1 Warehousing ManagementCHAPTER 10 Warehousing Management Copyright © 2015 Pearson Education, Inc.

2 Copyright © 2015 Pearson Education, Inc.Learning Objectives To discuss the role of warehousing in a logistics system To learn about public, private, contract and multiclient warehousing Copyright © 2015 Pearson Education, Inc.

3 Copyright © 2015 Pearson Education, Inc.Learning Objectives To analyze select considerations when designing warehousing facilities To examine some prominent operational issues in warehousing Copyright © 2015 Pearson Education, Inc.

4 Warehousing Management Key TermsAccumulating (bulk making) Allocating (bulk breaking) Assorting Contract (third-party) warehousing Cross-docking Distribution center Dunnage Fixed slot location Hazardous materials Multiclient warehousing Copyright © 2015 Pearson Education, Inc.

5 Warehousing Management Key TermsSorting out Throughput Variable slot location Warehouse Warehouse automation Warehousing Occupational Safety and Health Administration (OSHA) Private warehousing Public warehousing Regrouping function Copyright © 2015 Pearson Education, Inc.

6 The Role of Warehousing in a Logistics Systemrefers to “that part of the firm’s logistics system that stores products (raw materials, part, good-in-process, finished goods) at an between points of origin and point of consumption.” Source: Douglas M. Lambert, James R. Stock, and Lisa M. Ellram, Fundamentals of Logistics Management (New York: Irwin McGraw-Hill, 1998), Chapter 8. Copyright © 2015 Pearson Education, Inc.

7 Warehousing ManagementWarehousing and transportation are substitutes for each other, with warehousing having been referred to as “transportation at zero miles per hour.” Copyright © 2015 Pearson Education, Inc.

8 The Role of Warehousing in a Logistics SystemCopyright © 2015 Pearson Education, Inc.

9 The Role of Warehousing in a Logistics SystemKey reason for warehousing because patterns of production and consumption do not coincide Warehousing serves to match different rates or volumes of flow when patterns of production and consumption do not coincide Copyright © 2015 Pearson Education, Inc.

10 The Role of Warehousing in a Logistics SystemWarehousing facilitates the regrouping function in a supply chain Involves rearranging the quantities and assortment of products as they move through the supply chain Copyright © 2015 Pearson Education, Inc.

11 The Role of Warehousing in a Logistics SystemWarehousing facilitates the regrouping function in a supply chain – can take place in four forms Accumulating (bulk making) involves bringing together similar stocks from different sources Allocating (bulk breaking) involves breaking larger quantities into smaller quantities Assorting refers to building up a variety of different products for resale to particular customers Sorting out “separating products into grades and qualities desired by different target markets”1 1William D. Perreault, Jr., Joseph P. Cannon, and E. Jerome McCarthy, Basic Marketing, 16th ed. (New York: McGraw-Hill Irwin, 2008), Chapter 11. Copyright © 2015 Pearson Education, Inc.

12 The Role of Warehousing in a Logistics SystemWarehousing can be provided by Warehouses Emphasize the storage of products Primary purpose is to maximize the usage of available storage space Distribution centers Emphasize rapid movement of products through the facility Attempt to maximize throughput Throughput is defined as the amount of product entering and leaving a facility in a given time period Copyright © 2015 Pearson Education, Inc.

13 The Role of Warehousing in a Logistics SystemWarehousing can be provided by Cross-docking facilities Has grown due to the increased emphasis on time reduction in supply chains Defined as “the process of receiving product and shipping it out the same day or overnight without putting it into storage”1 Key benefits include improved service by allowing products to reach their destinations more quickly as well as reduced inventory carrying costs from less stock because of faster product delivery2 1No author, “2008 Cross-Docking Trends Report,” Saddle Creek Corporation, 2008. 2Mike DelBoro, “Cross-Docking Rediscovered,” Material Handling & Logistics, May 2011, 34–37. Copyright © 2015 Pearson Education, Inc.

14 The Role of Warehousing in a Logistics SystemWarehousing can be provided by Cross-docking facilities Is differentiated from distribution centers by the length of time a product is in a facility (24 hours or less for cross-docking facility) Design of the facility is an important consideration to facilitate quick movement of product Should be designed with a minimal amount of storage space and truck doors on two or more sides1 Some designs include “H”, “I”, “T”, “U” and “E” configurations 1DelBoro, “Cross-Docking Rediscovered.” Copyright © 2015 Pearson Education, Inc.

15 The Role of Warehousing in a Logistics SystemCopyright © 2015 Pearson Education, Inc.

16 Public, Private, Contract, and Multiclient WarehousingOrganizations must also decide the proper mix in terms of warehouse ownership Owning Private warehousing Renting Public warehousing Contract warehousing Multiclient warehousing Copyright © 2015 Pearson Education, Inc.

17 Public, Private, Contract, and Multiclient WarehousingPublic warehouses Serve all legitimate users Require no capital investment on the user’s part Allows users to rent space as needed Can be rented on a month-to-month basis Warehousing companies have responsibility for personnel decisions and regulatory issues Offers more locational flexibility May provide specialized services Copyright © 2015 Pearson Education, Inc.

18 Public, Private, Contract, and Multiclient WarehousingPotential drawback of public warehouses Lack of control by the user Warehousing labor safety practices monitored by Occupational Safety and Health Administration (OSHA) Copyright © 2015 Pearson Education, Inc.

19 Public, Private, Contract, and Multiclient WarehousingPrivate warehousing Owned by the firm storing goods in the facility Generates high fixed costs Should only be considered by companies dealing with large volumes of inventory Largest uses of private warehousing are retail chain stores Offers control to owner Assumes both sufficient demand volume and stability so that warehouse remains full Copyright © 2015 Pearson Education, Inc.

20 Public, Private, Contract, and Multiclient WarehousingPrivate warehousing potential drawbacks High fixed cost of private storage Necessity of having high and steady demand volumes Less attractive when interest rates are high May reduce an organization’s flexibility Internally Externally Copyright © 2015 Pearson Education, Inc.

21 Public, Private, Contract, and Multiclient WarehousingContract warehousing Also referred to as third-party (3PL) warehousing or dedicated warehousing “a long term, mutually beneficial arrangement which provides unique and specially tailored warehousing and logistics services exclusively to one client, where the vendor and client share the risks associated with the operation.”1 1Warehousing Education and Research Council, Contract Warehousing: How It Works and How to Make It Work Effectively (Oak Brook, IL: Author, 1993). Copyright © 2015 Pearson Education, Inc.

22 Public, Private, Contract, and Multiclient WarehousingContract warehousing Both vendor and client share the risks associated with the warehousing Less costly than private warehousing and more costly than public warehousing Copyright © 2015 Pearson Education, Inc.

23 Public, Private, Contract, and Multiclient WarehousingContract warehousing has evolved to include value-adding services to a greater degree than public warehousing1 Customization Reverse logistics Repair and refurbishment 1William Hoffman, “Contract Warehousing Evolves,” Traffic World, January 31, 2005, 16. Copyright © 2015 Pearson Education, Inc.

24 Public, Private, Contract, and Multiclient WarehousingMixes attributes of contract and public warehouses Services are more differentiated than those in a public facility Services are less customized than those in a contract facility Services are purchased through minimum 1 year contracts Are attractive to smaller organizations Copyright © 2015 Pearson Education, Inc.

25 Public, Private, Contract, and Multiclient WarehousingAre attractive to smaller organizations that don’t have sufficient volumes to: Build their own storage facilities Use traditional one client contract warehousing services1 1William Hoffman, “Dividing the Box,” Journal of Commerce, February 25, 2008, 23. Copyright © 2015 Pearson Education, Inc.

26 Design Considerations in WarehousingGeneral considerations Quantity and character of goods to be handled must be known—product profiling Know the purpose to be served Facility with low rates of product turnover should be laid out in a manner that maximizes utilization of the cubic capacity of the storage facility Facility that emphasizes rapid product movement with limited time in storage should be configured to facilitate the flow of product into and out of it Copyright © 2015 Pearson Education, Inc.

27 Design Considerations in WarehousingTrade-offs Must be made among space, labor, and mechanization with respect to warehouse design Fixed versus variable slot locations for merchandise In fixed slot locations each SKU has one or more permanent slots assigned to it Variable slot location involves empty storage slots being assigned to incoming products based on space availability Copyright © 2015 Pearson Education, Inc.

28 Design Considerations in WarehousingTrade-offs Build out (horizontal) versus build up (vertical) General rule of thumb is that it is cheaper to build up than build out Illustrates the importance of understanding interfunctional trade-offs when thinking about warehousing design Copyright © 2015 Pearson Education, Inc.

29 Design Considerations in WarehousingTrade-offs Order-picking versus stock-replenishing functions Organizations must decide whether workers who pick outgoing orders and those who are restocking storage facilities should work at the same time or in the same area Two-dock versus single-dock layout generally has receiving docks on one side of a facility and shipping docks on the other side, with goods moving between them In single-dock system, each and every dock can be used for both shipping and receiving Copyright © 2015 Pearson Education, Inc.

30 Design Considerations in WarehousingTrade-offs Conventional, narrow, or very narrow aisles As aisle space increases, storage space decreases Easier to operate mechanical equipment in wider aisles Reduce the chances of accidents and product damage with wider aisles Narrower aisles require specialized storage and handling equipment (more expensive) Copyright © 2015 Pearson Education, Inc.

31 Design Considerations in WarehousingTrade-offs Degree of warehouse automation Refers to utilizing mechanical or electronic devices to substitute for human labor Examples include narrow aisle forklifts, automated guided vehicles, automated storage and retrieval systems, and radio frequency identification, and others Offers the potential to reduce labor costs and to improve warehouse productivity Managers must ensure that automation results in noticeable improvement in warehousing effectiveness and efficiency Copyright © 2015 Pearson Education, Inc.

32 Design Considerations in WarehousingTrade-offs Other space needs Only approximately 10 percent of a facility’s cubic capacity is actually occupied by product1 Warehousing facilities set aside space for nonstorage activities such as employee washrooms, lunchrooms, office space, specialized storage for hazardous items, warehousing supplies, and many more Copyright © 2015 Pearson Education, Inc.

33 Warehousing OperationsEfficient and effective warehousing management can be an exacting task Workforce motivation can be difficult because the work can be: Repetitive in nature Strenuous and physically demanding On occasion dangerous Copyright © 2015 Pearson Education, Inc.

34 Warehousing OperationsSome prominent operational issues include: Warehousing productivity analysis Safety considerations Hazardous materials Warehousing security Cleanliness and sanitation issues Copyright © 2015 Pearson Education, Inc.

35 Warehousing OperationsWarehousing productivity analysis Productivity is a measure of output/input Numerous productivity metrics can be used to assess warehouse productivity, but not all are relevant to all facilities Examples of representative measures include: Cases shipped per person Product lines shipped per person Pallets shipped per person Average warehouse capacity used Forklift capacity used Copyright © 2015 Pearson Education, Inc.

36 Warehousing OperationsSafety considerations Warehouses, distribution centers, and cross-docking facilities can be dangerous workplaces Fatality rate in warehousing is higher than the average rate for all industries1 Warehouse safety can by influenced by governmental regulations In the U.S. safety standards have been set for warehousing equipment and operations and are enforced by OSHA 1Tommie Jones, “Warehousing & Storage Safety: Establishing a Comprehensive Safety Approach,” Professional Safety, June 2010, 34–36. Copyright © 2015 Pearson Education, Inc.

37 Warehousing OperationsSafety considerations Warehouse safety categories include: Employee Property Motor vehicles Copyright © 2015 Pearson Education, Inc.

38 Warehousing OperationsCopyright © 2015 Pearson Education, Inc.

39 Warehousing OperationsHazardous materials “hazmat” Examples include: Explosives Flammable liquids Flammable solids Government regulations often require shipping documents indicating the hazardous materials Government regulations require the use of safety data sheets (SDS) Copyright © 2015 Pearson Education, Inc.

40 Warehousing OperationsWarehousing security Example potential threats include: Theft Pilferage Heat and humidity Vandalism Fire Loss of electricity Focuses on protecting products and preventing their theft Copyright © 2015 Pearson Education, Inc.

41 Warehousing OperationsCopyright © 2015 Pearson Education, Inc.

42 Warehousing OperationsCleanliness and sanitation issues Particularly important in many industries, such the foodservice industry Can have a positive impact on employee safety, morale, and productivity while also reducing employee turnover1 Requires common sense and due diligence 1Ned Bauhof, “Keeping It Clean,” Beverage World, July 2007, 77. Copyright © 2015 Pearson Education, Inc.

43 Copyright © 2015 Pearson Education, Inc.Copyright Notice All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc.