LOGISTICS MANAGEMENT

MBA. BÙI VĂN THÀNH

 CHAPTER 3

WAREHOUSE MANAGEMENT
Contents
CHAPTER 3: WAREHOUSE MANAGEMENT & OPERATION
3.1. Concept and role of warehouses
3.2. Warehouse management organization
3.3. Basic decisions in warehouse management
3.4. Warehouse processes and workflow

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Definition

Warehousing is a part of firm’s logistics system that stores products (raw materials, parts, goods-in-process,
finished goods) at and between point of origin and point of consumption, and provides information to
management on the status, condition, and disposition of items being stored

Warehousing
links producers
and customers

Vital role in providing a desired level of customer service at the lowest possible total cost

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 State-of-art Company stockroom

Garage Self-store facilities Garden sheds

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Reasons for Warehousing
 Achieve transportation economies
 Achieve production economies
 Take advantage of quantity purchase discounts and forward buys
 Maintain a source of supply
 Support the firm’s customer service policies
 Meet changing market conditions (e.g., seasonality, competition)
 Overcome the time and space differentials that exist between producers and consumers
 Accomplish least total cost logistics commensurate with a desired level of customer service
 Support the just-in-time programs of suppliers and customers
 Provide customers with ammix of products instead of a single product on each order
 Provide temporary storage of materials to be disposed of or recycled (i.e., reverse logistics)

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 Warehousing in the Supply Chain

Gwynne Richards (2014) phenikaa-uni.edu.vn

01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Role of Warehousing

 Raw materials storage

 Intermediate, postponement, customization or sub-assembly facilities
 Finished goods storage
 Consolidation centres and transit warehouses
 Transhipment or break-bulk centres
 Cross-dock centres
 Sortation centres
 Fulfilment centres
 Reverse logistics centres
 Public sector warehousing

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Uses of Warehousing
 Manufacturing support
Play the role of inbound consolidation points for receipt of shipments from suppliers
Items are transferred from suppliers to firm’s warehouse and finally manufacturing plant

CL or TL
Supplier A

CL or TL
Supplier B
Warehouse Plant
CL or TL
Supplier C

CL or TL CL: carload
Supplier D
TL: truckload

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Uses of Warehousing
 Product mixing
Mix products from multiple production facilities for shipment to a single customer
CL, TL, or LTL Customer 1
A B C
CL or TL
Plant A
CL, TL, or LTL Customer 1
CL or TL Mixing A B C
Plant B
Warehouse
CL, TL, or LTL Customer 1
CL or TL
Plant C A B C
CL: carload
CL, TL, or LTL Customer 1
TL: truckload
LTL: less than truckload A B C

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Uses of Warehousing
 Consolidation
Warehouse consolidates or combines products from the various plants into a single shipment to customer

CL or TL CL or TL
Plant A Customer 1

CL or TL Consolidate CL or TL
Plant B Customer 2
Warehouse
CL or TL CL or TL
Plant C Customer 3

CL: carload
TL: truckload

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01. Warehouse Management and Operations
Concept and Role of Goods Warehousing
Uses of Warehousing
 Breakbulk
Warehouses receive large shipments of product from manufacturing plants
Then they are broken down into smaller LTL shipments and sent to customers

LTL
Customer 1

CL or TL Breakbulk LTL
Plant Customer 2
Warehouse
LTL
Customer 3
CL: carload
TL: truckload
LTL: less than truckload

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phenikaa-uni.edu.vn
01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Three Functions of Warehouse

Movement

Warehouse
Storage
Functions

Information
transfer

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Three Functions of Warehouse: Movement
 Actual unloading of products from the transportation carrier
Receiving  Updating of warehouse inventory records
 Inspection for damage
 Verification of the merchandise count against orders and shipping records
 Physical movement of product into the warehouse for storage
Transfer or
 Movement to areas for specialized services (e.g., consolidation)
putaway
 Movement to outbound shipment

 Major movement activities

Order picking/
Movement  Regrouping products into the assortments customers desire
selection
 Packing slips

 Transferring items directly from receiving dock to shipping dock

Cross-docking  Avoid putaway, storage, and order picking
 Information transfer becomes paramount
 Product stagging and physically moving the assembled order onto carrier equipment
 Adjusting inventory records
Shipping  Checking orders to be shipped
 Sortation and packaging items for specific customers
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Cross-docking

Cross-docking should be considered if meeting 2 or

more of criteria
 Inventory destination is known when received
 Customer is ready to receive inventory immediately
 Shipment to fewer than 200 locations daily
 Daily throughput exceeds 2,000 cartons
 More than 70% of the inventory is conveyable
 Large quantities of individual items received by firm
 Inventory arrives at firm’s docks prelabeled
 Some inventory is time sensitive
 Firm’s distribution center is near capacity
 Some of the inventory is prepriced

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Three Functions of Warehouse: Storage

TEMPORARY STORAGE SEMIPERMANENT STORAGE

 Emphasize movement function of warehouse  Storage of inventory in excess of that required

 Include only storage of product necessary for for normal replenishment (buffer/ safety stock)
basic inventory replenishment  Conditions
 Regardless of actual inventory turnover o seasonal demand
 The extent depends on o erratic demand
o design of logistics system o conditioning of products (fruit, meats)
o variability experienced in lead time and o speculation or forward buying
demand o special deals (e.g., quantity discounts)

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Three Functions of Warehouse: Information Transfer

Information on inventory levels, throughput levels, stock-keeping locations, inbound and outbound
shipments, customer data, facility space utilization, and personnel is vital to success

Automation and computerized information transfer is increasingly utilized, rather than paperwork
 Electronic data interchange (EDI)
 Bar coding
 Improve speed and accuracy of information transfer

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Types of Warehouses

Private
warehouse
Types of
Warehouse
Public
warehouses

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Types of Warehouses: Private Warehouse

Private warehouses (owned or leased facilities) are owned

by a company division.
 Need to make a large upfront investment to secure the
building, facilities management, and general maintenance
and upkeep
 Popular for wholesalers, distributors, and manufacturers
 More overall control of inventory management
× More expensive than public warehouse

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Types of Warehouses: Public Warehouses

Public warehouses (rented facilities) are owned by

governmental entities or a third-party that are
available to private sector companies.
 Ideal for short-term storage
 Commonly used by new or growing businesses (e-
commerce companies and startups)
 More affordable than private warehouses
× Be fairly bare-bones in terms of setting

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 01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Types of Warehouses: Public Warehouses

Public
Warehouses

General Household Special Bulk

Refrigerated Bonded
merchandise Goods commodity storage

- Most common form - Cold storage - Stores imported goods - Stores personal - Used for agricultural - Tank storage of liquids
- Store almost any kind warehouse with a before customs duties property rather than products (grains, wool...) - Open/sheltered
of product temperature-controlled are completed and paid merchandise - One warehouse handles storage of dry products
storage environment for the products - Open storage one kind of product and (coal, sand, chemicals)
- Preserving perishable - Import duties and - Private room/ vault offers special services - Services: filling drums,
items (fruits, excise taxes need not storage specific to that product mixing various
vegetables) be paid until being sold - Container storage chemicals...

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Public Warehouses vs. Private Warehouse

Public Private
 Conservation of capital  Greater degree of control
 Adjusts for seasonality  Greater flexibility
 Reduced risk  Less costly over the long term
 Economies of scale  Better use of human resources
Advantages  Greater flexibility  Tax benefits
 Tax Advantages  Intangible benefits
 Knowledge of exact storage and
handling cost
 Insulation from labor disputes

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01. Warehouse Management and Operations
Warehouse Functions and Types of Warehouses
Public Warehouses vs. Private Warehouse

Public Private

 Communication problems (not all

 Lack of flexibility (costly, fixed size and
computer terminals and systems are
costs...)
Disdvantages compatible)
 Financial constraints
 Lack of specialized services
 Rate of return
 Shortage of space

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Strategic vs. Operational Warehousing Decisions

Strategic decisions deal with the allocation of logistics resources over an extended time in a manner
consistent and supportive of overall enterprise policies and objectives
 Long-range or project-type form
 Should warehousing be owned, leased, rented or some combination of these?
 Should the warehousing functions be “spun off”; that is contracted out to a third-party provider?
 Should the company install new materials handling equipment or continue to hire more labor?

Operational decisions are used to manage or control logistics performance

 Routine
 Time: < 1 year
 More certainty than strategic decisions

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Size and Number of Warehouses
 Size can be defined in terms of cubic square  total volume of space available within a facility
 Factors affecting:
o Customer service levels o Economies of scale
o Size of market or markets served o Stock layout
o Number of products marketed o Aisle requirements
o Size of the product or products o Office area in warehouse
o Materials handling system used o Types of racks and shelves used
o Throughput rate o Level and pattern of demand
o Production lead time

 In general, greater space requirements are necessary when products are large; production lead time is long; manual
materials handling systems are used; the warehouse contains office, sales, or computer activities; and demand is
erratic and unpredictable
 Warehouse size is related to the materials handling equipment used

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Size and Number of Warehouses

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Size and Number of Warehouses
 Demand fluctuations impact warehouse size
 Demand fluctuates significantly or is unpredictable,
inventory levels generally must be higher  need
larger warehouse

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Size and Number of Warehouses
 Factors affecting number of warehouses

Warehousing Transportation
Cost of Lost Sales Inventory Costs
Costs Costs

• Difficult to calculate • Increase with • More warehouses  • Number of

and predict number of facilities costs increase warehouses
• Vary by company due to minimum • Costs decrease after increases  costs
and industry amount stock a number of initially decline
• Slow and fast warehouses are • Eventually curve
turnover items are brought on-line upward if to many
stocked  more • Offer quantity facilities
space is required discounts

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Location Analysis
 Macro approaches
o Market positioned: locates nearest to final customer  utilize transportation economies
o Production positioned: locates in close proximity to sources of supply or production facilities 
collection points or mixing facilities
o Intermediately positioned: places at a midpoint location between final customer and producer 
customer service levels: production < intermediately < market

 Center-of-Gravity approach: locates based on transportation costs  minimize for moving between a
manufacturing plant and the markets

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Location Analysis
 Micro Approaches: Some important factors should be considered:

Private housing Public housing

 Quality and variety of transportation carriers serving the  Facility characteristics
site  Warehouse services
 Quality and quantity of available labor  Availability and proximity to motor carrier terminals
 Labor rates  Availability of local cartage
 Cost and quality of industrial land  Other companies using the facility
 Potential for expansion  Availability of computer services and communications
 Tax structure  Type and frequency of inventory reports
 Building codes
 Nature of the community environment
 Costs of construction
 Cost of money locally
 Local government tax allowance and inducements to build

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Warehouse Layout and Design

Where should products/materials be located in the logistics system and, more particularly, within the
warehouse?

Factors: type of product being stored, company’s financial resources, competitive environment, needs of
customers  trade-offs between labor, equipment, space, and information

Benefits of good warehouse layout

 Increase output
 Improve product flow
 Reduce costs
 Improve service to customers
 Provide better employee working conditions

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Warehouse Layout and Design

Randomized storage / Floating slot storage Dedicated storage / Fixed-slot storage

 Place items in the closet available slot, bin, or rack  Place items in permanent locations
 FIFO basis  Common in where employee performance improves
 Maximize space utilization as employees learn each product’s location
 Need longer travel times between order-picking  Dedicated storage approach
locations o Part number sequence
 Employ a computerized automatic storage and o Usage rates
retrieval system (AS/RS)  minimize labor and o Activity levels (e.g., grouping products into
handling costs classes or families based on how fast products
move in and out of storage)

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01. Warehouse Management and Operations
Fundamental Decisions in Warehouse Management
Grouping products

Compatibility Complementarity Popularity

 Whether products can be stored  How often products are ordered  The different inventory turnover
together harmoniously together and therefore stored rates or demand rates of
 E.g., pharmaceuticals cannot be together products  Velocity
stored with bagged agricultural  E.g., computer disk drivers and  Items that are in greatest
chemicals (U.S. Food and Drg monitors, pens and pencils demand: closest to shipping and
Administration regulations) receiving docks

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01. Warehouse Management and Operations
Space Planning and Warehouse Location Distribution
Warehouse Management Organization

Selecting Warehouse Management Systems (WMS)

 Form a project team
 Define, record, review and improve current processes
 Create a list of key functions required of the new system
 Incorporate any future growth plans in your specification
 List the benefits to your company of a WMS
 Research and approach a select number of vendors and select a
small number with experience of providing solutions for your
market sector
 Visit reference sites to look at operational effectiveness and
discuss the benefits the WMS system has brought about since
implementation
 Produce a return on investment (ROI) report

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TS.Đào Trung Kiên
(A9-T9; 0989539685)

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01. Warehouse Management and Operations
Space Planning and Warehouse Location Distribution
Warehouse Labor Organization

KK

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01. Warehouse Management
and Operations
Space Planning and Warehouse
Location Distribution

Inspection and Inventory Activities in

Warehouses
01. Warehouse Management and Operations
Goods Warehouse Process and Workflow in the Warehouse
KK

KK

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