Warehousing and Distribution

Introduction
Chapter 1: Role of Warehouse

Chapter 2: Warehouse Decision

Chapter 3: Warehouse Activities and processes

Chapter 4: Warehouse Layout

Chapter 5: Management Information System& Technology

Chapter 6: Warehouse safety & Security

Chapter 7: Distribution Management

Chapter 1: Role of Warehouse
Importance of warehouse

Warehouse activities

Types of warehouse
What is a warehouse?
Warehousing is a critical component of logistics and supply chains. It
has been link between the producer and the customer and evolved from a
relatively minor facet of a firm’s logistics system to one of its most
important functions, performing two critical utilities of time and place. It
plays a vital role in providing a desired level of customer service at the
lowest possible total cost.
What is a warehouse?
A warehouse should be viewed as a temporary place to store inventory
and as a buffer in supply chains. It serves, as a static unit – in the main
– matching product availability to consumer demand and as such as
primary aim which is to facilitate the movement of goods from
suppliers to customers, meeting demand in a timely and cost – effective
manner
Importance of Warehouse
Warehouses are used to support purchasing, production, and distribution
activities:

-Temporary storage before usages

-Inventory

-Function warehouse activity

Consolidation warehouses are used to collect large numbers of LTL shipments, and the
consolidate and transport in TL shipments.

-Cross-dock centres: . Efficient consumer response and quick response within retail require
operations to be able to move goods quickly through the supply chain

-Sortation centres: Goods are collected from all parts of the country, delivered into hubs or
sortation centres, sorted by zip or post code, consolidated and delivered overnight to their
respective distribution areas for onward delivery.
-Fulfilment centres: The growth of e-retailing has seen an increase in the
number of customer fulfilment centres, fulfil the customer order for
ecommerce retailers

-Reverse logistics centres: Reverse logistics centres have been set up to

deal with return items. Other reverse logistics processes include the return
of reusable transit packaging equipment such as roll cages, barrels, kegs,
pallets, tote boxes and trays
Types of warehouses
Private warehouses: refer to warehouses that are privately owned and used by an
organization

Features:

-Reduce costs

-Firms are free to decide what to process, what to store, what types of security to provide,
and the types of equipment to use, among other operational aspects.

-It can enable the firm to better utilize its workforce and expertise in term of
transportation, warehousing and distribution center activities.

-Firms can also represent a significant financial risk and loss of flexibility to the firms.
Types of warehouses
Public warehouses: are for-profit organizations that contract out or lease a wide range of
light manufacturing, warehousing, and distribution services to other companies.

Features:

-Providing specialized services that firms can use to create customized shipments of
goods.

-Providing the short-term flexibility and investment cost savings that private warehouses
cannot offer.

-The lacked of control provided to the goods owners.

Services are providing by public warehouses:

- Breakbulk: Large-quantity shipments are broken down so that items can be

combined into specific customer orders and then shipped out

-Repackaing

-Assembly

-Quality inspections

-Material handling, equipment maintenance, and documentation services

-Short- and long-term storage

Three types of warehousing
Bonded warehouse
CFS warehouse
Tax-suspension warehouse
 Bonded warehouse
Definition: Bonded warehouse is an area or yard which stored cleared
merchandise & waiting to be exported, or goods imported from overseas to
be re-exported or imported into Vietnam
Services:
-Reinforcement, prepacking, packaging, combining cargo, ….
-Sampling of goods
-Transfer ownership of goods
-Convert category goods
Advantages:

-Unpay import tax

-Goods are easy to arrange

-Reducing costs and time

-Easily follow up the status of goods

Disadvantages:

-For inbound, goods owners or their representatives have to do customs procedures

-For outbound, goods owners or their representatives must declare information

goods to customs. In case of importing in Vietnam market, they must go through
customs procedures as applicable to imported goods from abroad in the form of
corresponding

-Goods stored in bounded warehouses subject to re-export under the decision of the
government authorities are not allowed to re-import into Vietnam market.

-The customs supervision is based on operation (in/out) in warehouse.

CFS warehouse
Definition: CFS warehouse is a place to collect LCL shipments, yard
used to perform cargoes collection, separation of various shippers
transported into same containers
Services:
-Packing, repacking, sorting and rearranging
-Separate, combine
-Split the imported shipments
-Transfer of ownership.
 CFS warehouse
Advantages:

-In case of enterprise has many retail shipments, wants to sell for many
customers in the same country, the CFS is a place to help businesses collect
retail shipments to combine them become a large plot to full-filled container to
conduct exported procedures, saving costs

-A place for many goods owners operation on same bill of lading of imported
goods will save transportation costs, facilitate imported procedures
Disadvantages:

-Exported and imported goods are stored in LCL shipments collection sites
overdue, if the goods cannot be shipped out of the LCL shipments
collection sites, it’ll be processed in accordance the provision of Customs
Law

-Retail consolidation, storage of goods at LCL shipments collection sites

and the activities, services carried out at LCL shipments collection sites
must be subject to inspection and supervision of customs
Tax-suspension warehouse
Definition: tax-suspension warehouses are warehouses used to store imported raw
materials, suppliers have been cleared but not paying taxes yet, to produce exported
goods of warehouse owners.

Advantages:

- For enterprises with large volume of exported and imported goods, importing goods in
form of exported goods production the establishment of tax-suspension warehouse will
serve timely material storage needs (but not have to pay tax when importing export yet)
put into service production
Disadvantages:

-Tax-suspension warehouse owners quarterly report on the management

and use of goods, goods inputting expected plans into production in the
next period with the customs authorities directly management set by the
Ministry of Finance issued.

-At the end of the plan year, not later than January 31th next year,
enterprise must make reports according to Customs Law and the form
prescribed by the Ministry of Finance
Chapter 2: Warehouse decision
Introduction
Number of warehouses

Centralization or decentralization?

Private warehouse or outsourcing ?

Warehouse location
Numbers of warehouses
Comparison between many and fewer warehouses
Numbers of warehouses
Reduction in stockholding (%) = [1 − (√x ÷ √y)] × 100

Where ‘y’ is the original number of warehouses and ‘x’ is the

proposed number of warehouses.

The rule is based on the assumption that the amount of safety stock in
each existing warehouse in the system is approximately the same.
Centralization or decentralization?
The number of warehouses needed will decide either the centralization
warehousing system or decentralization warehousing system.
Discuss the differences between centralized and decentralized warehousing
systems following these criteria?
- Safety stock and average system inventory:
- Responsiveness
- Customer service to the warehouse
- Transportation cost
- Warehouse system capital and operating costs
 Centralized warehousing system
Advantages Disadvantages

- Simplified order processing - Increase outbound transport costs

- Reduction in working capital and operating - Increasing delivery lead times/
costs. Lower service level
- A wide range of goods is provided for all
users than can be hell in one central
warehouse
- Better and more scientific methods of stock
control can be practiced
- Economies in storage space is likely to be
obtained; goods in bulk tend to take up less
room
Decentralized warehousing system
Advantages Disadvantages

- Quick responsiveness - Increase inventory and operating

- Higher service level costs
- Increase inbound transportation
cost
Private warehouse or outsourcing?
Private warehouse or outsourcing?
The large, established markets and relatively mature products Private
warehouse or outsourcing?

The developing markets and low-demand areas Private warehouse or

outsourcing?
Warehouse location
Three types of location strategies:

-The market positioned strategy

-The product positioned strategy

-The intermediately positioned strategy

Critical location factors
Regional Trade Agreements and the World Trade Organization
Competitive of Nations
Government Taxes and Incentives
Currency Stability
Environmental Issues
Access and Proximity to Markets
Labour issues
Quality of life
Utility Availability and cost
Right-to-work laws
Land Availability and cost
Warehouse location techniques
The weighted – factor rating model ( 5 steps):
1. Identify the factors that are considered important to the facility location
decision
2. Assign weights to each factor in terms of their relative importance. Typically,
the weights sum to 1
3. Determine a relative performance score for each factor considered. Typically,
the scores vary from 1 to 100, although other scoring schemes can be used
4. Multiple the factor score by the weight associated with each factor and sum the
weighted scores across all factors.
5. The location with the highest total weighted score is the recommended location
 Example:
The following factors have been identified as critical to making a location decision
among three countries – China, Singapore, and Indonesia. A group of functional
managers has determined the factors, weights, and scores to be used in the analysis.
Factors Factor weights China scores Singapore scores Indonesia scores

Labour cost 0.2 100 40 90

Proximity to 0.15 100 60 80

market
Supply chain 0.25 80 80 60
compatibility
Quality of life 0.3 70 90 60

Stability of 0.1 80 100 50

government
The weighted scores for the three countries are calculated as follows
China = 0.2x100 +0.15x100 + 0.25x80 +0.3x70 + 0.1x80 = 84
Singapore = 74
Indonesia = 68

China would be the recommended country in which to locate the new

warehouse.
The Break-even Model
The break-even model is a useful location analysis technique when fixed and variable
costs can be determined for each potential location.
This method involves 6 steps:
1. Identify the locations to be considered
2. Determine the fixed cost for each facility.
3. Determine the unit variable cost for each facility. The components of variable cost are
the costs of labour, materials, utilities, and transportation
4. Construct the total cost lines for each location on a graph
5. Determine the break-even points on the graph. Alternatively, the break-event points
can be solved algebraically.
6. Identify the range over which each location has the lowest cost.
Example: The break-even Model
Three locations have been identified as suitable candidates for building a new factory.
The fixed and unit variable costs for each of three potential have been estimated and
are shown in the following table.

Location Annual fixed cost Unit variable cost

A 500,000 300

B 750,000 200

C 900,000 100

Using the break-even model to choose the best location for a forecasted demand of
3,000 units per year?
Step 1, 2, 3, 4: The three total cost curves:
TC (A): 500,000 + 300xQ
TC (B): 750,000 + 200xQ
TC (C): 900,000 + 100xQ

Step 5: construct the total cost lines for each location on a graph.
Step 6: determine the break-even points on the graph
The break-even point between location A and location B is determined:
TC (A) = TC (B)
500,000 + 300xQ = 750,000 + 200xQ
100xQ = 250,000, then Q = 2,500 units
The break-even point between location B and location C is determined:
TC (B) = TC ( C )
750,000 + 200xQ = 900,000 + 100xQ
100xQ = 150,000, then Q = 1,500 units
The break-even point between location A and location C is determined:
TC (A) = TC (C )
500,000 + 300xQ = 900,000 + 100xQ
200xQ = 400,000, then Q = 2,000 units
 Total cost
A

900000
< 2000, choose location A
750000 > 2000, choose location C

500000

1000 2000 3000 Volume

Exercise 1:
The Soft Toys Company has identified four locations to set up a new warehouse. They have
determined the fixed and variable costs associated with each location as follows:
Location Annual fixed cost ($) Unit variable cost ($)

Pittsburg 10,000 5

Atlanta 30,000 4

Miami 60,000 3

Houston 70,000 6

a, Plot the total cost curves for the three plant locations on a single graph
b, Find the break-even points and determine the range of demand for which each location has a
cost advantage. Which city has no cost advantage at all?
c, Which plant location is the best if demand is (i) 40,000 and (ii) 15,000 units
exercise 1:
a.
b.
Pitt and Atlan:
10000+5Q= 30000+4Q
Q= 20000

Pitt and Mia:

10000+5Q=60000 + 3Q
Q=25000

Atlan and Mia:

30000 + 4Q=60000 +3Q
Q= 30000

Between Houston with others dont have break even point bc its cost is always higher --> it has no

cost advantage at all.

c.
Case study
O’Leary management solutions
HP deskjet supply chain
1. The textbook lists eleven major community factors to use as selection criteria
for choosing a location. Mary realizes that all factors are important; however,
there are too many because it waters down the effect of each factor’s weight.
Therefore, Mary wants no more than five factors. Based on the information in
the case, which factors should Mary and her staff choose? Explain why the
specific factors you picked are pertinent to Mary’s company.
2. Building on question 1, weight the five factors you choose for O’Leary
Management Solutions, Mary has expressed that she does not want any two
factors with the same weight. Explain why you rated them as you did, that is,
why one criterion is more or less important than another.
O’Leary management solutions
Access and proximity to the markets
Quality of life
Land availability and cost
Environmental issues
Government taxes and incentives
 Case HP: Characteristics of forecast
▪ Forecasts are always inaccurate and should thus include both the expected value of the
forecast and a measure of forecast error

▪ Long- term forecasts are usually less accurate than short-term forecasts

▪ Aggregate forecasts are usually more accurate than disaggregate forecasts, as they tend to
have a smaller standard deviation or error relative to the mean

▪ In general, the father up the supply chain a company is, the greater is the distortion of
information it receives.
CASE HP: How to redesign the hp deskjet
in supply chain
What is “postponement”?
Postponement is a deliberate action to delay final manufacturing or distribution of
a product until receipt of a customer order
Chapter 3: Warehouse activities and processes
Warehouse activities as a percentage of total cost
warehouse: store goods
distribution center: collect goods from supplier
x-dock: collect, sorting and dispatch goods
The main warehouse activities
Receiving and offloading
Checking
Cross-docking
Put – away
Storage
Picking, order-picking
Replenishment
Value-adding services
Stock counting
Loading and unloading
Return cargo
……………..
Receiving and offloading
- warehouse manager should be involved in specifying and agreeing the packing, items per carton,
cartons per pallet, and any specific labelling required, together with the mode of transportation.
- Areas that need to be discuss:
● Size and type of cartons;
● Type of transit packaging – cardboard, plastic, totes, metal stillages, roll cages, pallets;
palletized: easy to transport (speed up the process of loading and unloading
● Palletized or non-palletized delivery of product; process), increase protection from damage, readuce labor required for loading
and unloading cargo
● Size (length, width and height) and type of pallets;
● Specific labelling such as product description, barcode and quantities;
● Position of label on carton and pallet;
● Carton quantities (inner and outer carton quantities, for example); and
● Mode of transport, delivery quantity and frequency of delivery
Example of incorrectly size cartons
offloading
- The most common method of unloading palletized vehicles onto a loading bay
is with a powered pallet truck, hand pallet truck or pallet jack.

- Unloading times will vary depending on the equipment used and whether the
load needs to be staged prior to put-away
Automated unloading & Boom conveyor
unloading cartons
Robotic palletiser & Robotic unloading of
container with boom conveyor
Checking
- Good faith receiving receive the goods without any checking
evaluate supplier perf --> decide rate for
- Random checks checking

dont know the quantity --> count the whole consignment -->compare with the doc and identify the discrepancy
- Blind count highest accuracy bc we will count the goods more carefully

receive the goods and know the quantity, check the whole
- 100% checking consignment
 warehouse:
store the goods
Cross-docking store the raw materials
consolidate
good faith receiving

▪Cross docking is a process where products are moved directly from goods-in to
the despatch bays.

▪Once checked in, the products should be taken directly to the despatch area and
their floor or temporary rack location recorded on the system, alerting staff that
the product is now awaiting despatch.
functions:
-
 Put-away A group prodcut should be put at the middle of the shelf (cho
de lay), other group put at highr or lower position in the shelf

▪Transfer the cargo from staging area to the storage locations. Two of way put away (direct and
indirect)
▪The system includes the followings:
● size, weight and height of palletized goods;
● results of an ABC analysis or slotting, where fast-moving goods are placed closest to the
despatch area (an area we will cover later); ABC layout:
fast mover: A group (near outbound to reduce time to reach to customer)
average mover: B group
● current order data; fast mover: C group

● family product groups;

objectives: to move goods from the dock to the most optimal
warehouse storage location, providing that:
● actual sales combinations; -Cargo is stored fast and efficiently
-Warehouse travel distance is reduced to a minimum
● current status of pick face for each product; -Security of goods and the safety of warehouse employees are
ensured
● size of pallet locations; and -Warehouse space utilization is maximized
-Cargo is easy to find, track within the warehouse and quickly to
retrieve during picking process
● weight capacity of racking.
Storage
▪ It is defined as the depositing of goods in a facility for safekeeping
▪ There are criteria for stored goods:
- Rate and frequency of movement
- Size
Storage base on the characteristics of
the goods to choose the
system

▪ Radom location system bulk cargo

- Most popular and most economic

- When goods arrive, they are available compartment
- There is higher utilization of storage space
- Cost is relatively lower. higher utilization --> lower cost

▪ Fixed location system for hazardous, high value goods

- Each item has a fixed storage space depending on its life cycle
- Space allocated cannot be used for other items
- Cost is higher
Picking
▪ Order picking is the most costly activity within today’s warehouses.

▪ Typical errors include omitting items from the order, sending the wrong item and
sending the wrong number of items.

▪ Managers are looking for quick response times, high accuracy rates and high
productivity but at least cost.
puck to order: picker go to wh to pick the goods
▪ Two methods: Pick to order and goods to picker goood to picker: apply auotmation system
 There are four basic picking techniques:
- Cluster picking: Operators take a number of orders out into the warehouse at
the same time and pick into individual compartments on their trolleys or cages
- Batch picking: Batch picking is where operators pick products for a number of
vd: order A y/c 100unit product A, odder B y/c 200unit product A
orders at the same time batch picking : pick300 unit at the same time
cluster picking: pick 100u cua don hang A, sau do pick 200u cua don hang B
- Zone picking: products are picked from defined areas in the warehouse and
each picker is assigned to a specific zone or zones and only picks items from
within those zones
- Wave picking: orders are combined and released at specific times during the
day or to associate them with vehicle departures, replenishment cycles, shift
changes, product locations, product commonality, value-adding service
requirements and priorities.
Value-adding services
These value-adding services include the following:
● (re)labelling;
● pricing;
● tagging and kimballing;
● (re)packing;
● bundling, as in ‘buy one, get one free’ (BOGOF) offers; (de-consol, re-consol)
● reconfiguration;
● sub-assembly;
● repair and refurbishment.
Stock counting

There are two methods of stock counting:

▪ Periodic: the whole of the stocktake is usually done at the end of year

- Done only once a year and thus only impact the operation once a year.

- The entire warehouse operation is frozen. This will impact the

warehouse’s productivity and external customers’ operations
 ad:
one type of product is frozen
manage risk in the warehouse
Stock counting disad:
time and staff consuming

▪Continuous: stock is taken continuously item is physically verified at least once

in the course of the year, or more frequently if required.

Using an ABC analysis to ensure that your fast-moving and high-value items are
counted more frequently than your slow-moving, inexpensive items.
Item class Frequency
A Very frequency, every 3 months
B Frequency, every 6 months
C Less frequency, every 9 months

Advantages vs. Disadvantages?

Replenishment
▪ The right products and quantities are in the correct pick location.

▪ Real-time WMSs will recognize the need to replenish pick locations through real-time data
transfer.

▪ Timing is crucial. An early instruction to replenish can cause as many problems as late
replenishment, with potentially overfull pick faces and issues with FIFO principle or FEFO
principle (First In, First Out/ First Expire, First Out).

▪ Although real time dictates that replenishment and picking can occur simultaneously, there
are issues of worker safety if forklift trucks and pedestrian pickers are working together in
the same aisle.
 Replenishment methods
➢ Independent or random demand: is the demand for a firm’s end products and
has a demand pattern affected by trends, seasonal patterns, and general market
conditions.
- Examples: the replacement batteries, headlights, seals,…sold as service parts
to the repair shops or end users are independent demands.
- Independent demand uses re-order point/level systems for replenishment
➢ Dependent or predictive demand: is the internal demand for parts based on the
demand of the final product in which the parts are used.
- Examples: subassemblies, components, and raw materials are dependent
demand
- Dependent demand use requirement/resource planning systems (MRP/MRPII)
Replenishment for independent demand:
“when to order” decision
▪ When stocks are at a level that is able to satisfy demand, and until the replenishment
order is available.

▪ There are two methods:

- At a specific time period (ROP): the periodic review or the periodic inventory time-
based method; e.g. weekly at the time trigger

- At a specific remaining level of stock (ROL): continuous review or the perpetual

inventory action level method and the fixed order quantity method
Replenishment for independent demand:
“How much to order” decision
▪ The Economic Order Quantity Model
▪ The Quantity Discount Model
▪ The Economic Manufacturing Quantity Model
The Economic Order Quantity Model
Economic order quantity (EOQ):

Where:

2RS R: Annual Requirements

EOQ= -------- S: Setup cost

kC k: Holding rate

C: Unit cost
The Quantity Discount Model
The quantity discount model must consider the trade – off between
purchasing in larger quantities to take advantage of the price discount and
the higher costs of holding inventory.

Total annual inventory cost = annual purchase cost + annual holding cost +
annual order cost

TAIC = APC + AHC + AOC = (R x C) + [(Q/2) x (k x C)] + [(R/Q) x S]

Steps
❖ Define the EOQ for each price level

❖If the EOQ is not associated with the particular price level because the order
quantity may not lie in the given quantity range for that unit price change
the EOQ to the minimum quantity required to get a price discount

❖Define total annual inventory cost for each EOQ

❖The order quantity that yields the lowest total annual inventory cost is the
optimal order quantity
Example:
The manager at Robert's Cigars wants to determine the lowest cost order policy given the following purchase
discounts offered: cigar costs are $4 each for orders less than 500; $3.50 each for orders of 500-1000; and $3.
25 each for orders greater than 1000. The order cost = $75, annual demand forecast=5500 cigars, inventory
carrying cost =30% per year
1. What is the optimal order quantity?
2. What is the minimum total annual inventory cost?

1. EOQ(4)=can(2x5500x75/30%x4)=830
EOQ(3.5)=887
EOQ(3.25)=920
3 options: $4: mua 499sp; $3.5: mua 887sp; $3.25: mua
1001sp
total inventory cost $4(499)= 4x5500+499/2x30%x4+75x5500/
499=23126
$3.5(887)=20181
$3.25(1001)= 18775 (lowest cost) --> choose this option
Example: Finding the optimal order quantity with
quantity discounts at Kuantan Corporation
The Kuantan corporation purchase a component from a supplier who offers quantity
discounts to encourage larger order quantities. The supply chain manager of the
company, Dr. Hadilan Wijaya Ibrahim, wants to determine the optimal order quantity
to minimize the total annual inventory cost. The company’s annual demand forecast
for the item is 15,000 units, its order cost is $40 per order, and its annual holding rate
is 25%. The price schedule is:
Order quantity Price per unit
< 1000 $ 5.00
1001 – 2000 $ 4.50
2001 and above $ 4.00

1. What is the optimal order quantity?

2. What is the minimum total annual inventory cost?
Solution:
Define the EOQ for each price level:

2.40.15000

EOQ(5$) = ----------------- = 980 units

0,25.5

EOQ(4,5) = 1032 units

EOQ (4) = 1095 units

▪ Order 980 units at $5, 1032 units at $4.5, and 2001 order at $4 (because
1095 < 2001, so change the EOQ to the minimum quantity to get a price
discount

▪ Calculation the total annual inventory cost:

TAIC (5)=15000.5 + (980/2).0,25.5 + (15000/980).40 = 76 102 $

TAIC(4,5) = 68 597 $

TAIC(4) = 62 300 $

▪ TAIC (4) is the lowest number, so 2001 is the optimal order quantity
The economic Manufacturing Quantity Model (
EMQ) or production order quantity (POQ)
The EMQ relaxes the instantaneous replenishment assumption by allowing
usage or partial delivery during production.
hàng ngày vừa sản xuất. vừa tiêu dùng, sản xuất nhiều hơn tiêu dùng, đến khi tồn kho đạt
Assumptions:
tối đa thì dừng lại tiêu dùng chỗ tồn kho còn lại
- The demand is known and constant
- order leadtime is known and constant
- Partial delivery
- Price is constant
- The holding cost is known and constant
- Order cost is known and constant
- Stockouts are not allowed.
The Economic Manufacturing Quantity Model
( EMQ) or Production Order Quantity (POQ)
▪ EMQ : Q
▪ Demand rate (demand per day) : D
▪The production rate ( manufacturer’s production per day): P
▪The inventory builds up at the rate of (P – D ) during the production period (Tp), and the
maximum inventory Q, so:
P = Q/ Tp, QM = (P – D) x Tp
Therefore:
QM = (P – D) x Q/P = PQ/P x DQ/P = Q (1 – D/P)
Hence, the average inventory, QM /2 = Q/2 (1 – D/P)
Total annual inventory cost = annual product cost + annual holding cost + annual setup cost
TAIC = APC + AHC + ASC = [RxC] + [Q/2 (1 – D/P) x k x C] + [R/Q x S]
TAIC = APC + AHC + ASC = [RxC] + [Q/2 (1 – D/P) x k x C] + [R/Q x S]
TAIC min when [Q/2 (1 – D/P) x k x C] = [R/Q x S]

2RS P
and the EMQ = x
kC P-D
Example:
Samsung Electronics produces a component internally using a state-of-the-art technology. The operations manager wants
to determine the optimal lot size to ensure that the total annual inventory cost is minimized. The daily production rate for the
component is 500 units, annual demand is 36,000 units, setup cost is $S 150 per setup, and the annual holding rate is 30%.
The manager estimates that the total cost of a finished component is $80. If we assume that the plant operates year-round,
and there are 360 days per year, what are:
EMQ
Total annual inventory cost
Length of each inventory cycle
The number of inventory cycles per year
Plot the movement of the inventory during one production cycle using time on the horizontal axis and on-hand inventory on
the vertical axis

- EMQ=750
The highest inventory level: QM-Q (1-D/P)-600 units The annual product cost-Rx C-36,000 x 80-$2,880,
000
The annual holding cost-Qu/2xkxC-$7,200
The annual setup cost-R/QxS-(36,000/750) x 150-$7,200
The TAIC $2,894,400
The length of the a product period Tp-EMQ/P-750/500-1.5 days
The length of each inventory cycle Tc-EMQ/D-750/100-7.5 days
The rate of inventory builds up during production-P-D-500-100-400 units
The number of inventory cycles per year: 360/7.5-48 cycles
Example: calculating the EMQ at the
Lone Wild Boar Corporation
The Lone Wild Boar Corporation manufacturers a crucial component
internally using the most advanced technology. The operations manager
wants to determine the economic manufacturing quantity to ensure that the
total annual inventory cost is minimized. The daily production rate (P) for
the component is 200 units, annual demand ( R) is 18,000 units, setup cost
(S) is $ 100 per setup, and the annual holding rate (k) is 25%. The manager
estimates that the total cost ( C) of a finish component is $ 120. It is
assumed that the plant operates year-round and there are 360 days per year.
▪ The daily demand rate, D = 18,000 / 360 = 50 units per day
▪ (2 x 18,000 x 100) x (200)
▪EMQ = = 400 units
▪ (0.25 x 120 ) x (200 – 50)
▪The highest inventory level: QM = Q (1 – D/P) = 300 units
▪The annual product cost = R x C = 18,000 x 120 = $ 2,160,000
▪The annual holding cost = QM /2 x k x C = 300/2 x 0.25 x 120 = $ 4,500
▪The annual setup cost = R/Q x S = (18,000/400) x 100 = $ 4,500
▪The TAIC = $ 2,160,000 + $ 4,500 + $ 4,500 = $ 2,169,000
▪The length of the a product period Tp = EMQ/P = 400/200 = 2 days
▪The length of each inventory cycle Tc = EMQ/D = 400/50 = 8 days
▪The rate of inventory builds up during production = P – D = 200 – 50 = 150 units
▪The number of inventory cycles per year: 360/8 = 45 cycles
 Inventory On-hand

Inventory builds khoảng sản xuất này tồn kho trung bình vẫn dùng Q/2 được, vì lượng tồn kho cũng tăng đều
up at 150 unit per từ 0-->300
EMQ = 400 day

QM = 300
Inventory depletes
at 50 units per day
45 production
lots per year
Production
& Demand
Demand only

Tp = 2 days Tc = 8 days Times

Replenishment for dependent demand:
Material planning (MRP/MRP II)
▪ Material requirements planning (MRP) is a software-based production planning and
inventory control system that has been used widely by manufacturing firms for
computing dependent demand and timing requirements.

▪ It further involved into manufacturing resource planning ( MRP – II) by including

other aspects of materials and resource planning.

▪ MRP is used to calculate the exact quantities, need dates, and planned order released
for components and subassemblies needs to manufacture the final products
Example: MRP
Inventory at the start of week 1 800 units

Safety stock 100 units

Leadtime 2 week
Order units 600 units

Period 0 1 2 3 4 5 6 7 8

Gross requirement 210 250 300 300 300 250 200 180

Scheduled receipts

Projected on-hand 800

inventory

Planned order release 0

 ko dc de inventory thap hon 100

0 1 2 3 4 5 6 7 8

Gross requirement 210 250 300 300 300 250 200 180

Scheduled receipts 0 0 600 0 600 0 0 600

nhan hang
Projected on-hand 800 590 340 640 340 640 390 190 610
inventory

Planned order 0 600 0 600 0 0 600 0 0

release thoi gian
dat hang
Warehouse process
Inbound process
Receiving
Put-away
Outbound Process
Principles
▪ FIFO (First-In, First-Out):
▪ LIFO (Last-In, First-Out): reduce level of profitability (khi DN muon giam thue)
hang ben trong gia thap hon hang ben ngoai --> ban hang ben
ngoai truoc

▪ FEFO ( First Expiry, First Out)

▪ FEFO (First Ended, First Out)
Order picking
Packing
Packing
Packing – pieces/ items/ eaches: with individual order picks the operator may
well package the product immediately, attach shipping labels and where
required insert despatch documentation and invoices.

Packing – cartons: In terms of multiple carton dispatch, firstly there is a need

to establish whether it is more cost effective to despatch via a parcel network or
a pallet distribution or LTL carrier.

This will decide the means of shipment – loose cartons or a palletized load.
Stretch wrap
Staging
Shipment
Shipment
Many operations are now taking orders late into the evening and despatching
that same night for next-day delivery.

In many operations receiving tends to take place in the morning whilst

picking and despatch occur during the afternoon and evening as order cut-off
times continue to be stretched later into the evening.

Collecting vehicles should be assigned a bay closest to where the orders have
been accumulated. This requires close coordination between the gatehouse
and the despatch supervisor.
Chapter 4: Warehouse Layout
 How to approach a warehouse design
● Gather as much data as possible and analyse it.
● Try to imagine the business in 5–10 years’ time and build in flexibility.
● Concentrate on the cubic capacity of the building
● Ensure the design is sympathetic to the existing storage equipment and MHE (if applicable).
● Put the health and safety of staff at the forefront of the design.
– In order to retain a conscientious and motivated workforce ensure that the facility has sufficient
lighting and ventilation.
– Provide ergonomic equipment.
● Reduce the amount of movement required within the warehouse.
● Try to standardize the packaging both for movement and storage.
● Understand the local building regulations and floor loading requirements.
● Don’t forget the outside of the building
Warehouse layout
❑Data collection and analysis

❑Space calculation

❑Aisle width

❑Common warehouse layout

❑Storage equipment
Data collection and analysis
The main floor-space areas within the warehouse:
● receiving area;
should we plan and accommodate for the peaks in business?
● quarantine and inspection area; - Khi lượng biến thiên là trong thời gian ngắn, thì có thể chọn thuê nhân lực thời vụ
- Khi lượng biến thiên là trong thời gian dài, cần thay đổi hệ thống để phù hợp
● reserve storage area; storage area lượng mới

● carton-picking area;
● item-pick area;
● value-adding services area;
● packing area;
● despatch area;
● cross-dock area;
● empty pallet and packaging storage area;
● MHE charging areas;
● warehouse offices; and
● restrooms.
 Data collection and analysis
▪ We have to collect the current or historical data and future volumes and changes
in product characteristics.

▪ Additional data required includes the number of supplier deliveries per day and
the average intake together with the number of customer deliveries and the
average order size. The use of averages can be misleading, and you need to decide
on how you deal with peaks in the business

▪ Very few operations have a level volume of storage and activity throughout the
year. For many companies there are a number of peaks and troughs
Overall space requirements
Overall space requirements
Should we plan for and accommodate peaks in business?
 Space calculation
➢ Receipt and despatch areas:
- This area is sometimes overlooked in favour of storage space; however, this is one of the most
important areas in the warehouse
- Having produced a rule-of-thumb formula for calculating the likely space requirement for staging
vehicles on arrival and departure
(number of loads x hours to unload)
Space = x (number of pallets x space per pallet)
time of shift
For example: : if we receive 20 vehicles per day, 26 pallets per load with a pallet size of 1.2 metres
by 1.0 metres and it takes 45 minutes per load to unload and 30 minutes per load to check and we
operate an eight-hour shift:
Pallet floor space = {round-up (20 x 1.25) / 8} x ( 26 x (1.2 x 1)) = 4 x 31.2 = 124.8 square metres
 Storage space
▪ Each item needs to be evaluated and a table produced to record the different item
properties and as a result decide on potential storage media.

▪ Producing a chart detailing the number of pallet locations required and the height
requirement for each location

▪ The next decision is the type of storage medium to use.

▪ Having produced a rule-of-thumb formula for calculating dock space there is a

formula to calculate the number of pallets that can be stored within a given cubic
area when using standard adjustable pallet racking
Total pallet capacity = (Number of width modules × pallets in a module width) ×
(number of length modules × pallets in module length) × number of height modules

where:

Module width = width of aisle + 2 pallet lengths (short side) + clearance between
back-to-back pallets

Module length = width of upright + 3 × clearance + 2 pallets (long side)

Module height = height of pallet + clearance above pallet plus racking beam height
Example
Aisle width: 3.0 metres Racking beam height: 0.14 metre

Pallet size: 1.20 metres × 1.00 metre Height of goods: 1.20 metres

Width of upright: 0.12 metre Height of pallet: 0.15 metre

Clearance (sides): 0.10 metre Warehouse height: 10 metres

Clearance (height): 0.15 metre Storage area length: 120 metres

Clearance back-to-back pallets: 0.10 Storage area width: 48 metres

metre
Module width = 3.0 + 2 + 0.1 = 5.1 metres
Module length = 0.12 + 0.3 + 2.4 = 2.82 metres
Module height = (1.2 + 0.15) + 0.15 + 0.14 = 1.64 metres
Number of width modules = 48 ÷ 5.1 = 9
Number of length modules = 120 ÷ 2.82 = 42
Number of height modules = 10 ÷ 1.64 = 6
Total pallet capacity = (9 × 2) × (42 × 2) × 6 = 9,072 pallets
Therefore in a cubic space of 120 metres by 48 metres by 10 metres we have a capacity
to store 9,072 pallets based on an overall pallet dimension of 1.2 metres by 1.0 metre by
1.35 metres and utilizing a reach truck working within an aisle width of 3 metres
Aisle width
▪ The aisle width is determined by the turning circle of the forklift truck and the size of
pallet being carried.

▪ The safety clearance of 100 mm either side (200 mm in total) of a typical pallet will
need to be added to ensure fast pallet put-away and retrieval. The second dimension is
the overall width of the truck chassis when travelling along the stacking aisle.

▪ Aisle width decisions need to achieve the best combination of productivity, space
utilization, flexibility, safety and equipment costs for the specific application (Piasecki
2002)
Aisle width
Common warehouse layout
Warehouse equipment

❑ Fork – lift trucks

❑ Racking/ shelving
Fork – lift trucks
The fork-lift truck is the ‘work horse’ of most stores and warehouses:

Counter-balance trucks (CBTs): CBTs are the most common trucks to be found in a
warehouse. They can operate inside and outside the warehouse. CBTs can carry
palletized goods to and from racks up to 7 metres high and require aisles of 3.5
metres or more in width.
Fork – lift trucks
▪Reach trucks (RTs): These trucks are ideal for working within narrower aisles. Transport and
stacking in rack areas, reducing aisle widths from 4.0 to 2.7 m
▪Narrow aisle trucks (NATs) : These trucks are designed to operate with little more
aisle space than their own width

▪Hand pallet trucks (HPTs): An HPT has a hydraulic pump to enable the operator to
lift a pallet sufficiently to be able to move it across the warehouse floor

▪Powered pallet trucks (PPTs): These are battery operated and are used for loading,
unloading, picking and pallet-transfer duties to and from the receiving and despatch
areas
▪Multi-level riser picking trucks (MRPTs): are used in order selection and are specially designed
for manual picking at varied levels of pallet racking.

At floor level only At higher levels

Articulated fork-lift trucks (AFTs): or bendy trucks are a hybrid combining CBT/NAT
applications. Powered by battery or LPG, the mast is fitted with ground wheels which are
fixed to the main truck body by a swinging mechanism – hence the name ‘articulated’
Typical fork-lift truck specifications

Minimum aisle width assumes the use of 1 x 1.2 metre pallets and short-side pallet
handing by the fork-lift truck
Racking/ shelving
Adjustable pallet racking (APR): is the most common type of racking. It is adjustable
with the horizontal beams between the vertical uprights, the uprights being fixed
securely to the floor.

Drive in racking (DIR): provides a safe and efficient equivalent to block stacking for
loads that are too fragile or unstable to be stacked on top of each other
Live racking: After pallets are positioned at the end of the racking by, for example, a
fork-lift truck, the movement in the racking is facilitated by having a structure that
permits movement horizontally down the racking by incorporating rollers on which
the pallet slides.
Powered mobile racking (PMR) is racking that is fitted onto rails in the floor. A whole
rack is then powered along the rails and opens up access down the now opened aisle
into the, effectively, normal pallet-racked areas. Once access has been made, that aisle
of racking is closed.

High bay racking: These consist essentially of massive blocks of racking, built as an
integral structure to a high degree of precision, and often acting as a support for the
building’s roofing and wall cladding
 Chapter 5: Management Information
System& Technology
❑ WMS
❑ Information Technology
Warehouse Management Systems (WMS)
▪ Warehouse management systems (WMS) is a complex software package that
helps manage inventory, storage location, and the workforce, to ensure that
customer orders are picked quickly, packed, and shipped.

▪ It handles cargo receiving, receipt documentation, activity tickets (put away

documentation), and picking lists.

▪ The scope of WMS is growing, as it acquires new responsibilities, such

introducing newly arrived product and allocating available locations, coordinating
the assembly of customer orders to meet shipping schedules, tracking productivity
of workers, and so on
Features of WMS
Features of most WMS’s include tools to support:
– Appointment scheduling
– Receiving
– Quality assurance
– Put-away
– Location tracking
– Work-order management
– Picking
– Packing and consolidation
– Shipping
WMS functionalities
▪ Receiving and shipping: The most fundamental capability of a WMS is
to record receipt of inventory into the warehouse and to register its
shipment out.

▪ Stock locator system: This is essentially the ability to manage an

inventory of storage locations in addition to an inventory of product.

WMS should also track the inventory of storage locations in the warehouse
WMS benefits
The potential benefits of having a WMS in place include the following:
● real-time stock visibility and traceability;
● improved productivity;
● accurate stock;
● reduction in miss-picks;
● automatic replenishments;
● reductions in returns;
● accurate reporting;
● improved responsiveness;
● remote data visibility;
● improved customer service; and
● minimized paperwork.
Selecting the right WMS
Form a project team

Define, record, review and improve current process

Create a list of key functions required of the new system

Incorporate any future growth plans in your specification

List the benefits to your company of a WMS

Research and approach a select number of vendors

Visit reference sites since implementation

Produce a return on investment (ROI) report

Advantages of quality information (used
with permission of Tompkins Associates)
 Information technology

▪ Information flows in warehouses and supply chains are as fundamental as the

physical flows of goods and materials.

▪ The timing and quality of the information enables decision-making.

▪ Information flows not only from top to bottom but also internally and externally
Order-picking methods
There are some normal picking methods:
● paper pick lists;
● pick by label;
● pick by voice;
● barcode scanning;
● radio frequency identification;
● pick by light/pick to light;
● put to light;
● automated picking.
 Order-picking methods
▪ Paper pick lists: A paper pick list will normally detail the order number, location,

product code, description and quantity to be picked.

Paper picking requires little investment; however, it can have low accuracy and may
require order validation

▪ Pick by label: pick lists are a series of labels on a sheet, which are printed in pick
order. The picker attaches a label to each item picked and returns any unused labels
to the supervisor’s office
 Order-picking methods
▪ Pick by voice: Operators are issued with a headset and a microphone together with a small
terminal that is attached to a belt or can be worn on the wrist. The WMS sends messages to
the computer via radio frequency (RF) transmissions, utilizing transmitters installed
throughout the warehouse, and these messages are converted into voice commands. The
operator also uses voice to communicate back to the system.
In a survey by ARC Advisory Group and Modern Materials Handling
magazine, nearly 60 per cent of respondents saw productivity gains
greater than 8 per cent in their picking operations when they adopted
voice, whilst another 26 per cent saw productivity gains of between 4
and 8 per cent. More than 83 per cent of the companies who had
implemented voice reported that their investment had met their
financial hurdle goals.
 Order-picking methods
▪ Barcode scanning: A barcode consists of a series of vertical bars of varying widths that
represent letters, numbers and other symbols. Barcodes are used to identify products,
locations in the warehouse, containers (totes, cartons, pallets), serial and batch numbers.
Radio frequency identification
▪ RFID is a means of uniquely identifying an item using radio waves. Data is exchanged
between tags and readers and depending on the frequency, may or may not require line
of sight

▪ There are two types of RFID tags:

-Passive tags have no power source, limited data storage capacity, are read only and
have a limited read range

-Active tags their own power source, have a larger data-storage capacity, have a
read/write capability and are readable from a greater distance.
 RFID
▪RFID makes use of radio frequency waves to capture date in small, electronic read/
write storage devices called tags

▪The RFID technology process starts with a tag, which is made up of a microchip with
an antenna and a reader with an antenna

▪ The reader sends out the radio-frequency waves that form a magnetic field when
they join with the antenna on the RFID tag.

▪ Date is accessible through hand-held and fixed-mount readers in real time.

RFID
 Pick by light/pick to light
▪ Pick to light or pick by light uses light-indicator, LED or LCD modules mounted to
shelving, flow racks, pallet racks or other storage locations

▪ To begin the process an operator scans a barcode on an arriving pick tote or

▪ shipping carton which denotes the next order number to be picked. This communicates to
the system that the operator is ready to pick. The system then sends a message to the zone
in which the operator is stationed and all the pick locations for that particular order light
up at once. Once this has been picked the operator turns the light off to confirm the pick.
Put to light
Once the product has arrived at the ‘put’ station the operator scans each
item and a flashing light displays at each location indicating which
containers (relating to a particular store) require that product and how
many items are required.

Confirmed ‘put’ results are uploaded to the system in real time to update
the WMS.
Chapter 6: Warehouse safety & Security
Warehouse safety
 Physical safety
▪ Aisle lanes marked by yellow lines with signboards

▪ Painted walkways

▪ Painted yellow lines on floor around storage racks

▪ Bollards around the racks to prevent MHE (material handling equipment) crashing into the rack
structures

▪ Ensure all MHE is checked before operation

▪ Fire points (fire extinguishers and fire hose)

▪ Fire access

▪ Bright lighting
Process safety

▪ Secure all goods

▪ Clear path

▪ Only operate within the operating zone

▪ MHE load capacity

▪ Floor cleanliness
Process safety
- 5S (sàng lọc, sắp xếp, sạch sẽ, săn sóc, sẵn sàng)

- 3Đ (đúng sản phẩm, đúng số lượng, đúng vị trí)

- 3V (volume, value, velocity)

Personnel safety
▪ PPE ( Personnel Protective Equipment)
▪ Use of MHE
▪ Safe manual lifting
 Risk assessment
▪ In today’s atmosphere of increased litigation there is added pressure on managers
to ensure the safety of their employees.

▪ A risk assessment is an important step in protecting your workforce and your

business as well as complying with the law

▪ A risk assessment is simply a careful examination of what can cause harm to

people so that you can weigh up whether you have taken enough precautions or
should do more to prevent harm.
Risk assessment
A risk assessment can be broken down into five stages:

Step 1: Identify the hazards.

Step 2: Decide who might be harmed and how.

Step 3: Evaluate the risks and decide on precautions.

Step 4: Record and communicate your findings and implement them.

Step 5: Review your risk assessment regularly and update if necessary.

Identifying the hazard/ loss exposure step 3:
Risk manager have several sources of in4 to esstimate each type of loss exposure:
identify the - loss frequency:
hazard - loss severity:
- risk analysis questionnaire rank exposure by importance
- physical inspection loss severity is more important than loss frequancy
- flowcharts the max possible loss is the worst loss that could
- financial statements happen to the firm during its lifetime
- historical lost data the probable maximum loss is the worst loss that is
Industry trend and market changes can create new likely to happen
loss
exposures
ect.: exposure to acts of terrorism
D/P: 1 NH nho thu, dung cho van don theo lenh
van don dich danh-> ko kiem soat dc dong tien
L/C:
Fire safety
A fire risk assessment must be undertaken to ensure that fire safety procedures,
fire prevention measures and fire precautions are all in place and correct. The
five stages of fire risk assessment are:
Step 1: Identify fire hazards.
Step 2: Identify people at risk.
Step 3: Evaluate, remove, reduce and protect from risk.
Step 4: Record, plan, inform, instruct and train.
Step 5: Review and revise risk assessments as necessary
Other risk
▪ Slips and trips
▪ Manual handling
▪ Working at height
▪ Vehicle
▪ Forklift trucks
Warehouse security
Physical security
▪ The area must be monitored by 24/7 CCTV

▪ All vehicles and the drivers entering the warehouse must be approved prior
entry. Delivery vehicles are recorded at the guard post

▪ Drivers of vehicles must not be allowed to wander about.

▪ Internal staff must not be allowed in the warehouse without a reason. Internal
visitors must be escorted

▪ Alarms should be installed to prevent intrusion

Process security
▪ Only authorized personnel are allowed to receive or issue goods

▪ Goods in the warehouse are to be protected from physical damage and

preserved in their original condition

▪ All goods carried out of the warehouse must be closely inspected to

prevent unauthorized removal.
Personnel security
▪ All staff including visitors must have a pass to be worn at all times

▪ All entries into restricted areas must be controlled by card or fingerprint

▪ For some warehouses, warehouse staff may be subjected to body check

to prevent pilferage
 Pilferage

▪ Inventory control and order processing systems help protecting

merchandise from being carried out of the warehouse unless accompanied by
a computer release document

▪ If samples are authorized for salesperson use, such merchandise should be

main-tained in a separate inventory.