10.4 Roles and Types of Warehouses

Table 10-1 describes what happens to your product when it arrives at a warehouse. Once the truck backs up to the dock, someone offloads each case or pallet. Your product is scanned, assigned to a rack or bin, and then set in place until it is needed. When an order is received, the warehouse management system (WMS) creates a . Items on the list are then picked, consolidated, packed, and staged for loading. Next, you load the truck and ship your product to its destination. Let's recap the value of warehousing:

  1. : You can produce in large lots, storing product until customers want to use it.

  2. : You can ship in full truckloads. Inbound shipments are broken down and stored at the warehouse; outbound shipments are consolidated and shipped at the warehouse.

Simply put, warehousing helps you to get product where it needs to be when it needs to be there—at the lowest possible cost. As you review Table 10-1, please note that you can organize activities by when they take place: arrival, shipment, and every day. Let's make one final point about warehouse operations: The job can be dangerous. A warehouse is full of moving equipment like , , heavy boxes, and pallets. You need to maintain an intense focus on safety to protect both your workers and your products.

Table 10-1
Traditional Warehouse Operations

Value-Added Services

Beyond the basics of breaking bulk, storing, and consolidating inventory, modern warehouses engage in a wide range of value-added services. Consider three examples.

  1. Mass Customization: To better meet customers' needs—and to reduce uncertainty—you can perform at the warehouse. Customization often involves unique packaging. For example, General Mills produces Lucky Charms cereal at its Plant 36G in Buffalo, New York. General Mills frequently runs promotions linking its cereals to "popular" movies. One promotion bundles a movie-themed coloring book with a box of cereal by the coloring book to the back of the cereal box. Now, the question: What happens if the anticipated "hit movie" turns out to be a flop? If you bundle the coloring book and the cereal box at the plant, you're stuck. You can continue to associate Lucky Charms with an unlucky movie. Or, you can pay someone to unbundle your product at the warehouse. You'd probably opt for the unbundling. After all, if the movie flopped, it won't be in theaters long. Nor will it build a fan following. Thus, your bundled cereal sitting on store shelves would scream, "This is old cereal!" To minimize this risk, General Mills shrink wraps the coloring books to the cereal at its warehouses—but only after the orders come in from grocery retailers. Postponement helps General Mills respond to market needs without the risk of overcommitting to a poorly conceived promotion.

  2. : You can also do light manufacturing at the warehouse. Fender guitars offers a novel example. Fender teams with UPS to meet its European customers' needs. As is typical, UPS manages inbound freight, storage, and distribution of dealer orders. What is unique is that UPS also inspects guitars for quality and continues Fender's practice of tuning guitars prior to delivery. William L. Mendello, international president at Fender, describes the process, "It is a pretty straightforward job but it is an important one that requires the talents of good musicians. All our guitars are inspected by players—from standard models to some of the most expensive and elite guitars in the world." Guitar tuning might seem like a quick and simple “alteration” of the product, but it is extremely important to the discriminating musician buying a premium product. 6

  3. : Even though they are often called distribution centers, you can use warehouses for reverse logistics as well. For example, in 2004, Toshiba announced a unique partnership with UPS. The goal: Speedy laptop repair. Toshiba recognized that repair speed was a critical selection factor for laptop buyers. Toshiba also knew that 10 days was too long for owners of a "broken" laptop to wait for a repair. By working with UPS, Toshiba shortened the turnaround time to two to four days. How does the system work? When your computer suffers a parts failure, you drop it off at one of UPS' 4,400 retail stores. UPS flies your computer to its world air hub in Louisville, Kentucky where Toshiba-trained technicians use parts stored on site to repair it and send it back to you. Faster repair meant happier customers, helping Toshiba increase market share. 7

The bottom line: Be creative. Use your to help you create unique customer value. You do, however, need to do your to make sure your innovative solutions make good business sense.

Warehouse Types

"Warehouse" is a word used to describe a variety of facilities. Let's look at some of the specific types of warehouses and the purposes they fulfill.

  • is a generic term for a facility where product is stored. store inventory on the inbound side of production. Finished goods warehouses protect goods that are waiting to sell to customers. You can store inventory for any length of time. In fact, some say that military warehouses in the United States still stock saddles from the days of the cavalry.

  • combine inventory from multiple locations to mix and match to fulfill customer orders. Thus, they are often called "mixing facilities." By performing break bulk and consolidation, DCs help you achieve high levels of order fulfillment and take advantage of shipping economies. Because they are often located in the "field," close to the market, DCs are sometimes called "field warehouses."

  • , like DCs, act as mixing facilities. However, in a cross-dock operation, the goal is to keep the products moving—from inbound dock to outbound dock. In many instances, product is only in the cross-dock facility for two or three hours. Thus, cross-docks are often called "flow-through" warehouses. Does this sound familiar? A good analogy for a cross-dock operation is a hub-and-spoke airport (see Figure 10-2). Maybe you've had the following experience: Your flight is delayed, causing you to arrive late. You quickly deplane and check the overhead monitor to find out at which terminal your connecting flight is waiting. Then you practically run across the airport to catch your next flight. Simply put, you flowed right through the airport. The airlines' goal is to keep planes full by mixing people from different flights at the hub. Everything works well—until you experience a delay. Just as passengers left stranded in an airport are frustrated, we refer to inventory that is left overnight in a cross-dock as, .

    Walmart made cross docking famous. Each Walmart flow-through DC is more than one million square feet in size (approximately 18 football fields under one roof) and uses 5-12 miles of conveyor belts to move hundreds of thousands of cases through the facility every day. 8 The rapid flow through enables most cross-docks to achieve multiple inventory turns each day!

    • Figure 10-2: Cross-Dock Facilities Perform Like a Hub Airport

  • receive large-volume truckload (TL) shipments that are destined for several customers (see Figure 10-3). Shipments are broken down into the smaller quantities and delivered to customers using less-than-truckload (LTL) services. The goal: Minimize the total ton-miles shipped by the much more expensive LTL option. You may hear this practice referred to as "pool distribution." To make the best use of breakbulk, you need to do two things. First, you need to compare the following two total cost models:

    Option 1: to customers using LTL. Costs = ∑ LTL Shipping Costs
    Option 2: Use breakbulk facility. Costs = ∑ TL + Breakbulk + ∑ LTL

    Second, if a breakbulk strategy makes sense, you need to identify the right location to place the breakbulk facility to minimize total costs.

    • Figure 10-3: Breakbulk Warehousing and Transportation Savings

  • are facilities where you can store imported or exported materials in order to delay the payment of . These facilities are sometimes called . As long as the materials remain in the warehouse, you don't have to pay taxes. When you sell the product, you ship it from the warehouse. This is when you have to pay the duties. If you end up re-exporting the products to a different market, you never pay duties. Sometimes, you perform on a product that changes its form and lowers the duty you have to pay.

    Of course, other types of warehouses exist—like grain for storing corn or tank farms for storing chemicals. If you understand the above examples, you're ready to take a closer look at warehouse operations.

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