Certification Programme for Supply Chain Management
CP-SCM
Module Warehouse and Inventory Management
Theme Warehouse costing, outsourcing and optimization
Introduction After five and a half years of conflict, the situation in Logtamia is worsening:
there is increased fighting and violence on the ground and no clear road
map to peace. Displacement continues inside Logtamia, including
populations stranded near border areas in the north and south of the
country. Moreover, over 55 per cent of Logtamian refugees live under
substandard conditions in informal settlements, overcrowded buildings,
and densely populated poor neighbourhoods. Those who cannot be
reached with assistance will remain living in deteriorating conditions,
subject to health and protection risks, suffering from overcrowding, within
an environment of increased tension with host communities.
Due to funding shortfalls in Logtamia, the UNHCR Logtamia office needs to
review its operations and warehousing activities. They decide to centralise
and consolidate operations in Logopolis. The supply manager is tasked to
critically evaluate the change of warehouse network. Furthermore, the
manager aims to review order quantities to help keep stock holding costs
low.
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Scenario The UNHCR Logtamia warehouse network
The Supply Management handles the UNHCR Warehouse & Inventory
management (WIM) but also in majority of the cases handles the related
functions of Transportation, Customs clearance, Procurement and Fleet
management. The Programme Unit owns the inventory as the operational
budget holders. In the ideal setting, the Operational Planning process
should include the respective stakeholders and this plan would then form
the basis of WIM.
The UNCHR Supply Management for Logtamia has decided to centralize
their warehouse network in order to achieve a well-run operation across
the country. The warehouse network will consist of one main warehouse
and three field warehouse. The decision of facility location was the
outcome of a process with many stakeholders and actors involved (see
Figure 1).
Incoming Main WH Incoming from
from Logopolis Port and airport
suppliers
Field WH Field WH
Logtown Field WH Loghamlet
Logcity (north)
(south)
(east)
Figure 1: Logtamia UNHCR warehouse network
The UNCHR main WH in Logopolis will receive the international deliveries
from the port and all local procurements from around Logtamia to verify
and count the stock. The vendors deliver items together with a Delivery
Note “Proof of Delivery” (Same as a Waybill). Then the WH produces a
GRN and send to UNHCR so the supply officer can update records in MSRP
accordingly.
The field warehouses will be strategically located in different provinces of
Logtamia. The role of the field warehouses is for fast response emergency
with short response time when UNHCR needs to act within 30 hours.
The UNHCR Logtamia office need to finalise the reconfiguration of
warehouse network urgently. While centralised system has been decided,
the supply manager is making a careful consideration whether to
outsource the warehouse management or not. On the one hand, in-house
direct management is considered due to internal internal expertise and
experience. On the other hand, outsourcing of warehouse activities is
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considered, e.g. the field warehouse management is delegated to an
implementing partner following a recommendation from the ‘Multi-
functional team’. This decision was based on the capacity of the
implementation partner considering previous knowledge and experience.
In the essay questions below (1&2), please use the examples and arguments
Questions from the Logtamia case as well as references to your own work at UNHCR.
1.1. Please examine the trade-off between a centralised and decentralised
warehouse network by comparing the two network configuration.
1.2. Critically assess the current centralised warehouse network. Please
include at least the following elements in your assessment, using appropriate
arguments:
a) Justify/defend the decision to centralise the warehouse network of
Logtamia
b) Are there any required conditions for such a network design to
function well?
c) What are some of the potential risks or concerns in the
implementation and how can they be dealt with?
2.1. What are some of the benefits and disadvantages of warehouse
outsourcing?
2.2. What are the main requirements for a warehousing operator when
outsourcing those activities?
2.3. How would you choose a warehousing operator? Please elaborate with
examples from your work.
3. The main warehouse in Logopolis distributes sanitary supplies to three
field warehouses. Based on previous years, the predicted demand (in units)
for sanitary supplies for the following year is:
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Logtown 12 15 9 17 4 21 19 8 5 16 5 11
Logcity 15 24 12 26 4 35 31 16 20 21 8 23
Loghamlet 3 6 4 12 2 19 15 11 10 13 2 6
Total
Ordering cost (P) of main WH Logopolis is € 100
Inventory holding cost (H) is 0.5 euros
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3.1. Start by calculating the Total Average Demand (D)=total demand/12.
3.2. Using the economic order quantity (EOQ) formula, calculate the amount
of supplies the warehouse needs to order. This is the amount per order.
3.3. What are the reorder points for sanitary supplies? Use the table below to
help you calculate this. We assume the starting inventory in January is 0. Use
the total demand per month that you calculated in 3.1 and the EOQ
calculated in 3.2.
Hint: observe the end inventory of the previous month and demand for the
following month.
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Starting 0
inventory
Demand 30
Ordered EOQ
End
inventory
3.4 What is the total cost (number of times order placed x ordering cost +
total end inventory x holding cost)?
