country (access to means of transportation, utilities, business
services)
• Environment of the country (labor-force availability and training, costs, currency
strength, overall political support of foreign investments)
• Culture of the country (management style compatibility with culture)

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Location decisions

 Location decision – Municipal level

To determine the city or general area, a company considers:
• The local infrastructure (access to highways, railroad, ports, airports, utilities, freshwater,
sewer)
• The environment (local labor pool availability and training, quality of local schools,
affordability of housing for employees, existence of a network of public transportation)
• The local political environment (local authorities’ support for foreign investment,
taxation, operating costs)

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Location decisions

 Location decision – Parcel level

To determine the actual parcel or building to consider for a warehouse, a company considers:
• Operating costs (costs of acquiring land or building, construction costs, taxation, road
access)
• Employee support (public transportation, proximity of child-care facilities, proximity to
housing)
• Facility quality (building fundamentals, utilities, drainage, room for expansion, parking
spaces)

-> Companies have to consider many factors in a location decision.

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Location decisions

A warehouse location with access to water, rail, and road

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transportation in Turkey.
Types of warehousing

 Based on function:
+ Warehouse
+ Distribution centers
+ Cross-docking
 Based on ownership
+ Owning warehousing space – private warehousing
+ Renting warehousing space – public, contract, multiclient warehousing

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Types of warehousing

 Warehouse: emphasize the storage of products, and their primary purpose is to maximize the
usage of available storage space
 Distribution centers: emphasize the rapid movement of products through a facility, and thus
they attempt to maximize throughput (the amount of product entering and leaving a facility
in a given time period)
 Cross-docking: the process of receiving product and shipping it out the same day or
overnight (less than 24 hours) without putting it into storage

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Types of warehousing

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Types of warehousing

 Public warehousing: rents space to any company seeking it, and the warehouse operates
using its own employees and systems. For the user, a public warehouse is a variable cost.
 A contract warehouse is owned by the company using the space, but managed by another
company that uses its own employees and systems to manage it.
 A private warehouse is owned and operated by the company using it, and it employs its own
personnel and uses its own systems.
 Multiclient warehousing: mixes attributes of contract warehousing and public warehousing

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Warehouse activities

 Warehouse activities can be divided into five broad categories:

• Receiving
• Storage
• Picking
• Packaging and Shipping
• Other Operations

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Warehouse activities

 Warehouse receiving:
 Chronologically, the first activity in a warehouse.
 The supplier should be informed of:
• The correct pallet size so that goods do not need to be transferred from one pallet to
another
• The markings and other labeling requirements of the warehouse
• The time at which goods can arrive
 Warehouse personnel then inspect goods on arrival, and check quantities against the
purchase order, before placing the goods in storage.

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Warehouse activities

 Warehouse storage:
 Storage is the most significant aspect of a warehouse. Goods can be placed:
• On the floor of the warehouse, in small stacks
• On low racks
• On high racks
• On rolling racks
• On vertical racks
 Several less common options can also be used.

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Warehouse activities

Some goods should not be stacked.

Pallets placed directly on the floor of a warehouse and stacked. Some are, though, by simple
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negligence.
Warehouse activities

A warehouse with low-height wide-aisle

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storage racks.
Warehouse activities

A warehouse with high-bay narrow-aisle

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storage racks.
Warehouse activities

A very-high-bay warehouse under

construction. 23
Warehouse activities

A high-density movable rack system in a

library. 24
Warehouse activities

A rolling-rack system for small parts.

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Warehouse activities

A warehouse with a automated storage and

retrieval system (ASRS). 26
Warehouse activities

Vertical carousel storage alternatives

for small parts.
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Warehouse activities

 Warehouse picking strategies:

 Warehouse picking involves retrieving the items that a customer purchased from the
shelves.
 There are two main strategies:
1. A goods-to-picker strategy has an automated system bring the goods to the picker for
retrieval.
2. A picker-to-goods strategy has the picker sent to the goods’ location to retrieve them.

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Warehouse activities

Kiva robots bring pods to the picker, in an automated goods-to-picker

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Amazon warehouse.
Warehouse activities

A horizontal carrousel brings the goods to the picker. 30

Warehouse activities

A picker retrieving goods from storage in a

picker-to-goods warehouse. 31
Warehouse activities

 Warehouse picking strategies:

Warehouse picking methods:
In a picker-to-goods strategy, there can be several alternative methods:
• “Pick by order” where the picker picks one order at a time, not unlike what a shopper does
in a supermarket
• “Cluster picking” where the picker picks multiple orders at a time, filling several carts or
totes for different orders
• “Batch picking” where the picker picks multiple orders at a time but commingles them in
one cart, to be sorted later
• “Zone picking” where the picker is responsible for picking goods from an area of the
warehouse for all orders; the items are then separated by order later on 32
Warehouse activities

 Warehouse picking strategies:

Warehouse picking techniques:
In a picker-to-goods strategy, a warehouse can use several techniques:
• The “paper list” technique is simply a printed list given to the picker
• The “label picking” technique is a paper list where each label corresponds to an item,
decreasing the probability that the picker will forget an item
• The “barcode picking” technique uses an electronic display on which the picker sees the
next item to be selected, which the picker confirms by scanning the barcode of the item.

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Warehouse activities

 Warehouse picking strategies:

Warehouse picking techniques:
• The “voice picking” technique utilizes a headset and an artificial voice to tell the picker
what item needs to be selected. The picker confirms the item either with a barcode scanner
or by repeating the item into a microphone. The computer records the selection with voice-
recognition technology.
• The “light picking” technique uses a light display to tell the picker which item to select and
in which quantity.

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Warehouse activities

A picker retrieving multiple orders using a paper list in a cluster-picking

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warehouse (several orders picked at once).
Warehouse activities

Label picking at Lands End: the top label

identifies the item that the customer
ordered, and the picker placed it there. The
bottom label is the identification of the
item, placed by the manufacturer.

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Warehouse activities

Barcode picking: the forklift operator reads the display that instructs
him of the next pick, which he confirms with the barcode scanner on
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the right.
Warehouse activities

Voice picking: the headset tells the picker the item and the quantity, and
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the picker confirms his selection by voice.
Warehouse activities

Light picking: the display tells the picker the location of the
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pick and the quantity needed.
Warehouse activities

 Warehouse packaging and shipping:

• Chronologically, the last warehouse operation.
• The packer selects the correct packaging, its size, and the packing materials so that the
goods arrive at their destination without damage.
• The shipping department determines the correct carrier for the goods, ensuring they are sent
to their destination according to the preferences of the customer (lowest cost or lowest
transit time).

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Warehouse activities

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Packaging the goods before shipment.
Warehouse activities

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The shipping area where packages are staged before being loaded.
Warehouse activities

 Warehouse other operations:

Warehouses frequently perform other operations:
• Warranty claims processing
• Returns
• Kitting (creating a kit with parts from several vendors)
• Light assembly
• Value-added services, such as repackaging or adding instruction booklets in retail packages

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Warehouse activities

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Some light assembly or kitting being performed in a warehouse.
Warehouse layout options

Warehouses include two different areas:

1.Fixed areas, such as receiving, packaging and shipping, and ancillary services, which are
sized to accommodate the anticipated business volume
2.Storage areas that are designed in function of the mix of products that the warehouse handles
(their size or value) and in the types of orders that it processes (small packages or full pallets).

Warehouse managers organize their storage areas according to variations of the A-B-C rule.

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Warehouse layout options

 The A-B-C rule distinguishes between three types of products:

• The A class is made up of 20 percent of items, but they represent 80 percent of
costs
• The B class is made up of 30 percent of items, representing 15 percent of costs
• The C class is made up of 50 percent of items, representing only 5 percent of costs
Warehouse managers re-interpret this rule to apply to volume of goods, to value, to order size,
and other measures that allow them to organize their storage area most efficiently.

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Warehousing operations

 Warehousing productivity analysis

• Warehousing productivity metrics: shipped per person, product lines shipped per person,
pallets shipped per person, average warehouse capacity used, forklift capacity used…
• Warehousing productivity metrics can be utilized to:
+ Provide comparisons within an organization through time
+ Benchmarking purpose
+ Identify problems & develop methods to reduce or eliminate the inefficiencies

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Warehousing operations

 Safety considerations
• Warehousing safety can be influenced by governmental regulations
• Safety standards have been set for warehousing equipment and operations, frequently
inspected by authorized institutions (i.e. trained, certificate)
• Warehousing safety considerations include: employee, property and motor vehicles

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Warehousing operations

 Hazardous materials
• Hazardous materials: is any item or agent which has the potential to cause harm to humans,
animals or the environment, either by itself or through interaction with other factors
• Shipping documents are required to indicate the hazardous nature of materials being
transported (noted warnings on shipping documents when leaving warehouse)

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Warehousing operations

 Warehousing security
The two primary security concerns in a warehouse are theft and physical damage to the goods
during handling:
• Theft can be prevented by screening all employees and visitors and by implementing
processes that reinforce security; one employee unloads a truck, another counts the goods.
• Physical damage to the goods can be reduced with good maintenance practices (cleanliness,
lights, equipment upkeep) and with proper training of employees.

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Warehousing operations

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Warehousing operations

 Cleanliness and sanitation issues

• These issues play an important role in many industries, i.e. foodservice industry
• Clean and sanitary warehousing facilities can have a positive impact on employee safety,
morale and productivity while also reducing employee turnover
• Warehouse cleanliness and sanitation are predicted on common sense and diligence

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Warehouse as a Marketing tool

 Warehouses reduce lead times and allow a company to provide faster delivery to its
customers
 Warehouses can provide value-added services to customers.
 Warehouses are an integral part of the international supply chain.

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