Table of Content
Economic Benefits of Warehousing
Service Benefits of 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. 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.
2. Economic Benefits of Warehousing
Economic benefits of warehousing occur when overall logistic costs are reduced. For example, if adding a warehouse in a logistical system reduces overall transportation cost by 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. Four basic economic benefits are: 1) Consolidate and break-bulk
3) Seasonal storage
4) Reverse logistic
2.1 Consolidate and break-bulk
The economic benefits of consolidation and break-bulk are to reduce transportation cost by using warehouse capability to group shipments. Consolidation occurs when a warehouse receives materials from a number of sources and combines them into exact quantities for a specific destination Break-bulk occurs when a warehouse receives a single large shipment and arranges for delivery to multiple destinations Both consolidation and break-bulk arrangements use warehouse capacity to improve transportation efficiency. Many logistical arrangements involve both consolidation and break-bulk.
The basic benefit of sorting is to reconfigure freight as it flows from origin to destination. Three types of assortment—cross-docking, mixing, and assembly—are widely performed in logistical systems. The objective of cross-docking is to combine inventory from multiple origins into a specified assortment for a specific customer. Retailers make extensive use of cross- dock operations to replenish fast-moving store inventories. Cross-docking requires precise on-time delivery from each manufacturer. As product is received and unloaded at the warehouse, it is sorted by destination. In most instances, the customer has communicated precise volume requirements of each product for each destination. The manufacturers, in turn, may have sorted, loaded, and labeled the appropriate quantity by destination. Product is then literally moved across the dock from receiving into a truck dedicated to the delivery destination. The high degree of precision required for effective cross-docking makes successful operation highly dependent on information technology. Mixing is usually performed at an intermediate location between shipment origin and destination. In a typical mixing operation, carloads or truckloads of products are shipped from origin to mixing warehouses. These inbound shipments are planned to minimize inbound transportation cost. Upon arrival at the mixing warehouse, shipments are unloaded and sorted into the combination desired by each customer. In-transit mixing has been traditionally supported by special transportation rates that provide financial incentives to facilitate the process. During the mixing process, inbound products can be combined with others regularly stocked at a warehouse. Warehouses that perform in-transit mixing have the net effect of reducing overall product storage in a logistical system while...
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