Warehouse management Flashcards
Definition of the warehouse
a warehouse should be a trans-shipment point where all goods received are despatched as quickly, cost-effectively and efficiently as possible. They are not there to store goods ad infinitum.
Ideally manufacturing products ‘just in time’ shipping directly to customer
warehouse location
The finished stock needs to be held as close to the point of use or consumption as possible to reduce ever-increasing transportation costs and to meet increasingly demanding customer delivery requirements.
- cost of land, rent and rates;
- access to transport networks;
- proximity to multimodal hubs;
- availability of affordable, skilled labour;
- languages spoken;
- transport links for staff;
- availability of funding, grants, etc;
- availability of existing buildings;
- availability and cost of utilities including telecoms;
- availability of finance and resources;
- goods traffic flows;
- proximity to ports and airports;
- location of suppliers and manufacturing points; and the potential neighbours (eg proximity to oil storage depots can be a negative factor, as ASOS found out to their cost during the Buncefield oil disaster).
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Warehouse location: top nine requirements by Savills survey
- land/rent/lease costs;
- access to affordable labour;
- expansion space available;
- close proximity to parcel hub;
- close to motorway network;
- central location (covering all the United Kingdom);
- close proximity to consumers;
- government incentive; and
- close proximity to higher skilled labour.
Raw materials storage
These warehouses 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.
These materials include plastics, precious metals, sand, aggregates, cocoa and other food ingredients, etc. Food products may also be purchased in advance to guarantee supply in the event of poor weather conditions and possible conflict.
Storage facilities can include buildings, tanks, hoppers and open spaces.
Intermediate, postponement, customization or sub-assembly facilities
These warehouses are 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 store-ready 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, and expected increases in demand and to deal with seasonality.
Trans-shipment or break-bulk centres
Transhipment centres receive products in large quantities from suppliers and break them down into manageable quantities for onward delivery to various locations.
Cross-dock centres
cross-dock centres are seen as being the future for warehousing alongside fulfilment centres. ECR and QR within retail require operations to be able to move goods quickly through the supply chain.
According to Datex Corporation there are four main scenarios where cross docking is used most frequently:
When the demand for any given inventory item is stable and shows strong consistency. These items can be placed on a reoccurring fulfilment schedule using cross docking. This eliminates the need for surplus inventory to be stored in case of out-of-stock situations.
When handling time-sensitive and perishable inventory. Due to the reduced shelf life, inventory needs to reach retailers with a reasonable remaining shelf life. By foregoing storage and utilizing cross docking, delivery time is reduced. This provides the goods with a longer sales window.
Because customers cannot expect a specific inventory item to be in stock, cross docking can be utilized to quickly deliver bulk shipments of varying inventory on a reoccurring schedule. In this case, out-of-stock scenarios are not a concern and storing surplus inventory is not necessary.
When fulfilling orders for which customers are willing to wait. With items such as appliances and furniture, customers typically expect to wait a short time for delivery. Rather than storing these large items in-store or at a distribution centre, retailers can efficiently fulfil orders from a single facility using cross docking to help reduce the delivery period.
Sortation centres
Sortation centres are 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. These operations are increasing and the hubs are getting bigger in order to cope with the growth in e-commerce.
Today’s retailers are also moving towards automated sortation centres with pallets being de-layered on entry, the use of mini-load systems for temporary storage and retrieval and finally automated pallet build on exit.
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. Videos 1ii and 1iii show the fulfilment operation of an internet retailer called i-herb.com and how it has moved from a person-to-goods system to that of a goods-to-person system.
Reverse logistics centres
The growth of e-retailing and specific environmental legislation such as the European Union’s Waste Electrical and Electronic Equipment (WEEE) Directive (2007) has compelled companies to focus time and energy on reverse logistics. Today, companies recognize that returning product to stock or disposing of it quickly can positively affect cash flow.
As a result, a number of 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 repackaged, repaired, recycled or disposed of.
Waste legislation has also resulted in large quantities of returned packaging having to be disposed of in an environmentally friendly manner. This includes sortation by type and use as fuel or recycled material. There are case studies in the environmental section that go into more detail on this subject.
Other reverse logistics processes include the return of reusable transit packaging equipment such as roll cages, barrels, kegs, pallets, tote boxes and trays. When used in the food industry added services include washing and sanitizing the items before they re-enter the supply chain.
For example, XPO Logistics, a 3PL, service and maintain more than a million roll cages, as well as 230 million trays, flower buckets and dollies for Tesco. Recent and planned initiatives include the development and implementation of a live data capture system and the trial of a segregation system to improve the quality and value of plastic waste.
Reasons to keep the stock: Uncertain and erratic demand patterns
Suppliers of ice cream, suntan lotion, umbrellas and the like will potentially experience erratic demand patterns based on the changeability of the weather. Other unpredictable sales can revolve around the launch of a new product and the progress of a team in a major competition such as football’s World Cup or baseball’s World Series events.
REason to keep the stock: Trade-off between transport and shipping costs, justifying larger shipments
The ability to move product in large quantities tends to attract lower costs per unit. The trade-off here is between the cost of storing additional units compared with the higher cost of transport for smaller, groupage-type deliveries. If the transport cost is very attractive, then additional storage space will be required. There also has to be a strong conviction that all the items purchased will be sold.
Reasons to keep the stock: Discounts via bulk buying
The possibility of reducing the unit rate through buying in greater quantities is always an attractive proposition for buyers. This can, however, have a negative effect overall if the company fails to sell all of the additional units purchased or has to sell at a loss to clear the warehouse. In this situation it is our contention that the whole-life cost of the item is calculated before the decision is made to purchase additional quantities.
These costs will include additional storage and handling costs, obsolescence, damage, working capital interest, possible discounted sales and disposal costs. A trade-off exists between lower unit purchase costs and increased storage costs per unit. I’m sure there are many warehouses out there holding obsolete stock due to the overenthusiasm of procurement and sales staff!
Fluctuation in the price of raw materials and finished goods
Certain products fluctuate in price significantly and can also be affected by weather conditions. Companies might therefore buy significant quantities when the price is advantageous or when weather conditions dictate. This will necessitate additional storage capacity.
