WAREHOUSE

MANAGEMENT
Worksheet 1, part 1
Warehousing
 Overview
Welcome to Warehouse management!!!!
In this first part, we will look at :
• Defining and understanding warehousing
• Roles of a warehouse
• Public sector warehousing
• Need for warehousing
 Warehousing
What is a warehouse?
“A warehouse should be viewed as a temporary place to store
inventory and as a buffer in supply chains.
It serves, as a static unit – in the main – matching product
availability to consumer demand and as such has a primary
aim which is to facilitate the movement of goods from
suppliers to customers, meeting demand in a timely and
cost-effective manner.”
adapted from Van den Berg (2013)
• In essence, warehousing refers to the activities involving storage of goods
on a large-scale in a systematic and orderly manner and making them
conveniently available when needed.
• It is a trans-shipment point where goods are received and despatched as
quickly & as efficiently as possible.
• Technological advancements, automation, improved performance
management has allowed warehouse processes, namely:
- Receiving goods
- processing orders
- replenishing orders
- despatching orders
• Warehouses create time utility by bridging the gap between
production and consumption of goods

• Across the supply chains, warehousing is an important element of

activity in the distribution of goods, from raw materials and work in
progress through to finished products.
• It is integral part to the supply chain network within which it operates
and as such its roles and objectives should synchronise with the
objectives of the supply chain. It is not a stand-alone‘ element of
activity and it must not be a weak link in the whole supply chain
network.
• Warehousing is nothing more than the management of space and
time.

• The space management portion, storage, has a cost per month,

because there is a monthly cost for warehouse space.

• The time management component includes labour involved in

handling materials as they move in and out of the warehouse.
So why study warehouse management???
• Warehouses play a major role in SCM, even though SCM processes
have changed over time
• Managers need to have a greater understanding of the various roles
within a warehouse
• Managers need to know about the current and possible future
advancements in warehousing
• Managers need to understand various issues faced
 The Role of Warehousing
• In the past, warehouses were seen as cost centres that added very little
to no value.

• In today’s market with expensive land, buildings, labour and energy

costs, together with the introduction of concepts such as just in time
(JIT), efficient consumer response (ECR) and quick response (QR),
companies are continually looking to minimize the amount of stock
held and speed up throughput.

• Warehousing has also made the move from ‘push’ to ‘pull’ possible
Other roles for warehouses in supply chains include:
• Raw materials storage
These store raw materials and components either close to the point of
extraction or close to the manufacturing point.
Raw materials must be held in order to ensure continuous production.
• Intermediate, postponement, customization or sub-assembly facilities
used to store products temporarily at different stages in production.
These centres are also used to customize products before final delivery to the customer.

Postponement and sub-assembly activities can include the following:

• specific packaging or labelling being changed or added, eg for storeready items or
printing in different languages;
• computer assembly to include different graphics cards, memory chips, software, etc;
• product bundling for promotional activity;
• country-specific items being added such as electrical plugs; and
• special messages being added, eg stencilling of greetings messages on mobile phones.
• Finished goods storage
These warehouses store products ready for sale, on behalf of
manufacturers, wholesalers and retailers.

They provide a buffer or safety stock for companies, enabling them to

build up stock in preparation for new product launches, expected
increases in demand and to deal with seasonality.
• Consolidation centres and transit
Consolidation centres receive products from different sources and
amalgamate them for onward delivery to the customer or onto a
production line.
e.g. Just-in-time centres
Manufacturers deliver to these facilities where their stock is
consolidated with other suppliers for onward delivery
• Transhipment or breakbulk
Receive products in large quantities from suppliers and break them
down into manageable quantities for onward delivery to various
locations.
• Cross-dock centres
Similar to consolidation centres but difference is in a cross-docking
centre, goods only stay for a maximum of 24 hours
• Sortation centres

used in the main by letter, parcel and pallet distribution companies.

Goods are collected from all parts of the country, delivered into hubs or
sortation centres, sorted by zip or post code, consolidated and
delivered overnight to their respective distribution areas for onward
delivery.
• Fulfilment centres
The growth of e-retailing has seen an increase in the number of
customer fulfilment centres. These warehouses have been designed
and equipped specifically to manage large volumes of small orders.

• Reverse logistics centres

warehouses have been set up specifically to deal with returned items.
Third-party contractors are providing a service to retailers where
customers return unwanted or defective items to the stores; the items
are then consolidated and sent to the returns centre, where they are
checked and either repackaged, repaired, recycled or disposed of.
 Public Sector Warehousing
• Outside the commercial world there are also warehouse operations
which support the public sector, armed forces and the third sector.

• The increasing number of natural disasters such as earthquakes, droughts

and tsunamis is resulting in third-sector organizations opening up
warehouses in strategic locations across the globe.

• Other public sector warehouses will store supplies for local government
facilities such as schools and offices.
• Products will include stationery, uniforms, furniture, computer hardware
and software, etc.
 Need for Warehousing
Warehousing is necessary for the following reason:
• Seasonal production
• Seasonal Demand
• Large-scale production
• Quick supply
• Continuous production
• Price stabilisation
• Uncertain and erratic demand patterns
• Trade-off between transport and shipping costs, justifying larger
shipments
• Discounts via bulk buying
• Distance between manufacturer and the end consumer
• Cover for production shutdowns
• Ability to increase production runs (longer run, lower cost per unit)
• Spare parts storage
• Work-in-progress storage
• Investment stocks
• Document storage
 Warehouse location
Very important and so requires multiple criteria to be assessed,
including both quantitative and qualitative data.

Things to look out for include:

• Location and size of customers
• Cost of land, rent and rates
• Access to transport networks
• Availability of affordable skilled labour
• Transport links for staff
• Availability of funding, grants etc
• Availability of existing buildings
• Availability and costs of utilities
• Availability of finance and resources
• Goods traffic flows
• Proximity to ports and airports
• Location of suppliers and manufacturing points
• The potential neighbours
Also need to have proper locations for e-retailing. Requirements are:
• Land, rent, lease costs
• Access to affordable labour
• Expansion space available
• Close proximity to parcel hub
• Close to motorway network
• Central location
• Close proximity to consumers
• Government incentives
• Close proximity to higher skilled labour
 Location Strategies
• 1) Market positioned
• a) Order Cycle time
• b) Transportation cost
• c) Sensitivity of the product
• d) Order sizes

• This warehouse would be in a strategic location generally near high demand regions to cater to
customers in a manner which will be enable short delivery time along with maximum transport
economies benefits
• Quick delivery service at lower costs
• In case of returns, reverse logistics costs will be less
• Maximum transportation efficiency
• 2) Product positioned:
• a) Perishability of the raw materials
• b) Number of products in the product mix
• c) Assortments ordered by the customers from the
• product mix
• d) Transportation consolidation rates

• The warehouse located close to the manufacturing plant that acts as a

consolidation point for products
• Intermediately positioned:
• A warehouse positioned midway between the production plant and
high demand regions/final customer
• Increased customer service
• Reduced distribution cost
 Warehouse Strategy
• Other qualitative factors that should be considered include:
• 1) presence synergies:
Inventory located nearby in a building that is clearly affiliated with the
enterprise.
• 2) industry synergies:
Refer to the operating benefits of collocating with other firms serving the
same industry.
• 3) operating flexibility:
Refers to the ability to adjust internal policies and procedures to meet
product and customer needs
• 4) location flexibility:
Refers to the ability to quickly adjust warehouse location and number in
accordance with seasonal or permanent demand changes.
• 5) scale economies:
Refer to the ability to reduce material-handling and storage through
application of advanced technologies.
 Supply Chain Trends Affecting
Warehouses
• The e-commerce phenomenon will continue to grow both for
business-to business (B2B) and business-to-consumer (B2C) sectors…
• This will necessitate more fulfilment centres and returns processing
facilities.
• Retailers and manufacturers will continue to look for further cost
savings as markets become even more competitive
• Warehouses will be expected to be more efficient and cost-effective,
with the likely closure of inflexible buildings and inefficient
operations.
• Retailers will continue to take stock out of the supply chain, leading to
increases in stockless depots, transhipment and consolidation centres
and cross-dock operations.
• The increase in port-centric logistics has resulted in companies
building large warehouses as close to the ports of entry as possible

• The sustainability agenda will also play its part within the supply
chain. This will result in the development of further brown field sites,
linkages to rail and potentially canal and river networks, and self-
sufficiency in terms of energy use. (carbon positive)
• It is expected that new warehouses will be targeted with having their
own means of power generation, be it solar or wind, and may also
convert waste into power.

• Greater collaboration within the supply chain both vertically and

horizontally will lead to greater consolidation and an increase in
shared-user operations. This is likely to lead to a reduction in the
number of warehouses and the construction of purpose-built centres.