UNIT-1
WAREHOUSE AND INVENTORY
MANAGEMENT
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Warehouse:
“A warehouse should be viewed as a temporary place to store inventory and as a buffer in supply chains.
It serves, as a static unit – in the main – matching product availability to consumer demand and as such has a
primary aim which is to facilitate the movement of goods from suppliers to customers, meeting demand in a timely
and cost-effective manner.
adapted from Van den Berg (2013)
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NEED FOR WAREHOUSING
Seasonal Production:
There is a need for proper storage or warehousing for these kind of commodities from where they can be supplied as and when
required as the consumption or use of these commodities takes place throughout the year.
Ex: Agricultural commodities.
Seasonal Demand:
The production of these goods takes place throughout the year to meet the seasonal demand, so there is a need to store these goods
in warehouse to make them available at the time of need.
Ex: Umbrellas in rainy season.
Large-scale Production:
Manufactures produce goods in huge quantity to enjoy the benefits of large scale production , which is more economical as a result
these goods need to be secured till they are cleared by sales.
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Quick Supply:
It is essential to stock some goods near the place of consumption so that without making any delay those goods are made available
to the customers at the time of their need.
Ex: Industrial as well as Agricultural goods are produced at some specific places but consumed throughout the country.
Continuous Production:
To ensure the continuous production of goods factories require an adequate supply of raw material.
Price Stabilization:
To maintain a reasonable level of price of the goods in the market there is a need to retain sufficient stock in the warehouse.
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ISSUES AFFECTING WAREHOUSING
Market and Product based stability:
Long term market potential for growth and for how product range may expand will influence decisions on:
Size.
Location of warehouse.
Space for prospective expansion.
Type of warehouse.
Level of technology to be used.
Type of material to be handled:
The material handled varies according to type, size, weight product life and other characteristics.
The units handled may range from individual small items to palletized loads.
Special requirements have to be met in case of perishables; all these impact on the type of warehouse and the level of
technology to be used.
Choice of unit load:
Determined by nature and characteristics of material passing through supply chain.
Influences the option of handling equipment and type of storage system.
Affects the transport operation in terms of vehicle loading, unloading and vehicle utilization.
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Warehouse Facility:
The type, size and location of warehouse depends upon:
Customer base.
Level of inventory.
Need for optimization of inventory.
Time compression in supply chain.
Overall customer service levels.
Further consideration is whether the warehouse facility should be an own account operation run by company or outsourced and run
by a 3PL.
Inventory and Inventory Location:
The decision can be influenced by:
Company wide strategic marketing or employment policies.
Financial Considerations.
Ability to achieve specific degree of throughput.
Required customer service level.
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ROLE OF WAREHOUSING
Regular Production.
Regular Supply.
Production from risk.
Price stabilization.
Preservation of quality.
Financing.
Better price.
Maximum service.
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SELECTION OF WAREHOUSE
Ownership
Private Public
How Many
Centralized Decentralized
What Size
Where (location)
Interior Layout
What Products 8
Sequence of Warehousing Decisions:
Should warehousing be used
What forms of warehousing should be used
What should be the size and number of warehouses utilized
Where should warehouses be located
What warehouse layout and design approach should be followed
Types of Warehouses:
Private warehouses.
Public warehouses.
Government warehouses.
Bonded warehouses.
Co-operative warehouses.
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Private warehousing:
The expenses of maintaining these must be carefully analyzed and evaluated:
They include:
Fixed expenses
Expenses incurred on warehouse equipment
Cost of wages for staff
Over time wages for staff
Other service charges
Budget allocation
Cost of regular maintenance ad repair
Cost of maintaining insurance records
Advantages:
Better monitoring system
Chance of committing an error is less.
If there is sufficient volume of goods to be warehoused, the cost of private warehousing is comparatively less than that of public
warehousing.
Best choice at some locations due to non- availability of public warehouse.
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Has the opportunity to specially design its facilities for automatic material handling equipment.
Enabling the end users to increase their efficiency by means of better design and structured lay-out.
Efficient use of human resource in warehouse operations improves end users overall performance.
Intangible benefits in form of cost reduction in all warehouse operations.
Disadvantages:
Lack of corporate flexibility which increases complexity in operation.
Financial issues.
Low rate of return.
Tax issues are complicated.
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Public warehousing:
The forgoing cost factors operate in public warehousing as well. The expenses are distributed over several consignments of their
clients.
Advantages:
Cheap and efficient.
Strategically positioned and have ease to access.
Flexible to meet space requirements.
Overall cost of warehousing works out to lower figure.
Facilities can be given up as soon as necessary without any additional liability on user.
User can pay only for the space and services he used.
Conservation of capital.
Spacious enough to handle peak requirements.
Low risk factor in operations.
Good economies of scale.
Provision of tax advantages to end users.
End user has a knowledge of exact storage and handling costs.
Insulated from labor disputes.
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Disadvantages:
System incompatibility.
Lack in availability of specialized services as and when required.
Adequate space may not always be available for end users.
Location of warehouse:
The space and time impose significant limitation on movement of goods from seller to buyer. The location of seller’s production
and distribution facilities in relation to those of customers is an important decision making process.
The location problem can be of three types:
Locating the warehousing system at production facility itself.
Locating single central distribution warehousing system away from production plant.
Locating warehousing system at more than one place.
The optimal location is the one that is most likely to achieve the maximum rate of return on investment over the long run.
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Considerations that determine the location of warehouse:
Cost of distribution from warehouse to market service area.
Satisfaction of transport requirements.
Transportation rates prevailing in area and distribution costs per unit.
Competition by rival companies.
Availability of power, water, gas sewage disposal and their cost.
Labor supply and labor cost in the area.
Industrial relations climate and labor productivity.
Pricing arrangements and level of service desired to be rendered in terms of availability of product to the customer.
Individual company requirements and constraints.
Real estate, excise and government taxes assessed in the area.
Attitudes of local residents and government towards establishment of warehouse.
Restrictions associated with warehouse.
Potential for ;later expansion.
Cost of land for warehouse and other costs.
Possibility of change in use of facility at a later date.
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Characteristics of ideal warehouse:
Should located at a convenient place where loading and unloading of goods can be easily done.
Availability of mechanical appliances.
Availability of adequate space inside the building.
Should have cold storage facilities for preserving perishable items.
Proper arrangement for protection of goods.
Sufficient parking space for quick loading and unloading of goods.
Round the clock security arrangement to avoid theft of goods.
Must be installed with latest fire-fighting equipment.
Factors affecting the number of warehouses:
Inventory cost.
Warehousing cost.
Transportation cost.
Cost of lost sales.
Maintenance of customer service levels.
Service small quantity buyers.
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FUNCTIONS OF WAREHOUSE
Receiving:
This includes:
Unloading of incoming transport. Unpacking and repacking.
Quality control checks.
Checking.
Temporary quarantine storage for goods .
Recording of receipts.
Deciding on where the received goods to be placed.
Inspection.
Repacking.
Put away.
Storage.
Order- order picking / selection.
Sortation.
Packing and shipping.
Cross- docking.
Replenishing.
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TYPES OF WAREHOUSE OPERATIONS
Raw materials storage.
Intermediate, postponement, customization or sub-assembly facilities.
Finished goods storage.
Consolidation centres and transit warehouses.
Transhipment or break-bulk centres.
Cross-dock centres.
Sortation centres.
Fulfilment centres.
Reverse logistics centres.
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WAREHOUSE LOCATION
The following are specific factors that need to be taken into account when deciding on a warehouse location:
Cost of land, rent and rates;
Access to transport networks;
Availability of affordable skilled labour;
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
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FACTORS DETERMINING NUMBER OF WAREHOUSES
Inventory costs.
Customer reaction time.
Facility costs.
Inbound transport cost.
Outbound transport cost.
Systems cost.
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E- Fulfilment Centres:
These are of 3 types:
Integrated fulfilment, where internet sales are carried out alongside existing retail operations;
Dedicated fulfilment, carried out in a purpose-built facility; and
Store fulfilment, which involves picking online orders from existing retail shelves for separate delivery ex store.
Specialized Warehousing:
Customs warehousing.
Refrigerated warehouses.
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ROLE OF WAREHOUSE MANAGER
Managers today have to do more with less and get better results from limited resources, more than ever before. A manager’s job is
to provide the environment where individuals are internally motivated to do the very best job possible, in the very best spirit
possible, to make the very best contribution possible. (Brian Tracy)
‘Management is nothing more than motivating other people.’ (Lee Iacocca)
The job description and the core accountabilities of warehouse manager:
The provision of a responsive and cost-efficient warehouse that is aligned with the current and long-term requirements of the
global business strategy;
Responsibility for the leadership and direction of the warehouse team;
To ensure that the warehouse is capable of delivering the volume requirements of the business;
To drive continuous improvement in the cost-efficiency of the operations;
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To set the long-term vision for the warehouse in line with the strategic plan and to ensure that future volumes and customer
service requirements can be met;
To safeguard the human and physical assets employed in the warehouse;
The management of projects and introduction of new initiatives;
To maintain strong relationships with suppliers; and
The development and management of industrial relations within the warehouse environment.
The six basic tenets of warehouse management can be summed up as:
accuracy;
cost control;
cleanliness;
efficiency;
safety;
security.
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WAREHOUSE TRADE-OFFS
Warehouse managers are also expected to recognize and balance other trade-offs within the warehouse, examples are:
Increased throughput versus reduction in labour costs;
Storage density versus quicker pallet extraction;
Manual versus automated processes;
Increased pick rates versus accuracy;
Inventory holding costs versus cost of stock outs; and
Speed versus safety.
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Challenges of Warehouse Manager:
Pressure to reduce operating costs.
Achieving the perfect order.
Shorter order lead times and stock availability.
Delivery through multiple channels.
Greater fluctuations in demand.
Increases in stock-keeping units.
Labour cost and availability.
Environmental issues.
Data and information transfer.
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LEAN WAREHOUSING
The concept of ‘lean’ comes from the manufacturing sector, more specifically the automotive industry, and is very much associated
with Toyota and the Toyota Way.
The idea is to identify the activities within the warehouse that absorb resources but don’t create additional value.
People Management:
This section concentrates on what we believe to be the lynchpin of the warehouse operation: the people.
In all industries, companies face identical workforce management challenges;
These include:
Identifying, attracting and retaining good supervisors, first line managers and team leaders;
Retaining and attracting new employees;
An ageing and constantly changing workforce, including the introduction of foreign staff;
Identifying training needs;
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The need to provide safe, comfortable working conditions;
Employment contract negotiations;
Compliance with employment and health and safety legislation; and
Staff discipline.
People Challenges:
According to Ackerman (2000), effective supervisors and managers encourage an open exchange of ideas and have frequent
discussions with their staff and peers.
They should have nine critical attributes:
Excellent communication skills.
An ability to delegate effectively.
Motivational skills.
Problem-solving skills.
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Flexibility.
A comprehensive knowledge of company processes and procedures.
Ability to train others.
Be customer oriented.
Teamwork skills.
Attracting and retaining warehouse employees.
An ageing and constantly changing workforce.
Operating hours.
Training.
Warehouse audit.
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Quality systems:
The list of quality standards that warehouse managers may deem necessary or advantageous for their operations.
These are as follows:
ISO 9001 – a standard of requirements against which your Quality Management System can be evaluated;
ISO 14001 – a standard of requirements that defines and establishes controls to reduce your company’s impact on the
environment;
ISO 50001 – a standard of requirements that deals with the energy impact of your warehouse operation;
OHSAS – a standard of requirements against which your Health and Safety Management System can be evaluated; and
ISO 27001 – a standard of requirements which deals with all aspects of information security
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