Chapter 8
Warehousing Decisions
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.
Chapter 8 Management of Business Logistics, 7th Ed. 2
The Role of the Warehouse in the
Logistics System: A Basic Conceptual
Rationale
■ The warehouse is ■ Functions of
where the supply warehousing include:
■ Transportation
chain holds or stores consolidation
goods. ■ Product mixing
■ Cross-docking
■ Service
■ Protection against
contingencies
■ Smoothing
Chapter 8 Management of Business Logistics, 7th Ed. 3
Table 8-1
Warehouse Value-Adding Roles
Chapter 8 Management of Business Logistics, 7th Ed. 4
Figure 8-1
Transportation Consolidation
Chapter 8 Management of Business Logistics, 7th Ed. 5
Figure 8-2
Supply and Product Mixing
Chapter 8 Management of Business Logistics, 7th Ed. 6
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
Chapter 8 Management of Business Logistics, 7th Ed. 7
Figure 8-3
Basic Warehousing Decisions
Chapter 8 Management of Business Logistics, 7th Ed. 8
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.
Chapter 8 Management of Business Logistics, 7th Ed. 9
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
Chapter 8 Management of Business Logistics, 7th Ed. 10
Table 8-2 Firm Characteristics
Affecting the Ownership Decision
Chapter 8 Management of Business Logistics, 7th Ed. 11
Public Warehousing
■ Rationale for Public Warehousing
■ Limited capital investment
■ Flexibility
■ Public Warehousing Services
■ Bonded warehousing
■ Field warehouses
Chapter 8 Management of Business Logistics, 7th Ed. 12
Public Warehousing
■ Public warehousing ■ Public warehousing rates
regulation: based upon:
■ Liability ■ Value
■ Receipts ■ Fragility
■ Potential damage to
other goods
■ Volume and
regularity
■ Weight density
■ Services required
Chapter 8 Management of Business Logistics, 7th Ed. 13
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.
Chapter 8 Management of Business Logistics, 7th Ed. 14
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
Chapter 8 Management of Business Logistics, 7th Ed. 15
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
Chapter 8 Management of Business Logistics, 7th Ed. 16
Basic Warehouse Operations
■ Movement
■ Receiving
■ Put-away
■ Order picking
■ Shipping
■ Storage
■ Stock location
■ Warehouse Management System
(WMS)
Chapter 8 Management of Business Logistics, 7th Ed. 17
Figure 8-6
Basic Warehouse Operations
Chapter 8 Management of Business Logistics, 7th Ed. 18
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.
Chapter 8 Management of Business Logistics, 7th Ed. 19
Warehouse Layout and Design
■ Provide for the
transportation interface.
■ Provide for
order-picking space.
■ Provide storage space.
■ Provide recouping,
office, and
miscellaneous spaces.
Chapter 8 Management of Business Logistics, 7th Ed. 20
Figure 8-8
Warehouse Space Requirements
Chapter 8 Management of Business Logistics, 7th Ed. 21
Figure 8-9 Principles of
Warehouse Layout Design
Chapter 8 Management of Business Logistics, 7th Ed. 22
Warehouse Layout and Design
■ Basic needs:
■ Receiving
■ Basic storage area
■ Order selection
and preparation
■ Shipping
Chapter 8 Management of Business Logistics, 7th Ed. 23
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.
Chapter 8 Management of Business Logistics, 7th Ed. 24
Warehouse Layout and Design:
Layout and Design Objectives
■ Cubic capacity
utilization
■ Protection
■ Efficiency
■ Mechanization
■ Productivity
Chapter 8 Management of Business Logistics, 7th Ed. 25
Table 8-4: Warehouse
Productivity Metrics
■ Pounds or units per day
■ Employees per unit moved
■ Units unloaded per hour
■ Units picked per hour
■ Units loaded per hour
■ Percentage of orders correctly filled
■ Productivity ratio = units handled/day divided by
labor hours/day
■ Throughput = amt of material moved through the
system in a given time period
Chapter 8 Management of Business Logistics, 7th Ed. 26
Materials Handling
■ Definition: Efficient short distance movement
in or between buildings and a transportation
agency.
■ Four dimensions
■ Movement
■ Time
■ Quantity
■ Space
■ Coordination
Chapter 8 Management of Business Logistics, 7th Ed. 27
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
Chapter 8 Management of Business Logistics, 7th Ed. 28
Figure 8-12 Utilization of a
Warehouse’s Cubic Capacity: Principles of
Warehouse Layout Design
Chapter 8 Management of Business Logistics, 7th Ed. 29
Packaging
■ Interest in packaging is widespread
■ Logistics
■ Warehousing
■ Transportation
■ Size
■ Marketing
■ Production
■ Legal
Chapter 8 Management of Business Logistics, 7th Ed. 30
The Role of Packaging
■ Identify product and provide information
■ Improve efficiency in handling and
distribution
■ Customer interface
■ Protect product
Chapter 8 Management of Business Logistics, 7th Ed. 31
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.
Chapter 8 Management of Business Logistics, 7th Ed. 32
Packaging Materials
■ Table 8-6 presents a comparison of various
packing material characteristics.
■ Basic considerations include:
■ Soft materials
■ Plastic
■ Environmental issues
■ Recycling (reverse logistics)
Chapter 8 Management of Business Logistics, 7th Ed. 33
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 8 Management of Business Logistics, 7th Ed. 34
End of Chapter 8
Warehousing Decisions