2. warehousing basic concepts - valgamaa … · 2. warehousing – basic concepts ain kiisler...

2. Warehousing – basic concepts

Ain Kiisler

L-Consult OÜ

LogOnTrain Summer School, 30.6-4.7.2014 1

Warehousing is an integral part of every logistics

system, that:

• Stores products (raw materials, parts, goods in

process, finished goods at and between point of

origin and point of consumption

• Provides information to management on the

statud, condition and the disposition of product

being stored

Warehousing is used for carrying inventories in every

stage of logistics process

Warehousing


Why companies hold inventories? • Buffering supply and demand fluctuations • Achieve transportation economies (accumulating small quantities

into full loads, receipt of full loads instead of small quantities) • Achieve production economies (stable production rate) • Take advantage of quantity purchase discounts • Support the firm customer service policies (e.g. fulfilling all received

orders within 24 hours) • Overcome the time and space differentials that exist between

producers and consumers • Support just in time programmes of suppliers and customers • Accumulation of inventories for a season • Holding safety stock against supply problems or having

extraordinary inventories for extraordinary cases • Accumulation of wide range of materials procured from different

suppliers in different time • Provide temporary storage of materials to be disposed of or

recycled (reverse logistics). LogOnTrain Summer School, 30.6-4.7.2014 3

• Enabling order picking and shipment preparation.

• Enabling packing and repacking.

• Enabling sorting

• Enabling small-scale assembling operations for

creating specific product versions (postponement,

kitting).

Operative reasons for using warehouses

Kitting: Light assembly of components or parts into defined units ahead of production issue or customer shipment. Kitting reduces the need to maintain an inventory of pre-built completed products, but increases the time and labor consumed at shipment.

Postponement: The delay of final activities (i.e., assembly, production, packaging, etc.) until the latest possible time. A strategy used to eliminate excess inventory in the form of finished goods which may be packaged in a variety of configurations and to maximize the opportunity to provide a customized end product to the customer.


Warehouses 4 basic functions in supply chain


Focused factories


Warehousing alternatives • Private warehousing. Company owns or rents needed warehousing space.

Warehouse is used by goods owner who operates and controls warehouse operations by own. Usually wholesalers´ and manufacturers´ warehouses. Reasonable in the case of stable storing of large inventories. Considerable share of fixed costs. Need to manage and operate warehousing by own.

• Public warehouse. Warehouse owner and keeper offers warehousing services for numerous clients. Public warehouse keeper owns warehouse and equipment but not goods under storage. Usually specialized warehousing companies or LSP-s. Warehousing services often offered without contracts or on the basis of short term contracts..Higher operating costs compared to private warehouses (include marketing & sales expenses and owner`s marginal). Goods owners have no need to invest into fixed assets, their warehousing cost depend directly on volumes stored and handled.

• Contract warehousing. Variation of public warehousing, offering warehousing services accommodated to specific needs of client. Partnership relation, where space, equipment, labor, needed ICT systems and management is arranged proceeding from specific needs of clients logistics system. Usually long term contracts. Often includes providing additional services (distribution transportation, packaging, labeling, final assembly etc.).

For the company, the variable costs are higher and fixed costs lower when using public or contract warehousing. For best solution, financial analysis of alternatives is needed.


Warehousing alternatives 2


Additional alternatives for warehousing

• Direct or drop shipping. Warehousing is eliminated between supplier and customer. Reasonable for valuable or bulky cargo and full load shipments, also used in retail (direct store delivery).

• Cross-docking. practice of unloading materials from an incoming vehicle and loading these materials directly into outbound vehicles, with little or no storage in between (usually less than 24 hours). This may be done to change the type of conveyance, to sort material intended for different destinations, or to combine material from different origins into transport vehicles (or containers) with the same destination or similar destinations. Usually this includes sorting of shipments, packages or articles.


Cross-docking variations by complexity

• One touch – products are touched only once as they are received and loaded outbound without being placed on the warehouse dock. This is the highest velocity "load as you go" and the focus is on cross-dock productivity

• Two-touch - products are received and staged on the dock then loaded outbound without being put into storage. The focus ison outbound load optimization and gaining transport efficiencies

• Multiple-touch – products are received and staged on the dock, then reconfigured for shipment and loaded outbound directly from the warehouse dock. This method offers greatest opportunity for customization and end-user value adding. Received products can be sorted by suppliers by articles or not, they can be labelled for end customers or not. Also outbound shipments can be combined from incoming shipments and from stock.


Cross-docking


Benefits and preconditions of cross-docking

Benefits • Combining short delivery times (high customer service level) with

low costs • Minimization of warehousing and inventory carrying costs • Economies of scale – instead of many LTL shipments fewer number

of bigger (FTL) shipments are transported (lower transportation cost per freight unit)

Cross-docking preconditions • The arriving times, quantities, articles and further destinations of

inbound products should be known before receiving the shipments • Inbound shipments should arrive by strict delivery schedule which

in turn is tightly linked to outbound transport schedules • Customers should be ready to receive goods immediately • Implementation of more large-scale and complex cross-docking

operations requires using of EDI and Auto ID systems


Basic warehouse types

• Warehouse (holding warehouse) – traditional warehouse. Much of its space is used for semipermanent or long-term storage

• Distribution Center (distribution warehouse) –Considerable part of space is used for picking and consolidation of orders. Goods are stored shorter time compared to holding warehouses. Usually DC-s serve larger regions than holding warehouses

• Cross-docking center – Focus is only on receiving and shipping activities eliminating storage and order picking activities. Goods are transferred directly from inbound to outbound docks with little or no storage. It can be named terminal, hub, sorting centre etc.


Throughflow warehouse:

+ Clear distinction between warehouse operations.

+ materials flow without crossing.

- harder to control and less flexible. Information

exchange between the receiving and shipping areas

complicated

- goods need to travel the full length of warehouse –

long movement distances

- The bigger receiving and shipping areas are needed:

these can not replace each other due to the spatial

separation

- less effective use of forklift trucks

U-flow warehouse.

+receiving and shipping area are located side by side:

can replace each other and share dock doors, also

more flexible for cross-docking operations

+ better control and more flexible

+ short movement distances

+ excellent utilization of forklift trucks.

- Crossing of material flows.

Throughflow and U-flow warehouses


U-flow


Tegevused laos

1. Receiving 2. Putaway 3. Storage 4. Replenishment (of order picking

locations) 5. Order picking 6. Sorting, consolidation, packaging 7. Shipping


Warehouse address systems

Approach

Street Address

03A02B02 03 A 02 B 02

Room/zone Aisle Rack Tier Bin

(city) (street) (building) (floor) (apartment)

Rack-Section-Tier-Bin

B0342 B 03 4 2

Rack Section/floor place Tier Bin

Room/Zone-Rack-Bin

AA001 A A 001

Room / zone Rack Bin

Rack-Bin

AA001 AA 001

Rack Bin

Explanation

The last two systems are short, simple and easy to remember, but they do not

provide tier informationLogOnTrain Summer School, 30.6-4.7.2014 18

In 01.06.00-31.05.01 the throughput of warehouse was 900 articles ja 22500 units.

Average throughput per article was 25 units

Articles % Units %

Throughput above 100

units/year

37 4,1 8900 39,6

Throughput 50-100

units/year

64 7,1 4384 19,5

Througput 10-49 units/year 424 47,1 7274 32,3

Througput 1-9 units/year 375 41,7 1942 8,6

KOKKU 900 100 22500 100

A-group: 11% articles gave 59% of units throughput

B-group: 47% articles gave 32% units throughput

C-group: 42% articles gave 9% units througput

ABC analysis in warehouse.


Order Picking • Typical picking operation involves picking case quantities of products held

on pallets in dedicated pick locations and then checking and collating/consolidating the goods ready for packing and dispatch.

• Probably the most important function of warehousing. It is the basic service a warehouse provides for customers and is the function which most warehouse designs are based

• Order picking is the most costly activity in typical warehouse. Typically it accounts about half of the direct labor costs of a warehouse

• The arranging of picking becomes more and more complicated. Using the JIT principles and shortening the lead times demand that warehouse should ship to customers continuously smaller shipments with higher frequency and accuracy (with less picking mistakes). Simultaneously the number of SKU-s which should be picked, increases.

• Both inbound and outbound shipments are becoming continuously smaller. By Finnish statistics, in the middle of 90-s from one inbound shipment was picked out to 10 outbound shipments. In the start of 00-s from one inbound shipment was picked out to 7 outbound shipments. Also the size of outbound shipment is decreasing. E.g. in 1985 average outbound shipment in Finland consisted of 12 order lines. In 1990 this number was 7 lines and in 1999 3,5 lines.


Order picking concepts • Pick to order – simplest form, when one picker collects the items

required for one order. Appropriate, when one order will typically fill the capacity of the picking trolley or truck. Or several orders are picked per circuit and put into separate container.

• Batch picking – one picker collects simultaneously several orders. Usable for picking small orders (e.g. 1-2 order lines). After the picking circuit, the bulk picked items are sorted down to individual level. Benefit – shorter picking time per order line compared to pick to order

• Zone picking – stock is laid out into zones, each holding specified part of the product line and staffed by dedicated pickers. Each incoming order is subdivided by zone, picking is made simultaneously in all zones until order completion. Picked items are consolidated into full order. Relevant, when individual orders are beyond capacity of one picking circuit an/or order fulfillment time is restricted. Also used, where there are different zones for different products, for reasons of security, hazard or temperature regime.


Typical distribution of an picker`s working time

Source: Frazelle (2002)Supply Chain Strategy


Order

lines in

picking

list

Working time

(sec. / line)

Picking Packing

1 150 150

2 120 125

3 100 100

4 85 80

5 75 60

10 70 40

20 50 40

Allikas: Ain Tulvi. Ladustamine ja käsitlemine. Logistika Käsiraamat. Aripäeva Kirjastus 2003

Picking and packing time per order line

Usually the productivity of pickers work is measured by number of order lines or units/packages per picker`s working hour (pick rate)


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