Supply Chain Management

Warehouse ownership

& Warehouse decision

Arun SudhakaranRoshan Rajan

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Warehouse Ownership

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Warehouse Ownership Arrangements

▪ Warehouses are typically classified based on ownership1. Private Warehouse

2. Public Warehouse

3. Contract Warehouse

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1. Private Warehouse▪ Operated by the firm owning the product. ( Building may be leased or

owned)▪ The decision about ownership or leased is essentially financial.▪ Sometimes it is not possible to get a warehouse for lease which fits the

firm’s purpose, so the only option is to design and construct a new warehouse.▪ Major benefits are

a. Controlb. Flexibilityc. Costd. Range of intangibles

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a. ControlOffers substantial control since management has authority to prioritize

activities.

Such control facilitate integration of warehouse operations with the balance of firm’s logistics operations.

b. FlexibilityIt offers more flexibility since operating policies, hours and procedures

can be adjusted to meet the specific customer and product requirements.

Firms with very specialized customer and products are motivated to own and operate warehouses.

1. Private Warehouse Benefits

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c. CostLess costly than public since it is not operated for a profit.

So both fixed cost and variable cost of a private warehouse may be lower than public.

d. Range of intangibles benefitsA private warehouse with the firm’s name may stimulate customer

perceptions of responsiveness and stability.

This provides a marketing image compared to the competitors.

1. Private Warehouse Benefits

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1. Private WarehouseDisadvantage

▪ The Use of Private warehouse is declining because of an increasing managerial interest in reducing capital invested in logistical assets.

▪ As public warehouse deals with multiple clients there is a scope of getting reduced cost as there is an operational economies of scale which offset the perceived cost of benefit of private warehouse.

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2. Public Warehouse▪ Are used extensively in logistical systems.

▪ It is classified based on operational specialization.a. General Merchandiseb. Refrigeratedc. Special Commodityd. Bondede. Households goods and furniture.

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2. Public Warehousea. General Merchandise▪ Handles packaged products such as electronics, paper, food, small appliances and household

supplies.b. Refrigerated warehouse▪ Offers frozen or chilled capacity designed to protect food, medical and chemical products

requiring special temperatures.c. Special Commodity Warehouse▪ Designed to handle bulk material or items requiring special handling such as tires or clothing.

d. Bonded warehouses▪ Licensed by govt to store goods prior to payment of taxes or import/export duties▪ Exert tight control over movements in and out of the facility since documents mus

accompany each move.e.Households goods and furniture▪ Specialize in handling and storing large bulky items such as appliances and furniture

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2. Public Warehouse▪ From a Financial perspective it may achieve lower operating cost than

private.▪ They do not require capital investment on the part of their customers▪ Based on ROI judgment public warehouse can be an attractive alternate▪ It offers flexibility on size and number of warehouse thus allow users to

respond to suppliers, customer and seasonal demands.▪ Benefits of operational economies of scale since public warehouse can have

multiple clients.▪ It may also leverage transportation cost by providing consolidation of

multiple client freight.

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3.Contract Warehouse▪ It combines the characteristics of private and public operations.▪ Long term contractual relationship will result in lower total cost than a public

warehouse.▪ It can provide benefits of expertise,flexibility,scalability and economies of

scale by sharing management,labor,equipment and information resources across multiple clients.▪ Contract warehouse offers a range of logistical services such as

transportation management, inventory control, order processing ,customer service and return merchandise processing.▪ Contract logistics firms are typically called as integrated service providers

(ISPs) and are capable for providing total logistical responsibility for an enterprise.

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Warehouse Decisions

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Warehouse decisions▪ Basic use of a warehouse is storage and handling of material. ▪ But it require detail analysis of various factor before the size ,shape and

type of warehouse can be determined.▪ They are

1. Site Selection2. Design3. Product Mix Analysis4. Expansion5. Materials Handling6. Layout7. Sizing

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Warehouse decisions1. Site Selection▪ Factors driving site selections are▪ Service availability▪ Cost▪ A warehouse need not be located in an industrial area.▪ Land cost is the most important factor.▪ Beyond procurement cost, setup and operating expenses such as transport

access, utility hookups, taxes and insurance rates require evaluation.▪ Site must also provide adequate room for expansion, necessary utilities

must be available, soil must be capable of supporting the structure. Proper water drainage etc.

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Warehouse decisions2. Design▪ 3 factors to warehouse design

a. Number of floorsb. A cube utilization planc. Product flow

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Warehouse decisions 2. Designa. Ideal warehouse design is one floored

Eliminates vertical product movementUse of vertical handling device such as elevators, conveyors require time,energy,

and creates bottleneck situation.b. Design Must maximize Cube utilization

Warehouses are designed with 20- 30 foot clear ceilings although the handling equipment can use heights over 100 feet.(limited by the safe lifting capabilities of handling device and fire safety regulation)

c. Product flowShould facilitate continuous straight product flow through the building Received at one end of the building. Stored as necessary in the middle and

shipped from the other end.

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Warehouse decisions3. Product Mix Analysis

Operation of warehouse depends on product mix.So each product should be analyzed in terms of annual sales,

demand,weight,cube and packaging.Total size, cube and weight of the average order to be processed through

warehouse must be determined.This data provide information for determining warehouse space, design and

layout, materials handling equipment, operating procedures and controls.

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Warehouse decisions4. Expansion

Future expansion should be considered during the initial planning phase.It is common to establish a 5 – 10 year expansion plan.Potential expansion plan can justify purchase of a site 3 - 5 times larger than the

initial requirementsBuilding design should accommodate future expansion.Some walls may be constructed of semi permanent materials to allow quick

removal to facilitate expansions

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Warehouse decisions5. Material Handling

It is the basic driver of warehouse design.Material handling system must be selected early in the warehouse

development process.

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Warehouse decisions6.Layout

Layout and storage areas of warehouse should be planned to facilitate product flow.

Key to efficient layout is a well developed slotting area ( where specific products are kept in selected pallet locations)

Handling equipment must be integrated to finalize layout.( path and tempo of product flow depends on it)

Selection or picking area should be placed such that it minimize the distance order pickers must travel when assembling an order.

The selection area is supported by a storage area.

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Warehouse decisions7. Sizing

Several techniques are available to estimate warehouse size.Each method begins with a projection of 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

stocked in the warehouse.Failure to consider utilization will result in over building but most complaint of

warehouse managers is under estimation of warehouse size requirement.A good thumb rule is to allow 10 % additional space to account for increased

volumes, new products and business opportunities.