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Chapter 9 Business Logistics flashcards |

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  • Warehousing Value

    Warehousing contributes value in the logistics process
    -Traditional view
    -Contemporary view

    Traditional view:

    a place to hold or store inventory

    Contemporary view:

    -the warehouse functions to mix inventory assortments to meet customer requirements
    -Storage of products is held to a minimum
    -Storage of inventory is waste in the LEAN warehouse

    Evolution of Strategic Warehousing

    -Warehouses were once viewed as a necessary evil, used to coordinate product supply with customer demand
    -The explosion of the consumer economy after WWII saw the rise of distribution networks for consumer goods
    -Warehousing shifted from passive storage to strategic assortment

    The Changing Role of the Warehouse

    1.)Traditional Warehouses: Receiving, Put-away, Storage Operations, Picking and Shipping
    2.)Distribution Centers: Scheduled Cross-docking, Special Handling, Kitting Operations, Returns Handling, "Postponed" Manufacturing Steps and Other value added
    3.)Fulfillment Centers:
    Dynamic Cross-docking, Mixed Mode Fulfillment, Multi-channel including On-line Fulfillment, Distributed Order Management and Green Operations (e.g., end of product life disposition, recycling, reclamation)

    Warehousing types evolved to accommodate dynamic aspects of logistics

    -Distribution centers
    -Consolidation terminals
    -Break-Bulk facilities

    Strategic Warehousing

    Strategic warehousing offers manufacturers a way to reduce dwell time of parts and materials
    -Warehousing is integral to just-in-time (JIT) and stockless production strategies
    Requires strategically located warehouses across the globe

    An important goal in warehousing is to maximize flexibility
    -Respond to ever-changing customer demand
    Product assortments
    Value-added services

    Strategic warehousing can provide both economic and service benefits

    Economic benefits of warehousing occur when overall logistics costs are reduced:
    -Consolidation and break-bulk
    -Seasonal storage
    -Reverse logistics

    Service benefits are justified by sales improvements that more than offset added cost
    -Full line stocking

    Consolidation and Break-Bulk Warehousing

    Consolidation and Break-Bulk reduce transportation cost by increasing the size of the shipments.


    occurs when a warehouse receives materials from a number of sources and combines them into exact quantities for a specific destination


    occurs when a warehouse receives a single large shipment and then breaks the shipment down into individual deliveries to multiple destinations

    The basic benefit of sorting is to reconfigure freight as it is being transported from origin to destination.

    Three basic types sorting:

    Sorting: Cross-docking

    Cross-docking combines inventory from multiple origins into a pre-specified assortment for a specific customer

    Successful cross-docking is highly dependent on information technology

    -Products are received, selected, repackaged, and loaded for shipment w/o storage
    -Used with general merchandise & food
    -Enabled by conveyors & sortation equipment
    -Used in large distribution centers (800K to 1,200K sq.ft.)

    Sorting: Mixing

    Mixing combines inventory from multiple origins (like cross-docking) but also adds items that are regularly stocked at the mixing warehouse

    Sorting: Assembly

    Assembly supports manufacturing operations

    -Assembly occurs when products or components from 2nd Tier suppliers are assembled by a warehouse located near the manufacturing plant
    -Common assembly processes are packaging and color customizing

    Seasonal Storage

    Storage provides direct benefit by accommodating seasonal demand and/or production:
    -Accommodates seasonal demand such as lawn furniture and toys
    -Accommodates seasonal production such as agricultural products

    Storage provides and inventory buffer, which allows production efficiencies within the constraints imposed by material sources and consumers.

    Reverse logistics include activities supporting

    -Returns Management: Recalls or product that did not sell
    -Remanufacturing and Repair: Repairing/refurbishing equipment
    -Remarketing: Selling used equipment
    -Recycling: Returning product following its useful life with the objective of decomposing it into it component materials so they can be effectively reused
    -Disposal: for materials which cannot effectively be reused.

    Service Benefits of Warehousing

    -Full line stocking
    -Value-added services


    is the positioning of inventory for seasonal or promotional demand

    Full line stocking

    provides one-stop shopping capability for goods from multiple suppliers

    Value-added services

    include any work that creates a greater value for customers.

    Typical List of Value-Added Services

    -Customer returns
    -Home Delivery
    -Kan Ban

    Warehouse Operations

    Objective is to:
    -Efficiently receive inventory
    -Store it as required
    -Assemble it into complete orders
    -Make a customer shipment

    Operations will therefore emphasize product flow

    Warehouse operations involve two major activities:

    Handling and Storage

    Handling must optimize movement continuity and efficiency

    -Receiving — Unloading the arriving vehicles

    -In-Storage — Moving goods within the warehouse for storage (transfer) or order selection (picking). Items may be moved to a staging area in preparation for shipping

    -Shipping — Verifying the order and loading the departing vehicles

    Typically, these activities require the use of material handling equipment, e.g., lift trucks, conveyors, etc.


    Storage plans should consider product velocity as a major factor in determining the warehouse layout.
    It is essential that products be assigned a specific locations in the warehouse called slots

    Slotting determines specific locations for the product based on:

    Velocity: how fast the goods move
    Weight: how heavy is the product
    Special Storage Requirements: how large or small, does it require rack or bin storage

    Storage Alternatives Two classes:

    Active storage and extended storage

    Active Storage:

    Storage for basic inventory replenishment
    Focuses on quick movement
    Includes flow-through or cross-dock distribution

    Extended Storage:

    Storage for inventory held in excess of period for normal replenishment
    e.g., seasonal, speculative, or even commodities

    Warehouse Ownership Arrangements

    -Private: Warehouse operated by the firm owning the product
    Building may be owned or leased

    -Public: Service company owns warehouse and hires out space and services
    Usually classed as
    General merchandise
    Special commodity
    Household goods and furniture

    Contract Warehousing

    -Contract warehousing combines elements of private and public operations
    -Usually a long-term relationship or contract between a firm and the warehousing operator

    -Long-term cost savings compared with public warehousing
    -Often a firm's employees will work alongside the contract warehouse's employees (e.g., "man-in-the-plant" concept)

    -Example: Novartis Pharmaceuticals contracted with DHL/Exel Logistics since 2008 for a dedicated facility to handle all finished product US warehousing & distribution

    Types of Warehouses



    May attain lower operating costs than private facilities due to economies of scale
    More flexibility in number and size of warehouses

    Potential for loss of some control over day-to-day activities
    Do not work as well for products requiring very customized storage conditions


    Full control over warehouse activities
    Flexible scheduling based upon business needs
    Not operated for profit, greater visibility to cost drivers

    May not be a company's core competency
    Company may not benefit from economies of scale
    Potential for less flexibility in facility configuration


    Control over warehouse activities, while leveraging warehousing expertise from the provider

    Due to nature of integration, cost of exit can be high

    Network Deployment

    -Network deployment is the combination of private, public and contract facilities used by a firm

    Network deployment strategy requires answering two questions

    -How many warehouses should be established?
    -Which warehouse ownership types should be used in specific markets?

    when warehouse utilization is not full throughout the year

    -Use private or contract warehouse to cover 75 percent requirement
    -Public facilities used to accommodate peak demand

    Handling and Storage Efficiency

    Warehouse decisions that determine handling and storage efficiency
    -Site Selection
    -Product Mix
    -Material Handling
    -Warehouse Management System
    -Accuracy and Audit
    -Safety and Maintenance

    Site Selection

    Warehouse decisions that determine handling and storage efficiency:

    -Identify broad geography where an active warehouse meets service, economic and strategic requirements
    -Selection and number of retail outlets drives location of support warehouses
    -Final selection should be preceded by extensive analysis

    Warehouse Management Systems

    Warehouse Management Systems (WMS) integrate procedures and software support to standardize storage and handling work procedures

    -Discrete selection is when a specific customer's order is selected and prepared for shipment as a single work assignment
    -Wave or batch selection is when orders are processed through zones of the warehouse assigned to specific employees

    Inventory accuracy

    is typically maintained by annual physical counts or counting portions of inventory on a planned basis
    Cycle counting is the audit of selected inventory on a cyclic schedule


    are common to maintain safety, assure compliance to regulations and help improve procedures


    issues involve protection from pilferage and damage

    Warehouse Designs

    -Safety and maintenance issues must also be considered when planning warehouse designs
    -Accident prevention
    Comprehensive safety programs and training, accident investigation and follow up
    Environmental protection
    Spill kits and spill plans
    Scheduled maintenance of building, material handling equipment, and collision damage prevention

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