WAREHOUSING DECISION

1. Chapter 8
Warehousing Decisions

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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

8. 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.

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

10. Table 8-1
Warehouse Value-Adding Roles

11. Figure 8-1
Transportation Consolidation

12. Figure 8-2
Supply and Product Mixing

13. 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

14. Figure 8-3
Basic Warehousing Decisions

15. 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.

16. 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

17. Table 8-2 Firm Characteristics
Affecting the Ownership Decision

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

19. 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

20. 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.

21. 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

22. Table 8-3: Factors Affecting the
Number of Warehouses
Factor Centralized Decentralized
Substitutability Low High
Product Value High Low
Purchase Size Large Small
Special Warehousing Yes No
Product Line Diverse Limited
Customer Service Low High

23. Basic Warehouse Operations
 Movement
 Receiving
 Put-away
 Order picking
 Shipping
 Storage
 Stock location
 Warehouse Management System
(WMS)

24. Figure 8-6
Basic Warehouse Operations

25. Figure 8-7
The Computerized Warehouse

26. 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.

27. Warehouse Layout and Design
 Provide for the
transportation interface.
 Provide for order-
picking space.
 Provide storage space.
 Provide recouping,
office, and
miscellaneous spaces.

28. Figure 8-8
Warehouse Space Requirements

29. Figure 8-9 Principles of
Warehouse Layout Design

30. Warehouse Layout and Design
 Basic needs:
 Receiving
 Basic storage
area
 Order selection
and preparation
 Shipping

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

32. Warehouse Layout and Design:
Layout and Design Objectives
 Cubic capacity
utilization
 Protection
 Efficiency
 Mechanization
 Productivity

33. Table 8-4: 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

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

35. 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

36. Figure 8-12 Utilization of a
Warehouse’s Cubic Capacity: Principles
of Warehouse Layout Design

37. Guidelines and Principles for
Materials Handling
 To effectively plan and control materials
handling, the logistics manager should
recognize some guidelines and principles.
 Table 8-5 lists 20 of the most commonly
accepted principles of effective materials
handling. Asterisks mark those deserving
special attention.

38. Table 8-5
Principles of Materials Handling

39. Packaging
 Interest in packaging is widespread
 Logistics

Warehousing

Transportation

Size
 Marketing
 Production
 Legal

40. The Role of Packaging
 Identify product and provide information
 Improve efficiency in handling and
distribution
 Customer interface
 Protect product

41. 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.

42. Packaging Materials
 Table 8-6 presents a comparison of various
packing material characteristics.
 Basic considerations include:
 Soft materials
 Plastic
 Environmental issues
 Recycling (reverse logistics)

43. Table 8-6
Comparison of Cushioning Materials

44. 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

45. Chapter 8:
Summary and Review Questions
Students should review their knowledge of the chapter
by checking out the Summary and Study Questions for
Chapter 8.

46. End of Chapter 8 and 8A Slides
Warehousing Decisions