Procurement- Lecture 4 Principles of warehousing

1. Procurement- Lecture 4 Principles of warehousing Hassan Ahmed Mohamud

2. INTRODUCTION • Warehouses are crucial components of most modern supply chains. • They are likely to be involved in various stages of the sourcing; production distribution of goods, from the handling of raw materials work-in-progress through to finished products. • They are critical to the provision of high customer service levels. Warehousing and Storage

3. INTRODUCTION Cont… • Warehouses are an integral part of the supply chains in which they operate, and therefore recent trends, such as increasing market volatility, product range proliferation and shortening customer lead times, all have an impact on the roles that warehouses are required to perform. • Warehouses need to be designed and operated in line with the specific requirements of the supply chain as a whole. Warehousing and Storage

4. INTRODUCTION Cont… • They are therefore justified where they are part of the least-cost supply chain that can be designed to meet the service levels that need to be provided to the customers. • Warehouses are often one of the most costly elements of the supply chain and therefore their successful management is critical in terms of both cost and service. Warehousing and Storage

5. INTRODUCTION Cont… • The nature of warehouses within supply chains may vary tremendously, and there are many different types of classification that can be adopted, for example: • by the stage in the supply chain: materials, work-in-progress or finished goods; • by geographic area: for example, whole world warehouse , a regional warehouse, a national warehouse, or a local warehouse. Warehousing and Storage

6. INTRODUCTION Cont… • by product type: for example, small parts, large assemblies (eg car bodies), frozen food, perishables, security items and hazardous goods; • by function: for example, inventory holding or sortation (eg as a 'hub' of a parcel carrier); • by ownership: owned by the user (eg the manufacturer or retailer) or by a thirdparty logistics company; • by company usage: for example, a dedicated warehouse for one company, or a shared-user warehouse for a number of companies; Warehousing and Storage

7. INTRODUCTION Cont… • by area: ranging from 100 square metres or less to well over 100,000 square metres; • by height: ranging from warehouses about 3 metres high through to 'high-bay’ warehouses that may be over 45 metres in height; • by equipment: from a largely manual operation to a highly automated warehouse. Warehousing and Storage

8. THE ROLE OF WAREHOUSES • The prime objective of most warehouses is to facilitate the movement of goods through the supply chain to the end consumer. • There are many techniques used to reduce the need to hold inventory but it is often necessary to hold inventory, particularly where the following two conditions apply: • The demand for the product is continual. • The supply lead time is greater than the demand lead time. Warehousing and Storage

9. THE ROLE OF WAREHOUSES Cont… • In addition, some warehouses have a specific objective of stocking goods and material against particular contingencies that it is hoped will never occur. • Examples include some major spare parts such as steam turbine rotors for a power station, or emergency/disaster relief supplies. Warehousing and Storage

10. THE ROLE OF WAREHOUSES Cont… • There is in fact a wide range of reasons for holding inventory, including: • To provide a buffer to smooth variations between supply and demand; • To enable economies of long production runs in manufacturing; • To provide a buffer between different manufacturing operations; • To enable procurement savings through large purchases; Warehousing and Storage

11. THE ROLE OF WAREHOUSES Cont… • To cover for seasonal fluctuations and peaks, eg the Christmas build-up; • To provide a wide range of different products, from different suppliers, in one location; • To cover for planned or breakdown production shutdowns. • Where inventory is required, then the decision needs to be taken as to the optimum point in the supply chain to hold it. Warehousing and Storage

12. THE ROLE OF WAREHOUSES Cont… • The following list highlights some of the common roles performed: • Inventory holding point. • Consolidation centre. • Cross-dock centre. • Sortation centre • Assembly facility. • Trans-shipment point. • Returned goods centre. Warehousing and Storage

13. THE ROLE OF WAREHOUSES Cont… • Warehouses often fulfill a mix of these different roles, and it is important to be clear as to the precise roles being performed. • There is now a wide range of names given to warehouses, and many of these names reflect the different roles that they perform. • Some of these names include: consolidation centre, JIT sequencing centre, customer service centre, fulfilment factory and e-fulfilment centre. Warehousing and Storage

14. STRATEGIC ISSUES AFFECTING WAREHOUSING • Since warehouses operate as an integral component of the supply chain, the wider business context must be taken into account when making key decisions about these facilities. • The areas that should be considered are very wide-ranging and include the following: Warehousing and Storage

15. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Market/industry trends.Almost all industries have seen dramatic changes in their marketplaces, as well as in the technology available to them. • For example, the food retail industry has witnessed such developments as factory gate pricing, cross-docking of perishables and other items, store-ready presentations, and home shopping. • Any warehouse that is built without the latest trends in mind may be unsuitable by the time it comes into operation. Warehousing and Storage

16. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Corporate objectives. Different companies often have quite different objectives, in terms of their market positioning (eg service commitment to customers), staff policies (eg working environment), and shareholder expectations (eg which may affect acceptable payback periods for capital investments). • Again, any warehouse needs to fit with the particular objectives of the company. Warehousing and Storage

17. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Business plan. The business plan will include factors such as new markets and the sales projections, as well as the degree of certainty of the projections. • These will affect design features such as the expansion potential that needs to be incorporated into the warehouse and the degree of flexibility that should be allowed for. Warehousing and Storage

18. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Supply chain strategy. Each warehouse will be one component in the overall supply chain strategy and therefore needs to be designed accordingly. • This strategy will determine factors such as the roles, location and size of each warehouse. • The size may be determined in terms of both the throughput capacity and the inventory capacity that will be required. Warehousing and Storage

19. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Other related strategies. The business plan will need to be implemented through various departmental strategies, as well as that of the supply chain. • Many of these will affect the warehouse design, as they will determine factors such as incoming batch sizes from production or from suppliers, customer order characteristics, available information technology, and financial restrictions. Warehousing and Storage

20. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • Customer service levels. A number of the strategies previously described, particularly those of marketing and the supply chain, will determine the service levels that the warehouse needs to provide. • It is these service levels that are key to how the warehouse should be designed and operated. Warehousing and Storage

21. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • External factors. There are likely to be constraints imposed by external factors, particularly in terms of regulation. • A wide range of regulations may impact on warehouse design and operations, including laws in such areas as health and safety, manual handling, working hours, fire precautions, equipment, hazardous substances, food safety, and packaging waste, as well as possible local planning constraints (eg on building height and operating hours). Warehousing and Storage

22. STRATEGIC ISSUES AFFECTING WAREHOUSING Cont… • There is thus a wide range of factors that need to be taken into account prior to the detailed design of the warehouse. Warehousing and Storage

23. WAREHOUSE OPERATIONS • Every warehouse should be designed to meet the specific requirements of the supply chain of which it is a part. Nevertheless, there are certain operations that are common to most warehouses. • These tend to apply whether the warehouse is manual in nature with fairly basic equipment or whether it is highly automated with sophisticated storage and handling systems. Warehousing and Storage

24. Figure 14.1 Typical warehouse functions in a stock-holding warehouse Warehousing and Storage

25. WAREHOUSE OPERATIONS Cont… • Receiving. This involves the physical unloading of incoming transport, checking, and recording of receipts. • It can also include such activities as unpacking and repackaging in a format suitable for the subsequent warehouse operations. • Quality control checks may be undertaken as part of this activity. Warehousing and Storage

26. WAREHOUSE OPERATIONS Cont… • Reserve storage. Goods are normally taken to the reserve or back-up storage area, which is the largest space user in many warehouses. • This area holds the bulk of warehouse inventory in identifiable locations. • When required, the goods are taken from reserve storage either directly to marshalling (if, for example, a full pallet is required by a customer) or to replenish a picking location. Warehousing and Storage

27. WAREHOUSE OPERATIONS Cont… • Order picking. Goods are selected from order picking stock in the required quantities and at the required time to meet customer orders. • Picking often involves break-bulk operations. Accurate order picking is important for achieving high levels of customer service. • The good design and management of picking systems and operations are consequently vital to effective warehouse performance. Warehousing and Storage

28. WAREHOUSE OPERATIONS Cont… • Sortation. For small sizes of order, it is sometimes appropriate to batch a number of orders together and treat them as 'one' order for picking purposes. • In this case, the picked batch will have to be sorted down to individual orders, ie secondary sortation, before dispatch. Warehousing and Storage

29. WAREHOUSE OPERATIONS Cont… • Collation( arrange) and added value services. After picking, goods are brought together and consolidated as completed orders made ready for dispatch to customers. • This can involve packing into dispatch outer cases and cartons, and stretch and shrink-wrapping for load protection and stability. • It may also involve final production postponement activities and value added services, such as kitting and labelling. Warehousing and Storage

30. WAREHOUSE OPERATIONS Cont… • Marshalling (arrange) and dispatch.(move to) Goods are marshaled together to form vehicle loads in the dispatch area and are then loaded on to outbound vehicles for onward dispatch to the next 'node' in the supply chain - to an intermediate distribution centre, to a port or airport for the next transport leg, or directly to the final customer. Warehousing and Storage

31. Warehousing and Storage

32. WAREHOUSE OPERATIONS Cont… • Some warehouses act as cross-dock or trans-shipment points and, in these situations, there is no reserve storage function. • A simplified material flow is typical of such warehouses, as shown in Figure 14.3. Warehousing and Storage

33. Figure 14.3 Typical warehouse functions in a cross-dock warehouse Warehousing and Storage

34. COSTS • As noted in Chapter 1, warehousing typically accounts for about 22 per cent of logistics costs, whilst the carrying costs for the inventory within them account for a further 23 per cent. • Together, these represent a very significant sum for many companies. Warehousing and Storage

35. COSTS Cont… • Past studies of 'conventional' warehouse operations - reach trucks and pallet racking with case picking at ground level - have indicated an average breakdown of annual costs, as follows: • staff - up to 50 per cent, of which half is accounted for by the order picking staff; • building (rent or equivalent) - 25 per cent; • building services (maintenance, services, insurance, rates) - 15 per cent; • equipment - 10 to 15 per cent. Warehousing and Storage

36. COSTS Cont… • From a cost point of view, the two key factors that emerge from these figures, on which designers and managers should put particular emphasis, are building space utilization and the design and management of order picking systems. Warehousing and Storage

37. COSTS Cont… • For automated warehouses, the equipment figure would normally be substantially higher, although it should be noted that most 'automated' warehouses still have manual operations for such activities as case picking and packing. • In addition, information systems may represent a significant sum for both conventional and automated warehouses. Warehousing and Storage

38. PACKAGING AND UNIT LOADS • Most goods that pass through a warehouse are packaged. This maybe, for example, to contain the product, protect or preserve it, improve its appearance, provide information, or facilitate storage and handling. Warehousing and Storage

39. PACKAGING AND UNIT LOADS Cont… • Frequently, this packaging is at a number of different levels, such as directly enclosing the product (ie primary packaging), containing a number of primary packages (ie secondary packaging), or some form of outer packaging (normally to facilitate transport and handling). Warehousing and Storage

40. PACKAGING AND UNIT LOADS Cont… • The nature of packaging is very important for warehousing operations, particularly as customers may require the goods at any of these levels. • Thus, some customer orders may be for individual items (eg in their primary packaging), for cases of goods (eg containing a number of items) or at some greater quantity (eg a full pallet load of goods). Warehousing and Storage

41. PACKAGING AND UNIT LOADS Cont… • The warehouse operation must be designed so that any of the order quantities that are offered to customers can be picked and dispatched costeffectively. • Most supply chains are structured around the unit load concept, whereby goods are transported, stored and handled in standard modules. Warehousing and Storage

42. PACKAGING AND UNIT LOADS Cont… • Again, these may be at different levels, for example with goods being placed in plastic tote bins, which are placed on pallets, which in turn may be loaded in ISO containers for export shipping. Warehousing and Storage

43. SUMMARY • This chapter summarized the variety of different roles that warehouses may perform and highlighted some key strategic issues that impact on the design and management of warehouse systems. • These must be taken into account if warehouses are to function effectively within the wider context of the supply chain. The typical activities that take place within inventory holding and non-inventory holding warehouses were described. Warehousing and Storage

44. SUMMARY Cont… • Warehouses are key components of many supply chains, and their roles and objectives should be determined by the overall context within which they operate. • They should integrate closely with the other components in the supply chain. They are expensive and should be well designed and effectively managed, as the way they operate will have an immediate impact on both customer service and costs. Warehousing and Storage