L – 5 Distribution Channel - Warehousing and

Inventory Management.

The Link

WAREHOUSING / DC

WAREHOUSING DISTRIBUTION CENTER

Receive – Store – Pick and ship Receive - ship

Low value added High value added

Collects data in batches Collects data in real time

Focus on minimizing the operational cost

Focuses on maximizing the profit impact of meeting customer delivery requirement

Warehousing Decision

• Strategic

• Operational

Types of inventories

• Raw materials, components, and physical supplies

• Finished goods

• GIP / Materials to be disposed or Re-cycled

Why should firms hold inventories

• Achieve Transportation economies

• Achieve production economies

• Take advantage of quality of quality purchase, discount and forward buyers

• Maintain a source of supply

• Support firms customer service policies.

• Meet changing market conditions

Why should firms hold inventories…

• Overcome the time and space differentials that exist between producers and consumers

• Accomplish least total cost, commensurate with a desired level of CS.

• Support JIT programs of supplies and customers• Offer product mix• Provide temporary storage support

Uses of Warehouse

• Support Physical supplies and distribution• Support manufacturing• To mix products from multiple production facility• To Break bulk or subdivide or other wise

Mechanism

PUSH

FACTORY WAREHOUSE

( Serves to absorb excess production)

PULL

FACTORY WAREHOUSE DISTRIBUTION

( Flow thru center with positioning inventories closer to customers )

Functions of Warehouse

• Manufacturing Support

• Production Mix

• Consolidation

• Break bulk

• Warehousing and Transportation synergy

• Warehousing and production synergy

Factors influencing Warehouse Policies

• The Industry• The firm philosophy• Capital availability• Product characteristics• Economic condition• Competition• Seasonality of demand• Use of JIT programs• Production process in use.

Types of warehouses

• General Merchandise warehouse

• Refrigerated warehouse

• Bonded warehouse

• Household goods warehouse

• Special commodity warehouse

• Bulk storage warehouse

Functions of warehousing operation

• Movement– Receiving– Transfer or put away– Order picking / selection– Cross docking– Shipping

Functions of warehousing operation

• Storage – Temporary Storage– Semi Temporary storage

Information System

• Information system – Inventory level– Throughput level– Stock keeping locations– Inbound / outbound shipments– Customers data– Facility and space utilization– Personnel efficiency monitoring

Inefficiency in a warehouse

• Information system – Redundant and excessive handling– Poor utilization and space and cube– Excessive maintenance cost and down time

due to obsolete equipment– Dated receiving and shipping and dock

condition– Obsolete computerized information handling of

routine transactions

Public warehouse

Advantages Disadvantages

Ability to increase w/h space to cover peak season

Lack of specialization

Reduced risk Shortage of space – scalability limited

Economies of scale communication

Flexibility

Tax advantage

Specific know how of cost

Minimal labor dispute

Conservation of capital

Private warehouse

Advantages Disadvantages

Control Lack of flexibility

Flexibility Financial constrains

Less costly

Better use of human resources

Tax benefit

Intangible benefits

Factors affecting size of a warehouse

• Customer size level• Size of market or market served• Number of products marketed• Size of products• Material handling equipments• Through put rate• Production lead time• Economies of scale• Stock lay out• Aisle requirement• Office area in the warehouse• Types of shelves / racks used• Level and pattern of demand• Processing / kit preparation area

Location analysis

• Market positioned• Production positioned• Intermediately positioned

Models:Von Thunen modelWeber's modelHoovers modelGreen Huts modelCenter of Gravity approach

Factors from micro perspective

• Quality and variety of transportation carrying the service site

• Quality and quantity of labor availability• Labor rates• Cost and quality of industrial land• Potential for expansion• Tax structure• Building codes• Nature of commodity and environment

Factors from micro perspective….

• Cost of construction

• Cost of availability of utilities

• Cost of money locally

• Local government tax allowances and inducement to build.

Warehouse layout and design

• Increased output

• Improve product flow

• Reduce cost

• Improve service to customers

• Provide better working condition

• Safety

• SHE