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Chapter 6

WAREHOUSE &
MATERIAL HANDLING
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Learning Objectives

 Discuss the overview of warehouse process

 Describe the main activities in a warehouse and the
aims of warehouse
 Discuss the warehouse ownership arrangement
 Describe warehouse decisions
 Understand the material handling
 Appreciate the purpose of packaging

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Main content

1. Overview

2. Warehouse Ownership Arrangements

3. Warehouse Decisions

4. Key Cost

5. Material Handling

6. Packaging

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1. OVERVIEW

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OVERVIEW OF WAREHOUSE

 A warehouse is traditionally viewed as a place to hold or store inventory.

 As well as storage, warehouses can be used for a number of other
activities.
 The most common terms for warehouses are distribution centres and
logistics centres.

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OVERVIEW OF WAREHOUSE PROCESS

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Receiving Storage Shipping
Function Function Function
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ACTIVITIES WITHIN WAREHOUSE

 Inbound:
 Receiving
 Put Away
 Storage
 Outbound:
 Order Processing and Picking
 Checking, Packing, and Shipping

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RECEIVING

• Tasks
– Check, inspect,
unload, record,
• Facilities
– Docks, Lift trucks,
forklift
– Computer terminals
• Decisions
– Dock design
– Schedule of arrivals
– Priorities
– Problem handling
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PUT AWAY

• Tasks
– Move pallets or cases to
storage locations
• Facility
– Pallet truck
– Lift truck
• Decisions
– Where
– When
– Equipment
– WMS systems 2-pallet pallet truck
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STORAGE
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ORDER PROCESSING & PICKING
CHECKING - PACKING - PACKAGING LOGO
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SHIPPING
 KEY WAREHOUSE PROCESSES LOGO

• Receiving process: Receive Parts  Check quantity and quality (loop) 

System suggests put away locations (can be done manually) - Put away at
respective locations  payment.
• Shipping process: Sales orders  Print picking tickets  Assign picker 
System specifies picking sequence  pick parts  packing and checking 
enter quantity and confirm  shipping.
• Inventory control process: Reviewing  Planning (capacity, ordering) 
Ordering  Receiving  Checking  Updating.
• Other processes:
– Product Identity & Traceability
– Control of Inspection, Measuring and Testing process/equipment
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AIMS OF WAREHOUSING

 To support the broader logistics function by giving a combination of high

customer service and low costs.

 Specific aims include:

 Providing and giving secure necessary storage.

 Keeping all materials in good condition with minimal damage.

 Getting high productivity and utilisation of resources.

 Controlling all movements of materials effectively and without errors.

 Giving safe working conditions, and compliance with regulations.

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COMMON WAREHOUSE ISSUES:
HONEYCOMBING
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COMMON WAREHOUSE ISSUES:
STACKING ITEMS ABOVE 3 LEVELS
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COMMON WAREHOUSE ISSUES:
SPACE UTILIZATION
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COMMON WAREHOUSE ISSUES:
SAFETY ISSUES
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COMMON WAREHOUSE ISSUES:
FORKLIFT ISSUES
Common Warehouse Issues:
Forklift Issues
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2. WAREHOUSE
OWNERSHIP
ARRANGEMENTS

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CLASSIFICATION BASED ON OWNERSHIP

1. Private Warehouse
2. Public Warehouse
3. Contract Warehousing
4. Network Deployment
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PRIVATE WAREHOUSE

• Private warehouse is typically operated by the firm owning the

product. The building may be owned or leased.
• The use of private warehousing is declining because of
– an increasing managerial interest in reducing capital invested in
logistical assets.
– the cost benefit of private warehousing is potentially offset by a
public warehouse’s ability to gain operational economies of scale
and scope as a result of the combined throughput of multiple
clients.
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PUBLIC WAREHOUSE

 Public warehouse is an independent business and charging

users a fee.
 The major benefits are
o flexibility,
o avoiding large capital investment,
o easy access to a wider geographical area,
o use of economies of scale to reduce warehousing costs,
o consolidating loads with other organizations to reduce transport
costs, high quality and efficient service.
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TYPES OF PUBLIC WAREHOUSE
Based on operational specialization, five types of public warehouse
are classified.
Household
General Special
Refrigerated Bonded goods or
merchandise commodity
warehouses warehouses furniture
warehouses warehouses
warehouses
Designed to Offer frozen or Designed to o Licensed by the Specialize in
handle package cooler capacity handle bulk government to handling and
products such designed to material or items store goods prior storing large,
as protect products requiring special to payment of bulky items
• electronics, requiring handling, such taxes or such as
• paper, temperature as import/export • appliances
• food, control such as • tires, duties. ,
• small • food, • Clothing. o Tight control over • furniture.
appliances, • medical, movements in and
• household out of the facility,
• chemical.
supplies. since documents
must accompany
each move.
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CONTRACT WAREHOUSING

• Contract warehousing combines characteristics of private and public

operations.

• A long-term contractual relationship will result in lower total cost than a

public warehouse.

• Contract warehouse operations can provide benefits of expertise,

flexibility, scalability, and economies of scale by sharing management,
labor, equipment, and information resources across multiple clients.

• Contract warehouses typically offer a range of logistical services such as

transportation management, inventory control, order processing, customer
service, and return merchandise processing.
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NETWORK DEPLOYMENT

• Many firms utilize a combination of private, public, and contract

facilities.
– Full warehouse utilization throughout a year is rare.
– As a managerial guideline, a typical warehouse will be fully
utilized between 75 and 85 percent of the time; so from 15 to 25
percent of the time, space needed to satisfy peak requirements
will not be used.
 In such situations, a deployment strategy may be the use of
private or contract warehouses to cover the 75 percent requirement
while public facilities are used to accommodate peak demand.

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3. WAREHOUSE
DECISIONS

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COMMON DECISIONS IN PRIVATE WAREHOUSE

1. Site Selection

2. Design

3. Product-mix Analysis

4. Expansion

5. Handling

6. Layout

7. Sizing
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SITE SELECTION

• The first task is to determine the general warehouse area  then a

specific building site is identified.
• Typical areas for locating warehouses are commercial
developments and outlying or suburban areas.
• The factors driving site selection are service availability and cost.
Land cost is an important factor.
• In many cities, warehouses are among industrial plants and in areas
zoned for light or heavy industry.

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DESIGN – OVERVIEW (1/4)

• Warehouse design must consider product movement

characteristics.
• Three factors to be determined during the design process are
– the number of floors to include in the facility,
– a cube utilization plan,
– product flow.

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DESIGN - NUMBER OF FLOORS (2/4)

• The ideal warehouse design is a one-floor building that eliminates

the need to move product vertically.
• The use of vertical handling devices, such as elevators and
conveyors, to move product from one floor to the next  requires
time and energy, and typically creates handling bottlenecks.
• So, while it is not always possible, particularly in business districts
where land is restricted or expensive, as a general rule distribution
warehouses should be designed as one-floor operations to
facilitate handling.
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DESIGN – CUBIC UTILIZATION (3/4)

• Warehouse design must maximize cubic utilization.

• Warehouse cube utilization is the total available space within your

warehouse that is actually utilized. Cube utilization is expressed as a
percentage between 0% (poor) and 100% (excellent).

• Most warehouses are designed with 10m to 12m clear ceilings.

• Maximum effective warehouse height is limited by the safe lifting

capabilities of handling equipment, such as lift trucks, rack design,
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DESIGN – PRODUCT FLOW (4/4)

• Warehouse design should facilitate

continuous straight product flow through
the building.

• In general, products should be received at

one end of a building, stored as
necessary in the middle, and shipped
from the other end.

• The figure illustrates the basic warehouse

design with straight-line product flow that
facilitates velocity while minimizing 34

congestion and redundant handling.

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PRODUCT-MIX ANALYSIS

• An important area is the analysis of products that will be distributed through

the warehouse.
• The design and operation of a warehouse are both dependent on the
product mix.
• Each product is analyzed in terms of annual demand, weight, cube, and
packaging.
• It is also important to determine the total size, cube, and weight of the
average order to be processed through the warehouse.
 These data provide necessary information for determining warehouse space,
design and layout, handling equipment, operating procedures, and controls.
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EXPANSION

• Because warehouses are increasingly important in supply chain networks

 their future expansion should be considered during the initial
planning phase.
• It is common to establish 5- to-10-year expansion plans.
• Potential expansion may justify purchase or option of a site three to five
times larger than required to support initial construction.
• Building design should also accommodate future expansion.
– Some walls are constructed of semi-permanent materials to allow quick
removal.
– Floor areas can be extended during initial construction to facilitate
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HANDLING

• A handling system is the basic driver of warehouse design.

• A warehouse is appropriately viewed as a structure designed to

facilitate efficient product flow.

• It is important to stress that the handling system must be

selected early in the warehouse development process.

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LAYOUT (1/2)

• The layout or storage areas of a warehouse should be planned to facilitate product flow.

• The layout and the handling system are integral.

• Another attention is given to location, number, and design of receiving and loading

docks.

• Warehouse layouts are customized to accommodate specific product handling

requirements.

• If pallets are utilized, the first step is to determine the appropriate size.

• The second step in planning warehouse layout involves pallet positioning. The most

common practice in positioning pallets is at 90 degree, or square, placement to the aisle.

• Finally, the handling equipment must be integrated to finalize layout. The path and tempo of
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product flow depend upon the handling system.
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LAYOUT (2/2)
• To illustrate the relationship between handling and layout  Two
systems and their respective layouts are illustrated as below

Lift trucks Lift trucks

for inbound for inbound
and and
inventory inventory
transfer transfer
movements movements

Tow A
tractors and continuous
inventory towline
collection for order
trailers selection
for order
selection

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SIZING

• Several techniques are available to help estimate warehouse size.

• Each method begins with a projection of the total volume expected to move
through the warehouse during a given period.

• The projection is used to estimate base and safety stocks for each
product to be stocked in the warehouse.

• Failure to consider utilization rates can result in overbuilding or

underestimation of warehouse size requirements.

• A good rule of thumb is to allow for 10 percent additional space to account

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4. KEY COST

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KEY COSTS
Two Main Types: FIXED AND VARIABLE COSTS

List several fixed costs in a warehouse?

• Rent and/ or rates

• Insurances on the premises/ building
• Depreciation on the assets
• Heat power and light *
• Basic wages and other related costs, such as pensions

List several variable costs in a warehouse?

• Overtime wage costs
• Repairs and maintenance
• Running costs of equipment
• Insurance on goods/ products
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KEY COSTS - WAREHOUSE TOTAL COSTS
• Adding Fixed and Variable costs on a yearly basis.
• Adding component costs: labor, space and equipment.
- Labor: basic wages, overtime, and all salary expenses;
- Space: rent and rates, heat, power and light;
- Equipment: fixed and variable costs for plant, racking, fork-lifts,…
• Here are an example of typical costs for a normal warehouse.

Warehouse cost components

60%

45%

30%

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15%

0%
Labor Space Equipment
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KEY COSTS – LABOR COST
• The labor costs are usually the largest component.
• Analyzing labor costs by activity can be useful to understand
which costs controllable on daily basis.

Labor cost by activities

45%

30%

15%

0%
Receiving Put away Picking Despatching Others

• Picking is usually the largest item  Managers should consider

further examination for improvement efforts.
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EXAMPLE 1

Consider a warehouse with the area of 4,000 square meters, fully

racked four pallets high and 3,360 pallet spaces available. If the
estimated average pallet space utilization is 75%, what is the daily
cost per pallet stored? Assuming a year has 265 working days.

Item $ per annum

Rent 120,000
Rates 50,000
Heat and light 10,000
Repairs and renewals 15,000
Fire insurance 5,000
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Racking depreciation 10,000
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5. MATERIAL
HANDLING

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OVERVIEW

• Materials handling is concerned with the movement of materials for short

distances within a warehouse, or between storage areas.
• When an item is moved  it costs money, takes time, and gives an
opportunity for damage or mistake.
• Efficient warehouses  reduce the amount of movement to a minimum, and
make the necessary movements as efficient as possible.
• Some objectives of materials handling include:
– moving materials around a warehouse as required.
– moving materials quickly, reducing the number and length of
movements.
– increasing storage density, by reducing the amount of wasted space.
– reducing costs, by using efficient operations.
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BASED ON LEVELS OF TECHNOLOGY

1. Manual Warehouse

2. Mechanised Warehouse

3. Automated Warehouse
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MANUAL WAREHOUSE

 This is the easiest arrangement and is still one of the most

common.
 Items are stored on shelves. People go around and pick items
from the shelves, and put them into some sort of container for
movement – like a supermarket trolley.
 Manual warehouses only work if the items are small and light
enough to lift.
 Shelves must be low enough for them to reach and close
together to reduce the distance walked.
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MECHANISED WAREHOUSE

 Mechanised warehouses replace some of the muscle power of

manual warehouses by machines.

 These warehouses can store heavier goods and much bigger.

 The warehouses employ a wide range of handling equipment.

 Typical examples of mechanised equipment are:

 Reach trucks - Order-picking machines

 Forklift trucks - Cranes

 Towlines - Carousels
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 Tractors - Conveyors
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REACH TRUCK
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FORKLIFT TRUCK
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TRACTOR

TOWLINE
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TRAILER ORDER-PICKING MACHINE

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CRANE
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CONVEYOR

Roller Conveyor Belt Conveyor

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AUTOMATED WAREHOUSES (1/2)

 Traditional warehouses, even mechanised ones  high

operating costs.
 These operating costs can be reduced and improving aspects
of service  by using automation.
 But this needs a very high investment in equipment  only
worth for very big stores that move large amounts of materials.

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AUTOMATED WAREHOUSES (2/2)
 Automated warehouses include the following components:
 Storage areas that can be accessed by automatic equipment.
 Equipment to move materials around the warehouse by automated
guided vehicles (AGVs) which use guide wires in the floor.
 Equipment to automatically pick materials and put them into storage,
including high speed stacker cranes.
 Equipment to transfer materials between the different types of
equipment; these automatic loaders and unloaders might include
industrial robots.
 Warehouse management system to record material locations and
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AUTOMATED GUIDED VEHICLES

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AUTOMATED STORAGE & RETRIEVAL SYSTEM

Automated 4 aisle mini-load warehouse

with single mast stacker cranes
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6. PACKAGING

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STANDARD PACKAGE

 Collecting together materials into the standard packages is called

unitization to form unit loads.

 It is much easier to move standard loads than it is to move a

variety of items with different sizes and shapes separately.

 Standard packages can increase the density of storage.

 One benefit of packaging is making materials handling easier.

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PURPOSES OF PACKAGING

• Identifies the product and gives basic information.

• Protects items while they are being moved through the supply
chain.

• Makes handling easier.

• Assists in marketing, promoting the product, advertising and

giving information to customers.

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TWO TYPES OF PACKAGING

 Consumer (interior) packaging

 Be designed for the customers and includes the promotional materials.
 Be brightly colored, and has cellophane and advertisements.
 Industrial (exterior) packaging
 Be designed to protect and make handling easier.
 Be the plain box or pallet that gives information to organizations in the
supply chain.

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FIVE MATERIALS FOR PACKAGING

 Glass is easy to clean, reuse and recycle, but is fragile, relatively

expensive and difficult to make.

 Plastic is light, strong and easy to clean, but can be expensive and
difficult to make or reuse.

 Cardboard is light, cheap and can be recycled, but has little

strength and poor durability.

 Wood is strong, durable, easy to use and can be reused, but it is

heavy, bulky and difficult to clean.

 Metal is strong and durable, but it is heavy and can be expensive.

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GLASS PLASTIC
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CARDBOARD
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WOOD
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Metal
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Packaging Waste

 Industrial packaging is more likely to be reused and recycled than

consumer packaging, because it is more robust, and can be collected
from a few locations.
 Consumer packaging is more likely to be discarded, but some
companies have policies of reducing this by reusable containers.
 Replacing cardboard containers by wood  might seem expensive.
But it can be used repeatedly  actually reduce overall costs and
contributing to a cleaner environment.