Progression of Warehousing Decisions Why Use Warehouses? Types of Warehousing Warehouse Operations

1. Introduction Progression of Warehousing Decisions Why Use Warehouses? Types of Warehousing Warehouse Operations Warehousing Innovations Warehouse Layout Packaging

2. Progression of Warehousing Decisions. Should Warehouses Be Used? If Warehouses are Used, Should they be Public or Private? Where Should they be Located? What Should be their Capacities? How Many Should You Have? What Should be their Layout and Design?

3. Why Use Warehouses? Cope with Variable Market Conditions Cope with Variable Sources of Supply Production Economies Purchasing Economies Transportation Economies Customer Service

4. Warehouse Operations Planning, Organizing, Staffing, Equipping, and Controlling Human Resource Management Billing and Inventory Control Order Filling Local Delivery Material Handling Packaging Safety, Security, Maintenance Measuring Warehouse Efficiency

5. Warehouse Safety J.N. Devin, "Cowboy After OSHA,“ 1972.

6. Warehousing Innovations WERC – Established 1978 Housekeeping Storage Heights Automated Retrieval Systems Bar Codes, Scanners, EDI, RFID, etc. Narrow Aisle Equipment, Conveyors, etc. The Distribution Center Concept Assembly, Product Maintenance, Repair, etc. Management Controls Cross Docking

7. Costs of Increasing Storage Heights Total Cost $ Labor & Insurance C1 Construction & Finance Storage Height H1

8. Costs of Increasing Storage Heights Effects of New Technology Total Cost $ Labor & Insurance C1 Construction & Finance Storage Height H1

9. Costs of Increasing Storage Heights Effects of New Technology $ Total Cost Labor & Insurance C1 C2 Construction & Finance Storage Height H1 H2

10. Warehousing Innovations WERC – Established 1978 Housekeeping Storage Heights Automated Retrieval Systems Bar Codes, Scanners, EDI, RFID, etc. Narrow Aisle Equipment, Conveyors, etc. The Distribution Center Concept Assembly, Product Maintenance, Repair, etc. Management Controls Cross Docking

11. 8 4 Types of Warehousing Private Warehousing Public Warehousing Contract Warehousing Cross-Docking

12. Private vs Public Warehousing (Without Cost of Capital) Public $ (All Variable Cost) Private (Fixed + Variable Cost) Prefer Public Volume Prefer Private Indifferent

13. Indifference Point Between Public and Private (Without Cost of Capital) Private = Fixed Costs + Variable Costs Public = Variable Costs Example: Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Indifference point is where both costs are equal 500,000 + .15X = .25X 500,000 = .10X X = 5,000,000 pounds ROI = 0

14. Private vs Public Warehousing (With Cost of Capital) $ Public Savings (All Variable Cost) Private (Fixed + Variable Cost) Prefer Public Volume Prefer Private Indifferent

15. Indifference Point Between Public and Private (With Cost of Capital) Private = Fixed Costs + Variable Costs Public = Variable Costs Example: Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Indifference point is where savings = desired ROI Savings Average Investment = ROI

16. Indifference Point Between Public and Private (With Cost of Capital) Desired ROI = Hurdle Rate Savings = Public – Private Average Investment = Initial Investment /2 Example: Hurdle Rate = 10% Investment = $8,000,000 Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound

17. Indifference Point Between Public and Private (With Cost of Capital) Hurdle Rate = 10% Investment = $8,000,000 Private Fixed Costs = $500,000/year Private Variable Costs = $0.15/pound Public Variable Costs = $0.25/pound Savings = Public - Private .25X - (500,000 + .15X) 4,000,000 = .10

18. Indifference Point Between Public and Private (With Cost of Capital) Savings = Public – Private .25X - (500,000 + .15X) 4,000,000 = .10 .25X - (500,000 + .15X) = .10 * 4,000,000 .25X - 500,000 - .15X = 400,000 .25X - .15X = 400,000 + 500,000 .10X = 900,000 X = 9,000,000

19. Advantages of Private Warehousing Greater Control Flexibility (CS Needs, Space Use, etc.) Tax Benefits (Depreciation) Image to Customers Potentially Lower Cost

20. Disadvantages of Private Warehousing Lack of Flexibility (Fixed Size/Location) Capital Requirements Equipment Maintenance/Training Potential Labor Problems

21. Advantages of Public Warehousing Capital Conservation Ability to Meet Peak Demand Reduced Risk Flexibility WRT Volume Avoidance of Property Taxes Avoidance of Labor Problems Potentially Lower Cost Knowledge of Exact Costs

22. Disadvantages of Public Warehouses Lack of Control Difficult Communications Not Always Available Potentially Higher Cost

23. Cross-Docking An operations procedure that allows product to be delivered and received on one side of a facility, undergoes internal handling procedures at the receiving dock, distributing unit loads and moving the product to shipping docks on the other side of the facility where trucks or rail cars are waiting to be loaded for customer delivery.

24. Cross-Docking

25. Cross-Docking

26. Warehouse Layout  Angling vs On-the-Square Fixed vs Variable Slots Space Loading Techniques Item Popularity Item Size Cube per Order Index Family Groupings Linear Programming Simulation

27. Cost of Fixed vs Variable Storage Slots Total Cost $ Labor C1 Space Utilization Percent Variable V1

28. Cost of Fixed vs Variable Storage Slots Effects of New Technology Total Cost $ Labor C1 Space Utilization Percent Variable V1

29. Cost of Fixed vs Variable Storage Slots Effects of New Technology $ Total Cost Labor C1 C2 Space Utilization Percent Variable V1 V2

30. Warehouse Layout  Angling vs On-the-Square Fixed vs Variable Slots Space Loading Techniques Item Popularity Item Size Cube per Order Index Family Groupings Linear Programming Simulation

31. Functions of Packaging • Marketing • Information • Promotion Logistics • Containment • Protection • Apportionment • Unitization • Convenience • Communication

32. Postponement What is it? Why do we do it? Examples

33. Postponement What is it? A delayed differentiation strategy to reduce uncertainty and cost while satisfying customer needs. Activities in the supply chain are delayed until a demand is realized. Bucklin (1965) Model of Postponement /Speculation

34. Postponement Why do we do it? It has the potential to improve responsiveness while reducing inventory, transportation, storage, and obsolescence. Insufficient inventory early in the product cycle can cost market share. Products at the end of life cycle lose value quickly and risk obsolescence, which can lead to large inventory write-offs.