06/02/2023

WAREHOUSE AND DISTRIBUTION IN SC

WAREHOUSE & DISTRIBUTION Chapter 1: Introduction to warehouse

Chapter 2: Warehouse decision
IN SUPPLY CHAIN Chapter 3: Warehouse activities and processes
Chapter 4: Management information system and
technology
Chapter 5: Warehouse safety and Security
Chapter 6: Warehouse performance measurement
Chapter 7: Distribution management
NGUYỄN THỊ THU HÀ
[email protected]
Tel/zalo: 0902195657

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Subject planning and assessment

Chapter 1: Introduction to warehouse
● 15 sessions
+ Lectures 11 1.1. Introduction to warehouse
+ Guest speakers 01
1.2. The functions of warehouses
+ Midterm test + Group Presentations 03
1.3. The benefits of warehouses
+ Revision: 01
1.4. The classification of warehouses
● Marking (%): 10/30/60
Attendance/(Contribution in class + midterm test+
Group presentation)/ Final exam
●References: slides and books

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1.1. Introduction to warehouse

What are the reasons for the demand in more
● What is warehouse? warehouses?
The place where the supply chain holds inventory or stores goods
● What is strategic warehouse in supply chain management? What ● Global supply chain
are roles of WH in SC? ● Mass production to meet global demand
- … links suppliers and customers and supports sourcing, making, ● Customer requirements in short self life products, seasonal
delivering activities products,…
- … performs time and place utility ● Demand to speculate products to maximize profit at lower
- …provides desired level of customer service at lowest possible costs
costs ● Ecommerce….

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1.2. The functions of warehouses 1.3. The benefits of warehouses

• Storing products/inventory/seasonal products…..
• Economic benefits:
• Balancing demand and supply
- Consolidation and break-bulk
• Buffering uncertainty and providing continuous production
• Facilitating distribution/transportation - Assortment (cross-docking, mixing and assembly)
• Providing value added services: - Postponement
− Mixing/cross-docking/assembling/break-bulk/consolidation - Stockpiling
− Order picking • Service benefits
− Labeling, packaging, RFID tag application - Reverse logistics
− Customization/postponement - Spot stocking
− Repairing - Full line stocking
− Reverse logistics - Production support
− ………… - Market presence
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Consolidation and break bulk Mixing and cross docking

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1.4. Classification of warehouses 1.4. Classification of warehouses

 Based on ownership: Public warehouse, Private warehouse,  Based on stage in SC: Warehouse for raw material,
Contract warehouse (chapter 2) warehouse for work-in-process inventory or warehouse for
 Based on functions finished goods
- Distribution center  Based on product types: General warehouse, warehouse for
- Warehouse for import-export goods: Bonded warehouse, frozen, hazardous, liquid… goods
Tax- suspension warehouse, CFS  Based on location: Central, regional, national, local warehouse
- Transshipment/cross-docking warehouse  Based on management: Centralized, decentralized warehouse
- Seasonal/ speculative/stock pilling, full line stocking, spot

stocking warehouse
- Overflow warehouse

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What are differences between DC and Bonded vs tax suspension vs CFS warehouses
traditional warehouse?
Bonded warehouse
● Services offered ● A warehouse that stores goods that have completed export
● Products/inventory procedures but still wait to be exported, goods imported from
● Velocity of the material flow abroad that are waiting for being exported to a third country or
● Focus imported goods but are not yet completed import procedures
● Customers ● Services: Reinforcement, prepacking, packaging, combining
● Complexity of operation cargo, …, sampling of goods, transferring ownership of goods,
● Technology converting category of goods
● Operators ● Significant benefits: deferring tax-payment, extended time for
restricted goods (12 months and time limit can be extended up to
12 months)
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Tax suspension warehouse CFS – Container Freight Station

● A warehouse used to store imported materials and ● CFS is used for consoling exported or breaking bulk
manufacturing parts serving production of exported products imported containerized cargoes.
that have been cleared from customs but have not been paid ● Services: Consolidation, break-bulk, packing, repacking,
taxes yet sorting, rearranging, transfer of ownership….
● Goods: Input for production of exported goods ● Time limit: 90 days (time limit may be extended for
● Benefits of tax-suspension warehouse maximum another 90 days)
- Deferring tax payment
- Extending time for document and legal procedures of
imported/exported restricted goods (12 months and time limit
can be extended up to 12 months)
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Questions
Chapter 2: Warehouse decision and designing
1. How important are warehouses for a global supply
chain?
2. Why does the demand in warehouse increase? 2.1. The ownership of warehouse
3. How does the warehouse support JIT strategy? Give 2.2. The number of warehouses
an example. 2.3. Warehouse management
4. What are differences between a DC and a 2.4. The location of warehouses
warehouse? 2.5. The warehouse design and layout
5. What are differences between Bonded/CFS and tax
2.5. The warehouse equipment
suspension warehouse? When to use them?
6. A company is considering to penetrate a new
international market. Should company use DC/ or
traditional warehouse services to realize its plan?

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The warehousing decision 2.1. The ownership decision

●Public warehouse ● Private warehouse

- A stand-alone company specializing - Private warehousing facilities are
in warehousing and distribution and owned/leased and operated by a
serving various customers company division.
- Public warehouse offers various ways
- Private warehousing often requires a
of storing goods: cold storage, humidity
control, refrigeration, or traditional dry significant front-end investment for
warehousing building, facilities management, and
- A full-service provider offers cross regular maintenance
docking, pick-pack and contract
packaging services to facilitate the
transportation process, inventory
tracking, management technology
- Pricing is based on the level of
service utilized by the customer per
period of time (eg: day/month)
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Advantages vs Disadvadvantages of public warehouse Advantages vs Disadvadvantages of Private WH. When

and when to use public WH? to use private WH?
● Advantages ● Disadvantages ● Advantages ● Disadvantages

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The onwership decision (cont.)

The ownership decision (cont.)
Factors - Cost trade-off
- Inventory cost
Contracted warehousing - Warehousing cost Factors to be considered
- Transportation cost ○ Throughput volume

- Cost of lost sales ○ Stability of demand

- Customer service level
○ Density of market area to be served
- Small quantity
purchase cost ○ Security and control needs

○ Customer service needs

○ Multiple use needs of the firm

○ Capital investment

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The ownership decision:

The ownership decision (Cont.) Public warehouse

Criteria Private Public

Rationale for public - Rate per day/per month
1. Throughput volume High Low warehouse - Rates are based on:
2. Demand variability ● Limited capital investment ● Value of goods

3. Market density ● Flexibility: quantity of ● Fragility of goods

4. Special physical control

goods, type of goods, ● Potential damage to
time of storage, site of other goods
5. Customer service required
business… ● Volume and regularity
6. Security requirements ● Weight density
Regulation
7. Multiple use needed ● Contract ● Services required

8. Capital investment ● Receipt

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Cost comparision
The ownership decision: Contract warehouse
Cost
Private WH Public WH Contract WH
Component
- A mixed model of public and private warehousing Capital Cost
- A long-term contract and/or services
- Warehouse is owned and operated by a third party
Expenses
- Services:
+ Specialized and customized services as required;
+ Storing goods on the contract basis
- Contact for an entire building or for a defined, fixed portion of Rates/ Fees

square-foot or cubic-foot space

- Contract fees are negotiable and depend on space and services
required. Risk
- A trade-off between location flexibility for assured space over the
contract period and a lower price
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2.2. Decision on the number of warehouses Trade – off between cost and
● Comparison between many and fewer warehouses number of WH
What to consider?
Criteria Many warehouses Fewer warehouses ○ Inventory costs

Inventory cost ○ Facility costs

○ Transportation costs
Cost of lost sales ○ Cost of lost sales

○ Maintenance of
Facility cost
customer service
Inbound transport cost levels

Outbound transport cost

Management cost

Customer reaction time

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Relationship between inventory and number of Inventory and numbers of warehouses – using square
warehouses root rule.
X2 = X1 * (√n2 ÷ n1)
● Square-root rule method: Assuming that the amount of
inventory in all warehouses is the same Where
- X1: Existing quantity of inventory
- X2: Future inventory when number of warehouses increases
● Inventory-throughput curve
from n1 to n2
- n1: the original number of warehouses
- n2: the proposed number of warehouses.

The rule is based on the assumption that the amount of safety stock in
each existing warehouse in the system is approximately the same.
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Example of Square root method The inventory through-put curve

Current inventory at 3 warehouses is 100,000 units. Compute how

● Using the actual through-put of inventory from the company’s
much inventory the company should hold if:
stock status reports
● Construct a plot of a average inventory (Ii) level against annual
1. The company will consolidate inventory into 1 location
warehouse shipment (Di)
● Each point of the plot represents a single warehouse

2. The company will increase number of warehouses from 3 to 6

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2.3 The warehouse management

1900 ● Centralized warehouse: Inventory is stored at some strategic

centralized warehouse
Decentralized: Inventory is stored at different local warehouses
1300
●

Current
closed to customers
warehouses
● Factor to centralize or decentralize depends on:
- Inventory turnover
- Delivery time
- Cost density
Company inventory throughput is represented in the Figure - Coefficient of variation with sales
Suppose that 2 warehouses with 10,000 and 17,500 units to be consolidated
How much inventory should be stock at the new warehouse?
Should the company consolidate 2 warehouses?
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Centralized warehouse system

Centralization vs decentralization?
Advantages Disadvantages
● The number of warehouses needed will decide whether the
warehousing system is centralized or decentralized.
● Discuss the differences between centralized and decentralized
warehousing systems following these criteria:
- Safety stock and average inventory
- Responsiveness
- Customer service demands
- Transportation cost (Inbound/outbound)
- Warehouse system capital and operating costs

Decentralized warehousing system WH management decision

Advantages Disadvantages
Factor Centralized Decentralized

Substitutability

Product Value

Purchase Size

Special Warehousing

Diversity of product line

Customer Service
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2.4. Location decision

Macro-factors >< Micro-factors

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Data Source: Bureau of Transportation Statistics

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Warehouse location techniques Marking method

● The weighted – factor rating model ( 5 steps) Weighted Maximum marks (10)
N Criteria (%) A B C
1. Identify the factors that are considered important to the facility
1 Land/rent/lease costs 7 7 8 5
location decision
2 Access to affordable labor 12 9 7 5
2. Assign weights to each factor in terms of their relative importance.
3 Expansion space availability 12 8 9 7
Typically, the weights sum to 1
4 Proximity to parcel hub 15 9 7 6
3. Determine a relative performance score for each factor considered. 5 Proximity to motorway network 15 7 8 9
Typically, the scores vary from 1 to 100, although other scoring 6 Central location 12 8 7 9
schemes can be used 7 Proximity to consumers 10 8 7 8
4. Multiple the factor score by the weight associated with each factor 8 Government incentive 10 8 6 5
and sum the weighted scores across all factors. 9 Availability of skilled labor 7 6 8 10
5. The location with the highest total weighted score is the 100
recommended location
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How to calculate
Location decision (cont.)
Step 1:
The Center of Gravity Method • Place existing warehouse, fulfillment center, and distribution center
- To compute geographic coordinates for a potential single new locations in a coordinate grid.
facility instead of existing warehouses that will minimize costs. • Place the grid on an ordinary map and note the relative distances.
- There are 3 dimensions to be considered:
Step 2: Calculate coordination of the new location
● Markets: Location of existing destination;
• Cx= ∑ (Dix * Vi)/ ∑ Vi
● Volume of goods shipped • Cy= ∑ (Diy * Vi)/ ∑ Vi
● Shipping costs/distance Where:
- Benefits: - Cx: the X (horizontal axis) coordinate for the new facility.

● Simple to compute; - Cy:the Y (vertical axis) coordinate for the new facility
- Dix - the X coordinate of the existing locations
● Considers existing facilities; and
- Diy - the Y coordinate of the existing locations
● Minimizes costs.
- Vi - the volume of goods moved to or from the locations
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Example
● WH 1 has a daily outbound goods volume of 2,500 units
Where to locate the new warehouse
● WH 2 has a daily outbound goods volume of 1,300 units
● WH 3 has a daily outbound goods volume of 5,000 units

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Load-Distance method Coordination of customers

● There are customers A, B, C, D, E, F, G with the 6

demand as in the table. Where to locate DC to minimize
E (8;5)
transport distance? 5
A (2,5;4,5) C (5,5;4,5)

4
Coordination A B C D E F G
3
X 2,5 7 5,5 5 8 2,5 9
2 F (2,5;2,5) G (9;2,5)
Y 4,5 2 4,5 2 5 2,5 2,5
D (5;2) B (7;2)

1
Load
2 20 10 7 10 5 14
(1000 ton)
0
0 2 4 6 8 10

Calculation of the distance between the locations

Using rectilinear method to determine whether B
Dab- Distance between points A&B is or C is the better location.
Xa = x-coordinate of point A Locate at E Locate at B
Coordination
Yb= y-coordinate of point A Current
location
Load
(L)
(8, 5) (7;2)

Xa = x- coordinate of point B X Y Distance D*L Distance D*L

Y
Yb = y-coordinate of point B A 2,5 4,5 2

A (X,Y)
B 7 2 20
Ya
C 5,5 4,5 10
• Dab= (Xa-Xb) + (Ya-Yb) D 5 2 7
E 8 5 10
• Dab= (Xa-Xb)2 + (Ya-Yb)2 Yb B (X,Y)
F 2,5 2,5 5
G 9 2,5 14

Xa Xb X
Total Load-distance
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The Break-even Model

Using Euclidean method to determine whether B or C is
the better location. The break-even model is a useful location analysis technique when
Locate at E Locate at B fixed and variable costs can be determined for each potential location.
Current Coordination Load (8, 5) (7;2)
location (L) 1. Identify the locations to be considered
X Y Distance D*L Distance D*L
2. Determine the fixed cost for each facility.
A 2,5 4,5 2
3. Determine the unit variable cost for each facility. The components of
B 7 2 20
variable cost are the costs of labour, materials, utilities, and
C 5,5 4,5 10
transportation
D 5 2 7
E 8 5 10
4. Construct the total cost lines for each location on a graph
F 2,5 2,5 5 5. Determine the break-even points on the graph. Alternatively, the
G 9 2,5 14 break-event points can be solved algebraically.
Total Load-distance 6. Identify the range over which each location has the lowest cost.
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Example: The break-even Model Step 1, 2, 3, 4: The three total cost curves

● Three locations have been identified as suitable candidates for ● Using the break-even model to choose the best location for a
building a new factory. The fixed and unit variable costs for each forecasted demand of 3,000 units per year?
of three potential have been estimated and are shown in the
Annual Annual
following table. Location Annual total cost
fixed cost variable cost
A 500,000 300
Location Annual fixed cost Unit variable cost
A 500,000 300 B 750,000 200

B 750,000 200 C 900,000 100

C 900,000 100
● Step 5: construct the total cost lines for each location on a graph.
● Using the break-even model to choose the best location for a
forecasted demand of 3,000 units per year?

Step 6: determine the break-even points on the graph Conclusion?

● The break-even point between location A and location B Total cost A

● The break-even point between location B and location C C

900,000
750,000

500,000
● The break-even point between location A and location C

1000 3000 Volume

Exercise 1:
Question
● The Soft Toys Company has identified four locations to set up a new
warehouse. They have determined the fixed and variable costs associated
with each location as follows:

Location Annual fixed cost ($) Unit variable cost ($)

Pittsburg 10,000 5
Atlanta 30,000 4
Miami 60,000 3
Houston 70,000 6

a, Plot the total cost curves for the three plant locations on a single graph
b, Find the break-even points and determine the range of demand for which each
location has a cost advantage. Which city has no cost advantage at all?
c, Which plant location is the best if demand is (i) 40,000 and (ii) 15,000 units
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Principles of Warehouse Layout Design

2.5. Warehouse design and layout
=> Objectives: Use one-story facilities
○ Cubic capacity utilization
Move goods in a straight
○ Protection
line
○ Efficiency
Use efficient materials-
○ Mechanization
handling equipment
○ Productivity

 Criteria for warehouse design

Use an effective storage
plan
○ Provide for the transportation interface.
Minimize aisle space
○ Provide the order-picking space.
Use maximum height of
○ Provide the storage space.
the building
○ Provide recouping, office, and miscellaneous spaces
Future expansion in 5-10
years
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Facility layout principles

Principles Benefits
• Provide more usable space per investment dollar
Use one-story facility
• Result in lower construction costs than multistory one

Use vertical capacity • Reduce building footprint and land requirement

Minimize aisle space • Provide more storage and processing capacity
Use direct product flow • Avoids backtracking and costly travel time

Use efficient material – • Improves labor productivity and safety

handling equipment • Reduce travel time
Use an appropriate
• Maximizes space utilization and product protection
storage plan
Allow for growth: 5-10
• Save costs, continuous operations
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Key inputs Overall space requirements

❑ Data collection and analysis:

▪ Collect the current or historical data and future volumes
and changes in product characteristics;
▪ Analyse and provide different reports on: Types, quantity,
condition of storage, operation process, additional
services, time of storage, velocity of inventory, etc.
▪ Additional data: number of supplier and deliveries per day,
the average intake; number of customer deliveries and the
average order size.
▪ Peak and the way to deal with peaks in the business

Overall space requirements

Should we plan for and accommodate peaks in business?

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Warehouse Space Requirements Common warehouse layout

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Utilization of the Warehouse’s Cubic Capacity Storage space

▪ Analyse assortment of inventory and record the different item

properties to decide on potential storage areas.
▪ Producing a chart detailing the number of pallet locations
required and the height requirement for each location
▪ Decide the type of storage equipment to use.
▪ Calculate dock space, number of pallets that can be stored
within a given cubic area when using standard adjustable pallet
racking

How to improve warehouse space utilization?

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Space calculation Total pallet capacity

➢ Receipt and despatch areas:
- Using a rule-of-thumb formula for calculating the likely space requirement for Total pallet capacity = (No of width modules × pallets in a module width) × (No of
staging vehicles on arrival and departure length modules × pallets in module length) × No of height modules
Where:
(No of loads x hours to unload)
- Module width = width of aisle + 2 pallet width (short side) + clearance side
Space = x (No of pallets x space per pallet)
time of shift between back-to-back pallets
- Module length = width of upright + 3 × clearance + 2 pallets (long side)
For example: No of vehicles per day - 20, 26 pallets per load with a pallet - Module height = height of pallet + clearance above pallet plus racking beam
size of 1.2 metres by 1.0 metres and it takes 45 minutes per load to unload height
and 30 minutes per load to check and we operate an 8-hour shift - No of width modules = Storage area width/Module width
=> Which size is the pallet floor space? - No of length modules = Storage area length/Module length
- No of height module = Warehouse high/Module height

Racking beam
Calculate pallet capacity

Aisle width: 3.0 metres Racking beam height: 0.14 metre

Pallet size: 1.20 metres × 1.00 metre Height of goods: 1.20 metres

Width of upright: 0.12 metre Height of pallet: 0.15 metre

Clearance (sides): 0.10 metre Warehouse height: 10 metres

Clearance (height): 0.15 metre Storage area length: 120 metres

Clearance back-to-back pallet clearance:

Storage area width: 48 metres
0.10 metre
Back-to-back pallet
Side clearance clearance
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Calculation Aisle width

▪ The aisle width is determined by the turning circle of the forklift

truck and the size of pallet being carried.
▪ The safety clearance of 10 cm either side (20 cm in total) of a
typical pallet will need to be added to ensure fast pallet put-away
and retrieval.
▪ The second dimension is the overall width of the truck chassis
when travelling along the stacking aisle.
▪ Aisle width decisions need to achieve the best combination of
productivity, space utilization, flexibility, safety and equipment
costs for the specific application (Piasecki 2002)

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Aisle width

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Movement summary and comparison of plans

2.6. Decision on warehouse material handling
equipment (MHE)
● Type 1: Storage and Handling Equipment - shelves and racks (to utilize
vertical space), bins, drawers, stacking frames, flow racks, cantilever
racks….to hold inventory (Chapter 3)
● Type 2: Bulk Material Handling Equipment
Stacker-reclaimer, hopper, grain elevator, bucket elevator, conveyor, dump
truck, ….
● Type 3: Industrial Trucks
Hand truck, side loader, pallet truck, walkie truck, order picker, platform
truck, folk-lift
● Type 4: Engineered Systems - https://www.youtube.com/watch?v=smilviq8tv0
AGVs, conveyor belt or robotic delivery systems (complicated systems that
come in different shapes and sizes), or Automated Storage and Retrieval
System (AS/RS)
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● Powered mobile racking (PMR) is racking that is fitted onto rails in the
● Live racking: After pallets
floor. A whole rack is then powered along the rails and opens up
are positioned at the end of
access down the now opened aisle into the, effectively, normal pallet-
the racking by, for example,
a fork-lift truck, the racked areas. Once access has been made, that aisle of racking is
movement in the racking is closed.
facilitated by having a
structure that permits
movement horizontally down
the racking by incorporating
rollers on which the pallet
slides. ● High bay racking: These consist essentially of massive blocks of
racking, built as an integral structure to a high degree of precision, and
often acting as a support for the building’s roofing and wall cladding

Fork – lift trucks Fork – lift trucks

● The fork-lift truck is the ‘work horse’ of most stores and ▪ Reach trucks (RTs): These trucks are ideal for working within
warehouses: narrower aisles. Transport and stacking in rack areas, reducing aisle
● Counter-balance trucks (CBTs): CBTs are the most common widths from 4.0 to 2.7 m
trucks to be found in a warehouse. They can operate inside and
outside the warehouse. CBTs can carry palletized goods to and
from racks up to 7 metres high and require aisles of 3.5 metres or
more in width.

▪ Narrow aisle trucks (NATs) : These trucks are designed to ▪ Multi-level riser picking trucks (MRPTs): are used in order
operate with little more aisle space than their own width selection and are specially designed for manual picking at varied
▪ Hand pallet trucks (HPTs): An HPT has a hydraulic pump to levels of pallet racking.
enable the operator to lift a pallet sufficiently to be able to move it
across the warehouse floor
▪ Powered pallet trucks (PPTs): These are battery operated and
are used for loading, unloading, picking and pallet-transfer duties
to and from the receiving and despatch areas

At floor level only At higher levels

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Articulated fork-lift trucks

(AFTs): or bendy trucks are a
hybrid combining CBT/NAT
applications. Powered by
battery or LPG, the mast is
fitted with ground wheels
which are fixed to the main
truck body by a swinging
mechanism – hence the name
‘articulated’

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Which factors should be considered while making

the MHE decision?

● Warehouse function
● Stock/inventory (types/value/demand/
● Travel requirements (distance/speed/time)
● Warehouse structure
● Staff capability
● Finance (https://www.forklift-international.com/en/for-
sale/pallet-stackers)

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Benefits of using correct

Chapter 3: Warehouse operations and
equipment
processes
● Lower unit materials handling costs, reduce 3.1. Receiving and put away/cross docking
energy consumption 3.2. Storage
● Reduce handling time - Quality control of the inventory
● Reduce damage to handled inventory - Methods of storage of inventory
● Prevent injuries to staff 3.3. Order processing and shipping/dispatch
● Converse floor space

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Scope of warehouse management

warehouse operation management
● Warehouse facility and staff management including warehouse
decision, staff training and supervising, ensuring safety and proper
● WH operation management is the physical management of
handling of inventory and equipment for ensuring successful day-to-
day operations at a warehouse (Chapter 2, 4, 6) inventory (raw material, work-in-process or finished goods,
● Warehouse Operations including receiving goods, placing each SKU supplies, repair parts…) covering different areas: receiving
in its proper location, and moving those items either within the facility and put-away, storing, order fulfillment, shipping and return
or outside to the shipping carrier. Warehouse operations deal with the processes
movement of inventory in – at – out of the warehouse (Chapter 3)
● Warehouse operation management also includes workload
● Warehouse Management Systems - a software used by warehouse
planning, monitoring the movement of goods, training staff,
staff to track and manage inventory and warehouse operations that
helps increase efficiency and reduces the time it takes to complete
risk management at the warehouse …..
orders by optimizing inventory storage, workload distributions, and
order shipping (Chapter 5)
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The warehouse operation process

3.1. Receiving and put-away/cross-dock
(2)
Receiving
1. What are specific operations that should be done upon
(1)
receiving?
https://www.youtube.com/watch?v=ZN6--Xi5lKo
2. How amazon receives your inventory?
https://www.youtube.com/watch?v=dAXdeqcHBp4&t=26s

3. What are factors affecting receiving effectiveness?

https://www.youtube.com/watch?v=Kzl6lEC4qDM

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Which operations are carried upon receiving? Receiving and offloading

● A warehouse manager should be involved in specifying and agreeing the
● Get ASNs and establish the offloading area: safe, suitable for the packing (items/carton, cartons/pallet) and any specific labelling required,
operation together with the mode of transportation.
● Check and record the arrival of the vehicle, note the seal(s), numbers ● Areas that need to be discuss:
● Break the seal(s) with the driver present - Size and type of cartons;
● Check the order documentation and record each item against the - Palletized or non-palletized delivery of product;
consignment note - Size (length, width and height) and type of pallets;
● Unload the vehicle - Specific labelling such as product description, barcode and quantities;
● Check the goods for quantity, condition, possible damage - Position of label on carton and pallet;
● Carry out required quality checks
- Carton quantities (inner and outer carton quantities, for example); and
● Report any discrepancies and condition/quality at once
- Mode of transport, delivery quantity and frequency of delivery
● Put away to the storage space/cross-docking areas
- Type of transit packaging –plastic, totes, metal stillages, roll cages,
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pallets;

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Example of incorrectly size cartons offloading

● The most common method of unloading palletized vehicles onto a

loading bay is with a powered pallet truck, hand pallet truck or
pallet jack.
● Unloading times will vary depending on the equipment used and
whether the load needs to be staged prior to put-away

Automated unloading & Boom conveyor unloading

cartons Robotic palletiser & Robotic unloading of container
with boom conveyor

Example of
Example of
Checking on arrival

● Using delivery notes for checklist

● Matching actual information of arrival goods with information in
delivery notes;
● Random checking: 10%, if there is discrepancy => check more
10%, if there is more discrepancy => Check 100% of arrival
● Agreement on GFR (good faith receiving) where the goods are
accepted in to DC without checking on arrival.
● Application of RFID/barcode scanner provide 100% check
number of inventory at the shorter time and the information will
be passed to WMS
● Checking weight for products that are stored and sold by weight

113 114

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Put-away Slotting

● Transfer the cargo from staging area to the storage locations ● Objectives
● Objectives: To move goods from the dock to the most optimal - To provide the required customer service
warehouse storage location providing that: - To keep track of where items are stored
- Cargo is stored fast and efficiently
- To minimize effort to receive, put away, and retrieve items
- Warehouse travel distance is reduced to a minimum
● Basic slotting systems
- Security of goods and the safety of warehouse employees are
ensured - Group functionally related items together
- Warehouse space utilization is maximized - Group fast-moving items together
- Cargo is easy to find, track within the warehouse and quickly to - Group physically similar items together
retrieve during picking process - Locate working stock and reserve stock separately

115

Slotting (continued…)

• Fixed Location Put-away

- SKU assigned a permanent location, & no other items are stored
there
- Fixed-location systems usually have poor cube utilization
- Usually used in small warehouses where throughput is small, &
there are few SKUs
• Dynamic/Floating/Random Location
- Goods stored wherever there is appropriate space
- Advantage is improved cube utilization
- It requires accurate and up-to-date information
- WH using floating-location systems are usually computer-based

Optimizing put-away Cross-docking

● Collect data and conduct real-time analysis:
+ Data on cargo size, weight, height, receiving and shipping ● Cross docking is the process where products are move directly
frequency; from goods-in to the dispatch bay without storing at the
+ Cargo type (e.g. Hazardous, perishable, high value, fast moving, warehouse
family product group etc.), order/sales volume, ● Arrival must be accurate, on-time with advance notice and
+ Storage availability clear labelling;
● Monitor storage capacity & space availability: using WMS or RFID ● Cross docking requires system to identify the product that
● Reduce distance and traveling time by optimizing rout and layout needs to be cross docked and a process needs to be in place
● Use direct put-away when possible: the cargo is directly moved from to alert the staff
its receiving area to its final location without going through a staging ● All process and details must be recorded in order to provide an
phase audit trail
● Use fixed and dynamic slotting appropriately
119 120

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Optimizing Cross-docking
3.2. Storage
● Good integration and coordination of appropriate suppliers/customer
interfaces (EDI/email, scanning and barcode technologies..)
3.2.1. Types of WH storage system
● Destination is know in advance;
3.2.2. Inventory control
● Customer is ready to receive the goods
● Product date recognition to facilitate quick checking/verification
● Cooperative SC
● Disciplined delivery
Negative factors affecting cross-docking are:
● Non-receipt of suppliers’ delivery
● Short receipt on suppliers’ delivery
● Late arrivals of suppliers’ vehicles, bad weather, road traffic delays
● Last minute changes in customer orders
121 122

3.2.1. Types of WH storage system

- Shelving: for light, small items (static/fixed and mobile shelving)
- Pallet racking: for inventory that is received/stored in large boxes.
Narrow aisle racking, push-back racking, single/double deep racking,
drive in/through racking, Multi-tier racking, AS/RS racking….
- Floor stacking
- Mezzanine flooring: It’s expensive to build
- Wire Partitions for the items that may need special security
- Type of racking https://www.youtube.com/watch?v=wmnHfs8cXxU

123 124

Double deep racking

Pallet Racking types
● Wide aisle pallet racking
● Double deep pallet racking
● Narrow/very narrow aisle
racking
● AS/AR racking
● Dynamic/Pallet flow racking
● Push-back racking
● Drive in/Drive through racking
● Mobile racking
● Cantilever racking
● Shuttle racking
Narrow/very narrow aisle racking system
trade off between cost of space and costs of VNA folk-lift
125 126

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AS-AR system Dynamic/Pallet flow racking

https://www.youtube.com/watch?v=p_OcDE61xxQ

● Pallet flow allows up to 20 pallets to flow down an incline on a series of

rollers or wheels.
● The pallets are loaded on one end of the system and unloaded at the
other end
● It’s optimal for FIFO, for limited SKU in large volume, perishable or time
sensitive products
● Expensive, high cost of maintenance

127 128

Drive-in vs Drive through racking

DRIVE - THROUGH
● The drive-in system: the forklift will only load and unload pallets on one
side of the racks - the truck drives into the system using only one side. Load Pick
Drive-in pallet racking is best suited to a last in, first out (LIFO) system Aisle Aisle

and for slow-medium movers:

https://www.youtube.com/watch?v=GEcgwMsYzQE
● High density of storage, homogeneous products
Separate load and unload point allow greater flexibility (FIFO)
DRIVE-IN
● The drive-through system: the forklift loads pallets on one side and unloads
Load Load
pallets on the opposite side. In this system, the truck uses rails to unload and
Aisle Aisle load product after driving into the racks themselves. Drive-through pallet
racking is best suited to first in, last out (FILO) and fast movers.
https://www.youtube.com/watch?v=Zh5mNA3wpoA
● High density of storage, homogeneous products
Double Entry Drive – In (LIFO) 129 130

Cantilever racks

Push back pallet racking system

https://www.youtube.com/watch?v=XkzFqcE2qq4

Mobile racks
shuttle racks:
https://www.youtube.com/watch?v=pqqjss4Px3whttps://www.youtube.com/watch?v=pqqjss4Px3w
131 132
https://www.youtube.com/watch?v=K6qlXP78nXU

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Racking popularity: https://www.youtube.com/watch?v=5ePDJza5zWY 3.2.2. Inventory control

● Inventory replenishment
● ABC analysis
● Inventory counting
● Quality control

133 134

Inventory replenishment How much to order?

●
How much to order? EOQ
When to order? ROP
EOQ =
√ 2 xCoxD
Ci xPu

● Continuous replenishment ● EOQ is suitable for continuous replenishement

● Periodic replenishment ● Typical adjustment to EOQ
- Volume transportation rates offer a freight-rate discount for larger
shipment
- Quantity discounts offer a lower per unit cost when larger
quantities are purchase
- Other EOQ adjustments: Production lot size, Multiple-item
purchase, limited capital, edicated trucking, Unitization

135 136

Ex: Adjustment to EOQ in case of discount for large order size Solution
● The Kuantan corporation purchase a component from a supplier who offers
quantity discounts for large order quantities. The supply chain manager of
the company wants to determine the optimal order quantity to minimize the
EOQ (5$) =
√ 2 x 40x15,000
0,25 x5
= 980 units

total annual inventory cost. The company’s annual demand forecast for the
item is 15,000 units, its order cost is $40 per order, and its annual holding
● EOQ (4,5) =?
rate is 25%. The price schedule is:
● EOQ (4) =?
Order quantity Price per unit
< 1000 $ 5.00 How much to order?
1001 – 2000 $ 4.50
2001 and above $ 4.00

1. What is the optimal order quantity?

2. What is the minimum total annual inventory cost?

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The economic Manufacturing Quantity ( EMQ) or The EMQ/POQ

production order quantity (POQ) ▪EMQ : QM
▪Annual demand: D
● The EMQ can be used with the assumptions as follow: ▪ Demand rate (demand per day) : d
▪ The production rate ( manufacturer’s production per day): p
- The demand is known and constant
▪ The inventory builds up at the rate of (p-d) during the production period
- order lead-time is known and constant
(Tp), and the maximum inventory Q, so:
- Partial delivery
p= QM / Tp, Qi = (p – d) x Tp
- Price is constant Therefore:
- The holding cost is known and constant
Qi = (p-d) x tp = (p-d) QM /p = QM - QM d/p = QM (1 – d/p)
- Order cost/change-over cost is known and constant
The average inventory, Qi /2 = QM /2 (1 – d/p)
- Stock-outs are not allowed.
Total annual inventory cost = annual production cost + annual holding
cost + annual change-over cost
TAIC = [DxPu] + [QM /2 (1 – d/p) x Ci x Pu] + [D/ QM x Co]

Example: calculating the EMQ at the Lone Wild Boar

● TAIC min when [QM /2 (1 – d/p) x Ci x Pu] = [D/ QM x Co] Corporation
=> [QM (1 – d/p) x Ci x Pu]x QM = DxCo ● The Lone Wild Boar Corporation manufacturers a crucial component
internally using the most advanced technology.
● The operations manager wants to determine the economic
QM =
√
2 xCoxD
Ci. Pu x (1-d/p)
=
√ 2.Co.D.p
Ci.Pu. (p-d)
= ?????
●
manufacturing quantity to ensure that the total annual inventory cost is
minimized.
The daily production rate (p) for the component is 200 units, annual
demand ( D) is 18,000 units, change-over/setup cost (Co) is $ 100 per
setup, and the annual holding rate (Ci) is 25%.
● The manager estimates that the cost (Pu) of a finish component is $
120. It is assumed that the plant operates year-round and there are 360
days per year.

When to Order?

ROP depends on methods of inventory control

● Perpetual Review ● Periodic Review

ROP = DxLT + SS ROP = D(LT+T) + SS
Where: Where:
D = Average daily demand (units) D = Daily demand (units)
LT = Average performance cycle (in days) LT = Average performance cycle (in
SS= Safety stock (units) days)
T= Review period in days
SS=safety stock (units)

143 144

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Inventory replenishment is the process of making a decision

ROP without SS = DxT
relating to inventory: When to order and How much to order?

Minimum cost
reorder quantity Quantity on-hand
plus on-order
Total cost

Q
Cost

Reorder
point, ROP

Procurement cost Lead Lead

0 Time
time time
Stockout cost Order Order Order Order
Placed Received Placed Received

Replenishment quantity

Re-order point with safety stock Safety stock technique – 3 methods

● Statistical Method: SS is computed using statistics, based on the
● Re-order point in case of perpetual review historical demand/lead-time or both
ROP = D x T + Safety stock + + Safety stock = Z x σD x √LT
Where: Z = service level,
Where:
σD, σLT = standard deviation of demand, lead-time
- ROP = periodical/cycle inventory LT = lead-time
- D = daily demand (unit) DA = Average demand

- T = Performance cycle (days) + Safety stock = Z x DA x σLT

+ Safety stock = Z x √[LT x (σD )²] + [(σLT)²x DA²]

+ Safety stock = (Z x σD x √LT ) + (Z x DA x σLT )
● Time Method: SS = DA x Safety days
● Fixed Method: SS = (maximum sale x maximum lead time) –
(average sale x average lead time) 148

Reorder Point Control for a Single Item Periodic replenishment

Quantity on hand

Q
Demand
Place During
order LT
Q
ROP

Receive
order P
0
Stockout
LT LT
Time
Invent
ory-
Reference: Dickson Chiu 2006 150

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Periodic review control with demand uncertainty (2)

Periodic replenishment
M
● A variable order quantity (VOQ) that is dependent upon what has
been used since the last fixed time check and what is now needed to

Quantity on hand
bring stock back to the required level (Max level) Q1
Q2

● Use for products of low value, from the same supplier and with
economy of scale in production, purchasing, and transportation
FMCG …

~
● How much to order: Q = M – q
q
M= D*LT+ D* T + SS = D (LT+T) + SS Stock
Order
Where: level
received
reviewed
Q – Order size LT: Lead-time 0
Time
M - Maximum level of inventory LT
T
LT
T
q - Inventory in hand M = maximum level T = review interval
M - q = replenishment quantity
T – Time to review inventory = EOQ/Annual demand 151 LT = lead time
q = quantity on hand
Qi = order quantity

Exercise
Inventory counting
● The company distributes an item known as a Tie Bar. The following data have
been collected for this item:
● Annual counting: Physical inventory counting at the end of
- Monthly demand forecast, d 11,107 units
year and data is used for financial statement.
- Sdt.deviation of forecast, sd 3,099 units
- Replenishment lead time 1,5 months ● Periodic counting
- Item price (Pu) 0.11$/unit ● Seasonal counting
- Ordering cost (Co) 10$/order ● Cycle/Perpetual counting = counting by software + random
- Carrying cost (Ci) 20%/year check
- In-stock probability during LT 75%

1. Calculate EOQ and the Average inventory

2. Calculate ROP if there is the perpetual inventory control system applied
3. Compute the Maximum level of inventory if there is the periodic inventory
control system used, assuming that there are 365 days/year Invent
ory- 154
153

ABC analysis Cycle counting

- What are the purposes of an ABC analysis? Inventory Frequency of Weekly Spot Physical counting of
- How to do an ABC analysis? class cycle counting physical counting each SKU
A Monthly 8% once per quarter
Inventory Proportion Frequency % of B Quarterly 4% twice per year
Characteristics
class (%) of checking Availability
C 6 months
Fast movers Weekly 98% 2% once per year
A 20 D Or Yearly
/Monthly
Medium movers Monthly/ 90% Methods of physical checking
B 30 - 35
quarterly - Manual counting – Counters using count sheets and pencils to record
C Slow movers 6 months 85% inventory numbers manually.
- Electronic counting – Technology like QR codes, mobile, and cloud
Obsolete/dead 45 - 50
D Yearly Scrapped software allows businesses to use barcode scanning to send information from
stock a smartphone to the cloud
155 156

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3.2.2.3. Quality control Factors influencing quality of products at the WH

- General cargo warehouses: for storing different types of commodity
● Condition of storage/warehouse
- Special Commodity Warehouses: for storing a particular type of commodity,
example: tobacco, cotton, wheat, petrol, fertilizer... ● Handling methods/MHE
- Cold Storage or Refrigerated Warehouses: ● Time of storage
+ Cool Enclosure (+ 5/+ 15 °c): green pepper, tomato, banana etc. and food ● Type of products
processing areas.
● Staff training
+ Cold Housing (-5/+ 5 °c): for the freshly preserved food products are kept in
this temperature range.
+ Frozen Enclosure (-15/-25 °c): The storage of all frozen foods is done in this
temperature range. The frozen enclosure is the preservation of the
temperature of the products that have been decreased to-18 °c by the
central temperature.
+ Deep freeze warehouses (-30/-45 °c)-
157 158

3.3. Order picking and shipping Order picking principle

▪ FIFO (First-In, First-Out):
3.3.1. Order picking
▪ LIFO (Last-In, First-Out):

▪ FEFO ( First Expiry, First Out)

159 160

3.3.1. Order picking Order picking

Picker Orders Picking operations

• Picker to goods • Pick by order • Paper pick

• Goods to picker • Cluster picking • Pick by label
• Automated picking • Batch picking • Scanning
• Robotics • Zone picking • Voice picking
• Wave picking • RFID:
- Automated
- Scanning
• Pick to light
• Put to light

161

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Order picking Order picking

• Pick by order
Zone 1 Zone 2 Zone 3
• Cluster picking: the picker will pick 4 orders at once using 4 boxes to
(A, B, C) (D, E, F) (G, H, I, K, L)
contain items of each order
Order 1: 2A, 1C, 3 E,1F, 3K, 4L
• Batch picking: A picker/pickers will pick all items of a batch of some
Order 2: 1A, 1B, 3C, 2D, 2F, 2G, 3I, 1K orders and resort to orders later
Order 3: 5E, 2G, 3H, 3L How to assign batches? What would be criteria for assigning batches?
Order 4: 4D, 2F, 1G, 2I, 3K

Criteria for choosing order picking methods: • Zone picking: Pickers are allocated to zones to pick items within the
- Picking time zone and put to boxes - picked items will be re-sorted to orders or
- Travel distance orders travel to different zone to be completed.
- Resources: Labor, equipment, ….
163 164

Order picking
Picking process
• Wave picking = Zone picking + Batch picking
• Paper pick: Paper based list of items to be picked
Similar to batch picking except orders/staff to be assigned in wave
• Pick by label: picker will have labels and stick label on picked items
through the day depending on different criteria such as carriers,
customers/destination, packaging…. • Scanning: the scanning gun connected to WMS to get information
Ex: wave 1 = Order 1+3 => district 1; Wave 2: order 2+4 to district 5 about orders + products + location….
• Voice picking
Pick to cart: https://www.youtube.com/watch?v=uXRl5encVTU • Vision picking: https://www.youtube.com/watch?v=gnUK-HTn4ZA
• RFID/Barcode scanning
What are advantages and disadvantages of each picking method?
• Pick to light
When to use them?
• Put to light:
• Pick to cart
• Automated picking
165 166

Order-picking methods
Order-picking methods
▪ Pick by voice: Operators are issued with a headset and a
▪ Paper pick lists: A paper pick list will normally detail the order microphone together with a small terminal that is attached to a belt or
number, location, product code, description and quantity to be can be worn on the wrist. The WMS sends messages to the computer
picked. via radio frequency (RF) transmissions, utilizing transmitters installed
Paper picking requires little investment; however, it can have low throughout the warehouse, and these messages are converted into
accuracy and may require order validation voice commands. The operator also uses voice to communicate back
▪ Pick by label: pick lists are a series of labels on a sheet, which are to the system.
printed in pick order. The picker attaches a label to each item picked
and returns any unused labels to the supervisor’s office

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Order-picking methods Pick by light/pick to light

▪ Barcode scanning: A barcode consists of a series of vertical bars ▪ Pick to light or pick by light uses light-indicator, LED or LCD modules
of varying widths that represent letters, numbers and other symbols. mounted to shelving, flow racks, pallet racks or other storage
locations
Barcodes are used to identify products, locations in the warehouse,
▪ To begin the process an operator scans a barcode on an arriving
containers (totes, cartons, pallets), serial and batch numbers. pick tote or shipping carton which denotes the next order number to
be picked. This communicates to the system that the operator is
ready to pick. The system then sends a message to the zone in
which the operator is stationed and all the pick locations for that
particular order light up at once. Once this has been picked the
operator turns the light off to confirm the pick.

Put to light Radio frequency identification

▪ RFID is a means of uniquely identifying an item using radio waves.

● Once the product has arrived at the ‘put’ station the operator Data is exchanged between tags with micro chip and readers and
scans each item and a flashing light displays at each location depending on the frequency, may or may not require line of sight. Date
indicating which containers (relating to a particular store) require is accessible through hand-held and fixed-mount readers in real time.
that product and how many items are required.
▪ There are two types of RFID tags:
● Confirmed ‘put’ results are uploaded to the system in real time to
- Passive tags have no power source, limited data storage capacity, are
update the WMS.
read only and have a limited read range
- Active tags their own power source, have a larger data-storage
capacity, have a read/write capability and are readable from a greater
distance.

RFID

174

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Pick rate comparison for the various pick technologies (Wulfratt 2013)
3.3.2 Shipping/dispatch – outbound
process
● Unitize loading: packaging, cage, stillages, pallet…
● Assemble the goods in the loading/assembly areas or the dispatch docks
● Check the order documentation against the consignment note
● Check the goods for condition, possible damage/marking/…. And report
discrepancies (if any)
● Check the correctness of loading area
● Ensure that the vehicle is safe before loading
● Load the vehicle
● Position/fix the security locking system (seals) with the driver present
● Obtain driver’s signature
● Record the departure of the vehicle and note the security locking/seals
numbers
175 176

Packaging Packaging
● Interest in packaging is widespread
- Logistics
■ Warehousing

■ Transportation

■ Size

- Marketing
- Production
- Legal
● The Role of Packaging
- Identify product and provide information
- Improve efficiency in handling and distribution
- Customer interface
- Protect product
178

What Is Packaging?
Packaging Materials
● Consumer packaging
Marketing managers primarily concerned
with how the package fits into the ● Basic consideration for packing
marketing mix. material include:
○ Soft materials
● Industrial packaging ○ Plastic
Logistics managers primarily concerned ○ Environmental issues
with efficient shipping characteristics ○ Recycling (reverse logistics)
including protection, ability to withstand
stacking when on a pallet, cube, weight,
shape and other relevant factors.
179 180

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Cellulose wadding
Comparison of cushioning material

Air bubble

polyurethane packaging

Foam in place

181 182
Molded packaging

Packaging
Staging
● Packing – pieces/ items: the
operator may package the products
immediately, attach shipping labels
and where required insert despatch
documentation and invoices.

● Packing – cartons: loose cartons or

a palletized load, stretch wrap

Shipment 3.4. value added services

● Labelling, relabeling
● Pricing, re-pricing
● Tagging, kimballing
● Packing – repacking
● Bundling (Ex: promotion buy one get one free)
● Re-configurating
● Sub-assembly
● Repairing and refurbishment
● Processing return

186

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Chapter 4: 4.1. Warehouse documentation

Management Information system
● Documents should be maintained (in chronological order) and made
and technology
available for inspection by monitors, program management, and
5.1. Warehouse documentation auditors.
5.2. WMS and Information Technology ● Documents are used to develop many management and financial
reports, procedures
● Document should be in place for adequately safeguarding them
against improper access and loss:
+ Physical restraints (such as locked or secured storage areas);
+ Restricted use (any document leaving the WH must be signed for)
+ Password-controlled computerized accounting systems.

187 188

WH documentation
WH documentation
 Receiving waybills/notes
 Commodity reconstitution records
 Distribution plans
 Commodity disposal/destruction records
 Dispatch authorizations
 Warehouse fumigation records/reports
 Dispatch waybills (preprinted and prenumbered), ….
 Warehouse inspection reports
 Waybill tracking documentation
 Warehouse physical inventory count sheets/reports
 Tally sheets (loading and offloading)
 Loss (damage) reports (preprinted and prenumbered)
 Casual laborer attendance sheets
 Internal loss claim records and backup documents
 Stack cards (by commodity and by shipment)
 Warehouse daily reports
 Separate warehouse ledgers for:
 Warehouse monthly reports
□ Each commodity type and shipment number
 Commodity status reports
□ Damaged/unfit commodities
 Warehouse assets/equipment list
□ Commodity loans/transfers
189 190

4.2. Warehouse management technology Warehouse management system (WMS)

4.2.1. Warehouse management system (WMS) - A warehouse management system (WMS) is a software
https://www.youtube.com/watch?v=Q3SVPobcmhA that supports the entire operation of a warehouse including
● What is WMS? inventory management.
● List some benefits that WMS can bring to a WH? - A WMS provides visibility of the organization's inventory at
● What can be disadvantages of a WMS? any location.
● How a company can deploy WMS? Advantages and - The WMS can also manage the entire supply chain
disadvantages of each deployment? operation and is often integrated with a Transportation
Management System (TMS), Vendor Managed Inventory
system (VMI)
191 192

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Features of a WMS Features of a WMS (cont.)

● Warehouse design: Optimize inventory allocation and customize ● Shipping: Generates bills of lading, packing lists and invoices for
workflow and picking logic. shipments and can send advance shipment notifications (ASN)
● Inventory tracking: Use automatic identification and data capture ● Labor management: Tracks employee performance by key
(AIDC) technology such as barcodes or RFID to track the location performance indicators (KPI)
and level of inventory at any time ● Yard and dock: Helps drivers find the correct loading dock and can
● Receiving and putaway: Records and check inventory information assist with the cross-docking operation.
at the arrival, guides inventory putaway to available location ● Reporting tools: Analyzes warehouse operations to track KPIs and
● Picking and packing: Guides warehouse workers to pick items and see areas for improvement.
pack them in the most efficient way possible often using pick-to- ● How does WMS work?
light or pick-to-voice technology, generates a new order
https://www.youtube.com/watch?v=uWAePLEcx88

193 194

Activities that can be undertaken by WMS Actual slotting software results

Activity Some possible WMS characteristics
● Pick labor hours reduced by 11%
Receiving ASN
Automatic checking by scanning/input data ● Replenishment labor hours reduce by 23%
Paperless ● Replenishment labor dollars reduced by 13%
Put away/storage Automated location generation ● Retail product grouping improved by 51%
● Reduced total pick path travel by 10%
Picking Product release prioritization (FIFO, FEFO, LIFO)
Batch and/or wave picking ● Picking labor dollars reduced by 3%
Real time pick confirmation ● Annual retail labor savings equivalent to 16 times
Automated replenishment activities investment
Despatch Load planning and sequencing
Automatic checking by scanning
Paperless
195 196

Actual slotting software results (cont.) WMS: Pros and Cons

● Reduced pick labor bay 11%Pick labor hours reduced by 11%

in each –pick area based on full reslot using velocity
sequencing and golden zoning;
● Completed “what-if” scenario analysis to reveal partial reslot
(20% of moves) reduced labor by 9%;
● Replenishment frequency improved bay 300%
● All items slotted with pallet EOQ quantities
● 68% of SKU representing 98% of hit velocity slotted in 43% of
travel path (without congestion)
● 23% improvement in travel distance by order-reduced from
3500 feet to 2700 feet 197 198

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The key to a successful WMS deployment and 4.2.2. Fully automated warehouse
implementation
● Uses robotics to cut down on manual tasks, speed up the
● Preparation and allocating sufficient time and resource to the movement of goods;
project ● Save valuable resources by decreasing product touches, and costs
● Getting processes right before introducing the system associated with product transportation through the warehouse.
● Producing a base level so that the full benefits of the system
Example of Zappos:
can be compared
+ By employing automation, Zappos grossed over $1 billion in 2009
● Getting involvement of senior management and WH staff;
+ Amazon acquired Zappos and by leveraging robotics and
● Choosing the most appropriate supplier and
automated warehouse systems, Zappos was able to maintain free
● Ensuring that all staff are trained to an acceptable level
shipping, a 365-day return policy and a full-time call center
● SAAS – is an alternative
Example of Vinamilk
https://bangtaihaitan.com/nha-kho-tu-dong-lon-nhat-viet-nam-vinamilk-binh-duong/
199 200

Fully automated WH management system Disadvantages

Advantages: ● High capital deployment costs (payback period of 3-4 years
- 24/7 operational capability minimum) and slow return on investment (7-10 years)
- Reduces high labor costs + contacts ● Difficult to rent out/resell
- Maximizes the use of rent per square meter; ● Relatively inflexible in terms of throughput/load size, operating
- Reduces energy for lighting, heating term and future changing requirements
- Improves security and reduces pilferage; ● Vulnerable to software failures
- Useful for dangerous operating environments ● Requires greater care in standardized packaging and bar
(chemical) codes/product identifications
- Reduces errors (in picking/documentation/…..) ● Limited ability in identifying damage and handling vulnerable
products

201 202

5.1. Warehouse safety

Chapter 5
Warehouse safety and security

5.1. Health safety and environment

5.2. Warehouse security

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Safety at the WH
Process safety

Set of regulations, measures, which can help the warehouse

manager maintain safe warehouse process including risk
assessment process and risk mitigation process
Example
● All regulations must be documented and approved,
workers must be trained
● Secure all goods

● Clear path
● OSHA statistics show that an average of 100 employees are killed each year in forklift ● Only operate within the operating zone
accidents, and as many as 95,000 total forklift accidents occur on an annual basis. In
many cases, these accidents are avoidable. ● MHE load capacity
● The fatal injury rate for the warehousing industry is 5.1% - higher than the national ● Floor cleanliness
average for all industries. 205
205

Physical safety
Risk assessment
Physical safety = Measures protecting all stakeholders in the warehouse
A risk assessment can be broken down into five stages: (the people, cargo, equipment)
● Step 1: Identify the hazards. ▪ Aisle lanes marked by yellow lines with signboards

● Step 2: Decide who might be harmed and how. ▪ Painted walkways

▪ Painted yellow lines on floor around storage racks
● Step 3: Evaluate the risks and decide on precautions.
▪ Bollards around the racks to prevent MHE (material handling
● Step 4: Record and communicate findings and implement them. equipment) crashing into the rack structures
● Step 5: Review your risk assessment regularly and update if ▪ Ensure all MHE is checked before operation
necessary. ▪ Fire points (fire extinguishers and fire hose)
▪ Fire evacuation plan
▪ Bright lighting

Process safety 5S

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Personnel safety People safety

▪ PPE ( Personnel Protective Equipment)
▪ Use of MHE, Vehicle, Forklift trucks Musculoskeletal injuries and pains are resulted from:
▪ Safe manual lifting - Repetitive motion, standing in one position, or working overtime.
▪ Slips and trips - Falls and collisions with powered equipment or other workers.
▪ Manual handling - Exposure to hazardous chemicals.
▪ Working at height - Strains and sprains from lifting loads improperly, carrying too large
or too heavy loads
- Cuts and bruises caused by falling materials that have been
improperly stored or by incorrectly cutting ties or other securing
devices.

212

Lift Properly Equipment-related risks

- Untrained and anauthorized drivers operate

forklifts, other powered truck pallet trucks.
- Lack of attention: do not follow traffic management
rules, signs and flashers; do not listen for forklift
horns; violate the marked traffic routes.
- Do not wear high visibility vest.
- Other risks related to wearing loose fitting clothing,
jewelry, or hair, which may get caught,

Image source
213 214

Fire/explosion and Emergency

Preparedness
- Flammable liquids and the way in which
they could catch fire.
- Electrical hazards that could cause fire.
- Toxic chemical vapors in the air.

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5.2. Warehouse security Process security

It is the warehouse policy on risk assessment and

mitigation, warehouse regulation and instruction on
security (Example: Only authorized personnel are allowed
to receive or release goods, all goods carried out of the
warehouse must be closely inspected to prevent
unauthorized removal….)

Physical security Personnel security

It is the measures to protect personnel, hardware, software, networks and
▪ All staff including visitors must have a
data from physical actions and events that could cause serious loss or
damage to the warehouse (protection from fire, flood, natural disasters,
pass to be worn at all times
burglary, theft, vandalism, terrorism,…) ▪ All entries into restricted areas must
be controlled by card or fingerprint
▪ 24/7 CCTV,
▪ All vehicles and the drivers entering the warehouse must
▪ For some warehouses, warehouse
be approved prior entry and are recorded at the guard staff may be subjected to body check
post, External visitors must be escorted to prevent pilferage
▪ Drivers of vehicles must not be allowed to wander about. ▪ No staff with bad records of alcohol
▪ Internal staff must not be allowed in the warehouse abuse, gambling, financial
without a reason. irresponsibility
▪ Alarms should be installed to prevent intrusion

Pilferage Preventing theft

▪ Causes of inventory shrinkage: 80% internal + 20% external ● Theft: 60% of internal causes
▪ Inventory control and order processing systems help ● Trouble signs:
protecting merchandise from being carried out of the + Checkers and pickers take break together, too frequent smocking
warehouse unless accompanied by a computer release break, cleaning contractor’s staff related with WH staff, drivers load their
document own vehicles, staff appear at non-authorized places ….
▪ If samples are authorized for salesperson use, such + Products are misplaced/have strange sign/partly open/in rubbish
merchandise should be maintained in a separate inventory. bins,….
+ Documents are missing/skip in order/not checked as requested/with
changes/missing some authorized stamps/signature….
+ Windows/emergency doors are not secured, cameras can’t reach all
corners of WH,
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Security and preventing loss from theft

Chapter 6
Internal theft => Personnel security: External theft => Physical security
●

- Security system and internal check for

●

- Fit burglar alarms to cover all doors

Warehouse performance measurement
all staff and windows;
- Good lighting and eliminating blind - Fit foils on windows, infrared beam
spot system, motion detector, cameras; 6.1. The importance of measuring warehouse performance
- Automatic cross checking of working - Security patrols (internal and 6.2. Criteria for performance measurement
flow external) 6.3. Bench marking
- Practice 5S - Fit a modern people access control
- Training/recruiting with model honesty system (card/keypad,…)
- Improve working environment

Information/cyber security
- Backup, firewall, antivirus software/copyright, data protection
- Access to information: Authorization/passwords/ID…
223 224

6.1. The importance of measuring

6.2. The criteria for measuring WH performance
warehouse performance
● Cost and productivity: cost as a percentage of sale and
● The reasons of the need to ● The possible consequences of productivity against labor hours
measure performance of the not measuring WH performance? ● Asset utilization: efficient use of WH space, MHE, Staff and
WH? storage equipment
- Potential lost of customers to
- To ensure customer ● Flexibility: Order cycle time (How we handle the order, whether we
competitors
satisfaction have the stock available, how quickly we can process the order and
- Lost of time/money for re
- To ensure there is a deliver to the customer, the ability to fulfill backorders…)
picking repacking/re-delivering
improvement within the ● Reliability: On-time delivery, fill rate, inventory, documentation…
or duplicating activities…
operation accuracy
- To discover potential issues - Process return => possible
=> Cost and Service level
before they become major product disposal/write off…
How to choose criteria for measuring WH performance? Should any
problem
225 WH be measured with the same criteria? 226

Example of
How to choose the right performance measures

● Understand the business and its strategy => Decide on the

targets
● Understand which KPIs are likely to assist in meeting the
targets
● Align the KPIs to others within the company
● Ensure that everyone works towards achieving the targets
● Analyze the operation processes to eliminate reasons of failure ● Try to use common industry KPIs (to benchmark)
and to improve operations continually. ● Use only measures that the company can implement, measure
● Replace unrealistic targets (if any) and change: SMART
● Use cost-effective metrics
● Review data regularly
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Cost and productivity

- Labor hours utilization = (Labor hours used x100)/labor hours

available
- Units picked per hour = unit picked/total hours available
- Cost as % of sale = (Total WH cost x100) ÷Total sale revenue
- Cost per order dispatched = Total WH cost ÷ Total number of
order shipped
- ………………

● Can a WH provide 100% of service?

● What is the cost of improving performance?
229 230

231 232

Example of trade-off between service level and Asset utilization

distribution cost
● Average warehouse area utilization = (Space used x100) ÷
Percentage of Order delivered within 1 day
Criteria
50 60 70 80 90 95 100
space available
Estimated annual sales
4.0 8.0 10.0 11.0 11.5 11.8 12
● Warehouse turnover for a year = (space used per year) ÷ total
(Million of $)
space of the WH
Cost of distribution
(Million of $)
5.8 6.0 6.5 7.0 8.1 9.0 14
● Dock rate utilization = (number of docks used x 100) ÷ total
number of docks
1. What are factors that impact the cost of distribution? ● MHE utilization = (MHE hours used x100) ÷ MHE hours
2. What would be reasonable service level in terms of available
delivery within 1 day? ● Labor hours used rate = (labor hours used x100) ÷ total labor
hours available
● ……..
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Flexibility
Inventory flexibility
● Dock-to-stock time = time from arrival of the vehicle to the dock
Average Annual sales Inventory Inventory
to the time the stock will be on the system; Items
inventory (in unit) cover (days) turnover
● Order cycle time = time from order to be placed to the time of A 500 4,000

delivery B 1,400 3,250

C 1,000 800
● Inventory cover in days = (current level of stock ÷ total annual
D 30 2,000
sales) x 365 days E 40 50
● Inventory turnover = total number of unit sold ÷ the average F 80 500
inventory G 1,000 400

● Inventory turnover = Cost of goods sold ÷ the average cost of H 16 800

inventory
Compare flexibility of those items?

235 236

Reliability Reliability

● Order accuracy = (Orders picked and dispatched accurately x ● Location stock accuracy percentage = (N of correct locations ÷ N
100%)/ total orders received of locations counted) x 100
● On-time shipments = (orders delivered as per customers’ requests ● Stock line accuracy = (N of correct lines ÷ total N of lines counted)
100%)÷ total orders received x100
● In full delivery = (Deliveries in full x100%) ÷ total deliveries ● Stock unit accuracy = (Actual quantity by SKU ÷ expected quantity
by SKU)x100
● Damage free rate = (Deliveries with no damage x 100%) ÷ total
● Damage items percentage = Item found damaged ÷ Items dispatch
deliveries
(per month/quarter/year)
● Accurate documentation rate = (Documents without errors x100%)
÷total documents (including transport documents, packaging,
labelling, invoice…)

237 238

Integrated reliability measurement Calculate the overall average service level

● Perfect order metric is the most popular customer service metric Item Frequency of Probability of Service level of
combination order filling order the order
- On-time delivery = 97% on order complete
- In full delivery = 98.5% (1) (2) (3) (4)=(2)x(3)
- Damage free = 99.5% A 0.1 0.95
- Accurate documentation, labelling and invoicing = 98% B 0.1 0.9
 Perfect order? C 0.2 0,8
 OTIF (on time and in full)?
A, B 0.2 0.95x0.9
A,C 0.1
B,C 0.1
A, B, C 0.2

What is the overall average service level = Sum (4)

239 240

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Hard vs soft measurement

Example of soft measurement

● Providing services as promised (time/quality/quantity…)
● Dependability in handling customers’ service problems

● Performing services right the first time;

● Maintaining error-free records

● Customer satisfaction level

● Service quality

=> What are differences between soft and hard measures?

241 242

Top 24 most common warehouse performance measurement Warehouse performance

measurement
Receiving
1. Cost of Receiving Per Receiving Line: Putaway
The expense that the warehouse incurs on the 6. Putaway Cost Per Line:
receiving process of each receiving line including Expenses incurred for putting away stock per line,
handling costs as well. including labor, handling, and equipment costs.
2. Receiving Productivity: 7. Putaway Productivity:
The volume of goods received per warehouse clerk Volume of stock put away per warehouse clerk per
per hour. hour.
3. Receiving Accuracy: 8. Putaway Accuracy:
Percentage of accurate receipts, i.e. the proportion Percentage of number of items put away
of correctly received orders against purchase accurately at the designated location.
orders.
9. Labor and Equipment Utilization:
4. Dock Door Utilization:
Percentage of the labor and material handling
Percentage of how many of the total dock doors equipment utilized during the put-away process.
were utilized.
10. Putaway Cycle Time:
5. Receiving Cycle Time:
Total time taken during the entire process of each
The time taken to process each receipt. put-away task.
243 244

Storage Warehouse performance

11. Carrying Cost of Inventory: measurement
The cost of storage over a particular span of time,
including the cost of inventory, capital costs, service costs, Pick & Pack
damage costs, and costs of obsolescence. 16. Picking and Packing Cost:
12. Storage Productivity: The cost incurred per order line, including handling, labeling, relabeling,
and packing.
Volume of inventory stored per square foot. 17. Picking Productivity:
13. Space Utilization: The number of order lines picked per hour.
Percentage of space occupied by inventory out of the total 18. Picking Accuracy:
space available for storage. The percentage of orders picked and packed without error (in term of
inventory and documents).
14. Inventory Turnover:
19. Labor and Equipment Utilization:
The number of times the entire inventory passes through The percentage of labor & pick/pack equipment out of the total labor and
during a period of time. equipment utilized during the process.
15. Inventory to Sales Ratio: 20. Picking Cycle Time:
Time taken to pick each order.
Measure of stock levels against sales.
245 246

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Warehouse performance 6.3. Benchmarking

measurement
● What is benchmarking?
Distribution
● Benchmarking can be internal or external
21. Order Lead Time:
● Principle of benchmarking: Collaboration, Confidentiality,
The average time taken by an order to reach the customer once
Value Flexibility, Honesty, Openness, Reputation
the order has been placed.
● External benchmarking can be done by industry – specific
22. Perfect Order Rate:
Number of orders the warehouse delivered without error
surveys
23. Back Order Rate:
=> For ensuring confidentiality and anonymity there is service of a
The rate at which orders are coming in for items that are out of third party such as a benchmarking group, a consultancy or a
stock. university.
24. Rate of Return:
The rate at which goods, once sold, are being returned. This is
most effectively used when segmented by reason for return.
247 248

Example of
benchmarking

249 250

Chapter 7: Distribution in supply chain 7.1. Overview about distribution

7.1. Overview about distribution ● Logistics = Supply and Materials management + Distribution
- Introduction = Physical and information flow and storage from raw material to the
- The role of distribution final distribution of the finished products
7.2. The distribution channel network Logistics
7.3. Omni channel retailing

Supply and material Distribution:

management - Storage and flow from manufacturers to
- Storage and flow into and through the customers
the production process - Reverse logistics

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Role of distribution in SC 7.2. Distribution channels and distribution network

● Distribution is a key driver of the overall profitability because it ● A distribution channel comprises a set of institutions which perform
directly affects both the SC cost and the customer value all of the activities utilized to move a products from production to
● In apparel industry: Distribution cost = 35% of the revenue consumption
● 7-eleven, Walmart success: High availability level of common ● Channel members add value to a product by performing certain
products at a very low cost channel activities: marketing, Packaging, Financing, Storage,
● Dell, Gateway changed the distribution channel to improve their Delivery, Merchandising, Personal selling
SC performance ● Intermediaries provide value to producers as they are expertise in
displaying, merchandising, and providing convenient shopping
locations and hours for customers.
=> Adding value through distribution = logistics

253 254

• Decision on types of distribution network

Decisions on distribution channel
2 dimensions of a distribution network:
- A distribution channel is a chain of businesses or intermediaries
through which a good or service passes until it reaches the final Value provide to the customers: Cost of meeting customer needs
buyer or the end consumer. Distribution channels can - Time: Response time, time to - Inventory
include wholesalers, retailers, distributors, agents, brokers and market - Transportation
even the Internet. - Product: variety + availability - Facilities and handling
- 3 Dimensions of channel design - Order visibility - Information
+ Types of distribution network: Direct – via intermediaries? - Customer experience
- Returnability
+ Types of intermediaries involved
+ Distribution Intensity: Exclusive, Selective, Intensive
distribution
255 256

Relationship between number of facilities and other factors Variation in logistics costs and response time with number of
facilities
Response time
Inventory costs

Facility costs Total logistics costs

Response time

Transportation cost

Number of facilities

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Case study
The distribution network Food Freeze plc (FF) are a UK based frozen food manufacturer/packer and have a
major share of the European frozen food market dealing with all major and minor
Two key high-level distribution decisions that a manager must retailers and wholesalers.

make are: Whilst new product development is an important part of their business, they are
relatively stabilized with around a constant of 500 SKU’s at any one time.
- Whether the product will be picked up on-site or delivered They have 03 factories based in the East Anglia/Lincolnshire agricultural
to the customer. producing areas with another factory based in the Northwest in a former re-
development area.
- Whether or not the product will flow through an ● Distribution: The following flows of goods and materials are involved:
- Raw materials (such as packaging and ingredients) into the factories
intermediary.
- Finished goods from the factories to customers (either as full trailer pallet
loads or as single pallets of one SKU).
- FF deliver to customers on average 120, 000 pallets per month but as a
result of seasonality, the range is from a low of 90,000 to a high of 180,000
pallets per month.
● Problems: Delivering direct from different factories to the same major
retailers forced an examination of the physical distribution network.
259 260

6 major types of basic distribution network Manufacturer storage with direct shipping
designs ● The customer places an order with the retailer, who passes the information along to
the manufacturer. The manufacturer ships the product directly to the customer (drop
● Type of distribution network shipping)
● Inventory is centralized at the manufacturer warehouses with high level of availability and
- Manufacturer storage with direct shipping low cost;
● Outbound transportation distance is large, thus transportation cost is high
- Manufacturer storage with direct shipping and in-transit merge
● Requires a good information infrastructure between the retailers and the manufacturer,
- Distributor storage with carrier delivery such that the retailer can provide product availability information to the customer.
● Response times tends to be long when drop-shipping is used.
- Distributor storage with last-mile delivery
- Manufacturer/distributor storage with customer pickup
- Retail storage with customer pickup
● Each of these types of distribution network designs have different
impacts on logistics service and cost factors.

261 262

Manufacturer storage with direct shipping & in-transit merge

● In-transit merge combines pieces of the order coming from different locations so that the
customer gets a single delivery.
● There are ability to aggregate inventories and postpone product customization.
● Transportation costs decrease thank to in transit merge
● Requires sophisticated information infrastructure and an increase in coordination
to allow in-transit merge;
● Response times, product variety, availability, and time to market are similar to drop-
shipping.

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Distributor storage with carrier delivery

● Inventory is held at distributors/retailers in intermediate warehouses closed to the
customer.
● Package carriers transport products from the warehouse to the customer.
● Transportation costs are lower because of economic mode of transportation
(e.g. FTL) for inbound shipping to the warehouses
● Facility costs of warehousing are higher because of a loss of aggregation.
● Required less complex information infrastructure.
● Response times are shorter as distributor warehouses are closer to customers.
● This configuration is well suited for slow-to-fast-moving items.

265 266

Distributor storage with last-mile delivery

● The distributor/retailer delivering the product to the customer’s home instead of
using a package carrier.
● Requires a higher level of inventory than the other options (except for retail
stores) because of its lower level of aggregation.
● Among all distribution networks, transportation costs are the highest for last-
mile delivery, especially when delivering to individuals.
● The information infrastructure is similar to that for distributor storage with package
carrier delivery.
● Response times are faster than using package carriers.

267 268

Manufacturer / distributor storage with customer pickup

● Inventory is located at the manufacturer or distributor warehouse;

● Customers place orders with the retailer (e.g. online or on the phone) and then go to
pickup sites to get the product. Orders are shipped from the storage sites to the
pickup sites as needed.
● Inventory costs can be low if aggregation is exploited. However, facility costs are
high, if new pickup sites have to be built.
● A significant information infrastructure is needed to provide visibility of the order until
the customer picks it up

269 270

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Retailer storage with customer pickup

● Inventory is stored at retail stores
● Customers walk in, place an order and leave with the goods in hand.
● Inventory and facilities costs are high
● There is inexpensive modes of transport on inbound logistics and no outbound
logistics => Transportation cost is much lower …
● Minimal information infrastructure is needed if customers just walk-in and place
their orders.
● Response times are short.

271 272

Comparative Performance Rank of Delivery Network Designs Performance of delivery network for different customers and products characteristics
Distributor Manufacturer/
Retail Manufacturer Manufacturer Distributor
Manufacturer Manufacturer
Distributor Storage with Distributor
Retail Storage Storage with Distributor Manufacturer/ Storage with Storage Storage with Storage with
Storage Storage with storage with Distributor Storage Factors Package Storage with
Factors with Customer Package Customer with Direct In-Transit Last-Mile
with Direct In-Transit Last-Mile with Customer Carrier Customer
Pickup Carrier Pickup Shipping Merge Delivery
Shipping Merge Delivery Pickup Delivery Pickup
Delivery
High-demand
Response time 1 4 4 3 2 4 +2 -2 -1 0 +1 -1
product
Product variety 4 1 1 2 3 1 Medium-demand
+1 -1 0 +1 0 0
Product 4 1 1 2 3 1 product
availability
Low-demand
Customer Varies From 1 4 3 2 1 5 -1 +1 0 +1 -1 +1
product
experience to 5
Very-low-demand
Time to market 4 1 1 2 3 1 -2 +2 +1 0 -2 +1
product
Order visibility 1 5 4 3 2 6
High product value -1 +2 +1 +1 0 +2
Returnability 1 5 5 4 3 2
Inventory 4 1 1 2 3 1 Quick desired
+2 -2 -2 -1 +1 -2
response
Transportation 1 4 3 2 5 1
Facility and 6 1 2 3 4 5 High product variety -1 +2 0 +1 0 +2
handling
Low customer effort -2 +1 +2 +2 +2 -1
Information 1 4 4 3 2 5 273 274

• Types of intermediates Distributor vs wholesaler

Intermediates Characteristics

- Do not require the accumulation of a large number of goods in ● Distributors ● Wholesalers

Direct sale
warehouses, but have a limited amount of target markets. - Work closely to manufactures - The wholesaler gets discounts for buying
- Manufacturers organize after-sales support of goods, which
requires additional resources and investments - Can provide logistical and storage large quantities of goods from
Legal entities acting on behalf and at the expense of the principal support for manufacturers distributors/manufactures and resell to
Agent
and receiving remuneration for their services. - Act as sales representatives for retailers in bulk quantities for lower price
The intermediaries establishing links between legal entities the producer that actively look out - The wholesalers’ primary goal is to
Brokers interested in distribution products. Their remuneration is calculated
as a percentage of sales. for orders from various sources in satisfy the needs of the retailers. Thus,
Dealers: purchase products and resale at on their own behalf and at the market, execute the orders they will adjust their products to whatever
Wholesalers
their own expense. and also manage returns the retailers need.
Distributors: distribute product on behalf of the manufacturer at their
- Distributor is actively involved in - They are not responsible for having the
own expense. They don’t own the products and they earn the
Wholesalers/ different of prices promoting a company’s products products sold to the customers or
Retailers Commissioners act on their own behalf, but at the expense of the whether the retailers would sell them all.
manufacturer.
- Ownership of the goods goes to the final consumer after payment
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Agent vs Broker Tasks of Intermediaries

● Agent ● Broker ● Wholesalers/Distributors: Break down bulk, Buy/receive from
- An agent is an intermediary acting - Brokers are mediators between producers and sell/ship small quantities to retailers, Provide
on behalf of a principal and the buyer and the seller while
storage facilities, Reduces contact cost between producer and
authorized to make agreements assisting in negotiation.
consumer, take some of the marketing responsibility e.g sales
between customers and those - Brokers receive a payment in the
principals form of a commission force, promotions
- Agents receive a payment in form ● Retailers: Hold a variety of products, Offer consumers credit,
of a commission Promote and merchandise products, Price the final product, Build
- Captive agents: Work for the retailer brand in the high street
specific principles
- Independent Agents: Work for
● Internet: Sell to a geographically disperse market, Able to target
different principles and focus on specific segments, Relatively low set-up costs, Use
of e-commerce technology (for payment, shopping software, etc)
277 278

• Distribution Intensity 7.3. Omnichannel distribution

Number of
Intensity ● It’s a distribution strategy where retail, wholesale and ecommerce
Objective and products intermediaries/
level channels merge together, allowing retailers to offer their products
location
- Achieve mass market selling No cap on stores across multiple integrated channels
Intensive - Mass customers or locations ● The inventory management system focuses on both physical and
- Convenience, FMCG goods online stores as centralized inventory
- Work with selected intermediaries Specific locations ● A sophisticated warehouse management system provides real time
Selective - Target customer and limited inventory visibility and order visibility
- Some specialty goods number of stores ● Omni channel distribution provides flexible order placement, pick-
- Work with single intermediary; Limited outlets up and delivery options to the customers.
- Target customer and locations
Exclusive - High-end and exclusive brands,
specialty goods, industrial
equipment… 279 280

Alternative in omnichannel retail

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Customer service performance

● Response time: very quick and convenient for customers can
choose home delivery or pick up (1 – 2 hours delivery)
● Product variety
● Product availability
● Customer experience depends on
+ What customer values more: Time or real shopping experience
+ Products (High value/fashion or FMCG….)
+ Internet infrastructure, apps, ….
● Time to market
● Order visibility
● Returnability

283 284

Product demand uncertainty and omni-channel retailing Decision on channel

Predictable demand Unpredictable demand ● Traditional retail:
Channel
product products
- It is ideally suited for predictable demand products at a low
Compete on service for high
price (ex: Instant noodles, detergent)
Traditional retail Compete on price information complexity
products - More price competitive for products that have relatively high
Compete on price and variety shipping cost compered to their value (volume weight product)
Showroom Not suitable for high information - For unpredictable products (eg fashion apparel)
complexity products + it can best compete if customers are willing to pay a premium
Online information + for the in-store service and the ability to try products
Compete on service Compete on price and variety
home delivery
+ It can be price competitive if the rate of product return for the
Compete on ability to
Online information + More competitive on price that online channel is high
provide service at a
pickup home delivery option
lower price
285 286

● Showrooms ● Online information + Pickup

- It’s ideally suited to compete on price for products with high - It’s ideally complement to the home delivery channel
information complexity, unpredictable and high value because of lower delivery cost;
- Pooled inventory at warehouse decrease logistics cost - It’s more price competitive than home delivery for products
● Online information + Home delivery with unpredictable demand and low information complexity
- It’s ideally suited to compete on price for products with and predictable demand products
unpredictable demand and low information complexity
- It’s more price competitive if the shipping cost is low compared
to its value;
- For predictable demand (FMCG, detergent…) it can compete
for customers who value time more than home shipping costs

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Product value and omni-channel retailing

Product Information complexity and omni-channel retailing
Channel Low value product High value products
Compete on service for Low information High information
Compete on price for Channel
product with uncertain complexity products complexity products
Traditional retail predictable demand Compete on price for
demand and high information Compete on service for
products Traditional retail predictable demand
complexity products uncertain demand products
Compete on high products
Compete on price for Compete on price for uncertain
variety at reasonable Showroom Not suitable
customizable, high demand products
Showroom price for high
information complexity
information complexity Compete on price for Compete on service in terms of
products Online information
products uncertain demand variety and availability for
+ home delivery
Online information + products uncertain demand products
Compete on service Compete on price and variety
home delivery Slightly cheaper option to
Compete on price for
Compete on ability to Online information compete on service in terms of
Online information + More competitive on price that uncertain demand
provide service at a + pickup variety and availability for
pickup home delivery option products
lower price 289
uncertain demand products 290

The choices of omni channel products

Discussion question
Traditional Online information + Online information +
Products Showroom 1. What differences in the retail environment may justify the fact that the fast-moving
retail home delivery pickup
consumer goods supply chain in India has far more distributors than it has in the US?
Instant noodles
2. A specialty chemical company is considering expanding its operations into Brazil,
Cosmetics
where five companies dominate the consumption of specialty chemicals. What sort of
The piano/Guitar distribution network should this company use?
Dining table 3. A distributor has heard that one of the major manufacturers from which it buys is
Groceries, FMCG considering going direct to the consumer. What can the distributor do about this?
What advantages can it offer the manufacturer that the manufacturer is unlikely to be
Flowers/Plants
able to reproduce?
Television
4. What types of distribution networks are typically best suited for commodity items?
Toys 5. What type of network is best suited to highly differentiated products?
Washing machine 6. In the future, do you see the value added by distributors decreasing, increasing, or
Laptop staying about the same?
7. Is the online channel likely to be more beneficial in the early part or the mature part
Bed sheets
of a product’s life cycle? Why?
Fashion suites, dress 291 292

8. Why has the online channel been more successful in the com-puter hardware
industry compared with the grocery industry? In the future, how valuable is the
online channel likely to be in the computer hardware industry?
9. Consider the sale of home improvement products at Home Depot or a chain of
hardware stores such as True Value. Which can extract the greater benefit from
adding the online channel? Why?
Thank You
10. Amazon sells books, music, electronics, software, toys, and home improvement
products online. In which product cate- gory does going online offer the greatest
&
Good Luck
advantage com- pared with a retail store chain? In which product category does
the online channel offer the smallest advantage (or a potential cost disadvantage)
compared with a retail store chain? Why?
11. Why should an online seller such as Amazon build more warehouses as its sales
volume grows?
12. Amazon has opened bookstores and announced the opening of convenience
stores. How can these traditional retail chan- nels allow Amazon to complement
its online channel effectively?
293 294

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