Distribution Strategy: Warehousing

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Distribution StrategyWarehousing

• Logistics and
• Supply Chain Management

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Warehousing
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• The storing of products, including raw materials,
  parts, goods-in-process, finished goods at and
  between point-of-origin and point-of-consumption.
• Provides information on status of goods.

Distribution centers are a type of warehouse
which hold minimum inventory of high-demand goods.
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Warehousing
.
.
.

• The storing of products, including raw materials,
  parts, goods-in-process, finished goods at and
  between point-of-origin and point-of-consumption.
• Provides information on status of goods.

Warehousing Storage of inventories all
through logistics process.
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.
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Warehousing Storage of inventories all through
logistics process.

• Raw materials, components, parts.
• Finished goods.

• The storing of products, including raw materials,
  parts, goods-in-process, finished goods at and
  between point-of-origin and point-of-consumption.
• Provides information on status of goods.

Physical supply
Distribution
Warehouse
Warehouse
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Inventory
in a Warehousing Context

• Achieves transportation economies.

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Transportation Economies
Economies of scale
Transportation carriers usually give
discounts for bigger loads.
.
Warehouse
Supplier
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Transportation Economies
Economies of scale
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Warehouse
Supplier
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Inventory in a Warehousing Context

• Achieves transportation economies.
• Achieves production economies.

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Achieves Production Economies
Economies of scale
Warehouse
Assembly line
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Inventory in a Warehousing Context

• Achieves transportation economies.
• Achieves production economies.
• Quantity purchased discounts, forward buy
  discounts.
• Maintain source of supply.
• Support customer service policies.

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Inventory in a Warehousing Context
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• To meet changing market conditions.
• Seasonality.
• Demand fluctuations.
• Competition.
• To overcome time and space differentials between
  producers and consumers.
• To minimize logistics costs while meeting
  customer service goals.
• To support just-in-time inventory programs.

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Just-in-Time (JIT)
Assembly line
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Just-in-Time (JIT)
Assembly line
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Just-in-Time (JIT)
Assembly line
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Just-in-Time (JIT)
Assembly line
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Just-in-Time (JIT)
.
Assembly line
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Just-in-Time (JIT)
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Assembly line
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Just-in-Time (JIT)
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Assembly line
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Just-in-Time (JIT)
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Assembly line
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Three Basic Warehouse Functions

• Movement.
• Storage.
• Information.

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Movement
Receiving, putting away
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Warehouse
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Movement
Receiving, putting away
.
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
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Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
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Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
.
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
.
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
Labeling, shrink wrapping
.
Warehouse
Label
Label
Label
Label
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
Labeling, shrink wrapping
.
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
Labeling, shrink wrapping
Breakbulk, consolidation
.
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
Labeling, shrink wrapping
Breakbulk, consolidation
.
Transportation
Warehouse
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Movement
Receiving, putting away
Picking, staging, loading
Cross-docking
Packaging
Light assembly, blending, kitting
Labeling, shrink wrapping
Breakbulk, consolidation
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Transportation
Warehouse
Import, export services (also an information
function)
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Storage
.
Warehouse
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Information
Inventory tracking
Order entry
Proof of delivery
Tracing/customer service billing.
Service reporting/carrier monitoring
Site location
.
Warehouse
Real estate management
Network analysis
Systems analysis
Display building/promotions
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Warehouses versus Distribution Centers

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Warehouses versus Distribution CentersCycles

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Warehouses versus Distribution CentersCycles

• Warehouse

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.
• --Stores.

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.
• --Stores.
• --Picks

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.
• --Stores.
• --Picks
• --Ships

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.
• --Stores.
• --Picks
• --Ships

• Distribution Center

Warehouse
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Warehouses versus Distribution CentersCycles

• Warehouse
• --Receives.
• --Stores.
• --Picks
• --Ships

• Distribution Center

Distribution Center
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Warehouses versus Distribution CentersCycles

• Distribution Center
• Receives

Distribution Center
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Warehouses versus Distribution CentersCycles

• Distribution Center
• Receives
• Ships

Distribution Center
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www.perotdevelopment.com
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www.perotdevelopment.com
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www.perotdevelopment.com
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www.arvinmeritor.com
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www.arvinmeritor.com
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Warehouses versus Distribution CentersOther
Differences

• Warehouses
• --Minimal adding of value.
• --Data collection in batches.
• --Aim at minimizing shipping costs.

• Distribution Centers
• --Maximum adding of value (including final
  assembly).
• --Real-time data collection.
• --Aim at maximizing profit of demand

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Uses of Warehouses

• Support manufacturing.
• Mix products from multiple production facilities
  to a single customers.
• Break bulk.
• Consolidate small shipments into large shipments.

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Manufacturing Support (inbound logistics)
Supplier A
Carload or truckload shipments
Supplier B
Plant
Warehouse
Supplier C
Supplier D
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Product 1
Product 2
Product 3
Product 4
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1
2
3
4
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Mixing Warehouse (outbound logistics)
1
2
3
4
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
1
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
3
4
1
2
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
1
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
3
4
1
2
1
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
1
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Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1
1
1
3
4
2
1
2
3
4
Plant B, Product 2
2
Customer X
Mixing Warehouse
1
2
3
4
3
4
1
2
1
2
3
4
Plant C, Product 3
3
Customer Y
Plant D, Product 4
4
2
3
4
1
1
2
3
4
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ConsolidationWarehouse (outbound logistics)
Customer W
Plant A
Plant B
Customer X
Consolidation Warehouse
Plant C
Customer Y
Plant D
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BreakbulkWarehouse (outbound logistics)
Customer 1
Customer 2
Breakbulk Warehouse
Plant
Customer 3
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Types of Warehousing

• Direct store delivery Mfg. ? store
• Private warehousing
• Public warehousing.
• General merchandise.
• Refrigerated or cold storage.
• Bonded warehouses.
• Household goods, furniture.
• Special commodity.
• Bulk storage.
• Cross-docking facilities (3PL concept)
• Contract warehousing (can be used in 3PL)

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Public Warehousing

• Advantages
• Conservation of capital.
• Able to increase capacity when needed.
• Reduced risk of obsolescence.
• Economies of scale due to warehouse companys
  investment.
• Flexibility.
• Tax advantages some states have no inventory
  taxes for products in public warehouses.
• Specific knowledge of costs.

• Disadvantages
• Incompatible communications systems.
• Lack of specialized services.
• May be unavailable when needed.

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Private Warehousing

• Advantages
• Control.
• Flexibility in design and operation.
• Long-term cost.
• Better use of human resources.
• Tax benefits depreciation
• Intangibles image of stability, being a real
  player.

• Disadvantages
• Fixed costs, especially if built for peak
  seasons.
• Investment. Return may be better if money placed
  elsewhere.

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Warehouse Characteristics

• Increase the number of warehouses and the average
  size of warehouses decreases.
• Factors influencing the number of warehouses
• Cost of lost sales.
• Inventory costs.
• Warehousing costs.
• Transportation costs.

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Warehouse Locations

• Market-based nearest the final customer.
• Production positioned collection points or
  mixing facilities.
• Intermediate positioning between producer and
  final customer.

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Cross-Docking

• Movement from an inbound dock directly to an
  outbound dock.
• Movement from directly from an inbound dock to a
  sorting process to an outbound dock.

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Cross-Docking (2)
Outbound
Freight
Inbound
Outbound
Outbound
Inbound
Outbound
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Retail Distribution Center
Store 1
Mfg. 1
Store 2
Store 3
Mfg. 2
Store 4
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Crossdock in at least two of these conditions

• Product destination is know upon receipt.
• Destination is ready for immediate delivery.
• You daily ship to less than 200 locations.
• More than 70 of products fit conveyors.
• You receive large quantities of individual items.
• Products arrive pre-labeled.
• Some products are time-sensitive.
• Distribution center is near capacity.
• At least some inventory is pre-prices.