Answer key

The economic benefits of sorting and sequencing are to reduce transportation

cost by using warehouse capability to increase the size of the shipments. -
False

An important goal in warehousing is to maximize income and reduced cost.-

False

It was traditionally considered best practice to dedicate a warehouse

containing a full assortment of inventory to every sales territory- True

Single large shipment and arranges for delivery to multiple destinations.-

Breakbulk

In consolidation, warehouse receives inventory, from a number of sources,

that are combined into a large single shipment to a distribution center.- False

A break-bulk operation receives a single large shipments and arrange for

delivery to specific destination.- False

The three types of assortment cross-docking, sorting and picking are widely
performed in logical sequence.- False

Mixing is usually performed at an intermediate location between shipment

origin and destination.- True
ECONOMIC BENEFITS OF WAREHOUSE
- Economic benefits of warehouse occur when overall logistics cost are reduced.
For example, if adding warehouse in a logistical system reduces overall
transportation cost by an amount greater than required investment and
operational cost, then the total cost will be reduced. When total cost reductions
are achievable, the warehouse is economically justified. The basic economics
benefits of having a warehouse are.

Consolidation
- One of the economic benefits of warehousing is shipment consolidation. With
the given arrangement, the consolidating warehouse receives and consolidates
materials from a number of manufacturing units destined for a specific customer
in a single transportation shipment. The principal benefit of a warehouse is the
realization of the lowest possible transportation rate and reduced congestion at
a customer's receiving dock which helps in logistical flow of several small
shipments to a specific market area. Another benefit of consolidation
warehousing is that it may be used by a single firm, or multiple firms may join
together and use a for hire consolidation service. Thus, each individua1
manufacturer or shipper enjoys lower total distribution cost than could be
realized on a direct shipment basis individually.

Breaking the Bulk

- Breaking the bulk is a warehouse operation similar to consolidation in which no
storage function is performed. A break bulk operation receives combined
customer orders from manufacturers and ships them to individual customers.
This function involves sorting or splitting of individual orders in a warehouse in
order to arrange for local delivery since long-distance transportation movement
of a large shipment involves lower transportation costs and less difficulty in
tracking.

Sorting
- The basic benefits of sorting is to reconfigure freight as it is being transported
from origin to destination. Three types of assortment- cross-docking, mixing, and
assembly-are widely performed in the logistical system.

What is cross docking?

- Cross Docking is a logistics technique that eliminates the function of storing and
collecting orders of a warehouse, while still enabling the receiving and shipping
functions.

Warehouse operations without inventory

Of the four main functions of warehouse operations (Receiving, storing,

collecting orders, and sending goods) the two most expensive functions are
storage (due to storage costs of inventory) and collection. Goods (due to labour
costs). Cross Docking is a logistics technique that eliminates the function of
storing and collecting orders of a warehouse, while still enabling the receiving
and shipping functions. The main idea of this technique is to transfer shipments
directly from trailers to trailers - bypassing the intermediate storage process.
Conventional shipments take only a day at the Cross dock and sometimes less
than 1 hour.

Cross docks are hubs that primarily handle sorted and grouped freight cars with
other products and load them into outbound trucks. These vehicles will leave the
Cross dock to a production area, a retail store or another cross dock. What makes
Cross Docking different from traditional warehouses?

in the traditional model, warehouses maintain stock until there is a customer

order, after which the products are picked, packed and shipped. When additional
orders arrive at the warehouse, they are archived until the customer is identified.
In the Cross Docking model, customers are informed about products coming into
stock and there is no need for storage.
So does that mean that in the Cross Docking model, customers (a retail store, for
example) have to wait for more time to ship their goods to the warehouse? Yes,
but this shipping must follow a strict and rigorous delivery schedule to
compensate for any uncertainty associated with extending lead time (in this case
lead time is from customer orders or from the time the business deploys the
order until delivery to the customer). On the contrary, if done correctly, Cross
Docking will allow companies to eliminate inventory costs and reduce
transportation costs at the same time.

Benefits of Cross Docking:

 Firstly, in some cases, the costs determined by retailers are tied to stocking
of high and stable demand items. In this case, Cross Docking is seen as a way
to reduce inventory cost.
 Second: For some other retailers or small and retail carriers, Cross Docking
is seen as a way to reduce transportation costs. For example, retail stores
may receive shipments directly from vendors that use non-full truck (LTL)
transport services or individual shipments. However, this has caused an
increase in the cost of transporting goods (due to the high number of
vehicles, and the increase in expenses such as fuel, repair and upgrading
costs, and expenses), labor costs ...). Cross Docking is a way to consolidate
these shipments to achieve a certain number of vehicles to reduce input
costs and simplify pick-up at retail stores.
Types of Cross Docking

- The term "Cross Docking" has been used to describe different types of activities,
all of which involve the quick collection and shipping of products. Napolitano
(2000) proposed the following classification of Cross Docking:

 Manufacturing Cross Docking (Manufacturing Cross Docking)-

Supporting and collecting input sources to support Just-in-time in
production. For example, a manufacturer may rent a warehouse near their
factory, and use it to prepare for assembling or gathering the necessary
components of each part together. Because the needs of each component are
known in advance, based on the output of an MRP (production resource
planning system), there is no need to maintain a certain amount of
inventory.
 Cross Docking Distributor ( Distributor Cross Docking)- Collecting input
products from different suppliers into a pallet of mixed products. This pallet
will be delivered to the customer as soon as the final component is received.
For example, computer parts of distributors can source components from
different suppliers and combine them into a single shipment for customers
 Cross Docking ( Transportation Cross Docking)- This activity combines
shipments from a number of different carriers in LTL form or in small
packages for economic advantages of scale (Economies of scale).
 Retail Cross Docking ( Retail cross Docking)- This process involves taking
products from multiple suppliers and sorting them into output trucks for a
number of retail stores.
 Opportunistic Cross Docking (Opportunistic Cross Docking)- Can be
used in any warehouse, moving a product directly from the receiving area to
the shipping area In order to meet a known need such as a single order
Customers' order.

Mixing is usually performed at an intermediate location between origin and

destination.

 Mixing is usually performed at an intermediate location between origin and

destination.

Assembly occurs when products or components from second-tier suppliers are

assembled by a warehouse located near manufacturing plant.

An assembly line is a production process that divides labor by breaking up

the manufacture of a product into steps that are completed in a pre-defined
sequence. The modem assembly line is used in many different industries.
increasing output, cutting down costs, and boosting profits.
Seasonal Storage

The economic benefits of seasonal storage is to accommodate seasonal

production or demand, for example, lawn furniture and toys are typically
produced year round but are sold primarily during a very short marketing
period. In contrast. agricultural products are harvested at specific times, with
distribution and occurring throughout the year. Both situation require inventory
storage to support marketing efforts. Storage provides an inventory buffer,
which allows production efficiency within the constrain imposed by material
sources and consumers

Reverse Logistics

Reverse logistics is a type of supply chain management that moves goods from
customers back to the sellers or manufacturers: Once a customer receives a
product, processes such as returns or recycling require reverse logistics

Reverse logistics start at the end consumer, moving backward through the
supply chain to the distributor or from the distributor to the manufacturer.
Reverse logistics can also include processes where the end consumer is
responsible for the final disposal of the product including recycling refurbishing
or resale

Types of Reverse Logistics

The different types of reverse logistics are also known as reverse logistics
components. They focus on returns management and return policies and
procedures (RPP) and account for remanufacturing, packaging, unsold goods and
delivery issues. Other types of reverse logistics account for leases, repairs and
product retirement.

Reverse Logistics Components:

 Return Management: This process deals with product returns from

customers or avoiding returns in the first place. These activities should be
fast, controllable, visible and straightforward. Customers judge a company
on its return flow and re return policies. A re-return is the return of an item a
second time. Often, these returns trigger the extended return policies, such
as offering store credit. For example, a customer buys a returned product on
clearance, takes it home and discovers it broken. The store policy would not
normally accept the return, but it does allow for a store credit for the faulty
product. A re-return can also occur when a vendor rejects the return and
gives it back to the purchaser without a refund. This scenario could happen
with custom-made items
 Return Policy and Procedure (RPP): The policies about returns that a
company shares with customers is its RPP. These policies should be visible
and consistent Employees should also adhere to them.
 Remanufacturing or Refurbishment: Another type of reverse logistics
management includes remanufacturing, refurbishing and reconditioning.
These activities repair, rebuild and rework products. Companies recover
interchangeable, reusable parts or materials from other products, also
known as the cannibalization of parts. Reconditioning involves taking apart,
cleaning and reassembling products.
 Packaging Management: This type of reverse logistics focuses on reuse of
packing materials to reduce waste and the disposal.
 Unsold Goods: Reverse logistics for unsold goods handles returns from
retailers to manufacturers or distributors. These types of returns can be due
to poor sales, inventory obsolescence or a delivery refusal.
 End-of-Life (EOL): When a product is EOL, it is no longer useful or does not
work. The product may no longer meet a customer's needs or be replaced by
a newer, better version. Manufacturers often recycle or dispose of products
that are end of-life. These goods can create environmental challenges for
manufacturers and countries.
 Delivery Failure: With failed deliveries, drivers return products to sorting
centers. From there, the sorting centers return the products to their point of
origin. While rare, some sorting centers may have the staff available to
identify why a delivery failed, correct the problem and resend.
 Rentals and Leasing: When a piece of equipment comes to the end of its
lease or rental contract, the company that owns the product can remarket,
recycle or redeploy it.
 Repairs and Maintenance: In some product agreements, customers and
companies maintain equipment or repair it if issues arise. In some cases, the
company sells damaged returned products to another consumer after repair.

What are the five Rs of Reverse Logistics?

The five Rs of reverse logistics are returns, reselling, repairs, repackaging and
recycling. Companies apply metrics to each of these options to track
improvement and success. Your business may want to take a closer look at the
Five Rs to streamline its reverse logistics processes and reduce losses there.
SERVICE BENEFITS OF WAREHOUSE

Warehouse service can provide benefits through enhanced revenue generation.

When a warehouse is primarily justified on service, the supporting rationale is
that sales can be increased, in part, by such logistical performance

Spot Stocking
Spot stocking is typically used to support market distribution. Manufacturers of
highly seasonal products often spot stock. Rather than maintaining inventory in a
warehouse year-round, or shipping to customers direct from manufacturing
plants, responsiveness in peak selling periods can be enhanced through
temporary inventory positioning in strategic markets.

Full Line Stocking

The full line stocking warehouse is more often restricted to a few strategic
locations and operates year-round. Full line stocking warehouses improve
service by reducing the number of suppliers that a customer must deal with. The
combined assortments also make economical larger shipments possible.

Product Support
Production support warehouses stock inventory to support manufacturing
operations. Safety stocks on items purchased from outside vendors may be
justified because of long lead times, potential supply discontinuity, and
significant variations in usage rates.In production support warehousing, average
inventory is higher and turnover is lower.

Market Presence
While the market presence factor is a frequently discussed strategy, little sold
research exists to confirm or refute its existence. In addition, more reliable
transportation and technology-based order processing are closing the response
time gap regardless of distance. Unless a warehouse is economically or service
justified it is unlikely that local market presence will favourably influence
operational results.

Takeaways:

Key concepts and points Strategic Warehousing. Warehouse Functionality,

Economic Benefits, Consolidation and Break-Bulk, Assortment, Postponement.
Stockpiling, Reverse Logistics, Service Benefits, Spot Stocking, Full Line Stocking,
Product Support, Market Presence

Issues of application While effective logistics system should not be designed to

hold inventory for extended times, there are occasions when inventory is
justified on the basis of cost and service. Students shall understand that an
important change in warehousing is maximum flexibility, and know how such

Flexibility can be achieved through information technology

 STRATEGIC WAREHOUSING

While effective logistics systems should not be designed to hold inventory for
extended times, there are occasions when inventory storage is justified on the
basis of cost and service.

Storage has always been an important aspect of economic development. In the

preindustrial era, storage was performed by individual households forced to
function as self-sufficient economic units. Consumers performed warehousing
and accepted the attendant risks.

As transportation capability developed, it became possible to engage in

specialization. Product storage shifted from households to retailers, wholesalers
and manufacturers. Warehouses stored inventory in the logistics pipeline,
serving to coordinate product supply and consumer demand. Because the value
of strategic storage was not well understood, warehouses were often considered
necessary evils that added cost to the distribution process. The concept that
middlemen simply increase cost follows from that belief. During earlier times the
need to deliver product assortments was limited. Labor productivity. Materials
Handling efficiency, and inventory turnover were not major concerns. Because
labor was relatively inexpensive, human resources were used freely. Little
consideration was given to efficiency in space utilization, work methods, or
materials handing Despite such shortcomings, these initial warehouses provided
a necessary bridge between production and marketing.

Following World War II, managerial attention shifted toward strategic storage.
Management began to question the need for vast warehouse networks. In the
distributive industries such as wholesaling and retailing, it was traditionally
considered best practice to dedicate a warehouse containing a full assortment of
inventory to every sales territory. As forecasting and production scheduling
techniques improved, management questioned such risky inventory deployment
Production Planning became more dependable as disruptions and time delays
during manufacturing decreased. Seasonal production and consumption still
required warehousing, but the overall need for storage to support stable
manufacturing and consumption patterns was reduced.
Changing requirements in retailing more than offset any reduction in
warehousing obtained as a result of these manufacturing improvements. Retail
stores, faced with the challenge of providing consumers an increasing
assortment of products, found it more difficult to maintain purchasing and
transportation economics when buying direct from suppliers. The cost of
transporting small shipments made direct ordering prohibitive. This created an
opportunity to establish strategically located warehouses to provide timely and
economical inventory replenishment for retailers. Progressive wholesalers and
integrated retailers developed state-of-the art warehouse systems to logistically
support retail replenishment. Thus, the focus on warehousing shifted from
passive storage to strategic assortment. The term distribution center became
widely used throughout industry to capture this dynamic aspect of traditional
warehousing

Improvements in retail warehousing efficiency soon were adopted by

manufacturing. For manufacturers, strategic warehousing offered a way to
reduce holding or dwell time of materials and parts. Warehousing became
integral to Just in-Time (JIT) and stockless production strategies While the basic
notion of JIT is to reduce work-in-process inventory, such Manufacturing
Strategies need dependable logistics. Achieving such logistical support across a
global market typically requires strategically located warehouses. Utilizing
centralized parts inventory at a central warehouse reduces the need for
inventory at each assembly plant. Products can be purchased and shipped to the
strategically located central warehouse, taking advantage of consolidated
transportation. At the warehouse, products are sorted, sequenced, and shipped
to specific manufacturing plants as needed. Where fully integrated, sortation and
sequencing facilities become a vital extension of manufacturing.

On the outbound, or market-facing, side of manufacturing, warehouses can be

used to create product assortments for customer shipment. The capability to
receive mixed product shipments offers customers two specific advantages. First
logistical cost is reduced because an assortment of products can be delivered
while taking advantage of consolidated transportation. Second, inventory of slow
moving products can be reduced because of the capability to receive smaller
quantities as part of a larger consolidated shipment. Manufacturers that provide
sorted and sequenced product shipments on a timely basis are positioned to
achieve a competitive advantage.

An important goal in warehousing is to maximize flexibility. Flexibility is

facilitated by information technology. Technology has influenced almost every
aspect of warehouse operations by creating new and better ways to perform
storage and handling. Flexibility is also an essential part of being able to respond
to ever changing customer demand in terms of product assortments, Value-
Added Services, and the way shipments are sequenced and presented.
Information technology facilitates flexibility by allowing warehouse operators to
quickly react to changing customer requirements
Strategic warehousing serves to satisfy requirements related to local presence.
While benefits of local presence may not be as obvious as other Service Benefits
it is often cited by executives as a major advantage of local warehouses. The
underlying belief is that a local warehouse can respond faster to customer needs
than can a more distant warehouse. It is anticipated that local warehouse
presence will increase market share and potentially profitability. While the local
presence factor is a frequently discussed strategy, little solid research exists to
confirm or refute its existence. In addition, more reliable transportation and
technology-based Order Processing are closing the response time gap regardless
of distance. Unless a warehouse is economically or service justified, it is unlikely
that local presence will favorably influence operational results. The fact remains
that a network of strategically located warehouses does provide key customers
the perception they will be logistically supported.

Benefits realized from strategic warehousing are classified as economic and

service. No warehousing should be included in a logistical system unless it is
fully justified on some combination of cost and service Ideally, a warehouse will
simultaneously provide both economic and service benefits