LEVEL 5

Storage and Distribution

 Costs of holding stock
• Cost of capital tied up in inventories
• Costs of obsolescence, deterioration, insurance, etc
• Administration costs such as staffing, stock control systems, etc
• Warehousing costs
 Elements of distribution
• Freight transport
• Warehousing
• Materials handling
• Packaging
• Inventory control
• Plant and warehouse site selection
• Order processing
• Marketing
• Forecasting
• Customer service
Exercise

Consider your own organisation. Who takes

responsibility for the distribution and logistic
functions? What is their job title? Where are they
positioned in the company organisational chart? Has
their title or position changed in recent years?
Exercise

Can you ascertain any changes in your company’s

organisational structure in recent years? Is it less
rigid? Is there an increase in departments working
more closely together or positive action towards
developing cross-functional teams?
 Objectives of the distribution function
• Meeting predetermined cost targets
• Providing a level of service that seeks to grow the business and
raise the organisation profile and reputation in the market
• Contributing toward providing a reasonable profit margin
 Definitions of logistics
• ‘The process of planning, implementing and controlling the efficient
and cost-effective flow and storage of raw materials, in-process
inventory, finished goods and related information from the point of
origin to the point of consumption, for the purpose of conforming to
customer requirements.’ (Management of Business Logistics, Coyle,
Bardi and Langley)
• ‘The process of ensuring that the right products reach the right place
in the right quantities at the right time to satisfy customer demand.’
(Institute of Logistics and Transport)
• ‘The process of strategically managing the movement and storage of
materials, parts and finished inventory from suppliers, through the firm
and onto customers cost-effectively.’ (Martin Christopher)
• ‘The time-related positioning of resource.’
 Objectives of logistics

• To support and simplify the supply chain

• To control total cost
• To improve total quality
• To maximise customer service
• To help increase profit
 The widening spectrum of purchasing activities

Stage 1

Stage 2

Stage 3 =
materials
management

Stage 4 = physical
distribution management
Elements of distribution (Rushton, Oxley and Croucher)
• Storage, warehousing and materials handling
• Transport
• Inventory
• Information and control
• Packaging and unitisation
Distribution operations
 Recent changes in distribution

• The competitive market place has led to rationalisation of providers

while still allowing specialist provider opportunities.
• Technology has transformed many areas: computer modelling has
aided the positioning, design and layout of warehouses; in-cab
telematics have aided route scheduling; satellite tracking has
enabled the location of vehicles to be plotted accurately.
 Arguments for an integrated supply chain
• The need for each link to rise to the forecast demand of other links
and consequently the holding of stock by each link as a means of
anticipating demand.
• The policies and objectives of organisations together with the
individual objectives of departments or functions can be
uncoordinated, leading to additional cost.
 Improving supply chain management

• Forecasting needs to be more accurate and information cascaded

along the supply chain in an accurate and timely manner.
• Policies and objectives are extended outside the organisation to a
linked approach with business partners.
• Forecast demand, logistics information and costs can be made
available to supply chain partners through IT systems.
 Advantages of an integrated supply chain
• Improvement in customer service.
• Being better able to improve market share, to respond in existing
markets and to attack new markets.
• Suppliers becoming an integral part of the organisation, delivering on
time, delivering quality and reducing inventory and associated costs.
 Recent developments
• Recognising the importance of customer service (shown in more
clearly defined customer care policies) together with realising that
logistics can provide a competitive edge through the quality of
service to customers.
• Concentrating manufacturing units, maximising productivity in
production and ignoring political frontiers.
• Centralising distribution depots.
• Developing sophisticated computer programmes, using the latest
techniques in simulation modelling and tracking.
• Improving product control in the use of product dating, barcoding
and radio frequency identification discs (RFID), so shorter-life
products can be handled more effectively.
Exercise

Consider your own organisation. Can you see an

increased emphasis in recent years on supply chain
and logistics thinking?
 Total distribution costs
• A decision to increase customer service by holding additional stock
will affect inventory cost, with an increase in capital tied up, and will
also require additional transport and storage costs.
• Decisions regarding service levels affect the amount of inventory
that must be held.
• Design of packaging to enable maximisation of container load
capacity will incur initial costs which will be recouped later.
• Order processing and invoicing costs contribute heavily to the
storage and distribution activity and can be viewed as part of an
overall total distribution cost.
 Total distribution costs
The total distribution cost concept in the form of an equation.
TDC = TC + FC + CC + IC + MHC + PC + MC
TDC = Total distribution cost
TC = Transport costs
FC = Facilities costs (depots, warehouses)
CC = Communication costs (order processing, invoicing, etc)
IC = Inventory cost
MHC = Materials handling costs
PC = Packing costs
MC = Management costs
 Two ways of assessing trade-offs
• By examining their impact on total system costs (ie looking for how
the trade-off will reduce overall costs in the system)
• By examining how they will impact on sales revenue (ie overall costs
may increase but this may be more than compensated by
measurable improvements in cost-effectiveness and customer
service)
Functional organisation structure
Matrix organisation (in an advertising agency)
 Improving the customer interface
• Developing and maintaining improved performance, reliability and
value throughout the organisation.
• Enhancing the professionalism of staff, their knowledge, their
understanding of customers’ needs and their commitment to quality
and quality improvement.
• Maintaining a well-managed and consistent company profile
development programme to ensure those working within the
company understand their role and the contribution they can make
to customers’ perception of the overall company offer.
Tools for improving the customer interface

• Direct marketing
• Product updates
• Customer team briefings
• Customer satisfaction surveys
• Customer performance review meetings
• Returns policy.
 Delivery processes
• Ordering should be simple and straightforward.
• Internal processes should ensure the availability of goods within an
agreed timeframe.
• Systems should help the order to progress without undue delay.
• Goods should be available when required in the correct location in
direct correlation to the meeting of agreed customer service levels.
• Customers should be kept informed of progress.
• Delivery time and place should be agreed.
• Delivery should be made as agreed.
• In case of undue delay customers should be kept informed.
• Records should be kept in relevant areas such as on-time deliveries,
customer complaints and claims, to monitor the effectiveness of the
service.
• Drivers should be polite, smart and well trained in customer service
skills.
 Developing a customer service policy
• Identify the main elements of service, being those that are most highly
rated by the customer.
• Determine the relative significance of each service element.
• Establish company competitiveness at current service levels offered.
• Identify distinct service requirements for different market segments.
• Develop and cost specific service packages.
• Determine monitoring and control procedures.
• Regularly update customer service packages to ensure they are
continuing to meet the changing needs of customers.
 Benefits of retaining customers
• The cost of acquiring new customers can be substantial. A higher
retention rate means that fewer customers need to be acquired and
that these can be acquired more cheaply.
• Established customers tend to buy more.
• Regular customers place frequent, consistent orders and usually cost
less to serve.
• Satisfied customers are often willing to pay premium prices to a
supplier they know and trust.
• Retaining customers makes it difficult for competitors to enter the
market or to gain market share.
• Satisfied customers often refer new customers to the supplier at
virtually no cost.
 ‘Transaction focus’ v ‘relationship focus’

Transaction focus of marketing Relationship focus of marketing

Orientation on a single sale Orientation on customer retention

Discontinuous customer contact Continuous customer contact

Focus on product features Focus on product benefits

Short timescale Long timescale

Little emphasis on customer service High customer service emphasis

Limited commitment to meeting customer High commitment to meeting customer

expectations expectations

Quality is the concern of the production Quality is the concern of all staff
staff
 Definitions of customer service
• ‘Timeliness and reliability of delivery of products and services to
customers in accordance with their expectations.’
• ‘A complex of activities involving all areas of the business which
combine to deliver the company’s products and services in a fashion
that is perceived as satisfactory by the customer and which
advances the company’s objectives.’
• ‘All the activities required to accept, process, deliver and fulfil
customer orders and to follow up on any activity that has gone
wrong.’
Influences on customer services
Exercise

Consider three companies that you believe are good

at customer service. What makes them so?
 Developing a customer service strategy

• Identify a service mission

• Set customer service objectives
• Recognise that not all customers require the same level of service
• Develop an effective service package that meets the identified needs
 Reasons for poor delivery of customer service

• Lack of clear and consistent thinking at strategic level.

• Narrow vision and thinking from those involved.
• Lack of clearly defined roles and responsibilities.
• Lack of agreed procedures and process compliance.
• Failure to understand the complexities of customer service.
• The difficulty of assessing costs and benefits.
 Needs of customers
• Basic needs are the needs the customer regards as essential. They
do not need mentioning. If they are not met the customer will be
dissatisfied.
• Spoken needs might be requested features that the customer would
like as part of the total value package. They are offered to help
satisfy the customer.
• Unspoken needs are unexpected delights. The customer had not
expected this product attribute or service as part of the value
package.
The circular supply problem
The likely consequences of a decision to meet an unplanned order
Exercise

You are failing to meet targets in the following areas:

• Order fill
• On-time deliveries
• Vehicle utilisation
How would you go about resolving these situations?
 Measuring order fulfilment
• The number of orders completely satisfied, say 18 out of 20 (ie 90
per cent), over a given period.
• The number of lines delivered from a single order, say 75 out of
the 80 line items requested (94 per cent).
• The number of line items or cases delivered from a single order,
say 75 out of the 80 line items requested, but only 1,400 of the
1,800 total line items (78 per cent).
• The value of the order completed, say £750 of the £900 order (83
per cent).
 Aspects of customer service:

Pre-transaction elements
• Written customer service policy
• Accessibility of order personnel
• Single order contact point
• Organisational structure
• Method of ordering
• Order size constraints
• System flexibility
 Aspects of customer service:
Transaction elements
• Order cycle time
• Order preparation
• Inventory availability
• Delivery alternatives
• Delivery time
• Delivery reliability
• Delivery of complete order
• Condition of goods
• Order status information
 Aspects of customer service:
Post-transaction elements
• Availability of spares
• Call-out time
• Invoicing procedures
• Invoicing accuracy
• Warranty
• Returns policy
• Customer complaints and procedures
• Claims procedures
 Key questions for competitive advantage
• How does a company gain a sustainable cost advantage?
• How can it differentiate itself from competitors?
• How can it choose a market segment so that competitive advantage
grows out of a focus-based strategy?
• When and how can it gain competitive advantage from competing
with a co-ordinated strategy in related industries?
• How is uncertainty introduced into the pursuit of competitive
advantage?
 Logistics in the value chain

Support
activities

Primary activities
Exercise

What would be appropriate measures to evidence the following?

• On-time deliveries
• Late customisation (such as adding customer’s own brand
labels)
• Time goods are held in the warehouse
• Items collected and returned to stock
Exercise

How does your organisation view customer service?

Can you see any potential areas for improvement?
 Primary activities in the value chain

• Inbound logistics. Activities associated with receiving, storing and

disseminating inputs to the product.
• Operations. Activities associated with transforming inputs into the
final product form.
• Outbound logistics. Activities associated with collecting, storing and
physically distributing the product to buyers.
• Marketing and sales. Activities associated with providing a means by
which buyers can purchase the product and inducing them to do so.
• Service. Activities associated with providing service to enhance or
maintain the value of the product.
 Storage and distribution: adding value

• Reducing the time for getting a product from the production line to
the customer
• Packaging the product to suit customer requirements
• Adding the customer’s own brand labels
• Picking and packing into smaller or mixed order quantities
• Aiding the development of new products and product lines
 Meeting customer needs

• The right quantity must be delivered

• Special instructions must be complied with
• The driver should be courteous and knowledgeable
• The vehicle must be well presented
 Influences on customer service

• Production
• Trading
• Marketing
• Capacity requirements planning
• Finance
• Demand management
• Purchasing
• Logistics
 Cultural issues in customer service
• People must be encouraged to function as a team.
• People must be properly trained and updated.
• Staff must be motivated to ‘go the extra mile’ for the customer.
 Reasons for poor customer service
• Lack of clear and consistent leadership from the board
• ‘Silo’ thinking
• Lack of clearly defined roles and responsibilities
• Lack of agreed procedures and process compliance
• Failure to understand the complexity of customer service
• Difficulty in assessing costs and benefits
 The board’s role in customer service
• Taking full responsibility for it across the business
• Accepting that everyone in the business has a responsibility for it
• Being realistic about what is being achieved
• Making decisions based on sound understanding of the effect on
customer service and the business as a whole
• Ensuring that departmental objectives are harmonised and
measured
• Ensuring that comprehensive procedures are in place to cover all
foreseeable product shortage situations
• Ensuring process compliance
• Installing comprehensive systems for measuring customer service
performance
• Using customer service as a key performance indicator
 Guidelines for customer service
• Avoiding supply decisions that create or exacerbate product
shortages
• Valuing and protecting service to all major customers (not favouring
one customer over another)
• Containing supply problems (do not allow problems created by one
customer to spill over into the rest of the business)
• Avoiding short-term changes to production schedules that worsen
the overall situation
• Treating problems, not just their symptoms
 Decisions for planning

• What do we do in the future?

• How do we do it?
• When do we do it?
• Who should do it?
 Benefits of good planning

• It involves and informs those concerned.

• It improves communications.
• It provides better co-ordination of activities.
• It identifies expected developments.
• It increases organisational preparedness to change.
• It reduces conflicts regarding the direction of the organisation.
• It forces management to think ahead systematically and realistically.
• Available resources can be better matched to opportunities.
• It provides a framework for the continuing review of operations.
 Implementing strategy

• Where are we now?

• Where do we want to be?
• How are we going to get there?
• How do we ensure arrival?
 The distribution planning process
• Developing a thorough understanding and appreciation of
business strategies and marketing plans.
• Evaluating customer service requirements to determine what
elements are viewed as key.
• Analysing the distribution system and the total costs of production
and distribution, to identify the lowest cost network that meets
customer requirements.
 Structural decisions in distribution

• Types, size and location of depots/warehouses

• Channels of distribution
• Customer service
• Stock levels
• Use of IT
• Third party outsourcing
 Tactical decisions in distribution

• Transport (vehicles: type, numbers, size, configuration, routing,

staffing)
• Warehouse (design, layout, space allocation, equipment)
• Administration/information (stock control and location, order processing
and procedures, monitoring implementation and support systems).
 Operational areas in distribution

• Goods receipt and checking

• Order picking and packing
• Load scheduling
• Handling returns
• Vehicle maintenance
• Deliveries
Exercise

What advantages would your organisation gain from

appointing a logistics director? Would the role be
appropriate in all organisations?
Exercise

What compromises might you have to make if you are

buying a warehouse that has already been used by
another company?
Exercise

Where a warehouse is sited can have a huge impact

on profits and service from the perspective of both an
in-house operation and a third party operator. The so-
called ‘Golden Triangle’ around the M1, M6 junction
is highly sought after. If you were a third party
provider, of any type you select, what factors would
influence your location decision? Would you feel a
national centre complemented by regional distribution
centres may provide better customer service?
Exercise

Does your organisation outsource distribution?

Consider why it does and the advantages and
disadvantages of doing so.
 Monitoring customer service
• Identify all important logistics cost categories along with other inputs
of effort that the organisation incurs in providing customer service.
• Institute systems and procedures for the collection of this cost data.
• Identify and collect output data.
• Prepare a set of desired measures by which logistics activities within
the organisation might be evaluated.
• Establish a mechanism for the regular and meaningful presentation of
status reports.
 Functions of a warehouse

• Receiving, often including functions such as quality and quantity

checks.
• Storing raw materials, parts or finished product with the associated
tasks of handling and stock control.
• Order-picking, which will often include transportation storage to an
order picking location and other tasks such as checking and
packing.
• Despatch, which will often include staging or interim storage.
 Reasons for seeking a warehouse

• The lease on an existing warehouse may be expiring.

• The existing warehouse is no longer functioning adequately and it is
uneconomic to remain.
• The existing warehouse is situated in an area that has become
undesirable.
• Changes in customer location means that transport costs and
customer service may suffer.
 Functions involved in warehousing decisions
• The finance function will have a major input on whether to
purchase or lease, often looking at the warehouse as a long-term
investment in its own right.
• Human resources will have concerns regarding transferability of
current staff and the quality and availability of suitable labour in
the area, either in terms of wage rates or level of technical skills.
• Operations/distribution managers are looking at the warehouse
and its ability to meet the demands placed upon it.
 Factors involved in distribution planning
• The number and type of customers
• The need to enhance sales
• The need to ensure cost-effectiveness and cooperation related to
distribution considerations
• The need to minimise total distribution costs
• The need to ensure customer service levels are met
• The need to receive prompt and accurate feedback
 Types of distribution channel
• Manufacturer direct to customer. This is often used in B2B situations
where a close relationship has built up, or the commercial situation
demands it, or deadlines have to be met.
• Manufacturer via manufacturer’s distribution depot to retail store.
This is a conventional channel that allows for goods to be stored, collated
and delivered to meet customer needs.
• Manufacturer to national or regional retail depots to retail store.
Retailers operate these depots as consolidation depots where goods can
be sorted into correct loads for on-delivery.
• Manufacturer to wholesaler to retail outlet. Wholesalers have
historically provided a pivotal role as intermediaries by supplying the link
between manufacturers and retail outlets.
• Manufacturer via third party distribution service to retail shop. The
growth in third party distribution has been considerable in recent years.
Effect of product characteristics on distribution channels

• High-priced items often employ ‘short channels’ as there is a need

for high levels of service and security issues to be addressed.
• Technically complex products may require direct selling as their
features and benefits need to be clearly explained and understood.
• New products may be marketed directly using a ‘short channel’
until the product gains retail acceptance.
• Time-constrained products, eg milk, newspapers and certain
pharmaceuticals, need to be distributed through a fast, reactive
channel.
 Benefits of outsourcing the distribution function

• Contracting-out frees up resources, particularly financial capital and

time, which can then be devoted to core activities.
• Logistics specialists are well placed to recognise and respond to
rising customer expectations. These could be a serious burden if
distribution remained in-house.
• Contracting-out gives greater flexibility in times of difficulty. Firms
with their own operation may suffer if employees go on strike, or if
demand is very variable during the year. Access to outside
specialists allows the risk to be spread.
• Buying firms gain access to specialist expertise that may enable
them to develop improved distribution systems, offering better
service than customers would otherwise have received.
 Why transport is not outsourced
• A company may be concerned that the third party provider will not give
the required level of service.
• A company may fear that a large number of separate outside providers
– for storage, materials handling, haulage, etc – would complicate
matters.
• Reluctance may stem from a general policy of wishing to retain control.
Handing over major functional areas makes companies feel vulnerable.
 Factors in the outsourcing decision
• Control
• Customer service
• Flexibility
• Management skills
• Recruitment and training
• Return on investment
 Further considerations for outsourcing
• Third party logistics companies will initially lack experience of the
client’s business area and customers.
• The balance of power is shifted from the client to the provider, as the
provider owns the equipment, controls the staff and runs the support
technology.
• There may be issues regarding confidentiality of information but
these should be addressed at the outset within a contractual
framework.
• The two organisations need to work toward ‘cultural compatibility’.
 Third party warehousing services
• Enhanced stock control and inventory management
• Order processing
• Track-and-trace systems
• Timed deliveries
• Collection
• Breaking bulk
• Fleet management
• Inspection
• Picking and packing
• Returns
• Merchandising
• Telesales
• Merchandising
 Problems with using more than one provider

• Each provider has to be scheduled and the relationship balanced

against other providers.
• Additional technology is often required to interface to the 3PLs’
different systems.
• The possibility of capitalising on economies of scale is reduced.
 Problems with 3PLs
• Significant time is still required to manage third party providers.
• The nature of contracts is such that third party providers will
concentrate on asset utilisation to reduce their own costs rather
than in developing a customer-focused approach to logistics.
• Third party providers can only offer a limited range of wider supply
chain skills.
• Third party providers cannot easily contribute to optimising
operations over the wider supply chain.
• By their very nature, contractors are more likely to be concerned
with one-off cost savings than with continuous improvement, which
is what most users are concerned with.
 KPIs for third party contractors

• Correct treatment of customer orders

• Deliveries on time
• Reporting systems
• Monitoring of costs and budgets
• Feedback of statistical information
 Advantages of containerisation

• The introduction of door-to-door movements

• Increased security due to containment
• Reduced handling
• Improved transit and turnaround times
• Cost savings from areas such as packing and better space usage
• Improved service quality
 Disadvantages of containerisation

• Huge initial investment in vessels, ports and facilities

• Costs of investing in, maintaining, tracking and storing containers
• Not all cargoes are suitable for containerisation
 Sea freight for the UK
• Deep-sea shipping (referring to the depth of the ocean). Large
container vessels and bulk-tankers of commodities such as iron ore,
petroleum and grain move the majority of the world’s trading goods.
• Coastal shipping. This has lost its dominant status as the pattern of
trade has changed and the road network has improved.
• Short-sea trades. This term covers short sea journeys from the UK
to European or Irish ports.
 Types of container
• General (dry) container: the most frequently used, this is suitable for
most types of general cargo. It is fully enclosed and has end doors for
access.
• Insulated and refrigerated containers: often referred to as ‘reefers’.
They are specially designed to cater for perishable cargoes, which
need to be transported at low or frozen temperatures.
• Open top containers: designed to accommodate over-height cargoes
or where the cargo needs to be loaded from above.
• Open-sided containers: suitable for cargoes more easily loaded from
the side.
• Flat-rack containers: with panelled-in ends, these are suitable for
over-width or over-height cargoes and will often be used for items
such as machinery and vehicles.
• Half-height containers: these are suitable for particularly dense
cargoes where weight is considerably greater in relation to the volume.
• Bulk powder (or liquid) containers: these are used for specialist
cargoes such as fertilisers, wine and dangerous goods.
 Evaluating sea freight
• Cost. For a large majority of goods, sea freight remains the lowest cost
option.
• Availability. Vessel sailing schedules and types are published up to a
year in advance particularly on the main international trading routes.
• Flexibility. There is a wide range of vessels and vessel types.
• Speed. Vessels are not designed for speed.
• Handling. Container vessels use technology extensively to locate
containers in the appropriate position to allow for loading and offloading
at ports.
 Evaluating air freight
• Cost. Air-freight rates can be high when compared to sea freight but
costs can be reduced by using the services of a freight forwarder.
• Availability. Major international routes can be served many times
daily.
• Speed. The main advantage of despatching goods by air rather than
sea is speed, which comes at a price.
• Handling. Aircraft are limited in the size, weight and capacity of
cargo they can carry. The majority of bulk cargo will be limited to sea
freight for long distances.
 Trailers in road freight
• Containers
• Tilt trailers, where a tarpaulin cover encloses the goods and offers
protection from the weather.
• Draw-bar trailer (also known as a ‘road train’): an extended tilt trailer.
The first part is the rigid vehicle and the second part is a trailer.
• Box trailers: where the carrying unit is a box with solid sides and
doors.
• Flat trailers (also known as flat beds): standard trailers that do not
have a tilt.
 Evaluating road freight
• Cost. Costs are increasing as rising fuel costs, increasing restrictions
on drivers’ hours and congestion are all impacting on the industry.
• Availability. Vehicles are often available at short notice and offer the
ability to deliver door to door.
• Speed. Within the UK road haulage can offer door-to-door deliveries
within a short timeframe. Within Europe road haulage competes
favourably with air freight.
• Handling. By utilising a unitised (standard) load such as a container,
handling can be restricted to loading and unloading the container.
 Advantages of road haulage
• Door-to-door deliveries
• Responsive delivery availability
• Greater efficiency when compared with other transport modes in
short- to medium-distance deliveries
• Reduced delays – with the benefit of telematics delays can be
advised
• Security as loads can be secured at the point of loading and
delivered intact accompanied by the same driver
• Reduced packing costs if goods are containerised or transited within
a known handling network
• Documentation can be that of the consignor and is delivered with the
goods
• Smaller consignments can be sent on groupage services with other
consignments destined for the same geographic location and then
on-delivered, at competitive cost.
 Environmental issues in road haulage

• The creation of traffic congestion

• Road haulage adds to the number of road accidents
• Road haulage causes and adds to noise, vibration and visual
intrusion
• Road haulage adds to pollution
 Evaluating rail freight
• Cost. Rail freight is highly competitive in terms of cost, often utilising
the underused network at off-peak times.
• Availability. This is restricted for most organisations because of the
need to deliver to and collect from a railhead.
• Speed. Although some door-to-door services are offered they are the
exception rather than the norm. Generally speed would not be a
priority.
• Congestion. Rail services remove vehicles from the road network.
• Reduced pollution and energy consumption when compared to
road haulage.
• Dangerous goods movement. Rail offers a proven safety track
record over road.
• Public safety. Rail has an impressive safety record with deaths per
100 million vehicle kilometres at 0.194 on rail as opposed to 53 on the
roads.
 Disadvantages of rail freight

• Lack of ability to offer direct deliveries. Rail is restricted to

movements to railheads.
• Inflexibility, particularly for smaller consignments.
• Lack of speed and adaptability required for just in time systems.
• Specialised wagons limit handling. A constraint that applies in the
UK is the height of the rail wagon owing to the number of low bridges.
 Advantages of express operators
• Door-to-door service
• Strength in carrying and delivering small parcels (although larger
consignments can also be carried) and documents
• Terms of delivery will be ex works (EXW) or delivered to the
customer (DDU or DDP)
• Pricing is on a per kilo basis with preferential rates available, subject
to the volume shipped
Selection criteria for transport modes

• Speed
• Availability
• Reliability
• Cost
 Other influences on transport decisions
• Legal restrictions that may affect the availability of drivers or restrict
delivery times in certain circumstances.
• Flexibility to ensure delivery criteria are met.
• Packaging and documentary requirements may mean that the time
taken to comply with specific regulations may cause an alternative
to be chosen.
 Benefits of effective unitisation
• Moving maximum quantities per journey
• Minimising individual movements
• Additional security
• Better use of space
• Ability to use standard handling and storage equipment
• Less handling
• Reduced pilferage
• Easier transfer from transport to warehouse
 Factors affecting packaging

• The nature and characteristics of the goods

• The value of the goods and the relationship between the value and
packaging costs
• The nature and duration of the transit
• The mode of transport to be employed and its consequential
constraints
• Statutory and other regulations relating to the transit of goods
• The country of destination if travelling internationally: port facilities;
internal road infrastructure
Functions of packaging

• Protection
• Containment
• Identification
 Types of ISO container

• End-loading with a hard top

• End- and top-loading with a canvas top
• End-, side- and top-loading with half-height size walls
• Insulated and refrigerated (reefers)
• Liquid containers within a container frame
 Logistics as a contributor to economic growth

• Efficient logistics extends market reach, by giving manufacturers

access to a wider range of raw materials and supplies. In the UK
approximately 20 per cent of GDP comes from the trade in
international goods. Logistics in its widest sense also includes the
distribution of information and related services, increasing the value
even more.
• Efficient logistics reduces waste, both in production and the use of
capital. The UK is regarded as being among the world leaders in the
efficient use of logistics, representing an important competitive
advantage for UK companies.
 Increase in UK freight transport since the 1990s
• HGV traffic on roads in the UK has increased by 38 per cent when
measured by the number of tonne km transported, although the
number of heavy vehicles has remained about the same. The
conclusion is that there has been a significant shift to larger vehicles.
• Van traffic (measured in vehicle km) in the UK has increased by 40
per cent.
• Rail freight traffic fell by about 20 per cent over the period 1982–95,
but has since recovered to within 3 per cent of 1982 levels.
• UK shipping and port services have experienced 5 per cent growth in
containerised traffic and 44 per cent in lorry or unaccompanied trailer
traffic.
• UK air cargo traffic has doubled in tonnage terms over the past 10
years. One reason is the growth in air travel. As each new route or
service is opened more freight space becomes available.
 Factors influencing the growth in freight transport

• The increasing scale and specialisation of manufacturing plants

because of globalisation, which require more interplant transport,
and which are often further from supply sources and markets
• The fact that production has shifted to complex, high-value products
that require more components or sophisticated processes
• Wider international sourcing as manufacturing moves worldwide
• The demands for more frequent deliveries as stock held has been
reduced throughout the supply chain
Exercise

Spend some time looking at aircraft, vehicles,

containers, etc, with a more critical eye. Look at their
suitability for moving cargo, look at the companies
operating them and look for variations in type.
 Objectives of a fleet manager
• To achieve maximum utilisation of vehicles operating.
• To optimise loads being carried, with all containers fully loaded on
both the outward and inward leg of the journey.
• To schedule maintenance around key operations.
• To use appropriate route planning methods.
 Regulations affecting the fleet manager

• Road Traffic Acts

• Highways Acts
• Transport Act
• Vehicle and Driving Licences Act
• Heavy Commercial Vehicles (Control and Regulations) Act
• Motor Vehicles (Construction and Use) Regulations
• Goods Vehicles (Plating and Testing) Regulations
• Working Time Directive
 The role of the fleet manager
• Planning for disposal and replacement of vehicle, trailer and
ancillary equipment.
• Planning and scheduling maintenance and annual testing.
• Planning for and monitoring key operational areas such as drivers’
hours and health-and-safety compliance.
• Budgeting and costing fleet operations.
• Statutory record-keeping and administration of driver, operator and
vehicle licences, insurance information, vehicle maintenance
schedules and employment details.
• Setting and monitoring key performance indicators to ensure that
required levels of performance are being met.
 Organisational policy on vehicle replacement
• Long-term strategic planning
• Economic life of vehicles
• Legal requirements
• Economic loads
• Vehicle maintenance
• Vehicle depreciation
 Financing the addition of new vehicles
• Outright purchase is the most straightforward method, if capital is
available.
• Leasing avoids the need to provide capital, can include
maintenance and usually does not involve depreciation.
• Hire purchase again avoids a large capital outlay and can offer
certain tax advantages.
• Contract hire. There are many variants and the contract must be
studied carefully to ensure that matters such as insurance,
maintenance and replacement vehicles etc are acceptable.
 Use of short-term contract hire

• To cover for an unexpected increase in business

• To have access to a vehicle configuration it does not carry
• To overcome maintenance downtime of the in-house fleet
 Advantages of contract hire
• The hirer has complete control over vehicles and drivers.
• The hirer retains flexibility as the vehicles are under its control.
• The hirer is usually responsible for service, maintenance and
other charges.
• The agreement will allow for replacement vehicles.
• Costs are known in advance and can be budgeted for.
• Vehicles can be painted in the hirer’s livery for marketing
purposes.
 Disadvantages of contract hire

• Additional costs may be incurred as it may be difficult to secure

back-loads.
• Charges will apply, irrespective of usage.
• Support facilities and staff will need to be provided.
• Vehicles remain the property of the hiring company and will be
returned at the end of the hire period.
 Two options for vehicle maintenance
• In-house garage and workshops with properly equipped premises
and all necessary facilities including qualified staff. This is the most
effective option if run properly but it can be costly; it is usually only
used when there are a sufficient number of vehicles to justify the
overheads.
• Contract maintenance. In essence, this is a commercial contract with
a garage for the servicing and maintenance of vehicle fleets. Many of
the leading vehicle manufacturers offer schemes to purchasers to help
enable this choice.
 Monitoring the maintenance service
• Drivers should have a procedure enabling them to report defects or
concerns, and these should be recorded and acted on effectively.
• Vehicle inspectors or other staff who have a duty to inspect vehicles
must have the authority to take vehicles off the road if they deem it
necessary.
• Written records must be kept regarding maintenance, inspections
carried out, the results of those inspections and when and where the
remedial work was carried out.
 Security measures
• Security should be instilled as a mindset among the drivers and
staff.
• Staff should be adequately vetted.
• Telematics (satellite tracking and use of IT in the cab) should be
considered.
• Basic security measures should be taken (fitting alarms and
immobilisers, not leaving vehicles unattended, removing keys,
varying work patterns).
 Vehicle security
• Lock your vehicle and its load space whenever it is left unattended –
even when making a delivery.
• Do not leave the windows open when away from the vehicle.
• Lock the doors when sleeping in the cab; back the vehicle up against
a wall or barrier to prevent rear access.
• Never leave the vehicle unattended in a secluded area, or at night, in
an unlit area. Try to keep your vehicle in sight if it is left unattended.
• Do not carry unauthorised passengers in your vehicle.
• Be vigilant and cautious when returning to the vehicle.
• In the event of a breakdown, consider the possibility of tampering or
sabotage.
 Issues with own-account logistics
• Capital is tied up in vehicles, trailers and support equipment.
• Maintenance of vehicles is costly.
• Vehicles are limited to in-house use and cannot be hired out.
• Vehicles may be used inappropriately as they are readily available.
• Vehicles may not be able to secure back-loads.
Operating costs for own-account logistics
• Depreciation
• Road and revenue licences
• Vehicle certificates
• Insurance
• Garage and maintenance charges
• Administration and wage costs
 Vehicle running costs

• Fuel
• Tyres
• Spares
• Wages and subsistence expenses of drivers
 Measuring fleet effectiveness
• Mileage travelled
• Vehicle details
• Idle time
• Tonnes carried
• Maintenance records
• Fuel usage
• Driver details
• Tachograph details and analysis
• Delivery records
Fleet effectiveness: key performance indicators

• Miles per litre

• Vehicle utilisation and fill
• Tonnes moved per mile
• Average drop size
• Costs per mile
• Maintenance costs per mile
• Whole life vehicle costs
 The Working Time Directive specifies:

• the maximum working week (48 hours average over a reference period
with a 60-hour maximum in any given week);
• rest periods after work (eg after nine hours, minimum rest of 45
minutes);
• restrictions on night work (10-hour working limit in 24 hours averaged
over the reference period);
• that four weeks paid leave is mandatory (this must be taken in the year
it is due);
• that night workers have an entitlement to health assessment and the
right to transfer to non-night work on health grounds.
 Factors to consider in vehicle routing
• Demand data.
• Time/distance factors.
• Route factors involve the different types of roads, congestion, changing
situations.
• Customer and service constraints which need to be met in order to
attain organisational objectives.
• Vehicle limitations and restrictions and how to work effectively.
• Driver constraints.
• Product and unit load constraints and how to optimise resources
around these key criteria issues.
 Demand data

• Weight (per product type delivered, total delivery weight)

• Cube (volume – the space occupied by the freight)
• Unit loads, roll cages or pallets
• Location including postcodes and Ordnance Survey reference points.
 Customer service implications

• Suitable delivery times

• Whether collection is required
• Access or parking restrictions
• Early closing days
• Drop-size limitations
 Driver constraints

• Driver scheduling and availability

• Work hours
• Licensing
• Training required to drive certain vehicles
• The need for a mate to help with the delivery
 Factors in a scheduling/routing system
• Type of system. Fixed or flexible routes; day or flexible planning etc.
• Standards of operation.
• Routing. This should address the trade-off between efficiency levels
and customer service levels.
• Scheduling. This should aim to attain the best use from vehicles and
drivers.
• Type of vehicle. The correct size and type available to suit delivery
factors.
• Contingency planning.
• Control and responsibility. Measure performance of drivers,
vehicles, loading/unloading time and other relevant factors.
 Definitions of telematics
• ‘Electronic systems which communicate between car (vehicle) and
road, to optimise traffic flow, aid navigation and avoid collisions.’ (Tony
Lewin)
• ‘… vehicle tracking, navigation and real-time driver information.’ (The
London Stock Exchange Regulatory News Service)
• ‘Telematics is the in-cab information system equipment which enables
the logistics operator to manage the fleet, by knowledge of where the
vehicles are and when; how well they are being driven; and how well
they are performing.’
 Steps in vehicle routing
• Establish delivery date and parameters
• Determine geographic data
• Determine demand
• Determine customer drop constraints
• Allocate demand to geographic area
• Decide on geographic rules
• Plan trips
• Plan routes
• Calculate vehicle requirements and mileage
• Calculate delivery costs
• Calculate vehicle utilisation
 Functions of a ‘black box’
• Digital tachograph
• Lorry road-user charging/congestion charging/toll collection
• On-board management systems (covering driver performance, vehicle
diagnostics and vehicle security)
• Fleet management information
• Network performance information
 Issues in load planning
• Complying with product stacking rules such as stacking limits, even
weight distribution (centre of gravity), heaviest items at the bottom
• Ensuring safety in terms of loading and unloading
• Giving consideration to the type of container or vehicle being used:
top-loading, rear access, canvas-sided etc
• Ensuring void spaces are avoided or that suitable filler material is
incorporated
 Four Cs of load planning
• Consolidation: Most loads carried on vehicles are mixed, that is to
say different products and packages often designated for delivery to
different addresses.
• Cost optimisation: In-house operations are subject to financial
scrutiny at all times and work toward continual improvement in their
operation. Third party providers operate in a competitive and
judgmental industry. To remain competitive they must offer low costs
supported by high levels of customer service.
• Collaboration: Where the fleet is managed in-house it is often
difficult to share part-loads with other carriers or secure back-loads.
• Compliance: One potential of load planning software is in helping
transportation providers to comply with tighter loading and unloading
regulations and ensuring compliance with those regulations.
 Logistic based KPIs (Caplice and Sheffi)
• Utilisation: indices measure resource usage and are usually
expressed as a ratio of the actual use.
• Productivity: indices measure ‘transformational efficiency’ and
typically take the form of input/output ratios.
• Effectiveness: indices measure the ‘quality of process output’ as a
ratio of the actual quality achieved to some agreed norm.
 Requirements for road haulage KPIs
• Be defined in clear and unambiguous terms so that they could be
easily understood by staff responsible for data collection
• Be capable of direct and detailed measurement at operational level
• Be measurable in a consistent manner by all participating companies
• Be correlated with operational costs and energy consumption
• Be compatible with data recording systems and software packages
with which company staff were familiar
• Be of direct relevance to the management of the transport operation
• Be widely acceptable across the industry and of possible application
in other sectors
Exercise

Putting yourself in the place of a fleet manager, how

will the Working Time Directive affect your business?
Do you feel it may impact on smaller haulage
operations less than large ones?
Exercise

Develop four KPIs that may be used to measure

customer service standards relating to delivery and
return of goods.
 Functions of HMCE
• To ensure no unauthorised goods are allowed to enter or leave the
country
• To ensure that all relevant import and export duties are paid
• To compile trade statistics
 Declarations are required by HMCE:
• to ensure that import/export licensing requirements are met;
• to provide accurate details for trade statistics;
• to prevent the unauthorised return of duty-free or VAT zero-rated
goods;
• to provide information to assist VAT verifications;
• to enable checks to be carried out on goods that are subject to
controls;
• to check that only valid CT (Community Transit) documents are
authenticated.
 Changes in the work of HMCE
• Relaxation in the rules governing the clearance of imported cargo.
• Increased computerisation and reduction in paperwork.
• A transfer of customs activities from ports of arrival to inland clearance
depots (ICDs) or to the importer’s premises.
• The move by SITPRO (Simplified Trade Procedures Board) to
standardise import and export documentation.
• The establishment of the single European market that came into being
on 1 January 1993.
Four freedoms of the EU

• People
• Capital
• Services
• Goods
 Free circulation
• Goods moving from the UK to European member countries are no
longer classified as exports but are now officially referred to as
‘despatches’.
• Imports from European member countries into the UK are now
referred to as ‘acquisitions’.
• Goods that are in ‘free circulation’ and are transported between
European member countries are no longer subject to Customs
procedure but are still required to evidence their status with either an
invoice, a transport document or a completed ‘Copy 4’ of the SAD
form. Customs authorities always have the right to investigate the
status further if they feel there is a need.
 Purposes of the SAD form

• To allow customs to monitor the movement of goods;

• To ensure all relevant duties have been paid;
• To ensure regulations, such as statistical declaration, have been
complied with.
 Advantages of the NCTS

• An improved quality of service with less waiting time at HMCE and

greater flexibility in presenting declarations
• Speedier control and release of goods at the office of destination
• Reduction in costs, time and effort when compared to the paper
based system
• The opportunity to integrate electronic transit declaration procedures
with an organisations existing computerised system
• Greater clarity and consistency in requirements
 Elements of the CHIEF system
• Full pre-entry or pre-shipment declaration
• Low-value procedure
• Simplified clearance procedure (SCP) post-shipment declaration (prior
approval required)
• Local export and import control
 Imports from outside the EU

Goods may be entered for:

• consumption (ie duty becomes payable)
• warehousing
• transit and transhipment
• importation with a view to subsequent re-exportation.
 Action plan for clearing imports
1 Apply for an import licence (if required).
2 Open a letter of credit or arrange for any other special financial
requirements.
3 Place the order. Agree on the incoterm, payment details and the law that
applies to the contract.
4 Send full details of the documents to the supplier, including documents
required to enable the movement of the goods and details on any
preference, giving forms and certificates of origin (if required). Provide
specific detail if any special packing, marking, invoicing, delivery or other
instructions are required.
5 Receive shipping documents and details. Advise clearing agent.
6 Release the bill of lading (for sea freight).
7 Pass customs entry, paying duty where necessary.
8 Pay port fees.
9 Arrange collection, storage and delivery.
 Documentation for sea-freight imports

• Supplier’s invoices
• Completed valuation form for customs purposes
• C105 or general valuation certificate if goods exceed £4,000 CIF (an
incoterm – see below)
• Import licence
• Packing list
• Health, physiosanitary or other required certificate
• Preference certificate eg GSP, EUR1 (eg a document that evidences
EFTA origin of goods)
 Before goods can be released to customers …
• Clearance by HM Customs & Excise or other relevant body
• Surrender of original bill of lading correctly endorsed (unless a waybill
was issued)
• Payment of outstanding charges including freight cost, customs duty,
etc
 Reliefs from VAT on imports
• Where the importation is of a temporary nature.
• Where the importation is transacted within an approved relief zone or
approved Customs warehouse.
• On permanent importations of specified goods such as goods for
handicapped persons, coffins and urns containing human remains, or
low-value, non-commercial imports (among others).
• Where goods are returned from abroad unaltered they can be
reimported free of VAT and customs duty provided specific HMCE
requirements can be met.
The basic concept of incoterms
 Incoterms specify:

• where delivery should be made

• who insures
• what level of insurance is required
• who raises particular documents
Build-up of costs for the buyer using incoterms
 Ex works terms: the seller must
• provide the goods;
• pack and mark the goods in accordance with the contract;
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed.
 Ex works terms: the buyer

• must pay the price in the contract;

• must arrange any import licence and export/import customs
formalities;
• must arrange and pay freight charges from collection to destination;
• is recommended to buy marine insurance (a term that is equally
applicable to all modes of transport, not just transport by sea).
 FCA terms: the seller must
• provide the goods
• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• load the buyer’s vehicle (if ‘FCA seller’s premises’ has been agreed),
or deliver to the nominated place.
 FCA terms: the buyer
• must pay the price in the contract
• must arrange any import licence and export/import customs
formalities
• must, if applicable, nominate the place of delivery
• must pay onward charges either from the seller’s premises or from
the nominated place of delivery as applicable
• is recommended to buy marine insurance.
 FAS terms: the seller must
• provide the goods
• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• deliver goods to the named port
• pay all charges to enable the goods to be delivered alongside the
ship.
 FAS terms: the buyer
• must pay the price in the contract
• must arrange any import licence and export/import customs formalities
• must nominate the place of delivery
• must arrange and pay loading and sea-freight charges from the
nominated port
• is recommended to buy marine insurance.
 FOB terms: the seller must

• provide the goods

• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• deliver goods to the named port
• pay all charges to enable the goods to be delivered alongside the
ship.
(Note: it is customary, though not obligatory that the seller/exporter
also pays the loading cost.)
 FOB terms: the buyer

• must pay the price in the contract

• must arrange any import licence and export/import customs formalities
• must nominate the place of delivery
• must arrange and pay sea freight charges from the nominated port
• is recommended to buy marine insurance.
 CFR terms: the seller must
• provide the goods
• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• pay all freight costs to the port of destination.
 CFR terms: the buyer

• must pay the price in the contract

• must arrange any import licence and export/import customs formalities
• must nominate the place of delivery
• must pay clearance charges and haulage costs from the named port
• is recommended to buy marine insurance.
 DES terms: the seller must
• provide the goods
• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• pay all freight costs to the port of destination.
 DDU terms: the seller must
• provide the goods
• pack and mark the goods in accordance with the contract
• apply for export licensing (if applicable) or other documentation to
enable the export to proceed
• pay all carriage charges to the place of destination
• recommend marine insurance.
 DDU terms: the buyer must

• pay the price in the contract

• obtain any import licences or similar formalities (customs)
• pay clearance costs, taxes (unless otherwise agreed) and duties.
 Delivery terms are important:
• to determine the point of delivery of the goods;
• to determine the cost of getting the goods to that point;
• to provide a demarcation line where risk and responsibility pass
from seller to buyer;
… and so you must be able to use them in the exam.
Exercise

What Incoterm would you recommend in scenarios 1-8 below and why? (Consider the
mode of transport – air, road, sea, rail; whether the goods are containerised or not;
whether the Incoterm you are suggesting is right for the transport mode; how much of
the cost the seller is prepared to bear.) For the purpose of this exercise you work in the
UK.
1 A full container-load of EU-manufactured goods being delivered by road from the
manufacturer in Turin to an agreed delivery point, being your factory in the UK.
2 Delivery of a consignment of spare parts from your supplier in Malmo, Sweden, by
airfreight to your customer’s nominated airfreight agent in Barcelona, Spain. The
supplier will quote delivery to this point and pay marine insurance.
3 You will collect from your supplier in Singapore and the supplier will load the
collection vehicle.
4 You have been asked by your Russian office to arrange for a container load of spares
to be delivered to a point on the Polish/Russian border by your French supplier. These
goods will then be collected by a Russian haulier for delivery through to your Russian
office.
Exercise (continued)

5 You are supplying a container-load of goods to a customer in Los Angeles. You are
required to deliver to Liverpool inland clearance depot.
6 You are arranging the movement of a consignment of spares sourced from a supplier
in Buenos Aires for eventual delivery to your overseas factory in Hamburg. The goods
are not containerised and are travelling ‘break-bulk’ to Hamburg port where risk and
responsibility will pass.
7 You have been asked to quote for the delivery of a container-load of spares from
your UK factory delivered through to the quayside in Singapore.
8 You have received your first enquiry from a new customer in the USA. The order size
is $250,000.
Solution

1 The correct answer is DDU. The goods are being delivered to the country of
destination therefore a ‘D’ term is applicable. The goods are manufactured in the
European Union and are being despatched to another European member state. No
duty will apply.
2 The Incoterm used must be one suitable for air freight. The goods are being
delivered from the country of origin (Sweden) to a nominated place in the country of
delivery (Spain). The term that should be used is a ‘C’ term. CFR and CIF are sea-
freight terms and do not apply. CPT does not include marine insurance. The
answer is CIP.
3 EXW does not allow for loading. The correct term is FCA.
4 You have been asked to deliver to a point on the Russian/Polish border, ie a frontier
point. The goods are travelling by road. DAF is the correct answer.
5 You are the exporter delivering to a place in the UK. You are not paying main
carriage so a ‘main carriage unpaid’ term would apply. FOB requires you to get the
goods to a point where they ‘cross the ship’s rail’. This is not asked for. FAS
requires that the goods are ‘alongside the ship’. This is not asked for. The correct
answer is FCA as this allows the nomination of a place where delivery can be made.
Solution (continued)

6 The goods are not containerised. They are travelling by sea freight. They are being
delivered to a port. The two terms that could apply are CFR or CIF. There is no
mention of insurance. CFR will apply.
7 You are the exporter arranging delivery from the UK to the quayside at Singapore
Port. You will be paying the main carriage to enable the goods to get to that point. No
‘C’ term allows you to place goods on the quayside. CPT asks for a named place but
that implies a place of operation such as an inland clearance depot or freight
forwarder’s premises. DEQ is therefore the appropriate term.
8 There is no right or wrong answer. This question is to stress that Incoterms are also
influenced by commercial considerations. What level of service do you want to
provide? How much additional capital do you want to tie up?
 Functions of a warehouse
• To act as a collection and distribution point for items of stock
• To provide convenient and secure storage for items of value
• To provide space for related administrative activities
• To house materials handling equipment
• To keep down production costs by allowing long production runs
• To help link demand requirements with production capabilities
• To provide a buffer to smooth variations between supply and demand
• To enable procurement savings through large volume purchases
• To enable large seasonal demands to be catered for more economically
• To provide a good customer service
• To allow cost trade-offs with the transport system
• To facilitate order assembly
• To provide a wide range of products from different suppliers in one
location
• To cover for production shutdowns
Exercise

Give four areas where the warehouse can add value.

 Factors determining storage requirements

1. How many outlying units are to be served by the stores? Where are these located?

2. How many stock items are to be held?

3. How can these items be classified for storage purposes? For example, how many
are small items that can be stored in drawers or trays, how many are best stored in
pallet racks, which items need special storage facilities?

4. What volume of stock will be issued/received each day?

5. What major handling equipment will be used (mobile cranes, forklift trucks,
conveyors etc)?

6. What transport modes will be used? How many trucks will be loaded or unloaded
each day, will rail or water borne transport be needed etc?

7. How many staff will be needed?

The cost of stores facilities
 Factors in warehouse design

• Purpose of the warehouse

• Choice of materials handling systems and equipment
• Size
• Location
• System requirements
• Overall layout
 Data required for warehouse design
• Goods handled (inventory levels, handling requirements)
• Order characteristics (service levels, order frequency)
• Goods arrival and despatch patterns (vehicle types and sizes, unit
loads to be handled)
• Warehouse operations (picking and packing, administration)
 Design and layout principles for warehouses
• Use a one-storey building wherever possible.
• Use straight-line or direct flow of goods in and out of the warehouse
with goods being delivered at one end, held, and ranked according to
ABC analysis.
• Utilise an effective storage plan to maximise warehouse operations and
to avoid inefficiencies.
• Use efficient materials handling equipment.
• Minimise aisle space within the constraints of the size, type and turning
circle of materials handling equipment.
• Maximise use of the building’s height to use the cubic capacity fully.
• Use an efficient system of product identification.
• Plan for growth.
• Ensure full attention is given to health and safety issues.
 A warehouse protects goods
• Space utilisation should separate hazardous materials from other
items to reduce the risks involved.
• Items requiring special security should be located in a specific and
protected area.
• Items requiring physical control such as refrigeration should have a
dedicated area.
• Warehouse personnel should be made aware of the dangers of
stacking light or fragile items near others that could cause them
damage.
 Types of stores facility
• Stores buildings may be physically separate from the
manufacturing sites they serve or may be a section within the main
manufacturing locations.
• Stockyards are exterior storage areas used for stock items that will
not suffer from exposure to the elements.
 Features of an effective warehouse
• A building design that allows for maximum flexibility
• Good road and rail access
• Ideally the location should be ‘out of town’
• Doors and loading bays that allow ready access while offering security
• Additional outside parking for vehicles that may need to queue to gain
access
• Clear access within the warehouse
• Durable and sealed floor surfaces
• Adequate ceiling height
• Dry, well-ventilated atmosphere with adequate heating
• Good security features
• Adequate lighting with natural light where possible
• Compliance with building and fire regulations
• Adequate parking facilities for staff and access via public transport
• Office space
 Factors in selecting a storage system
• Type of goods handled
• Suitability of goods for unit loads
• Effective utilisation of the ‘cube’ of the building, perhaps requiring
high-aisle racking and hence appropriate handling equipment
• Accessibility
• Security considerations
• Personnel safety
 Constraints on storage capacity

• The use of fixed locations for certain stock lines

• The application of ABC analysis classifying stock into high-, medium-
or low-usage stock areas
• Whether goods can be held at random locations
 ABC storage
• High usage (Category A) items should be located close to
entrances, despatch areas or pick-and-pack areas as deemed
necessary.
• Medium usage (Category B) items will be located further from the
main areas.
• Low usage (Category C) items will be kept in less utilised areas.
The throughflow system
 Advantages of throughflow systems
• Useful if goods in and goods out vehicle requirements are different.
• Works well if it is in a natural flow with other processes.
• Total separation of the ‘in’ and ‘out’ sections reduces scope for error.
 Disadvantages of throughflow systems

• Loading bays take up a lot of space.

• Bay security and management may be more difficult.
• Internal movement may be greater than with other systems.
The ‘inverted T’ system
 Advantages of the inverted ‘T’ flow system

• Good utilisation of loading bays and materials handling equipment.

• Flexibility for expansion on three sides.
• Popularity storage reduces need for movements.
• Segregation aids handling.
 Disadvantages of the inverted ‘T’ flow system

• Central aisle becomes prone to congestion.

• Expansion requires some modification of flow.
• Moving items from bulk storage to stock or to despatch requires tight
control.
The crossflow system
 Advantages of the ‘crossflow’ system
• Good utilisation of loading bays and materials handling equipment.
• Flexibility for expansion on three sides.
• Popularity storage reduces movement.
• A combination of ‘bulk’ and ‘standard’ stock can be utilised across the
width of the warehouse, normally with Category A items the most
accessible and bulk items the least accessible in terms of flow.
• One-way flow is clearly defined.
 Disadvantages of the ‘crossflow’ system
• Segregation into high, medium and low usage may not always be
possible.
• Combination of ‘bulk’ and ‘standard’ stock can present problems.
The cornerflow system
 Advantages of a single-storey building
• The cost per cubic foot is much less because the shell can be of
lighter construction.
• The weight-carrying capacity of an upper floor is limited by
structural constraints.
• The costs of transporting items between floors are avoided.
• More use can be made of natural daylight.
• Adequate ventilation is easier to arrange.
 Purpose-built vs converted stores buildings
Purpose-built buildings Converted buildings
Advantages Disadvantges
• Most efficient layout can be planned • Layout may be tricky (eg with uneven
• Latest techniques can be incorporated floors and badly placed doors)
• Building is exactly adapted to the • Expensive equipment may be needed
firm’s needs to correct environmental conditions
• Not exactly adapted to the firm’s
needs
Disadvantages Advantages
• Design and construction is expensive • Inexpensive compared with
• Conflicting interests between stores construction from scratch
and other functions such as finance • Flexibility – if needs change, stock can
• Risk of expensive misjudgement be moved elsewhere
• Careful planning and layout can
produce very useful storage facilities
 Warehouse KPIs: cost

• Staff, including overtime and other payments

• Building and site
• Equipment and other resources
• Maintenance
• Pallets and pallet repair
• Usage of packing materials and other consumables.
• Service, including any bought-in services
 Warehouse KPIs: customer service

• Stock availability in the warehouse

• Order lead-time
• Percentage of orders completed on time
• Percentage completeness of order fill
• Number of outstanding back orders
• Damaged stock
• Returns and customer complaints
 Types of racking
• Fixed pallet racking is constructed of a strong frame usually
made of steel with shelving of the same material.
• Adjustable pallet racking is similar in design but is configured so
that the shelves can be set at any required height and adjusted as
necessary.
• Drive-in and drive-through racking. These are pallet-based
racking systems that allow access for forklift trucks.
• Push-back racking allows pallets to be stored up to four pallets
deep on flexible racking.
• Cantilever racking is designed for the storage of long items such
as bars, tubes and sheet materials.
• High-rack and narrow-aisle racking. Designed to maximise
space, the racking utilises the full height of the warehouse with
aisles placed as close as possible to each other to allow access by
either manually driven or computer-controlled forklifts.
 Types of shelving
• Long-span shelving offers a full range of beam sizes and load
capacities that are easily adjustable in sturdy upright frames.
• Closed shelving with sheet steel backing and sides easily divided for
small parts storage.
• Carton live storage allows containers or tote-boxes to flow down
inclined rollers permitting first in, first out (FIFO) stock rotation and
order picking.
• Line-side carton live storage units operate in a manufacturing or
assembly area and are particularly suitable where just in time (JIT)
manufacturing processes are used.
• Mobile shelving systems permit increased flexibility and can make
the best use of usable space.
 Types of pallets
• Standard two-way or four-way wooden pallets where the forklift
can approach the pallet fron two sides or four sides respectively.
• Box pallets are standard pallets with a box structure incorporated
into the design.
• Eco pallets are used extensively in the food and pharmaceutical
industries.
• Post pallets have a post framework at each corner and this provides
stability for goods that are not always suitable for palletisation.
• Steel pallets suitable for heavy loads or drums etc.
 Methods of materials handling

• Manual handling
• Manually operated mechanical handling equipment
• Forklift trucks
• Crane systems
• Conveyors
 Aims of mechanising handling

• To cater for heavy loads

• To save time (important to keep production moving without disruption)
• To save labour (though the reduction in cost must be balanced
against the costs of owning and running the equipment as well as
safety considerations)
• To save space (much of the stock stored on pallet racking, for
example, would be out of reach without mechanical handling
equipment)
 Benefits of materials handling equipment

• Reduce overall handling costs

• Allow greater economy in use of space (through higher stock density)
• Reduce potential damage to stock
 Selecting materials handling equipment
• What requirements are imposed by the nature and types of goods to
be handled?
• What requirements or constraints should be considered in respect of
the warehouse?
• What is the cost-effectiveness of using different types of handling
equipment?
• What quantity of material will be handled?
• What loading distances have to be travelled (horizontal and vertical)?
• Does the use of certain types of equipment enhance safety within the
operation?
• What activities are taking place in adjacent areas?
• What flexibility is required?
Comparison of handling technologies
 Options in materials handling
• Manually operated equipment such as banding machines, trolleys and
shrinkwrap machines
• Automated and computerised equipment such as conveyor systems,
automated guided vehicles and driverless trolleys
• Mechanical handling equipment including lifting equipment such as
forklifts (variations include straddle trucks, reach trucks, free-path
narrow-aisle trucks, rising cab or counterbalanced trucks)
Types of power-driven equipment

• Forklift trucks
• Platform trucks and trailers
• Order pickers
• Cranes
• Conveyors
 Principles of order picking
• Picking methods and equipment should be appropriate for the
application.
• Stock availability at the picking face must be maintained.
• Equipment should be laid out and stock positioned in the picking area for
minimum movement but avoiding congestion.
• Picking stock should be concentrated into the smallest feasible area in
order to minimise picker movement, while at the same time avoiding
congestion.
• A prerequisite for effective picking is an information system.
• Stock rotation and similar constraints must be met.
• Performance should be monitored for speed, accuracy and
completeness of order.
Typical order-picking cycle
 Selecting handling systems and equipment: principles

• Elimination of unnecessary movement and minimisation of necessary

movement
• Selection of the most appropriate handling methods to meet
requirements
• Provision of adequate handling capacity
• Integration of handling with other operations
• Thorough and effective operator training
• Effective equipment maintenance
• Overall control of position and movement
 Management control of unit loads
• Compile a complete register of all unit loads owned, leased or hired.
• Mark all units with a company name and/or logo together with a unit
number. Some organisations mark equipment with fluorescent
marking that will only show up under the correct lighting.
• Make identification of ownership clear to those who may use the
asset. A ‘property of’ declaration is commonplace plus return details.
• Drivers and staff must be made fully aware that disposal of company
property is both a crime and a dismissible offence. The culture of staff
and drivers taking responsibility for security of company assets should
be encouraged.
 Reasons for maintaining stock records
• To indicate the quantity of any item without the need to perform a
time-consuming physical count.
• To indicate when new supplies should be ordered or manufactured.
• To act as a check on physical stock levels.
• To record the locations where items of stock are held.
• To provide financial information, eg for use in pricing or for
preparing periodic financial statements.
 Product codes vs names

• Names can be easily confused.

• Names do not provide any way of accurately categorising goods.
• Names are not easily input in computer systems.
 Product codes provide savings in:
• time required for completing documentation;
• time required for incorporating into a computerised stock
control system;
• data storage capacity required in a computer system.
Advantages of a good coding system (Jessop and Morrison)
• It avoids repeated use of long descriptive titles.
• It accurately identifies all items.
• It prevents duplication of items.
• It assists standardisation and variety reduction.
• It provides a foundation for an efficient purchasing organisation.
• It forms a convenient basis for sorting and recording of documents.
• It simplifies recording.
• It is convenient for central analysis of unit storehouse records.
• It can be employed as a basis for stock control accounts.
• It may be used as a warehouse location system.
 Advantages of a coding system (Quayle and Jones)

• Coding leads to better identification of physical materials in the

factory or warehouse. This is of greatest interest to the stores,
inspection and production functions.
• Coding provides easier reference for recording and analysis. This is
of concern to the administrative and clerical functions.
• Coding offers a better means of identifying and classifying for
charging value to jobs. This is the concern of the finance function.
• Coding is an aid to all activities of materials management and control.
This is of significant importance to senior management.
• Coding is an aid to, or in many cases a prerequisite of, stock control
systems.
 Principles for developing a coding system
• It must be capable of covering all items likely to be used, not only now
but also in the future.
• It must be designed to suit the needs of the organisation.
• It must allow for expansion without duplication occurring.
• Each item must appear only once and the system must be designed to
ensure this occurs.
• There must be a constant number of symbols or digits in all code
references.
• Each group of symbols and/or digits must signify only one object.
• Descriptions and specifications on which the system is based should be
as brief as possible while maintaining accuracy.
 Requirements of an effective coding system
• Each code should be unique and certain. Each item should have only
one possible code number that can be easily identified from the
structure of the code.
• It should not be possible for two people to allocate a different code
number to a single stock item.
• The coding system should be comprehensive and flexible, ie it
should be possible to identify a code number for every item.
• The coding system should be capable of expanding to accommodate
new items.
• The code should be as brief as possible, having regard to the
amount of detail needed in any analysis of items that may need to be
performed.
• The coding system should be centrally controlled. It should not be
possible for individuals independently to delete codes or add new
codes to an existing system.
 Purposes of a stock control system
• To indicate when an item should be made or bought
• To assist in deciding the quantity to be bought or made
• To regulate the level of stock for each item so that stockouts and
excess stocks are avoided, but costs of investment in stocks are
minimised
 Objectives of stock control
• To monitor the movement of materials and goods in and out of
stores, the degree of measurement varying according to the
individual usage of each item
• To indicate when each item should be re-ordered and what quantity
should be ordered
• To maintain sufficient materials and goods in stock to provide the
required service level to the user
• To check that all or specific materials and goods are only issued by,
or received into, the stores upon receipt of, or accompanied by, the
appropriate documentation
• To provide a basis for the satisfactory control of storekeeping
• To maintain perpetual stock records which enable stock levels to be
regulated and/or checked at any time
• To identify categories of stock (ABC)
• To ensure, in conjunction with the above objectives, that total
inventory costs are minimised
 Advantages of efficient stock control

• Minimise investment in stock

• Allow money to be available within the company for other purposes
• Keep ordering, administrative and stockholding costs as low as possible
• Reduce the possibility of obsolescence, physical deterioration and
breakages in stores
 Considerations in a stock management policy
• Customer service levels required
• Nature of the relationship with suppliers (eg strategic; building the
supply chain; adversarial; getting the best value for the organisation,
etc).
• Financial constraints
• Stock investment
• Nature and type of goods
• Competitive considerations
 Reasons for holding stock
• To minimise production costs.
• To take account of variable lead time. Owing to production costs or the
costs that may be incurred in not meeting customer service standards it
may be deemed necessary for safety stock to be held.
• To minimise buying costs.
• To take advantage of bulk discounts.
• To allow for price fluctuations and speculation.
• To accommodate seasonal fluctuations.
 Pareto analysis
• Category A items: the ‘vital few’. Small in number but high in usage
and/or value.
• Category B items: ‘normal’ items. Medium in number, medium usage
and/or value
• Category C items: the ‘trivial many’. High in number, low usage
and/or value.
Pareto analysis of stockholdings
 Advantages of ABC analysis (Zenz)
• Reduced purchase prices
• Reduced purchasing department costs
• Reduced receiving and inspection costs
• Reduced materials handling and internal traffic costs
• Reduced stores costs
• Reduced expediting costs
• Reduced traffic costs
• Reduced accounts payable costs
• Reduced stockouts in stores operation
• Reduced manufacturing cost
• Reduced costs for production control
• Reduction in total average inventory
• General improvements in all involved departments
 Dependent and independent demand
• Dependent demand – the extent to which the item is used depends
on the production schedule for a larger item of which it forms part. To
estimate the demand for such items requires detailed examination of
the whole production scheduling process.
• Independent demand – these are items such as maintenance, repair
and operating (MRO) supplies. The extent to which lubricating oil is
required to maintain machines in working order does not depend on
which products are being processed on the machines.
 Stock replenishment systems
• Periodic review system. The stock level of the product is
determined and examined at regular or fixed intervals and,
depending on the quantity in stock, a replenishment order is
placed.
• Fixed order point system. A specific stock level order point is
agreed. When the actual level reaches that point a replenishment
order is placed.
 Four questions for periodic review systems
• How is the review period determined?
• What form does the review take?
• What quantity should be ordered?
• What types of item does this system apply to?
 Determining a fixed order quantity
• The two-bin system. For each stock item two bins are maintained.
The first is for day-to-day use. The second contains the level of stock
representing the order point. As soon as the first bin is emptied, it is
automatic to re-order. While waiting for the order to be delivered the
contents of the second bin are used. Both bins are replenished when
the order arrives.
• For items of large value it may be sensible to use a fairly scientific
approach such as the economic order quantity model. This is used
to compute the order quantity for which combined ordering and
holding costs are minimised.
 Measuring stock service levels

• Production aiming to meet all operations from stock on-hand and when
required
• Finance aiming for zero stocks to minimise capital outlay
• Storage aiming to meet both these needs
 Reasons for introducing new stock items
• Lack of coordination between departments.
• No specification is in use.
• Branded products are used when a generic product would be equally
efficient.
• A wide range of a product is held when a reduced number would
suffice.
• A wide range of sizes of a product is held, eg 1 kg, 2 kg, 5 kg, etc.
 Objectives of variety reduction
• To move to standardisation on areas such as product sizes
• To investigate the feasibility of new products using existing registered
components
• To reduce its offerings on colours and finishes
 Questioning new stock items
• Why is the item required?
• What is the potential future demand?
• Can the need be met by a current stock item?
• Can the new item replace any item currently held on the existing
inventory?
• Is it essential to stock this item? Can the supplier deliver on a just-in-
time basis?
 Obsolete and redundant stocks
• Obsolete stock is stock that has become outdated and is no longer
appropriate for current requirements.
• Redundant stock is stock that is excess to foreseeable
requirements. Redundant stock can arise from over-ordering or
because of a failure to react appropriately to a decline in demand for
the item.
 Minimising obsolescence and redundancy

• Ensuring that patterns of demand are monitored continually so that

stockholding policies can be modified in line with changes at an early
stage.
• Ensuring that there is regular communication between purchasing and
other functions.
• Maintaining stocks as low as is practicable on items that are liable to
become obsolete.
• Ensuring that required items are on hand at the time they are needed
or not much earlier.
• Instigating regular checks on stockholdings.
 Minimising damaged stock

• Check stock carefully as it is received into stores. Damaged or

inadequate packaging needs action to ensure that the stock will be
protected.
• Use stock in the order in which it is received.
• Maintain conditions that are appropriate to the type of stock – for
example, in terms of temperature, humidity and so on.
• Train all staff in the use of handling equipment and stress the
importance of moving stock items carefully.
Smith’s ‘triangle of waste’
 Maximising residual value

• Circulate to other potential users

• Negotiate a return price with supplier
• Advertise, invite offers
• Sell by auction
• Sell to a merchant or dealer
• Sell to employees
• Give to a deserving cause
• Recycle
• Dismantle for spares
 Examples of reverse logistics
• Goods returned, as they are faulty, damaged or fail to meet
customers’ expectations
• Product recall for quality or safety reasons
• Unwanted or surplus goods
• Pallets, roll cages and other unit load devices being returned after
use
• Used packaging being returned for recycling or disposal
 The importance of reverse logistics
• More retailers are offering a no-quibble returns policy to customers.
• Customers are becoming more likely to return products.
• Customers are more aware of their rights to return goods.
• Internet selling and the growth in home delivery encourage and
increase returns if the product fit is not as expected.
• Environmental legislation is forcing recycling of products and
packaging.
• Hazardous materials require special handling and disposal.
• Disposal of waste electrical and electronic equipment (WEEE) could
cause end-of-life products to be returned to the retailer.
 Methodology in reverse logistics
Procedures are needed:
• to collect surplus or unrequired stock from customers and return it to
stock
• to repair damaged but repairable items
• to repack stock with damaged, irrelevant or out-of-date packaging.
 Reasons for returns (David Hughes)
• Over-merchandising
• Poor ordering
• Promotional stock pushed into shop
• Customer warranty returns
• Bulk product recalls, unfit for sale
• Damaged packaging or damage in transit
• Wrong delivery
• End-of-season ranges, end of promotion, end of sale
• Change of display
• Stock-counting forcing a clear-out or discovery of lost stock
• Badly bought goods, slow sellers
• Dead or dormant stocks
• Salvage from sun damage, fire, flood
• Out of date, past its ‘best before’ date, obsolete
• Reallocation, branch-to-branch transfers
• Return to inventory
Communication costs of product recall

• Registered and certified mail

• Return receipts
• Instructions
• Telephone, faxes and emails
• Messenger service
 Documentation costs of product recall

• Filing of receipts of notices for recall

• Estimates for disposition and replacement
• Plans of items recalled
• Plans for replacement item
• Instructions for replacement/repair
• Authorisations for work to be performed
• Receipts for items replaced/repaired
 Replacement costs of product recall

• Manufacture and installation

• Employee visits
• Shipping, packing and warehousing
• Testing and re-testing
• Identification of product
• Identification of carton
• Temporary personnel
• Invoicing
• Overtime of employees
Disposition costs of product recall
• Locating all items
• Inventory of items
• Removal from customers’ property
• Packaging and unpacking
• Labelling
• Shipping
• Inspection
• Repair and replace
• Discard or salvage
• Instruction pamphlet
• Refunding
• Allowances for time used
• Repurchase of item
• Compensation for loss of use
• Warehousing storage
 Roles of returns centres

• Physical consolidation at a single processing point

• Managing the disposal, duty of care or resale into the secondary
market
• Providing a central supplier credit management service
• Supply of accurate returns handling costs by product
Exercise

Hippy Baby Foods have discovered that their top

selling Banana and Mushroom baby food has been
contaminated. Sales are via the major UK
supermarkets, specialist stores and via agents in
Europe. You have been asked to arrange a product
recall. How would you go about it?
Exercise

Hippy Baby foods have realised that they need to put

in place rigorous reverse logistics systems to ensure
they can track product and enable its successful
return should contamination or a similar event occur.
How will you ensure the new system works
successfully? What key performance indicators would
you put in place to enable you to measure success and
to provide a basis to improve on?
Aspects of vehicle security

• Keys
• Vehicle alarms
• Immobilisers
• Windows etching
• Tracking systems
 Security issues in warehouse layout
• The total number of doors.
• Containers, skips or waste bins should be placed away from doors.
• Cargo is at its greatest risk when being loaded and unloaded.
• Toilets and rest areas should be positioned so as to ensure that
drivers do not enter into the body of the warehouse.
• Employee parking should not be too accessible to employees who
wish to steal inventory.
• Use warehouse equipment that secures areas.
• The use of night patrols and guard dogs can enhance the security of
premises.
 Precautions in recruitment

• Taking up and verifying references

• Clarifying gaps in their employment records
• Checking originals of all relevant documentation (including birth
certificates and qualifications)
• Avoiding employing anyone with a record of alcohol abuse, gambling
or financial irresponsibility
• Exercising special care when recruiting temporary drivers or agency
staff – a reputable agency should be used
 Security over visitors

• Sign in
• Carry identification tags
• Be monitored while in the building or warehouse
• Sign out on leaving.
 Training staff about security

• Communicate penalties for dishonesty of staff

• Train in secure systems for high-value loads
• Train in security awareness
• Ensure they do not discuss plans etc outside of work
• Encourage team working for loading and unloading – for example,
watching tailgates
 Systems for control and management

• Organisational level systems will need to integrate with an over-

arching system such as materials requirements planning (MRP) or
enterprise resource planning (ERP) system.
• Standalone systems are more common among smaller organisations.
They are usually operationally based providing information required to
ensure the operation runs effectively and that identified performance
indicators are being met.
• Many organisations will operate two systems in tandem with
interfacing information via the organisation’s systems and specialist
operational software meeting operational requirements such as
transport scheduling and deliveries.
Characteristics of computerised warehouse management
systems
• Accuracy by reducing errors inherent in manual clerical recording,
and by reducing or eliminating altogether the need for human data
input or transfer
• The speed of data collection, processing and communication,
including immediacy of updating computer files and immediacy of
information recall
• The facility for work planning and allocation of staff and equipment
• The reduction or elimination of clerical effort
• The ability to process and present information
• The ability to track goods as they move through a system
• The ability to work out present performance monitoring information
• Information visibility
 Information flows in warehouse systems

• Who originates and ‘owns’ the information

• Who needs to receive it
• What it is used for
• When it must be originated and received (together with time taken)
• What information must be transmitted
• The reliability of both the information and the process
• What costs are incurred
 Requirements of a computerised system

• Order processing and progressing

• Total document generation
• Barcode reading of goods
• Direct input to HM Customs & Excise systems
• Automated warehouse goods retrieval applications
• Automatic report generation
• Computer simulation modelling and contingency planning
• Vehicle loading and scheduling
 Types of integrated system
• Direct product profitability (DPP) – this allocates costs to specific
products so that areas of inefficiency are identified.
• Materials requirements planning (MRP) and distribution
requirements planning (DRP) systems reduce freight, storage and
inventory holding costs and improve customer service.
• Just in time (JIT) systems minimise costs and wastage in production
(linked to supply and demand).
 Service level measurement
• Stock availability
• Order lead time
• On-time orders
• Accuracy and completeness of order fill
• Number of back orders
• Damaged stock
• On-time deliveries
• Returns (and method of return if a reverse logistics programme is
in place)
• Customer complaints
 Measuring warehouse performance
• Warehouse fill/rack usage
• Safety of the operation
• Stock integrity
• Rate and accuracy of order-picking
Measuring distribution performance

• Vehicle utilisation
• Vehicle load capacity utilisation
• Yield from return loads
• Driver’s shift utilisation
 The Rank Xerox approach to benchmarking

Planning 1 Identify benchmark outputs

2 Identify best competitor
3 Determine data collection method

Analysis 4 Determine current competitive gap

5 Project future performance levels

Integration 6 Establish functional goals

7 Develop functional action plans

Action 8 Implement specific actions

9 Monitor results/report progress
10 Recalibrate benchmarks
Maturity • Leadership position obtained
• Processes fully integrated in our practices
 Three categories of benchmarking
• Internal benchmarking involves identifying best practice within an
organisation and sharing it
• Competitive benchmarking
• Functional (or generic) benchmarking
 The process triangle: three types of processes

• Basic processes: looks at processes such as receiving,

administration and effective storage that underpin the service
delivery.
• Benchmark processes: examines those processes that are
important in delivering the required level of customer service and
which, in consequence, must be of an acceptable standard.
• Competitive processes: examines those areas that may serve to
give a competitive advantage and help differentiate the organisation
in its competitive market.
 The benchmarking exercise

• Be well organised – prepare thoroughly

• Understand the aims and objectives of the exercise
• Select the appropriate measures
• Identify the resources and processes that will influence the outcome.
 Benefits of the Benchmarking Challenge
• A unique service designed for operators of public warehouse
facilities, to raise awareness and encourage greater use of
benchmarking
• A programme that brings high quality benchmarking data and
information within the reach of smaller companies
• Industry-specific information
• A programme that encourages systematic performance review
 Productivity measures

• Units picked and packed per person

• Actual storage as a proportion of full capacity storage
• Productive hours as a proportion of total hours paid
• Value added, in total or per employee
 Three main control ratios for productivity

• Activity ratio = Actual output measured in standard hours ÷ Budgeted

production hours
• Capacity ratio = Actual hours worked ÷ Budgeted hours
• Efficiency ratio = Actual output measured in standard hours ÷ Actual
production hours
Exercise

Give four examples of both efficiency and

effectiveness in storage and distribution. How do they
differ from one another?
 Examples of performance measures

Machines and Utilisation (hours used as a proportion of potential hours)

handling equipment Down time (as a proportion of total hours)

Materials Wastage (normal/abnormal loss percentage)

Labour Turnover (leavers replaced as a proportion of total employed)

Utilisation (productive hours as a proportion of total hours)
Idle time (non-productive hours as a proportion of total hours)
 Performance measures: CIPS

• Proportion of items supplied at first demand

• Number of order-pick errors
• Availability of back-orders
• Proportion of orders satisfied in full
• Amount of damage
• Order-to-ship cycle time
• Order-to-deliver cycle time
• Courtesy of staff, ease of ordering
A basic arrow diagram
A skeleton network for Project Alpha
Project Alpha: numbering the nodes
Exercise

Before referring to the diagram, try to work out the

earliest start times for each activity in Project Alpha.
Check your answer by referring to the next slide.
Project Alpha; earliest starting times
Project Alpha; latest finishing times
 Distribution modelling: data required
• Desired level of customer service
• Typical patterns of customer ordering
• Costs of acquiring stock (eg administration costs)
• Costs of holding stock (eg premises costs, insurance)
• Costs and relative efficiency of different materials handling systems
• Costs of acquiring, maintaining and operating warehouses and stores
facilities
• Relative supply lead times from different warehouse locations
 Four safety areas in stores and distribution

• Physical distribution
• Working areas
• Forklift trucks
• Racking
 The health and safety six pack
• The Workplace (Health, Safety and Welfare) Regulations 1992 (SI
1992/3004)
• Management of Health and Safety at Work Regulations 1999 (SI
1999/3242)
• Manual Handling Operations Regulations 1992 (SI 1992/2793)
• Health and Safety (Display Screen Equipment) Regulations 1992 (SI
1992/2792)
• Provision and Use of Work Equipment Regulations 1998 (SI 1998/2306)
• Personal Protective Equipment at Work Regulations 1992 (SI
1992/2966)
In addition,t he Lifting Operations and Lifting Equipment Regulations 1998 (SI
1998/2307) have a direct link with warehousing operations.
 Duties of safety representatives

• Inspection of the workplace

• Investigation of possible hazards and causes of accidents
• Investigation of employees’ complaints arising from health and safety
issues
• Representing views to their employers
 Powers of Health & Safety inspectors
• To enter premises at any reasonable time (or at any time if they consider the
situation dangerous)
• To inspect the premises
• To bring with them any equipment or materials and any other persons authorised
by the enforcing authority
• To carry out any investigation or examination they consider necessary;
• To take measurements or photographs or make any form of record they consider
necessary or appropriate
• To order that the premises be left undisturbed
• To take samples of anything found and have it dismantled, tested, rendered
harmless or destroyed
• To demand to see any documents they think necessary
• To require facilities and assistance – desk, office, phone, etc
• To interview and take signed statements from anyone they consider appropriate
• To issue improvement or prohibition notices
• To prosecute in the Magistrates’ Court
 Risk assessments

• Identify the hazards

• Identify who might be harmed and how
• Evaluate the risks from the identified hazards
• Record the significant findings in a retrievable form
• Provide for review and revision
 Principles of preventive and protective measures
• Avoid risks
• Evaluate risks which cannot be avoided
• Combat risks at source
• Adapt work to the individual
• Adapt to technical progress
• Replace the dangerous by the non-dangerous or the less-dangerous
• Develop a coherent overall prevention policy
• Give collective protective measures priority over individual protective
measures
• Give appropriate instructions to employees
 Hazardous substances

• Substances used in the work environment and work processes

including adhesives, paints, thinners and cleaning agents
• Substances generated during the work process such as gases,
vapours, fumes and dust
• Naturally occurring substances such as dust and mould on grain or
fertiliser nuts used in agricultural work
 Employer’s duty of control – covers:
• the design and use of appropriate work processes, systems and
engineering controls together with the provision and use of suitable
work equipment and materials;
• the control of exposure at source, including adequate ventilation
systems and appropriate organisational measures;
• where adequate control of exposure cannot be achieved by other
means, the provision of suitable personal protective equipment.
 Accidents, incidents and emergencies

• Procedures, including the provision of appropriate first-aid facilities

and first-aid evacuation drills, should be in place.
• Information on emergency arrangements relevant to work
hazards should be available.
• Suitable warning and other communication systems should be
established to enable an appropriate response, including remedial
actions and rescue operations, to be made immediately should an
event occur.
Rules on transport of dangerous goods

• Proper description of cargo

• Quantity per package
• Types of packing acceptable
• Documentary requirements
 Principal areas of dangerous goods legislation

• The classification, packing and labelling of dangerous goods

• The carriage of dangerous goods in packages and in bulk
• The stowage of dangerous goods on all transport modes
• The marking of vehicles
• Safety equipment to be carried
• Documentation to be carried
• The training of loaders, drivers and other operational staff who have
areas of responsibility for dangerous goods movements
• The requirement to appoint a dangerous goods safety adviser
(DGSA)
 Duties of individuals in relation to dangerous goods
• To prevent risks to health and safety of persons
• To prevent damage to property and the environment
• To ensure that all those involved in the movement of dangerous goods
hold the relevant qualifications or certificates
• To ensure that drivers, loaders and other involved staff are trained in
emergency action procedures
 DGSA statutory duties
• Monitoring compliance with the law and regulations concerning the
transport of dangerous goods
• Advising their employer on issues relating to dangerous goods, including
both current and impending changes that will require advance planning
• Preparing an annual report to their employer on the organisation and its
activities in the transport of dangerous goods
 The Orange Book Classification
Class 1 Explosives

Class 2 Gases – compressed, refrigerated and dissolved under pressure

Class 3 Flammable liquids

Class 4 Division 4.1 Flammable solids

Division 4.2 Substances liable to spontaneous combustion
Division 4.3 Substances in contact with water which are liable to emit
flammable gases

Class 5 Division 5.1 Oxidising substances

Division 5.2 Organic peroxides

Class 6 Division 6.1 Poisonous (toxic) substances

Division 6.2 Infectious substances

Class 7 Radioactive materials

Class 8 Corrosives
Class 9 Other miscellaneous hazardous products
Class 10 Marine pollutant
 Guidelines for vehicle loading, unloading and handling
1 Care must be taken not to exceed the maximum permitted load for the vehicle.
2 Care must be taken when mixing loads. Certain loads must never be mixed.
3 Vehicles and containers must be cleaned after carrying a dangerous substance in
bulk if the next load consists of a different substance and, after carrying packaged
dangerous substances, if there has been any escape or spillage of the contents.
4 The load shall be stowed so that it should not become displaced.
5 Packages of dangerous goods should be separated from other packages.
6 Nothing should be loaded on top of a fragile package.
7 No crew member may open a package containing a dangerous substance.
8 The engine of the vehicle should be stopped during loading and unloading unless it
is needed to power loading/unloading equipment.
9 During carriage, tank containers should be fixed on the carrying vehicle in such a
way as to be adequately protected by the fittings of the carrying vehicle or against
lateral or longitudinal impact and against overturning.
 Control and information systems: functions

• Capture delivery information accurately

• Record stock movements
• Maintain stock balances
• Monitor productivity and utilisation
• Track the movement of goods through the system
• Sort order requirements into appropriate picking tasks
 Information at different levels
• Top-level management requires information for strategic and
policy-planning decisions.
• Middle management requires information for tactical planning and
decision-making.
• Supervisors require information for operational planning and
control.
• Operators require information relating to deliveries, order
processing, and enquiry response.
 Improvements from new technology

• Enhanced speed of order entry and order processing can reduce

lead-time.
• Transport can be scheduled more accurately and put on the most
economically advantageous routes.
• Warehouse planning and utilisation can be more cost-effective and
improve customer service.
• Better management of inventory reduces delivery costs.
• Administration can be more accurate.
 Stock integrity through the stock management system

• Recording and identifying damage

• Identifying loss
• Recording deterioration
• Ensuring that stock rotation and specific environmental product needs
are being met
 The impact of IT in warehouse operations

• Radio frequency identification discs (RFID) allow for more information

on products to be captured by the stock management system.
• Electronic data interchange (EDI) allows the transfer of standardised
or formatted data for declarations to HM Customs & Excise or
standard inter-company data and reports.
• Increased computing power, the internet and increased use of e-mails
have also benefited warehousing.
 ICT: benefits to the supply chain

• Faster communications
• Information sharing
• Track and trace systems
• Telematics
• Direct ordering
• Streamlined administration
• Greater information gathering potential
• Closer links with suppliers and partners
• Inventory management
Exercise

Take a walk around your nearest large supermarket.

How is technology used? What is its purpose? In
many ways supermarkets operate as warehouses,
although they sell in smaller quantities and we collect
from them!
 The eight principles of the Data Protection Act

1. Processed fairly
2. Obtained specifically
3. Adequate and relevant
4. Accurate and up to date
5. Not retained longer than necessary
6. In accordance with rights of data
7. Not transferred to any country out of the EU, unless that country has
similar legislation
8. Appropriate measures shall be taken against unlawful access
 Computer Misuse Act 1990: three new offences

1. Unauthorised access to computer material

2. Unauthorised access with intent to commit further offences
3. Unauthorised modification of computer material
 Functions of barcoding in warehousing

• Verification of stock levels

• Identification of stock location
• Tracking and tracing the movement of goods and despatch details
 Advantages of bar codes

• Fast and accurate data capture at each stage of the supply chain
• Improved standard and quality of management information
• Less stockholding and less waste
• Improved responsiveness to customers
• The ability to automate warehousing
• Improved level of control over storage and distribution
• Improved levels of communication between organisations within the
supply chain
Interface unit
 Benefits of RFID technology
• Improved visibility
• Better predictability and timeliness of cargo shipments
• Reduced safety stock and inventory carrying costs
• Improved customer service to sales channels and resellers
• Increased profits from reduction in stockouts
• Reduced theft and pilferage
 Essential elements of EDI
• The use of an electronic transmission medium (originally a value-
added network but now more common over the internet).
• The use of structured, formatted messages based on agreed
standards (that enable checking against pre-agreed criteria).
• Fast delivery.
• Direct communication between applications.
 Closer internet relationships with suppliers
• Collaboration at the design and concept stage
• Information relating to product, materials, sources and specifications
• Establishment and management of the logistic operation that
underpins the supply chain
• The assessment of the performance of suppliers
• The mutual assessment of the principal company if a partnership
strategy is being developed
 Benefits of ERP

• Automate and integrate the majority of their business processes.

• Share common data and practices across the enterprise.
• Produce and access information in a real time environment.
 Considerations in implementing ERP
• Who are our stakeholders?
• Which processes are most important now and why?
• Does the system meet our needs or go beyond them?
• Do we integrate over stages and if we do what sequence should we
use?
• Who will be responsible for change management?
• Who will be our change champions?
• What is our business culture and what are its strengths?
• How can we maximise those strengths?
• What are our weak areas and how will we address issues caused by
them?
• What will be the toughest changes and how will we address them?