Warehouse Operations Management

Dr. Abdulrahman M. Aljamouss

Assistant Professor, Business Development

The economic importance of Warehousing:

• Economic utility of Warehousing
  • The value in achieving customer needs or wants.
• Possession utility:
  • The product can be owned by the customer.
• Place utility:
  • Products available where they are needed by customers.
• Time utility:
  • Products available when they are needed by customers.

 Importance of Warehousing 

• To achieve transportation economies
• To take advantage of quantity purchase discounts
• To support the firm’s customer service policy
• To meet the changing in market conditions
• To accomplish least total cost logistics.

 Logistics in the Economy

• United States Business Logistics Costs reached $1.6 trillion in 2018
• United States Business Logistics Costs reached 8 % of GDP.

 Logistics in the Manufacturing Firm : 

• • Logistics Cost 21%
  • Marketing Cost 27%
  • Manufacturing Cost 48%

 Examples :

• • Boeing announced a $2.6 billion deleted in 1997 because “raw materials shortages”
  • S Surgical Corporation announced a $22 million loss in 1993 because “larger than expected inventories”
  • HP and Dell found it difficult to get important components from Taiwanese suppliers in 1999 because a massive earthquake.

 Why a warehouse?

• To store:
  • Raw materials and components
  • Work in process materials
  • Finished goods
• warehouse is a very expensive
  • (between 2-5% of sales of corporation) 

 Every warehouse has a target:

• To give the right product
• To the right customer
• In the rights conditions
• With the right quality
• In the right time
• At the right costs
• With the right information

 Warehouse management Goals

• Maximize effective use of space.
• Maximize effective use of equipment.
• Maximize effective use of labor.
• Maximize accessibility of all items.
• Maximize protection of all items.
• Maximize effective use of information.
• Maximize the protection of company’s assets.
• Minimize goods handling.
• Minimize the company operating Cost.

 Warehouse Functions

• Unloading
• Receiving & Checking inbound goods
• Internal product movement
• Storing
• Order-picking
• Stock Sortation
• Stock Rotation
• Packing
• Loading & Shipping
• Cycle Counting
• Replenishment
• Handling Returns
• Maintenance

 Public, Private, Contract, and Multiclient Warehousing

• Public warehouses , Provides short or long-term storage to companies on a month-to-month basis
• Private warehousing, Mostly owned by big companies. Can be operated as a separate division within a company.
• Contract Warehousing, is a 3rd party storage facility which offers specialized storage services.
• Multiclient warehousing, Outsourced management of warehousing operations to a facility that is typically shared with multiple clients

 Shelf life management

• What is shelf life?
  • Time necessary for the item to loss 90% of its original concentration.
  • First-expired-first-out (FEFO) inventory logic
  • Information-rich barcodes
  • Minimize Wastage With FIFO 
• shelf life data includes:
  • Maximum time a material can be stored
  • Minimum shelf life a material must have available to be accepted by the system
  • % of the total shelf life that must still be available if the goods are to be sent to another distribution point
  • Time unit used for the shelf life data (days, weeks or years)
  • Total number of days that the goods can be kept – from production to the shelf life expiration date

 Reducing costs in inventory management

• Reduce Consumption – Stop Waste, Theft
• Reduce Inventory Carrying Costs
• Cut Spend on New Tools – Force use of Reconditioned Items
• Reduce Obsolete Inventory
• Reduce and Eliminate Stock-Outs
• Reduce or Eliminate Purchase Orders
• Reduce Support Staff Costs

 Controlling backorder

• A backorder is a product that is out of stock at the moment but is promised to ship once available (with a date often provided).
• Backordered means the shopper can buy the item now and receive it at a future date.

• Backorders happen for a variety of reasons :
  • Unusual demand
  • Low safety stock
  • Manufacturer or supplier problem
• Controlling backorder levels
  • Set safety stock
  • Calculate and set reorder points
  • Regularly view inventory levels of popular items
  • Have multiple suppliers
  • Order more product

 ABC Always Better Control (ABC) Analysis

What is ABC analysis?

• ABC analysis is an inventory categorization method which consists in dividing items into three categories (A, B, C):
• Classifying inventory according to some measure of importance and allocating control efforts accordingly.

A - very important

B - mod. important

C - least important

A Pareto analysis

• A Items – typically 20% of the items accounting for 80% of the inventory value-use Q system
• B Items – typically an additional 30% of the items accounting for 15% of the inventory value-use Q or P
• C Items – Typically the remaining 50% of the items accounting for only 5% of the inventory value-use P
• A being the most valuable items, C being the least valuable ones. This method aims to draw managers’ attention on the critical few (A-items) not on the trivial many (C-items).

 Warehousing Operations issues

• Some operational issues include:
  • Warehousing productivity
  • Safety considerations
  • Hazardous materials
  • Warehousing security
  • Cleanliness and sanitation issues