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Warehoussing Decisions I

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Information about Warehoussing Decisions I
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Published on July 18, 2008

Author: shazrina

Source: authorstream.com

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Topic 2: Warehousing Decisions I : BL204 Warehouse Management 1 Topic 2: Warehousing Decisions I 4 June 2008 Learning Objectives : BL204 Warehouse Management 2 Learning Objectives After reading the chapter, you should be able to do the following: Develop an analytical framework for basic warehousing decisions. Compare the use of private versus public warehousing. Explain public warehousing services, regulations, and pricing. Basic Warehouse Decisions: A Cost Trade-off Framework : BL204 Warehouse Management 3 Basic Warehouse Decisions: A Cost Trade-off Framework Ownership Public versus contract versus private Centralized or Decentralized Warehousing How many Location Size Layout What products where Basic Warehousing Decisions : BL204 Warehouse Management 4 Basic Warehousing Decisions The Ownership Decision : BL204 Warehouse Management 5 The Ownership Decision Public warehousing costs mostly all variable. Private warehousing costs have a higher fixed cost component. Thus private warehousing virtually requires a high and constant volume. The Ownership Decision : BL204 Warehouse Management 6 The Ownership Decision Factors to consider Throughput volume Stability of demand Density of market area to be served Security and control needs Customer service needs Multiple use needs of the firm Firm Characteristics Affecting the Ownership Decision : BL204 Warehouse Management 7 Firm Characteristics Affecting the Ownership Decision Public Warehousing : BL204 Warehouse Management 8 Public Warehousing Rationale for Public Warehousing Limited capital investment Flexibility Public Warehousing Services Bonded warehousing Field warehouses Public Warehousing : BL204 Warehouse Management 9 Public Warehousing Public warehousing regulation: Liability Receipts Public warehousing rates based upon: Value Fragility Potential damage to other goods Volume and regularity Weight density Services required Public Warehouse Types : BL204 Warehouse Management 10 Public Warehouse Types 6 types: General Merchandise Warehouse Refrigerated @ Cold Storage Warehouses Bonded Warehouses Household Goods & Furniture Warehouses Special Commodity Warehouses Bulk-Storage Warehouses New variation of Public Warehouses : BL204 Warehouse Management 11 New variation of Public Warehouses Cross-docking Attempts to reduce amount of time products are held in storage. Products arrived in bulk, broken down, mixed in proper range & quantity, customer shipment. Technically products never enters the warehouse. Contract Warehousing : BL204 Warehouse Management 12 Contract Warehousing Partnership arrangement between user & provider of warehouse service. Defined as: Long term Mutually beneficial arrangement Provides unique & specially tailored warehousing & logistics services exclusive to client Vendor & client share the risks associated with operation Focus on productivity, service & efficiency Not focus on the fee & rate structure. Contract Warehousing : BL204 Warehouse Management 13 Contract Warehousing Up 23% per year in 2000 to $20.4 billion. Compensation for seasonality in products. Increased geographical coverage. Ability to test new markets. Managerial expertise and dedicated resources. Less strain on the balance sheet. Possible reduction of transportation Advantages of Public Warehousing : BL204 Warehouse Management 14 Advantages of Public Warehousing Conservation of Capital Meet peak requirements Economies of scale Flexibility Taxes advantages Storage & handling costs 1. Conservation of capital : BL204 Warehouse Management 15 1. Conservation of capital Require no capital investment of the user Avoid investment in: Building Land Material handling equipment Costs – starting up operations, hiring & training personel etc. 2. Meet peak requirements : BL204 Warehouse Management 16 2. Meet peak requirements Ability to increase wh space to cover peak requirements. Suitable for organization operation subject to: Seasonality Different demand Different level of production Sales promotion Can switch facility when wh become obsolete due to changes 3. Economies of scale : BL204 Warehouse Management 17 3. Economies of scale Handles storage requirements of a no. of firms at the same time Volume allows employment of full time warehousing staff Firms pays premium to build a small facility Use more expensive, more efficient material handling equipment Provide administrative & other expetise 3. Economies of scale cont. : BL204 Warehouse Management 18 3. Economies of scale cont. Specialized services: Broken-case handling- LTF case quantities Packaging of manufacturers’ products for shipping. E.g. labeling Consolidation of damaged products & products recalled by manufacturer for shipment in CL & TL. Equipment maintenance & service. Stock spotting of limited @ highly seasonal products lines. Breakbulk service 3. Economies of scale cont. : BL204 Warehouse Management 19 3. Economies of scale cont. Benefits: Lower shipping costs Reduce congestion at the customer’s receiving dock Customer picking up orders at public wh, can obtain the products of several manufacturer with one stop. 4. Flexibility : BL204 Warehouse Management 20 4. Flexibility Requires short-term contract Easy for firm to change field wh locations due to changes in: Marketplace (e.g population shift) Relative cost of various transport modes Volume of a product sold Company’s financial position 4. Flexibility cont. : BL204 Warehouse Management 21 4. Flexibility cont. Do not have to hire @ lay off employees when business volume changes Manufacturer can experiment with different wh locations Firms can discontinue operation with relative ease of cost savings @ when performance objectives are not realized 5. Taxes Advantages : BL204 Warehouse Management 22 5. Taxes Advantages Firms escape tax on property No taxes on inventories in public warehouses. 6. Storage & handling costs : BL204 Warehouse Management 23 6. Storage & handling costs Manufacturer knows its exact storage & handling costs because it receives a bill each month. Manufacturer can forecast costs for different levels of activity because costs known in advance. Disadvantages of Public Warehousing : BL204 Warehouse Management 24 Disadvantages of Public Warehousing Communication problems Ineffective communication – not all computer terminals & systems are compatible. Lack of standardization in contractual agreements Can be overcome with the use of: Emails EDI Internet Intranet Disadvantages of Public Warehousing cont. : BL204 Warehouse Management 25 Disadvantages of Public Warehousing cont. Availability of specialized services Specialized services may not always be available in specific locations. Manufacturer may need to deal with several different operators & monitor several contractual agreements. Disadvantages of Public Warehousing cont. : BL204 Warehouse Management 26 Disadvantages of Public Warehousing cont. Space availability Space may not be available when & where a firm wants it. Space shortage occur periodically in selected markets affect logistics & marketing strategies. Shortage of space lead to high price of limited space. Advantages of Private Warehousing : BL204 Warehouse Management 27 Advantages of Private Warehousing Degree of control Company owns goods, owns control over: Storage Handling Management Allows firm to integrate warehouse functions more easily into company’s total logistics system Advantages of Private Warehousing cont. : BL204 Warehouse Management 28 Advantages of Private Warehousing cont. Flexibility Flexible to design & operate wh according to specific needs of customers and products. For storing highly specialized products requiring special handling @ storage Wh can be modified through expansion & renovation Wh can be converted into manufacturing plant or branch office. Advantages of Private Warehousing cont. : BL204 Warehouse Management 29 Advantages of Private Warehousing cont. Cost Less costly over long term – 15 to 25% lower if company achieves sufficient throuhput @ utilization Achieve utilization rate of 75- 80% Advantages of Private Warehousing cont. : BL204 Warehouse Management 30 Advantages of Private Warehousing cont. Human resources Organization can make greater use of its present HR. Can use expertise of its technical specialists Greater care in handling & storage when firm’s own workforce operates the warehouse. Advantages of Private Warehousing cont. : BL204 Warehouse Management 31 Advantages of Private Warehousing cont. Tax benefits Realize tax benefits when it owns the warehouse Depreciation allowances on assets can substantially reduce cost of a structure over its life. Certain intangible benefits; Provide customer sense of permanence & continuity of business operations Customer sees company as: Stable, Dependable Lasting supplier of products Disadvantages of Private Warehousing : BL204 Warehouse Management 32 Disadvantages of Private Warehousing Flexibility Too costly because of fixed size & fixed costs. Loses flexibility in its strategic location options. Cannot adapt wh structure to rapid & unpredictable changes in: Market size Location preferences Results in: Loss of valuable business opportunity Loss of customer service Loss of sales Disadvantages of Private Warehousing cont. : BL204 Warehouse Management 33 Disadvantages of Private Warehousing cont. Investment Firms are unable to generate enough capital to build @ buy own wh & make new investments needed in plant & equipment@ new products due to high cost involved. Warehouse risky investment Difficult to sell due to its customized design High start up cost Time consuming to hire & train employees Increase purchase of material-handling equipment

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