Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M.

Patil
WAREHOUSING
DEFINITION
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, eporters, wholesalers, transport businesses, customs, etc. !hey
are usually large plain buildings in industrial parts of towns. !hey come e"uipped with
loading doc#s to load and unload truc#s$ or sometimes are loaded directly from railways,
airports, or seaports. !hey also often ha%e cranes and for#lifts for mo%ing goods, which
are usually placed on &S' standard pallets
INTRODUCTION
Warehouse can play a #ey role in the integrated logistics strategy and its building and
maintaining good relationships between supply chain partners. Warehousing affects
customer ser%ice stoc#(out rates and firm)s sales and mar#eting success. A warehouse
smoothens out mar#et supply and demand fluctuations. When supply eceeds demand, a
demand warehouse stores products in anticipation of customers re"uirements when
*emand eceeds supply the warehouse can speed product mo%ement to the customer by
performing additional ser%ices li#e mar#ing prices, pac#aging products or final assembling
etc.
Warehousing can be defined as a location with ade"uate facilities where %olume shipments
are recei%ed from production center, which are then bro#en down into particular order and
shipped onwards to the customer.
Warehousing is an integral part of any logistics system. !he warehouse is a lin# between
producer and customer.
'ut(bound warehouse help consumers buy on demand without a near by production plant
warehousing cost are about +,- of total integrated logistics costs for most companies.
TYPES OF WAREHOUSES
+. Pri%ate Warehousing
.. Public Warehousing
/. Contract Warehousing
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
Private Warehousing
A firm producing or owning the goods owns pri%ate warehouses. !he goods are stored
until they are deli%ered to a retail outlet or sold. Potential ad%antage of using a pri%ate
warehouse is the ability to maintain physical control o%er the facility, which allows
mangers to address loss, damage, and theft. When not in use they can rent it out.
!he construction and maintenance of pri%ate warehousing can be etremely costly. All the
epenses ha%e to be carefully analy0ed and e%aluated. !hese are1
i. 2ied epenses and building and land ac"uisition costs which are high$
ii. Epenses incurred on ensuring that warehouses are properly e"uipped with material(
handling e"uipment li#e con%eyors, for# lifts, hand truc#s, rac#s and bins, and doc#
le%elers$
iii. !he costs of salaries of staff re"uired for pea# acti%ity periods which can be %ery
high since retrenchment during slac# periods may not be possible$
i%. Etra payment to be made for wor# on Saturday and Sundays and holidays$
%. 3enerator and other ser%ices charges are re"uired to be ta#en into account.
%i. !he office and record(#eeping e"uipment necessary for successful warehousing
operations has to be budgeted for$
%ii. !o this must be added the cost of such item as fuel, air(conditioning, power and light.
%iii. !he cost of maintaining insurance records and of the premiums paid for fire, theft,
and also for wor#men)s compensation.
Advantages
!he ad%antages and disad%antages of pri%ate warehousing as against those of public
warehousing are1
a. Pri%ate warehousing offers better control o%er the mo%ement and storage of products
as re"uired by the management from time to time.
b. !here is less li#elihood of error in the case of pri%ate warehousing since the company)s
products are handled by its own employees who are able to identify the products of
their own company better.
c. &f there is sufficient %olume of goods to be warehoused, the costs of pri%ate
warehousing compares fa%ourably with that of public warehousing. 4ut pri%ate
warehouse may not be epected to be pac#ed upto the brim all the while. !herefore the
costs of pri%ate warehousing per unit may actually be higher.
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
Public Warehousing
A public warehouse rents space to indi%iduals or firm needing storage, some pro%ide wide
array of ser%ices including pac#aging, labeling, testing, in%entory, maintenance, local
deli%ery, data processing and pricing.
All the foregoing cost factors operate in public warehousing as well. 4ut in public
warehousing, the epenses are distributed o%er se%eral other consignments of other clients.
&n most instances therefore can render better ser%ice with greater fleibility for the user. A
company running a pri%ate warehouse will ha%e to compare costs incurred with the total
figure for the complete ser%ice through public warehousing.
Advantages
a. &t is generally less epensi%e and more efficient.
b. Public warehouses are usually strategically located and immediately a%ailable.
c. Public warehousing is sufficiently fleible to meet most space re"uirements, for
se%eral plans are a%ailable for the re"uirement of different users.
d. 2ied costs of a warehouse are distributed among many users. !herefore the o%erall
cost of warehousing per unit wor#s out to a lower figure.
e. Public warehousing facilities can be gi%en up as soon as necessary without any
additional liability on the part of the user.
f. !he costs of public warehousing can be easily and eactly ascertained, and the user
pays only for the space and ser%ices he use.
Contract Warehousing
Contract warehousing is a speciali0ed form of public warehousing. &n addition to
warehousing acti%ities such warehousing pro%ides a combination of integrated logistics
ser%ices. !hus allowing the leasing firm to concentrate on its specialty. !hey pro%ide
customi0ed ser%ices, eg. 5alue Added Ser%ices.
FUNCTIONS OF WAREHOUSES
Warehouses are basically intermediate storage points in the logistics system where raw
material, wor# in process, finished goods and good in transit are held for %arying duration
of times for a %ariety of purposes. !he warehousing functionality today is much more than
the traditional function of storage. !he following are main function that warehousing
ser%es today1
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
1. Consolidation
!his helps to pro%ide for the customer re"uirement of a combination of products from
different supply or manufacturing sources. &nstead of transporting the products as small
shipments from different sources, it would be more economical to ha%e a consolidation
warehouse. !his warehouse will recei%e these products from %arious sources and
consolidate these into shipments, which are economical for transportation or as re"uired
by the customers.
2. Break Bulk
As the name suggests, the warehouse in this case ser%es the purpose of recei%ing bul#
shipments through economical long distance transportation and brea#ing of these into
small shipments for local deli%ery. !his enables small shipments in place of long distance
small shipments.
3. Cross Docking
!his type of facility enables receipt of full shipments from a number of suppliers,
generally manufacturers, and direct distribution to different customers without storage. As
soon as the shipments are recei%ed, these are allocated to the respecti%e customers and are
mo%ed across to the %ehicle for the onwards shipments to the respecti%e customers at these
facilities. Smaller shipments accompanying these full shipments are mo%ed to the
temporary storage in these facilities awaiting shipments to the respecti%e customers along
with other full shipments.
PLA6! A
PLA6! 4
PLA6! C
C'6S'L&*A!&'6
WA7E8'9SE
A 4 C
PLA6! A 47EA: 49L: C9S!'ME7 4
C9S!'ME7 A
C9S!'ME7 C
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
4. Product Mixing
Products of different types are recei%ed from different manufacturing plant or sources in
full shipment si0es. !hese products are mied at these warehouses into right combination
for the rele%ant customers as per their warehouses and continuously pro%ided for the
product miture shipments re"uiring these.
5. tock Piling
!his function of warehousing is related to seasonal manufacturing or demand. &n the case
of seasonal manufacturing, certain raw materials are a%ailable during short periods of the
year. 8ence, manufacturing is possible only during these periods of a%ailability, while the
demand is full year around. !his re"uires stoc#piling of the products manufactured from
these raw materials. An eample is mango pulp processing. 'n the other hand, certain
products li#e woolens are re"uired seasonally, but are produced throughout the year, and
thus need to be stoc#piled as such.
Company A
Company 4
Company C
*&S!7&49!&'6
CE6!7E
Customer A
Customer 4
Customer C
Plant A
Plant 4
Plant C
WAREHOUSE
TRANSIT
MIXING POINT
PRODUCT D
C9S!'ME7 +
A 4 C *
C9S!'ME7 .
A 4 C *
C9S!'ME7 /
A 4 C *
C9S!'ME7 ;
A 4 C *
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
!. Post"one#ent
!his 2unctionality of warehousing enables postponement of commitment of products to
customer until orders are recei%ed from them. !his is utili0ed by manufacturers or
distributors for storing products ready up to pac#aging stage. !hese products are pac#aged
and labeled for the particular only on receipt of the order.
$. Positioning
!his permits positioning products or materials at strategic warehouses near to the
customers. !hese items are stored at the warehouse until ordered by the customers when
these can be pro%ided to the customers in the shortest lead(time. !his function of
warehousing is utili0ed for higher ser%ice le%els to customers for critical items and during
increased mar#eting acti%ists and promotions.
%. &ssort#ent
Assortment warehouse store a %ariety of products for satisfying the %ariety re"uirements
of customers. 2or eample, retailers may demand different brands of the same product in
small "uantities rather than larger "uantities of the single brand.
'. Decou"ling
*uring manufacturing, operation lead(times may differ in order to enable production
economies. !hus, the batch si0e and the lead(time of production may differ in consecuti%e
operations. !his decoupling of operations re"uires intermediate storage of materials
re"uired for the subse"uent operation.
1(. a)et* tocking
&n order to cater to contingencies li#e stoc# outs, transportation delays, receipt of defecti%e
or damaged goods, and stri#es, safety stoc#s ha%e to be maintained. !his ensures that, on
the inbound site production stoppages do not occur, and, on the outbound side customers
are fulfilled on time.
Advantages of Wareo!s"ng
Warehousing offers many ad%antages to the business community. Whether it is industry or
trade, it pro%ides a number of benefits which are listed below.
i. Protection and Preservation o) goods ( Warehouse pro%ides necessary facilities to the
businessmen for storing their goods when they are not re"uired for sale. &t pro%ides
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
protection to the stoc#s, ensures their safety and pre%ents wastage. &t minimises losses
from brea#age, deterioration in "uality, spoilage etc. Warehouses usually adopt latest
technologies to a%oid losses, as far as possible.
ii. +egular )lo, o) goods- Many commodities li#e rice, wheat etc. are produced during a
particular season but are consumed throughout the year. Warehousing ensures regular
supply of such seasonal commodities throughout the year.
iii. Continuit* in "roduction- Warehouse enables the manufacturers to carry on
production continuously without bothering about the storage of raw materials. &t helps to
pro%ide seasonal raw material without any brea#, for production of finished goods.
iv. Convenient location- Warehouses are generally located at con%enient places near road,
rail or waterways to facilitate mo%ement of goods. Con%enient location reduces the cost of
transportation.
v. -as* handling. Modern warehouses are generally fitted with mechanical appliances to
handle the goods. 8ea%y and bul#y goods can be loaded and unloaded by using modern
machines, which reduces cost of handling such goods. Mechanical handling also
minimi0es wastage during loading and unloading.
vi. /se)ul )or s#all business#en( Construction of own warehouse re"uires hea%y capital
in%estment, which small businessmen cannot afford. &n this situation, by paying a nominal
amount as rent, they can preser%e their raw materials as well as finished products in public
warehouses.
vii. Creation o) e#"lo*#ent ( Warehouses create employment opportunities both for
s#illed and uns#illed wor#ers in e%ery part of the country. &t is a source of income for the
people, to impro%e their standards of li%ing.
viii. 0acilitates sale o) goods( 5arious steps necessary for sale of goods such as inspection
of goods by the prospecti%e buyers, grading, branding, pac#aging and labelling can be
carried on by the warehouses. 'wnership of goods can be easily transferred to the buyer
by transferring the warehouse #eeper)s warrant.
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
ix. &vailabilit* o) )inance( Loans can be easily raised from ban#s and other financial
institutions against the security of the warehouse(#eeper)s warrant. &n some cases
warehouses also pro%ide ad%ance to the depositors of goods on #eeping the goods as
security.
x. +educes risk o) loss ( 3oods in warehouses are well guarded and preser%ed. !he
warehouses can economically employ security staff to a%oid theft, use insecticides for
preser%ation and pro%ide cold storage facility for perishable items. !hey can install fire(
fighting e"uipment to a%oid fire. !he goods stored can also be insured for compensation in
case of loss.
S#UARE ROOT $AW
&n their aggressi%e effort to ta#e cost of logistics networ#, firms are searching for new
ways to reduce le%els of in%entory without ad%ersely effecting customer ser%ice. A
currently popular approach is to consolidate in%entories into fewer stoc#ing location in
order to reduce aggregate in%entories and their associated cost. Correspondingly, this
strategy re"uires the in%ol%ement of capable transportation and information resources to
see that customer ser%ice is held at eisting le%els and is e%en impro%ed whene%er
possible.
1uare root la,2
!he s"uare root law helps to determine the etent to which in%entories may be reduced
through such strategy. Assuming the total customer demand remains the same, the S"uare
7oot Law estimates the etent to which aggregate in%entory needs will change as a firm
increases or reduced the number of stoc#ing location. &n general, the greater the number of
stoc#ing locations, the greater the amount of in%entory needed to maintain customer
ser%ice le%els. Con%ersely, as in%entories are consolidated into fewer stoc#ing locations,
aggregate in%entory le%els will decrease. !he etent to which these changes will occur is
understood through application of the s"uare root law.
!he S"uare 7oot Law states that1 the total safety stock inventories in the future number
of facilities can be approximated by multiplying the total amount of inventory at existing
facilities by the square root of the number of future facilities divided by number of existing
facilities.
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
!herefore
+
.
+ .
N
N
X X =
Where
6+ < 6umber of eisting facilities
6. < 6umber of future facilities
=+ < !otal in%entory in eisting facility
=. < !otal in%entory in future facility
-xa#"le
A company presently distributing ;,,,,, units of product to its customer from eight
facility location throughout &ndia is located at A, 4, C, *, E, 2, 3 and 8. !he company is
e%aluating an opportunity to consolidate its operation into two facilities. S"uare 7oot Law
we will find the total amount of in%entory in the two future facility.
olution
+
.
+ .
N
N
X X =
8ere,
=+ < ;,,,,,
6+ < >
6. < .
>
.
,,, , ;, . = X
.
+
,,, , ;, . = X
,,, , ., . = X
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
THE NUM%ER OF WAREHOUSES
!he number of warehouses is another decision parameter impacting a number of cost
%ariables and customer ser%ice. &f customer ser%ice is ta#en in cost terms as cost of
customer dissatisfaction, the number of warehouses will affect transportation, in%entory,
warehousing and customer dissatisfaction costs.
!ransportation costs initially decreases with increasing number of warehouses. !his is due
to the transportation economics obtained by ha%ing large(%olume long(range
transportation from consolidation warehouses and short(range small(%olume transportation
from brea#(bul# warehouses. 8owe%er, as the number of warehouses increases beyond a
certain %alue, the transportation costs starts increasing due to large number of
transportation trips in ? between the larger numbers of warehouses. &n%entory costs
continuously increases with the increasing number of warehouses beyond the increased
space a%ailable needs to be utili0ed and firms increase the commitment of in%entory at
these warehouses beyond those actually needed. !ransit in%entory costs continuously
decrease with the increased number of warehouses due to the shorter transportation times
between the larger number of warehouses. !he warehousing costs increase with more
warehouses due to the maintenance and facility costs associated with each warehouse. 2or
the same space, a single warehouse incurs less warehousing cost than two warehouses.
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
!he increasing number of warehousing leads to increasing customer ser%ice le%els, thus,
decreasing customer dissatisfaction cost.
WAREHOUSE $OCATION
Warehousing is important to the firms since it impro%es ser%ice and reduces cost
impro%ements in ser%ice are gained through rapid response to customer re"uest @time
utilityA, which is a primary factor leading to increased sales. !he location decision
regarding warehouses is affected by manufacturing plant, customer and mar#et locations.
A traditional classification by Edgar 8oo%er classifies warehouse locations as mar#et(
positioned, manufacturing(positioned, or intermediately(positioned.
1. Market."ositioned ,arehouses
Mar#et(positioned warehouses are located near to the customers and mar#ets @point of
product consumptionA with the obBecti%e of ser%ing them. !hese generally ha%e a large
%ariety and low %olume of items to ser%ice local re"uirements. Such warehouses reduce
cost by pro%iding place utility. A Mar#et(positioned warehouses functions as a collection
point for the products of distant firms with the resulting accumulations of product ser%ing
as the supply source for retail in%entory replenishment. !his approach allows large and
cost(effecti%e shipments from the manufacturer with lower(cost, local transportation
pro%iding ser%ice to indi%idual retailers. Mar#et(positioned warehouses may be owned by
the firm or the retailer @pri%ate warehousesA, or they may be an independent business
pro%iding warehouses ser%ice for profit @publicA.
2. Manu)acturing.Positioned Warehouses
Manufacturing positioned warehouse are located near to the manufacturing facilities in
order to support manufacturing on the inbound side and to facilitate assortment(creation
and shipping on the outbound side. &mpro%e customer ser%ices and manufacturing support
achie%ed through type of warehouse which acts as the collection point for products needed
in filing customer orders and material needed for manufacturing.
3. 3nter#ediatel*.Positioned Warehouses
&ntermediately(positioned warehouses are those located between manufacturing and
mar#et(position warehouses. !hese help in consolidation of assortments for shipments
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
from different manufacturing facilities. A firm may ha%e many manufacturing plant
located, for economic reasons, near the sources of raw material. 9nder these conditions
the cost(effecti%e warehouse may be at some intermediate point.
A few of the factors go%erning the warehouse locations are1
A%ailability of ser%ices
Land cost
A%ailability of transport lin#ages for eample, to a rail siding
A%ailability of utilities of water and power
!aes and insurance cost
Epansion space a%ailability
And soil strength and lay off land for drainage.
SI&E OF WAREHOUSE
Many factors influence how large a warehouse should be. 2irst it is necessary to define
how si0e is measured. &n general, si0e can be defined in terms of s"uare footage or cubic
space.
o#e o) the #ost i#"ortant )actors a))ecting the si4e o) ,arehouse are
+. Customer ser%ice le%els
.. Si0e of mar#et
/. 6umber of products mar#eted
;. Si0e of the product
C. Material handling system used
D. Production lead time
E. 'ffice area in warehouse
>. !ypes of rac#s and shel%es used
As a company ser%ice le%els increase, it typically re"uires more warehousing space to
pro%ide storage for higher le%els of in%entory. As the mar#et ser%ed by a warehouse
increases in number or si0e, additional pace is re"uired. When a firm has multiple products
or product groupings, especially if they are di%erse, it needs larger warehouse to maintain
at least minimal in%entory le%els of all products. &n general, greater space re"uirements are
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
necessary when products are large, production lead(time is long, manual material handling
system are used the warehouse contains office, sales or computer acti%ities and demand is
erratic and unpredictable.
De'and F(!)t!at"ons I'*a)t Wareo!se S"+e
*emand also has an impact on warehouse si0e. Whene%er demand fluctuates significantly
or is unpredictable, in%entory le%els generally must be higher. !his result in a need for
more space and thus a larger warehouse.
WAREHOUSE $AYOUT AND DESIGN
A good warehouse layout can increase output, impro%e product flow, reduce cost, impro%e
ser%ice to customers and pro%ide better employee wor#ing condition.
!he optimal warehouse layout and design for a firm will %ary by the type of product being
stored, the company financial resources, competiti%e en%ironment and needs of customer.
!he warehouse manager must consider cost of trade between labor, e"uipment, space and
information. Whate%er layout the company finally selects for its warehouse it is %ital that
all a%ailable space be utili0ed as fully and efficiently as possible.
Wareo!se o*erat"ng *r"n)"*(es
Des"gn )r"ter"a1 !hree factors, which ha%e to be considered in the design process, are the
number of stories in the facility, height utili0ation and product flow. Most warehouse
houses ha%e .,(/, foot ceiling. !hrough the use of rac#ing or other hardware it is possible
to store product up to the building ceiling. Warehouse design should also allow for straight
product flow through the facility whether items are stored or not. &n general this means
that product should be recei%ed at one end of the building, stored in the middle and then
shipped from other end.
!igure belo" illustrates the flo" of production.
traight line "roduct )lo, #ini#i4es congestion and con)usion.
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
Product flow
Hand("ng te)no(og,- !he second principle focuses on the effecti%eness and efficiency of
material handling technology. !he element of this principle concern mo%ement continuity.
Mo%ement continuity means that it is better for a mo%ement handler to ma#e a longer
mo%e than to ha%e a number of handlers. Echanging the product between handlers wastes
time and increases the potential for damage. !hus, as a general rule fewer longer
mo%ements in the warehouse are preferred.
Storage *(an- According to the third principles, a warehouse design should consider
product characteristics, particularly those pertaining to %olume, weight and storage.
Product %olume is a maBor concern when defining a warehouse storage plan. 8igh %olume
sales product should be stored in a location that minimi0es the distance it is mo%ed, such
as near primary aisle and in low storage rac#s. Such a locations minimi0es tra%el distance.
Con%ersely, low(%olume product can be assigned locations that are distant from primary
aisle or higher up in a storage rac#. 7elati%ely hea%y items should be assigned to location
low to the ground to minimi0e the effort and ris# of hea%y lifting. open floor space or high
le%el rac#s can be used for bul#y or low density product as it re"uires etensi%e storage
%olume. Storage plan must consider and address the specific characteristic of each
product.
Re)e"v"ng area
%!(. storage
area
Ra).
storage area
Order P")."ng Area
Pa).ag"ng Area
Stag"ng Area
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
!igure belo" illustrate a storage plan based on product movement
In a /areo!se (a,o!t *rod!)t are gro!*ed a))ord"ng to te"r )o'*at"0"("t,1
)o'*(e'entar"t"es1 and *o*!(ar"t,2
#. Co#"atibilit* refers to "hether products can be stored harmoniously
.. Co'*(e'entar"t"es how often product are ordered together and therefore stored
together
/. Po*!(ar"t, relates to different in%entory turno%er rates or demand rates of
products. &tems that are in greatest demand should be stored closest to shipping and
recei%ing doc#s.

Pr"'ar, A"s(e
Storage S*a)e For
$o/34o(!'e
Prod!)t
Storage S*a)e
For $o/34o(!'e
Prod!)t
Storage S*a)e For
H"g34o(!'e
Prod!)t
Re)e"v"ng
do).s
S"**"ng
do).s
Elements of Logistic and Supply Chain Management Compiled by Mr. Sagar M. Patil
3ood warehouse layout and design often in%ol%e the use of automated e"uipment, such as
a con%eyor system to handle large number of products pac#aged in a carton.
CONC$USION
!he entire area of facilities de%elopment that is si0e and number of warehouses, location
analysis, warehouse layout and design is an important factor yet comple, part of
warehouse management. &n recent years, computers ha%e played a more significant role as
logistics eecuti%es attempt to optimi0e warehouse operations
!hus a warehouse plays a multi(faceted role in the integrated logistic system.