2.

Warehousing – basic concepts

Ain Kiisler
L-Consult OÜ

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 Warehousing
Warehousing is an integral part of every logistics
system, that:
• Stores products (raw materials, parts, goods in
process, finished goods at and between point of
origin and point of consumption
• Provides information to management on the
statud, condition and the disposition of product
being stored

Warehousing is used for carrying inventories in every

stage of logistics process
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 Why companies hold inventories?
• Buffering supply and demand fluctuations
• Achieve transportation economies (accumulating small quantities
into full loads, receipt of full loads instead of small quantities)
• Achieve production economies (stable production rate)
• Take advantage of quantity purchase discounts
• Support the firm customer service policies (e.g. fulfilling all received
orders within 24 hours)
• Overcome the time and space differentials that exist between
producers and consumers
• Support just in time programmes of suppliers and customers
• Accumulation of inventories for a season
• Holding safety stock against supply problems or having
extraordinary inventories for extraordinary cases
• Accumulation of wide range of materials procured from different
suppliers in different time
• Provide temporary storage of materials to be disposed of or
recycled (reverse logistics).
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 Operative reasons for using warehouses
• Enabling order picking and shipment preparation.
• Enabling packing and repacking.
• Enabling sorting
• Enabling small-scale assembling operations for
creating specific product versions (postponement,
kitting).
Kitting: Light assembly of components or parts into defined units ahead of
production issue or customer shipment. Kitting reduces the need to maintain an
inventory of pre-built completed products, but increases the time and labor
consumed at shipment.
Postponement: The delay of final activities (i.e., assembly, production, packaging,
etc.) until the latest possible time. A strategy used to eliminate excess inventory
in the form of finished goods which may be packaged in a variety of
configurations and to maximize the opportunity to provide a customized end
product to the customer.
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 Warehouses 4
basic functions
in supply chain

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Focused factories

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 Warehousing alternatives
• Private warehousing. Company owns or rents needed warehousing space.
Warehouse is used by goods owner who operates and controls warehouse
operations by own. Usually wholesalers´ and manufacturers´ warehouses.
Reasonable in the case of stable storing of large inventories. Considerable share of
fixed costs. Need to manage and operate warehousing by own.
• Public warehouse. Warehouse owner and keeper offers warehousing services for
numerous clients. Public warehouse keeper owns warehouse and equipment but
not goods under storage. Usually specialized warehousing companies or LSP-s.
Warehousing services often offered without contracts or on the basis of short term
contracts..Higher operating costs compared to private warehouses (include
marketing & sales expenses and owner`s marginal). Goods owners have no need to
invest into fixed assets, their warehousing cost depend directly on volumes stored
and handled.
• Contract warehousing. Variation of public warehousing, offering warehousing
services accommodated to specific needs of client. Partnership relation, where
space, equipment, labor, needed ICT systems and management is arranged
proceeding from specific needs of clients logistics system. Usually long term
contracts. Often includes providing additional services (distribution transportation,
packaging, labeling, final assembly etc.).

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

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Warehousing alternatives 2

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 Additional alternatives for warehousing

• Direct or drop shipping. Warehousing is eliminated

between supplier and customer. Reasonable for
valuable or bulky cargo and full load shipments, also
used in retail (direct store delivery).
• Cross-docking. practice of unloading materials from an
incoming vehicle and loading these materials directly
into outbound vehicles, with little or no storage in
between (usually less than 24 hours). This may be done
to change the type of conveyance, to sort material
intended for different destinations, or to combine
material from different origins into transport vehicles
(or containers) with the same destination or similar
destinations. Usually this includes sorting of shipments,
packages or articles.
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Cross-docking variations by complexity
• One touch – products are touched only once as they are
received and loaded outbound without being placed on the
warehouse dock. This is the highest velocity "load as you go"
and the focus is on cross-dock productivity
• Two-touch - products are received and staged on the dock
then loaded outbound without being put into storage. The
focus ison outbound load optimization and gaining transport
efficiencies
• Multiple-touch – products are received and staged on the
dock, then reconfigured for shipment and loaded outbound
directly from the warehouse dock. This method offers
greatest opportunity for customization and end-user value
adding. Received products can be sorted by suppliers by
articles or not, they can be labelled for end customers or not.
Also outbound shipments can be combined from incoming
shipments and from stock.
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 Cross-
docking

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 Benefits and preconditions of cross-docking
Benefits
• Combining short delivery times (high customer service level) with
low costs
• Minimization of warehousing and inventory carrying costs
• Economies of scale – instead of many LTL shipments fewer number
of bigger (FTL) shipments are transported (lower transportation
cost per freight unit)

Cross-docking preconditions
• The arriving times, quantities, articles and further destinations of
inbound products should be known before receiving the shipments
• Inbound shipments should arrive by strict delivery schedule which
in turn is tightly linked to outbound transport schedules
• Customers should be ready to receive goods immediately
• Implementation of more large-scale and complex cross-docking
operations requires using of EDI and Auto ID systems

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 Basic warehouse types
• Warehouse (holding warehouse) – traditional
warehouse. Much of its space is used for
semipermanent or long-term storage
• Distribution Center (distribution warehouse) –
Considerable part of space is used for picking and
consolidation of orders. Goods are stored shorter time
compared to holding warehouses. Usually DC-s serve
larger regions than holding warehouses
• Cross-docking center – Focus is only on receiving and
shipping activities eliminating storage and order
picking activities. Goods are transferred directly from
inbound to outbound docks with little or no storage. It
can be named terminal, hub, sorting centre etc.
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Throughflow and U-flow warehouses
Throughflow warehouse:
+ Clear distinction between warehouse operations.
+ materials flow without crossing.
- harder to control and less flexible. Information
exchange between the receiving and shipping areas
complicated
- goods need to travel the full length of warehouse –
long movement distances
- The bigger receiving and shipping areas are needed:
these can not replace each other due to the spatial
separation
- less effective use of forklift trucks

U-flow warehouse.
+receiving and shipping area are located side by side:
can replace each other and share dock doors, also
more flexible for cross-docking operations
+ better control and more flexible
+ short movement distances
+ excellent utilization of forklift trucks.
- Crossing
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Summer School, material flows. 14
 U-flow

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 Tegevused
laos
1. Receiving
2. Putaway
3. Storage
4. Replenishment (of order picking
locations)
5. Order picking
6. Sorting, consolidation, packaging
7. Shipping

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 Warehouse address systems
Approach Explanation
Street Address
03A02B02 03 A 02 B 02
Room/zone Aisle Rack Tier Bin
(city) (street) (building) (floor) (apartment)

Rack-Section-Tier-Bin
B0342 B 03 4 2
Rack Section/floor place Tier Bin

Room/Zone-Rack-Bin
AA001 A A 001
Room / zone Rack Bin
Rack-Bin
AA001 AA 001
Rack Bin

The last two systems are short, simple and easy to remember, but they do not
provide tier information
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 ABC analysis in warehouse.

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

Average throughput per article was 25 units

Articles % Units %
Throughput above 100 37 4,1 8900 39,6
units/year
Throughput 50-100 64 7,1 4384 19,5
units/year
Througput 10-49 units/year 424 47,1 7274 32,3
Througput 1-9 units/year 375 41,7 1942 8,6
KOKKU 900 100 22500 100

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

B-group: 47% articles gave 32% units throughput
C-group: 42% articles gave 9% units througput

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 Order Picking
• Typical picking operation involves picking case quantities of products held
on pallets in dedicated pick locations and then checking and
collating/consolidating the goods ready for packing and dispatch.
• Probably the most important function of warehousing. It is the basic
service a warehouse provides for customers and is the function which
most warehouse designs are based
• Order picking is the most costly activity in typical warehouse. Typically it
accounts about half of the direct labor costs of a warehouse
• The arranging of picking becomes more and more complicated. Using the
JIT principles and shortening the lead times demand that warehouse
should ship to customers continuously smaller shipments with higher
frequency and accuracy (with less picking mistakes). Simultaneously the
number of SKU-s which should be picked, increases.
• Both inbound and outbound shipments are becoming continuously
smaller. By Finnish statistics, in the middle of 90-s from one inbound
shipment was picked out to 10 outbound shipments. In the start of 00-s
from one inbound shipment was picked out to 7 outbound shipments.
Also the size of outbound shipment is decreasing. E.g. in 1985 average
outbound shipment in Finland consisted of 12 order lines. In 1990 this
number was 7 lines and in 1999 3,5 lines.

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 Order picking concepts
• Pick to order – simplest form, when one picker collects the items
required for one order. Appropriate, when one order will typically
fill the capacity of the picking trolley or truck. Or several orders are
picked per circuit and put into separate container.
• Batch picking – one picker collects simultaneously several orders.
Usable for picking small orders (e.g. 1-2 order lines). After the
picking circuit, the bulk picked items are sorted down to individual
level. Benefit – shorter picking time per order line compared to pick
to order
• Zone picking – stock is laid out into zones, each holding specified
part of the product line and staffed by dedicated pickers. Each
incoming order is subdivided by zone, picking is made
simultaneously in all zones until order completion. Picked items are
consolidated into full order. Relevant, when individual orders are
beyond capacity of one picking circuit an/or order fulfillment time is
restricted. Also used, where there are different zones for different
products, for reasons of security, hazard or temperature regime.

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 Typical distribution of an picker`s working time

Source: Frazelle (2002)Supply Chain Strategy

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

Order Working time

lines in (sec. / line)
picking Picking Packing
list
1 150 150
2 120 125
3 100 100
4 85 80
5 75 60
10 70 40
20 50 40
Allikas: Ain Tulvi. Ladustamine ja käsitlemine. Logistika Käsiraamat. Aripäeva Kirjastus 2003

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