With many people currently locked in doors right now, we know that many are looking for blogs and articles to read during the current situation. That’s why we are making the first chapters from a selection of our learning materials available to read on our Blog free of charge.
This week, we will be providing access to five first chapters from different subject areas, including Supply Chain, Warehousing and Transport. Our second article this week is an introduction to Warehousing, taking a look a what the definition of a Warehouse is and the reasons for having a Warehouse.
DEFINITION OF A WAREHOUSE
The warehousing operation is an integral part of the total supply chain process and creates a clearly defined break point between the supply and demand aspects of any business. The operation involves the holding of materials and goods at various points in the supply chain from suppliers through to the ultimate consumer. The objective of the operation is to ensure materials and goods are kept in the required condition and are available for movement (transport) to the next stage in the supply chain.
Historically, the physical nature of the business has emphasised the labour intensive nature of the activity, calling for a high level of man-management and control. However, the significant advance in technological support in both the physical and administrative aspects of the operation, has resulted in an increasing degree of the operation becoming “system” driven.
This advance, together with a more pro-active rather than reactive approach, has emphasised an increased need for improved planning and operational management.
As with other elements of the supply chain, warehousing is concerned with the two prime factors of cost and service through:-
- Minimising the total cost of the operation.
- Providing the desired level of service.
The environment in which warehousing can operate varies from a single central area as a base for receiving, storing and preparing for delivery to the total market place to a complex network of central, regional and local facilities. In either of these extremes, or any of the available alternatives between these two structures, the purpose of the warehouse can be defined as:-
“A planned space for the efficient storage, handling and control of goods and materials”
To satisfy the above definition and to meet the basic aims related to cost and service, the management of the warehouse operation needs to consider the three major constituent elements of:-
These elements will reflect the total cost of the warehouse operation as a consequence of the level of utilisation and performance of each individual element and the trade-off between each element in seeking to achieve an optimum solution. The level of service provided to customers will be determined through the effective and efficient practices and procedures used throughout the warehouse operation.
In planning the warehouse operation, the objectives can be set to determine the ‘best’ combination of:-
- The maximisation of storage space.
- The minimisation of handling operations.
In order to meet these objectives, it will be recognised that there will be a number of alternatives providing a variety of operating profiles with different cost and service outputs. This will lead to an iterative process to achieve the ‘best’ solution. Having established the planned base, the warehouse operating cycle is then established in order to carry out, monitor, review, amend and adjust to meet the short and medium term requirements. This process, as in all planning cycles, is on-going and continuous, and should not be viewed as a one off exercise on an annual basis.
A warehouse, particularly a large warehouse may be considered to be an admission that a Company is failing to manage it’s supply chain because it needs to hold stock of raw materials or finished goods and therefore needs a Warehouse to hold it in. There are of course good reasons for having Warehouses.
WHY DO WE NEED A WAREHOUSE
There are a number of reasons for having a warehouse, the main reasons are:-
- Stockpiling – The warehouse acts as a buffer between supply and demand, a function which becomes especially important when seasonality is involved.,
- Production – Warehousing is needed for the storage of raw materials, components, sub-assemblies, work in progress and finished goods, to achieve economies in the production process.
- Product Mixing – To provide a facility for combining several products into a new one through a packaging operation.
- Consolidation – The warehouse acts as a consolidation point to ‘pull’ product from suppliers into a location, which sorts and then moves to the final customer. This warehouse can be for sortation only with no stock being held.
- Distribution – The warehouse network allows products to be ‘pushed’ from the manufacturer through the network to the end user.
- Customer Service – The warehouse is there to provide the desired service level, which principally will be delivery time.
WHAT IS SUPPLY CHAIN MANAGEMENT
Supply chain management commences with understanding consumer demand. This is the demand that arises from the actual use of the product. Customer demand may be different in that this arises from your immediate customer, such as a retailer, before it is then sold to a consumer.
At the other end of the chain is supply. Again this can be taken back as far as possible to the providers of materials or to growers. Supply chain management is about connecting this supply to the demand.
There are a number of flows:
- The primary goods flow connects supply to demand. During this flow product may change format several times from raw material, into work in progress before becoming a finished product.
- There is also a reverse goods flow, covering the return of defective product or the recycling activity.
- Finally there are information flows that act as a trigger to the activity (the consumer order) and accompany the product to control and monitor the flow.
As product progresses down the supply chain it typically passes through a number of functional activities involved with buy, make, move and sell. Often it will pass through functions, such as purchasing or manufacturing, more than once.
Further as it progresses a number of barriers are encountered:
- Functional barriers as activity is moved from one function to the next
- Company barriers as ownership transfers from one company to the next
- International barriers as the scope of the activity reaches across national borders.
There is a need in most supply chains, particularly complex supply chains, to hold inventory, two of the main reasons for holding inventory is to cover for variations in demand e.g. demand is different to forecast or has been affected by seasonality and variations in supply e.g. seasonality or supplier not being able to supply. The need to hold inventory either as raw materials, work in progress or finished goods means we need warehouses.
As the total supply chain often involves a number of Companies it may be necessary for inventory to be held at a number of points in the supply chain and for each Company to have Warehouse operations.
More Companies are now being required to manage the reverse flow of goods which again may require it to hold inventory of returned goods or returned packaging. This again requires a warehouse operation that can manage these returns back up the supply chain.
WHY WAREHOUSE MANAGEMENT IS IMPORTANT
The Warehouse operation is mainly a cost adding activity rather than a value adding activity. If you are holding goods or materials and not doing anything to them or moving them nearer to your customer it can be said you are not adding value. The holding of materials/goods in a warehouse incurs the cost of running and maintaining the warehouse as well as the cost of the initial building and equipment.
It is therefore important that the operation is carried out in the most cost efficient way and that the activity carried out at the warehouse is adding value wherever possible. Analysis of logistics costs show that warehouse costs account for approximately 30% of the total. This clearly will vary in the different industry sectors. Much will depend upon the type of product – for instance the amount of space each item takes and its characteristics, handling, stackability and stock holding requirements all have an impact.
Goods in its various forms need to be stored at various times in the supply chain process but it is important that they pass through the warehouse as quickly as possible so that they are not adding unnecessary cost. The way the warehouse is planned, laid out and managed will have a major effect on the speed that goods can be managed through the warehouse.
When goods are in a Warehouse, it is important that as well as looking at speed through the operation, keeping costs down and reducing non value added activities that you use the operation to add value wherever possible. Examples of value added activities may be consolidating goods, picking and assembling orders and customising. If you are bringing goods into a warehouse, storing them and then despatching them in the same form, you have not added any value to the goods.
A warehouse operation is often placed between a supplier and a customer, so it is important that goods are despatched from the warehouse in the right quantities, right quality and right time to meet customer requirements. In order to achieve the above there are decisions that need to be made at three different levels. These are :
- Strategic – The longer term view, perhaps looking 3-5 yrs out.
- Tactical – The medium term view, perhaps looking 12-18 months ahead.
- Operational – The short term view looking at the next few days/weeks.
- Warehouse Numbers and Locations
- Warehouse Types, Design and Size
- In House or Sub Contract
The need to be aware of the expected business developments in terms of future production, suppliers, customers, volumes and types of goods and materials are all essential to enable warehouse management to make decisions to meet the long term requirements. Three key developments are :-
- Future Supply Chain Strategy
- Future needs of Customers
- Future Demand Plans
The decisions on how many, what type and what network of warehouses will ensure service is provided in the most cost efficient way.
- Warehouse Layout
- Equipment Requirements and Types
- Planning Processes
- Working Methods
- Need/Use of Third Party Facilities
Information is needed on the expected changes in the medium term in such factors as seasonality, volumes, required service levels, product mix. This is within the medium-term time frame to allow warehouse management sufficient lead time to make changes to processes and working methods.
- Resource Utilisation
- Efficient Receiving, Picking and Loading
- Customer Service Requirements
- Day to Day Management
Operational decisions are those that impact on the current way the warehouse is run and are usually taken based on changes to resource availability and unexpected changes to the level of activities carried out brought about by changes to product volumes going through the warehouse.
We hope that you enjoyed this first chapter. If you are interested in learning more about Warehousing, why not consider studying one of our LLA Online Short Courses? We are currently providing a 10% discount for all of our Short Courses until 31st May 2020. Prices start from just GBP340.00 (reduced to GBP306.00) for our Introductory Warehousing short course. For more information, visit our Short Course page or email firstname.lastname@example.org.