Chapter 8

Warehousing Decisions
 Learning Objectives -
• 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.
• 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. 2
 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.
• 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.
• Describe the various types of packaging materials
available and their relative advantages and
disadvantages. 3
 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.
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The Role of the Warehouse in the Logistics
System: A Basic Conceptual Rationale
• The warehouse is
where the supply • Functions of
chain holds or stores warehousing include:
goods. – Transportation
consolidation
– Product mixing
– Cross-docking
– Service
– Protection against
contingencies
– Smoothing

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 Table 8-1
Warehouse Value-Adding Roles

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 Figure 8-1
Transportation Consolidation

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 Figure 8-2
Supply and Product Mixing

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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

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Figure 8-3 Basic Warehousing
Decisions

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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.

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 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

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Table 8-2 Firm Characteristics
Affecting the Ownership Decision

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 Public Warehousing
• Rationale for Public Warehousing
– Limited capital investment
– Flexibility
• Public Warehousing Services
– Bonded warehousing
– Field warehouses

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 Public Warehousing
• Public warehousing
regulation: • Public warehousing rates
– Liability based upon:
– Receipts • Value
• Fragility
• Potential damage to
other goods
• Volume and
regularity
• Weight density
• Services required

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 Contract Warehousing

• 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. 16
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
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 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
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 Basic Warehouse Operations

• Movement
– Receiving
– Put-away
– Order picking
– Shipping
• Storage
– Stock location
– Warehouse Management System
(WMS)
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Figure 8-6 Basic Warehouse
Operations

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Figure 8-7 The Computerized
Warehouse

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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.

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Warehouse Layout and Design

• Provide for the

transportation
interface.
• Provide for order-
picking space.
• Provide storage space.
• Provide recouping,
office, and
miscellaneous spaces.
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 Figure 8-8
Warehouse Space Requirements

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Figure 8-9 Principles of
Warehouse Layout Design

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Warehouse Layout and Design

• Basic needs:
– Receiving
– Basic storage
area
– Order selection
and preparation
– Shipping

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 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.

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Warehouse Layout and Design:
Layout and Design Objectives

– Cubic capacity
utilization
– Protection
– Efficiency
– Mechanization
– Productivity

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 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

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 Materials Handling
• Definition: Efficient short distance
movement in or between buildings and
a transportation agency.
• Four dimensions
– Movement
– Time
– Quantity
– Space
• Coordination
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 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
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 Figure 8-12 Utilization of a Warehouse’s
Cubic Capacity: Principles of Warehouse Layout
Design

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 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.

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Table 8-5 Principles of Materials Handling

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 Packaging

• Interest in packaging is widespread

– Logistics
• Warehousing
• Transportation
• Size
– Marketing
– Production
– Legal

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 The Role of Packaging

• Identify product and provide

information
• Improve efficiency in handling and
distribution
• Customer interface
• Protect product

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

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 Table 8-6
Comparison of Cushioning Materials

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 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

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