Chapter 8

Warehousing Decisions

The Nature and

Importance of Warehousing

In 1999, $75 billion, or 0.8 percent

of GDP was spent on warehousing.
The total supply of U.S. warehousing space in
1999 was 6.1 billion square feet, an increase
from 1990 of 700 million square feet of space.
Warehousing provides time and place utility
for raw materials, industrial goods, and
finished products, allowing firms to use
customer service as a dynamic value-adding
competitive tool.

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The Role of the Warehouse in the

Logistics System: A Basic
Conceptual Rationale

The warehouse is
where the supply
chain holds or
stores goods.

Chapter 8

Functions of
warehousing include:
Transportation
consolidation
Product mixing
Cross-docking
Service
Protection against
contingencies
Smoothing

Management of Business Logistics, 7th

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Table 8-1
Warehouse Value-Adding
Roles

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Figure 8-1
Transportation Consolidation

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Figure 8-2
Supply and Product Mixing

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Basic Warehouse Decisions:

A Cost Trade-off Framework

Ownership
Public versus contract versus private
Centralized or Decentralized Warehousing
How many
Location
Size
Layout
What products where

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Figure 8-3
Basic Warehousing Decisions

Chapter 8

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The Ownership Decision

Chapter 8

Public warehousing
costs mostly all
variable.
Private warehousing
costs have a higher
fixed cost component.
Thus private
warehousing virtually
requires a high and
constant volume.

Management of Business Logistics, 7th

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The Ownership Decision

Factors to consider
Throughput volume
Stability of demand
Density of market area to be served
Security and control needs
Customer service needs
Multiple use needs of the firm

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Table 8-2
Firm
Characteristics Affecting the
Ownership Decision

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Public Warehousing

Rationale for Public Warehousing

Limited capital investment
Flexibility
Public Warehousing Services
Bonded warehousing
Field warehouses

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Public Warehousing

Public warehousing
regulation:
Liability
Receipts

Chapter 8

Public warehousing
rates based upon:

Value

Fragility

Potential damage
to other goods

Volume and
regularity

Weight density

Services required

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Contract Warehousing

Up 23% per year in 2000 to $20.4 billion.

Compensation for seasonality in products.
Increased geographical coverage.
Ability to test new markets.
Managerial expertise and dedicated
resources.
Less strain on the balance sheet.
Possible reduction of transportation costs.
Other issues discussed in Chapter 11.
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The Number of Warehouses

Chapter 8

Factors Affecting the

Number of Warehouses
Inventory costs
Warehousing costs
Transportation costs
Cost of lost sales
Maintenance of
customer service
levels
Service small quantity
buyers

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Table 8-3: Factors Affecting

the Number of Warehouses
Factor

Centralized

Decentralized

Substitutability

Low

High

Product Value

High

Low

Purchase Size

Large

Small

Special
Warehousing

Yes

No

Product Line

Diverse

Limited

Customer Service

Low

High

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Basic Warehouse Operations

Movement
Receiving
Put-away
Order picking
Shipping
Storage
Stock location
Warehouse Management System
(WMS)

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Figure 8-6
Basic Warehouse Operations

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Warehouse Layout and

Design

Chapter 8

Develop a demand
forecast.
Determine each items
order quantity.
Convert units into cubic
footage requirements.
Allow for growth.
Allow for adequate aisle
space for materials
handling equipment.

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Warehouse Layout and

Design

Provide for the

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

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Figure 8-9
Principles of
Warehouse Layout Design

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Warehouse Layout and

Design

Chapter 8

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

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Warehouse Layout and

Design

Layout and Design

Principles:
Use one story facilities
where possible.
Move goods in a straightline.
Use the most efficient
materials handling
equipment.
Minimize aisle space.
Use full building height.
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Warehouse Layout and

Design: Layout and Design
Objectives

Cubic capacity
utilization
Protection
Efficiency
Mechanization
Productivity

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Table 8-4: Warehouse

Productivity Metrics

Pounds or units per day

Employees per unit moved
Units unloaded per hour
Units picked per hour
Units loaded per hour
Percentage of orders correctly filled
Productivity ratio = units handled/day divided
by
labor hours/day
Throughput = amt of material moved through
the system in a given time period

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Materials Handling

Definition: Efficient short distance

movement in or between buildings and
a transportation agency.
Four dimensions
Movement
Time
Quantity
Space
Coordination
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Objectives of Materials
Handling

Increase effective capacity

Minimize aisle space
Reduce product handling
Develop effective working
conditions
Reduce heavy labor
Improve logistics service
Reduce cost

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Figure 8-12

Utilization of a
Warehouses Cubic Capacity:
Principles of Warehouse Layout
Design

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Packaging

Interest in packaging is widespread

Logistics

Warehousing

Transportation

Size
Marketing
Production
Legal

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The Role of Packaging

Identify product and provide

information
Improve efficiency in handling and
distribution
Customer interface
Protect product

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What Is Packaging?

Consumer packaging
Marketing managers primarily
concerned with how the package fits
into the marketing mix.
Industrial packaging
Logistics managers primarily concerned
with efficient shipping characteristics
including protection, ability to withstand
stacking when on a pallet, cube, weight,
shape and other relevant factors.

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Packaging Materials

Table 8-6 presents a comparison of

various packing material characteristics.
Basic considerations include:
Soft materials
Plastic
Environmental issues
Recycling (reverse logistics)

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Bar Coding

Standard markings that can be read by

automatic or handheld scanners that allow
for labor saving logistical activities for all
supply chain members.
Bar Codes contain information regarding:
Vendor
Product type
Place of manufacture
Product price

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End of Chapter 8
Warehousing Decisions