Topics: Supply chain management, Inventory, Manufacturing Pages: 6 (1256 words) Published: June 21, 2013
Diploma in Supply Chain Management

Warehouse Management (Individual Assignment)

Lecturer: Mr. Eddie Tan

Title: Discuss and illustrate the economic justification for establishing a warehouse.

Name: Khoo Boo Kiat

Warehouse storage has always been an important aspect of economic development. After the World War two, the management gets their attention for strategic storage. They begin the need of warehouse networks. Production planning become more dependable as disruption and time delay during manufacturing decreased. Seasonal production and consumption still required warehousing. The storage to support stable manufacturing and consumption was reduced. Strategic warehousing offered a way to reduce holding or dwell time of materials and parts. Warehousing adapt to Just-In-Time (JIT) and stockless production strategies.

An important goal in warehousing is maximize flexibility.
Flexibility is facilitated by information technology.
It is able to respond customer demand in terms of product assortment. Technology create new and better ways to perform storage and handling in warehouse operation. Information technology facilitates flexibility by allowing the operators to react quickly on changing customer requirements.

Strategic warehousing serves to satisfy requirements related to local presence. The local presence benefit may not be as obvious as other service benefit. Strategic warehousing is classified as economic and service.

Warehouses offer many economic benefits for companies.
There are five basic economic benefits: consolidation and break – bulk, assortment, postponement, stockpiling and reverse logistics.

(1) Consolidation and Break – Bulk
It is to reduce transportation cost by using warehouse capability to group shipments.

The consolidation of warehouse receives materials from number of sources that are combined in exact quantities into large shipment and send to specific destination. The benefits of consolidations are the lowest possible freight rate, timely, controlled delivery and reduced congestion at customer’s dock.

Break bulk operation receives large shipment and arranges for delivery to multiple destinations. The break bulk warehouse or terminal sorts or splits out individual orders and arranges for local delivery. Both consolidation and break bulk arrangements use warehouse capacity to improve transportation efficiency.

(2) Assortment
Assortment is to reconfigure freight to flows from origin to destination. There are three types of assortment: cross – docking, mixing and assembly.

Cross – docking is to combine inventory from multiple origins into an assortment for specific customer.

Mixing perform an intermediate location between shipment origin and destination. The inbound products are combined with those regularly stored at the warehouse. This is to reduce the overall product storage while achieving customer specific assortment and minimizing transportation cost.

Assembly supports manufacturing operations. The components from variety of second tier suppliers are assembled in a warehouse located close to the manufacturing plant. Assembly is to achieve a process grouping of inventory at a precise time and location.

(3) Postponement
Warehouses can postpone commitment to final product by completing final packaging, labeling and light manufacturing until the demand is confirm.

Postponement provides two economic benefits.
First: risk is minimized after the order is committed and received.

Second: total inventory can reduce by using inventory of base product to support multiple customers labeling and package requirements.

(4) Stockpiling
Stockpiling is to accommodate seasonal production or demand. Stockpiling provides inventory buffer, allowing production efficiencies within the constraints imposed by material sources and...
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