Practical Handbook of

WAREHOUSING

Third Edition

Practical Handbook of

WAREHOUSING

Kenneth B. Ackerman

~ Springer Science+Business Media, LLC

Cover photograph courtesy of Trammel Crow Distribution Corporation

ISBN 978-1-4757-1196-7 ISBN 978-1-4757-1194-3 (eBook)

Copyright © 1990 by Springer Science+Business Media New York

Originally published by Van Nostrand Reinhold in 1990.

Softcover reprint of the hardcover 1st edition 1990

Library of Congress Catalog Number 90-12471

All rights reserved. No part of this work covered by the·copyright hereon may be repro­duced or used in any form by any means-graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems-without written permission of the publisher.

Nelson Canada 1120 Birchmount Road Scarborough, Ontario MIK 5G4, Canada

16 15 14 13 12 II 10 9 8 7 6 5 4 3 2 I

Produced by AAH, Seven Fountains, VA 22652

DOI 10.1007/978-1-4757-1194-3

Introduction

This is the third edition of a book first published in 1983. It con­tains two new chapters. One of these deals with the growing use of "just-in-time" techniques and their effect on warehousing. A second new chapter covers specialized warehousing and three types of special storage - temperature control, protection of hazardous materials and "fulfillment" warehousing. Major changes in both materials handling and information processing and transmitting have caused appropriate changes in the contents of this book.

For over two decades, the author has been involved in writing about the warehousing industry. Earlier writings were oriented to­ward users and operators of public warehouses. The goal of this early writing was to develop a better understanding between the third party warehouse operator and his consumer, through a common apprecia­tion of technical problems.

Since that time, the number of information sources on warehous­ing has increased. A professional society, the Warehousing Education and Research Council did not even exist when we first started writing about the industry. Today it provides an important source of informa­tion in the field.

Both private and third-party warehousing have grown in vol­ume. More importantly, public awareness of warehousing as an in­dustry in itself has increased.

This book is intended to serve both the private and third-party warehouse operator. It is designed primarily as a handbook for the warehousing practitioner, but it also serves as a guide for students, being based on the experience of the author as both an operating ware-

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houseman and as a management consultant. It draws heavily upon our writings as editor and publisher of WAREHOUSING FORUM, as well as our past service as editor of Warehousing and Physical Distribution Productivity Report.

It is designed as a management reference for anyone who is in­volved in operating, using, constructing or trading in industrial ware­houses.

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Acknowledgements

Dozens of people made this book possible; they are credited in the footnotes wherever possible. The book could not have been pre­pared without the generosity of people who were willing to share their ideas and writings with me. Special thanks are offered to Warren Blanding of Marketing Publications, Inc. for permission to use ex­tensive writings which appeared first in his publication, Warehousing and Physical Distribution Productivity Report.

William J. Ransom of Ransom and Associates reviewed the book and made significant contributions to this edition.

Professor Joseph Cavinato reviewed the second edition and made some excellent suggestions for change, which were followed in the preparation of this edition.

This is a successor to two earlier books, one published in 1977 and titled Warehousing, the other published in 1972 and titled Under­standing Today's Distribution Center. The 1972 work was co-au­thored by R. W. Gardner of Distribution Centers, Inc. and Lee P. Thomas, consultant. Susan Aumiller and Cathy A venido assisted the author in word processing and organization of the material. Jeannette Faelchle checked proofs and handled the hopeless task of keeping the author organized. The late Richard M. Fox, advertising consultant, made many recommendations for improving the writing.

To all these people we are most grateful.

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Contents

Background of the Warehouse Industry 1 WAREHOUSING:

ORIGINS, HISTORY AND DEVELOPMENT . . . .. . 3 History ................ . 3 Warehousing in America . . . . . . . . . 4 Role of the Independent Warehouseman . 5 Financial Security Aspects . . . . . . 6 Role in Mass Production . . . . . . . 7 From Terminal to Distribution Center . 7 The Emergence of Business Logistics . 9 The Rise of Professional Associations 10 Trade Associations . . . . . . . . . 10

2 WAREHOUSING IN TODAY'S ECONOMY The Business Environment .

•• 13 13 16 17 17

3

Freight Consolidation Real Estate as an Investment Warehouse Locations Shift .

THE FUNCTIONS OF WAREHOUSING Six Functions of Warehousing . Three Warehousing Alternatives ... Cost Structure . . . . . . . . . . . . A Contract to Control Risks and Costs Changing Values of Warehousing Space .. Equipment ....... .

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. . 19 19 23 26 26 28 29 29

People. . . . . . . . . . . . . . . . . . . . . . . . . 29

4 WAREHOUSING ALTERNATIVES. THE MAKE OR BUY DECISION . . . . . . . . . .31 Corporate Financial Policy 32 Labor Relations Policies 34 Strategic Decisions 35 The Final Decision . . . 35 Public vs. Contract . . . 36 The Economics of Third Party Warehousing 37 Bonus Incentives 38 Other Factors ............... 38

The Elements of Warehouse Management 5 COMMUNiCATIONS.............. .43

6

Hard Copy Versus Voice . 44 Public Warehousing Forms . 44 Damages ......... 47 Real-Time Inventory Control 48 Circulation of Stock Status Information 49 Effective Order Picking ....... 50 Faulty Communications Equal Wasted Effort 50 Complaints ................ 50 Standard Procedures . . . . . . . . . . . . 51 Uniform Communications-A New Development 51 Uniformity for Warehousing ..... 52 System Priorities . . . . . . . . . . . . . . . . 54

PACKAGING AND IDENTIFICATION Functions of a Package . . . . . . . . How the Package Affects Warehousing Effect on Stacking . . . . Packaging for Unitization Identification Container Handling Package Design

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.55 55 56 57 60 60 61 62

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Efficient Packaging-A Joint Responsibility A Series of Compromises ........ .

TRANSPORTATION . . . Location ........ . Effects of Transport Modes Freight Rates Transit Time . . . . . . . Private Fleets ..... . Warehouse Freight Consolidation Reducing Transport Costs in the Deregulation Era Reducing Freight Costs ........ . Transportation Brokerage-A Useful Tool The Second Industrial Revolution and Its Effect on Transportation . . . . .

64 64

.65 65 67 68 68 69 69 70 71 75

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8 ACCOUNTABILITy............... .83 Title . . . . . . . . . . 83 Inventory Responsibility Product Liability . . . . Insurance ...... . Summary of Claims Procedures

9 STARTING-UP OR MOVING A WAREHOUSE OPERATION Initial Planning Cost Considerations Transportation . . . Taxation ..... . Insurance on Goods in Storage To Move or Not to Move . . . Timing Can Be Critical . . . . Estimating the Cost of Moving How to Load the Trucks ... Cost of Transferring the Load How Long Will It Take? .

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86 88 88 89

.91 91 92 92 93 93 94 95 96 96 96 98

Deciding to Continue Services or Suspend Operations for the Move . 99 What to Move . . . . . . . 99 Customer Communications . . . . . 100 Other Communications . . . . . . . 101 Opening the Relocated Warehouse . 101 Planning the Opening of the Distribution Center . 107 Writing a Warehouse Operating Manual . 107

10 WAREHOUSE PERFORMANCE AUDITS . 113 Tracking Accuracy . . . . . . . . 115 Account Profitability . . . . . . . 116 Qualitative Performance Ratings . 117 Other Performance Guides ... . 117

Real Estate Aspects of Warehousing 11 FINDING THE RIGHT LOCATION ....... . 123

Reasons for Site Seeking . 123 Location Theories ... . 123 Outside Advisers . . . . . 124 Requirements Definition . 126 Comparisons From Published Sources . 132 The Final Selection Process . 132

12 BUILDING, BUYING, LEASING, OR REHABILITATING? ............. . 135 Acquisition .............. . 135 A Worksheet for the Buy/Lease Decision . 136 Assumptions . . . . . . . . . . 139 The Rehabilitation Alternative . . 140 Rejuvenating Warehouse Roofs . . 141 Rejuvenating Warehouse Floors . 144

13 CONSTRUCTION . . . . . . . . . . . . . . . . . 147 Test Borings . 148 Government . . . . . . . 148

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Storm Water Management · 148 Utilities ... · 149 Layout Design .. .149 The Contract . . . · 150 Risk Management · 151 Roofs · ..... · 151 Fire Protection Systems · 152 Heating · 153 Roads · ... · 153 Docks · ... · 154 Wear and Tear · 155 Floors · .. · 156 Rails · 156 Illumination · 157 Walls · .. · 157 Landscape · 158

14 PLANNING FOR FUTURE USES . . . . . . . . . .159 Design Structure for Versatility · 159 Changes in Basic Function .. · 160 Internal and External Changes · 162

Planning Warehouse Operations 15 SPACE PLANNING ........... . 167

Sizing the Warehouse ........... . 167 Storage Requirements ............. . 169 Interaction of Storage and Handling Systems .. . 169 Stock Location Systems-Fixed versus Floating Slots . 170 Family Groupings .... . 170 A Locator Address System . 171 Cube Utilization . . . . 172 Lot Size . . . . . . . . . . 173 Reducing Aisle Losses . . . 173 Reducing Number of Aisles . 174 Managing Your Space . . 174

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16 PLANNING FOR PEOPLE AND EQUIPMENT . . . 177 The Process of Making Flow Charts . 177 The Best Sequence? . 180 'What If' Questions . 182 Personnel . 182 The Critical Role of the Supervisor . 183 Planning for Equipment Use . 186

17 CONTINGENCY PLANNING . . . . . . . . . . . 189 Strategies . 190 Trigger Points . 190 Planning for the Impact of Strikes -Your Own Firm's as Well as Others' . 191 Strike Against Suppliers . 192 Strikes Against Customers . 192 Trucking Strikes . 192 Charting the Planning Process . 193 Planning Steps . 193

18 POSTPONEMENT . . . . . . . . . . . . . . . . . 197 Background of Postponement . . 197 Types of Postponement . 198 Postponement of Commitment . 198 Postponement of Title Passage . 199 Postponement of Branding . 200 Postponement of Consumer Packaging . 200 Postponement of Final Assembly . 201 Postponement of Blending . 201 Increased Warehouse Efficiency . 201 Potential Challenges . 203 Postponement in the Warehouse . 204

19 STRATEGIC PLANNING What Is It? How to Start Corporate Strategy as a Morale Builder. Production Changes

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Strategic Thinking in the Public Warehouse . 210 Financial Changes . . . . . . . . . . . 211 Planning Warehouse Networks . . . . . . . 212

20 SELECTING A PUBLIC WAREHOUSE . . . . . . .215 The Preparatory Phase . . 216 The Investigative Phase . 216 Evaluating Quality . 217 The Decision ..... . 224

Protecting the Warehouse Operation 21 PREVENTING CASUALTY LOSSES ....... .227

Types of Casualty Losses . . . . . . . . 227 Controlling Fire Risks ........ . 228 Hazard Ratings for Stored Merchandise . 231 Wind Storm Losses . 233 Flood and Leakage . 234 Mass Theft . 234 Vandalism . . . . . . 236 Plant-Emergency Organizations . 236 New Developments in Fire Protection . 237 The Importance of Management . 238

22 'MYSTERIOUS DISAPPEARANCE' Electronic Detectors and Alarms What About False Alarms? Door Protection Alarms Grounds Security Seals ..... . Storage Rack Restricted Access Marketability of Product Hiring Honest People Using Supervision for Security Procedures to Promote Security Customer Pick-ups and Returns

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Security Audits .248

23 SAFETY, SANITATION AND HOUSEKEEPING .251 Improving Safety in Lift Truck Operations . 251 Action Steps to Improve Safety . 252 Sanitation . . . . 254 Housekeeping . . . . . . . . . 255 Damage Spreads . . . . . . . . 257 Personal Appearance-Part of Good Housekeeping . 257 Effect on Employee Morale . 258 Effects on Customer Service . 259 A Source of Shame . 259 Impact on Safety . . . . . . . 260 A Housekeeping Checklist . . 260

24 CONTRACTS AND LIABILITY ......... . 265 The Changing Role of the Warehouseman . . . . . . . . 266 The Insurance Problem . 267 Customer's Contracts . 267 Liability Limitation . 268 A Meeting of the Minds . 268

25 VERIFICATION OF INVENTORIES AND CYCLE COUNTING . . . . . . . . . . . . .271 Purpose of Inventories . . 271 Inventory Carrying Cost . 272 Benefits of Improvement . 272 Problem Areas . . . . . . 273 How Can a 'Physical' Be Improved? .273 Incentives . . . . . . . . 274 Managing the Job . 275 Involve the Whole Team . 275 Getting Organized . . . . 275 Advance Preparation . . . 275 The Importance of Cutoff . 276 Zones . . . . . . 276 Arithmetic Aids . 277

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Controlling the Count ............. . 277 Reconciliation . . . . . . . . . . . . . . . . . . 277 Eliminating Inventory Errors by Cycle Counting . 278 What Does the Future Hold? . . . . . . . . . . . 284

The Human Element 26 ORIENTATION AND TRAINING

Training .......... . Some Training Examples . . . Retraining for New Equipment Films and Video Tape Operator's Guide Mentoring .... Record Keeping . Goals of Training

.287 .290 .290 . 291 .295 .296 .296 .297 .297

27 LABOR RELATIONS • • . • • . . • • • • . . • • • . 301 Creating a Union-Free Environment in the Warehouse . 302 An Example . . . . . . . . . . . 303 Public Warehousing Alternative . 304 Public Warehouse Strikes . 305 Using Subcontractor Warehouse Services . 305 Transportation Strikes ...... . 305 Inventory Hedging . . . . . . . . . 306 Turning from Union to Union-Free . 306 Pre-Employment Screening . 307 Employee Complaints ...... . 310 The Role of the Supervisor . . . . . 310 Arbitration Standards Pertaining to Discharge . 311 The Essence of Union-Free Management . 312 Summary . . . . . . . . . . . . . . . . 313

28 MOTIVATION Output Criteria Feedback Skills ....

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.315 .315 .316 . 318

Balance of Consequences .......... . 318 Participatory Circles .. .......... . 319 Developing a High-Performance Work Culture . 321 A Case Example of Participative Management . 321 Warehouse Incentives ............ . 322 The Importance of Listening ....... . . . 323

29 MAINTAINING AND IMPROVING PERFORMANCE .325 Development ............... . 326 Discipline . . . . . . . . . . . . . . . . . . 326 Peer Review-A New Approach to Discipline . 326 New Personnel . . . . . . . . . 329 Pre-Employment Investigation . . . . . . . . 329 The Interview ............... . 330 Drug and Substance Abuse in the Warehouse . 332 Probation ...... . 335 Personnel Management . . 335 The Labor Contract . 336 Wage Reviews . . . . . . 336 lob-Performance Appraisal . 336 Attitude Surveys . . . . . 338 Promotion From Within . 340 Pride in the Company . 340

Productivity and Quality Control 30 MAKING WAREHOUSING MORE EFFICIENT .343

1. Improve Forecasting Accuracy . 345 2. Free Labor Bottlenecks . 345 3. Reduce Item Handling . . . . 345 4. Improve the Packaging . 346 5. Smooth the Flow Variation . 346 6. Set Improvement Targets . 347 High-Priority Goals . 347 7. Reduce Distances Traveled . 348 8. Increase the Size of Units Handled . 349

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9. Seek Round-Trip Opportunities .... . 10. Improve Cube Utilization ....... . Technology to Achieve Increased Efficiency

31 MEASURING PRODUCTIVITY What to Measure? ... Historical Standards .. Predetermined Standards Observation Techniques Stopwatch Standards . . Multiple Regression Analysis Uses of Regression Analysis Quality Measurements . . . Common Methods of Measuring Productivity Guidelines for Measurement Systems . . . .

32 SCHEDULING WAREHOUSE OPERATIONS Eliminating Delay .. Truck Dock Schedules . . . Backlog ......... . Scheduling for Peak Demand Real Time Information and Scheduling Stock Locations and Scheduling Aids to Scheduling . . . . . . . . . .

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33 CUSTOMER SERVICE-ITS ROLE IN WAREHOUSING 369 1. Is This Warehouse Necessary? . . . . 370 2. Phone Orders and Toll-free Numbers . 371 3. Consolidations 4. Free Shipping ..... 5. Classify Orders by Size 6. Backhaul ...... . 7. Accuracy in the Warehouse 8. Keep Communications Channels Open 9. Seasonality and Sales Contests The Customers Pay the Bills Summary ...... .

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34 IMPROVING ASSET UTILIZATION . . . . . . . .381 Space Utilization · 381 Energy Utilization · 381 Equipment Utilization .384 The Equipment Utilization Ratio .385 Improving Performance .386 Lift Truck Rebuild Program .387 Key Points of the Rebuild Program .388 The Value of the Program .389 Inventory Performance .390 The Management Factor .390 Why Measure? .391 Danger Signals .391 Inventory Turnover and Distribution Analysis · 393 Case History .394 An Action Plan-And Potential Benefits .399 Summary .400

35 'JUST -I N-TIME' . . . . . . . . . . . . . . . . . .401 lIT in Manufacturing . .402 lIT in Service Support .402 lIT As a Merchandising Strategy .403 lIT in Warehousing .406

36 IDENTIFYING AND CONTROLLING COSTS . . . .409 Three Cost Centers .409 Space Utilization .410 The Effect of Product Turns .411 Other Performance Specifications · 411 Measuring Productivity .414 A Cost Calculation Example .415 The Throughput Rate Concept .418 Adjustments .418 Summary .420

37 MANAGEMENT PRODUCTIVITY . . . . . . . . .421 Defining Management .421

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Why Warehousing Is Different . . . . 422 The Effective Manager . . . . . . . . 422 Measurement Tools for the Manager . 424 The Critical Tasks of a Manager . 425 The Manager's Hardest Job . . . . . . . . . . .. . 427 The Buck Stops Here. . . . . . . . . . . . . .429 How Good Are Your Warehouse Supervisors? . 430 The Supervisor Promoted from Within .. . 431 The Importance of Clarifying Expectations . 432 Putting It All Together . . . . . . . . . . . 433

38 REDUCING ERRORS ............... . 435 The Value of Order Checking . 435 Order Picking Errors . . . . . . 436 Order Taking Errors ..... . 437 A Good Item Location System . 437 Clear Item Identification . . . . 438 Clear Description of Quantity Required . 439 'Good' Order Picking Document . 440 Order Identification . 440 The Order-Filling Form .440 Other Factors to Consider . 443 Multi-Line Order Filling . 444 Personnel Factors . 444 Identification With Work . 445 Posting Error Rates . 445 U sing Case Labels . 446 'Picking Rhythm' . 446 Summary .447

Handling of Materials 39 RECEIVING AND SHIPPING .451

Receiving . . . . . . . . . . . . . . . . . . . 452 Shipping . . . . . . . . . . . . . . . . . . . . 453 Dealing with Shippers Load and Count (SL&C) . 455

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Controlling Damage Claims .459

40 SPECIALIZED WAREHOUSING • . . . . . . . . .461 Temperature Controlled Warehousing: The Essential Differences .... . 462 Hazardous Materials Warehousing . 466 State and Local Building Inspectors . 468 Fulfillment Warehousing . 470 Summary ............ .472

41 ORDER PICKING ................ . 475 Quality in Order Picking . . . . . . . . . 475 Order-Picking Forms . . . . . . . . . . . 476 Inventory Relationship to Order Picking . 476 Order Picking Systems . . . 477 Fixed Versus Floating Slots . 478 Order Picking Methods . . .478 Discrete Versus Batch Picking . 479 Zone System of Picking . 480 Designing Your Order Picking System . 481 Modeling Order Picking . 482 Safety . . . 482 Hardware ....... . 482 Summary ....... . 483

42 EQUIPMENT: STORAGE AND LIVE STORAGE . 485 Defining the Job . . . . . . . . 485 Improving Storage with Racks . 487 Reducing Number of Aisles .488 Other Types of Pallet Rack . . . 490 Live Storage-Gravity Flow Rack .491 When to Use Flow Racks . . . . . . 492 What Flow Racks Will Not Do for You . 492 U sing the Carousel . . . . Stock Layout in a Carousel Justifying the Carousel Conveyor Systems . .

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Types of Conveyors The AGVS Alternative Summary

43 FORKLIFTS AND OTHER MOBILE EQUIPMENT Choosing a Lift Truck Lift Truck Attachments Order Picking Trucks Justifying Narrow-Aisle Equipment Strategic Considerations ..... Automatic Guided Vehicle Systems ........ . System Integrators . . . . . . . . . . . . . What to Look For in Mobile Equipment . . .

44 APPROACHING AUTOMATED HANDLING Strategic Planning Ergonomics ............... . Robotics ................. . Conventional Warehouse System Vs. High Rise The Building . . . . . . . . . Storage Equipment . . . . . . . . Materials Handling Equipment . . Back-up Systems and Maintenance Security ....... . Computer Requirements ..... Coping with Change . . . . . . . The Future of Automated Systems Conclusions . . . . . . . . . . .

45 UNIT LOADS Pallets .... . Parts .......... . Types of Pallets .... . Types of Wood Employed Performance Specifications Box Pallets or Pallet Containers Slip Sheets . . . . . . .

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Performance Specifications . . . . . . . . . 530 Building and Handling Unit Loads .... . 531 Loading Unit Loads on Trailer or Rail Cars . 531 Equipment to Handle Unit Loads . . . . . . 532 A Case Example of Slip-sheet Handling ......... 532 The Potential Is Great ............. . 534

46 DEALING WITH DAMAGE ........... . 535 Causes of Damage in Physical Distribution . 536 Causes of Extemal Damage .536 Disposal of Carrier Damage . 537 Concealed Damage . 537 Warehouse Damage .... . 539 Reducing Warehouse Damage . 540 Recooperage and Repair . . . . 541 Protecting Damaged Merchandise . 542 Storage of Damaged Products . 542 Loss and Damage Guidelines . 543 Damage Control Ratios . 544 Damaged Loads Ratio ... . 544 Inventory Shrinkage Ratio . . 545 A Management Checklist for Damage Control . 546

Handling of Information 47 CLERICAL PROCEDURES .

Customer Service Standards .549 .550

Location of Clerical Center . . . . 550 Office Environment ...... . 551 Organizing the Clerical Function . 551 Interaction with Marketing . . . . 552 Manual and Electronic Data Processing . 553 Control of Automation . . . 553 Measuring Clerical Costs . . . . . . . . 554 Management Information . . . . . . . . . . . 554

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48 COMPUTER HARDWARE . . . . . . . . . . . . .

Micro, Mini, Mainframe . . . . . Computer Jargon ........ . Portable Data Collection Terminals Purchasing Hardware ..... . Hardware Development .... . Applications in Public Warehousing

49 SOFTWARE FOR WAREHOUSING OPERATIONS

Warehouse Floor . . . . . Customer Service Management Information . . . . . . . . . Transportation . . . . . . . . . . Electronic Data Interchange (EDI) Cost Analysis Programs Program Costs . . . . . . . The Requirements Definition The Role of the User . . . Finding Software Sources Evaluation . . . . . . Demonstration . . . . Flexibility and Control The Vendor Training ...... .

50 ELECTRONIC IDENTIFICATION

Bar Codes-What They Are and How They Work Scanners ........... . Contact and Non-Contact Readers Printing Bar Codes . . . . . . . . Using Bar Coding in a Warehouse Benefits ............ . Using the System ....... . The Future of Electronic Identification

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Appendices Appendix 1

UNIFORM COMMERCIAL CODE .............• 595

Appendix 2 AWA BOOKLET OF

DEPOSITOR-WAREHOUSEMAN AGREEMENTS..... 609

INDEX ••.•.•••.•••••••...•••••...• 629 ABOUT THE AUTHOR • • • • • • • • • . • • • • . • . • • 639

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Dedication

This book is dedicated to Sheldon B. Ackerman, retired chairman and founder of Distribution Centers, Inc

Ultimately he provided the environment which made this work possible.

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