Tuesday, April 13, 2010

Logistics - Warehouse Management - Part III

As stated in our earlier blog we will focus our attention warehouse operation involved in FMCG industry (Amul) and Consumer Durable company – APC (UPS & Inverter). The example given below is hypothetical and not actual process followed in the respective companies. Let us understand the nature of the products handled by the each company and their distribution strategy to enable us to plan for warehouse or facility layout design and equipment used strategy.

Amul : FMCG company manufacture of Milk related Products. In the Health Drink segment they have Amul Sakthi and Nutramul. In the milk segment they are having Amul Milk in sachet/pouch, Amul Tazza Toned milk in Tetra pack. In the powder milk segment they have Amulya Dairy whitener, Amul Instant Full cream Milk powder. Amul Butter, Amul Kool café, Flavoured Milk , Amul Chocolate etc. We will first understand the products nature, type and distribution pattern.

Each Amul products are having their own life cycle. The products like packed Milk and flavoured milk are perishable by nature due to short span life cycle (may be a week), cannot be stored for long period and need to be consumed immediately. Also these items are need to be refrigerated during that short product life cycle from the production stage till distributed to end customer. Packed milk / flavoured milk (30 or 40 units) are kept in plastic crates and stored in cold storage facility and distributed to all retailers. Each plastic crate with packed / flavoured milk weight 20 – 25 Kgs and can be handled by labourers and it does not require any mechanized equipment for storage, retrieval, loading and unloading. Each packed milk cost Rs. 10 and hence the crate with packed milk cost may not exceed Rs 600. Since the stocks can be stored vertically (i.e., 6 to 8 crates on each other) the area usage is minimized resulting less storage cost. One need not require any pallet or steel rack to store products vertically. The plastic crate can be stored on each other so that maximum height should be reachable by the worker without difficulty.

Since milk and butter are consumed by all (basic necessity commodity) they should be made available to consumer on demand at convenience due to severe competition. If a consumer could not find Amul milk packet from nearby retail shop, he can take milk packet of other brand or ask local milk vendor (doodhwala) to supply the milk to his house. Hence it is Amul company responsibility to arrange these products available at all retailers, in a particular market with proper storage (refrigeration) facility. Due to wide distribution nature, the milk packets are placed in small plastic crates which can be unloaded by workers with ease at different retailer points. The empty crates are returned (termed as Reverse Logistics) to Amul company warehouse for future milk packet dispatch. Hence the warehouse and storage operations are manual and simple which require no modern equipments in this operation. In case of packed milk and butter, the cost related to cold storage warehouse and transportation through container having cold storage facility will be on the higher side.

Health drink products like Amul Sakthi, Nutramul are having life cycle for a period of one year or so. In case of Nutramul and Amul Sakthi the health drink products and chocolate which does not required any cold storage facility. 12 or 24 units of Amul Sakthi or Nutramul (according to pack size of 500g or 1Kg) are stored in corrugated carton box and distributed to retailers. Products are also stacked vertically in the warehouse. The warehouse and distribution operations are similar to packed milk except the refrigeration or cold storage.

Hence in FMCG industry (e.g., Glaxo Smithkline, Nestle, Britannia, Heinz, Unilever etc) the warehouse and distribution operations are quiet simple and hence it may not require sophisticated equipment like fork lift to perform their routine task.

APC : Manufacture of UPS, inverter (consumer durable electronic items). UPS and Inverters are durables (not perishable) and hence can be stored for quiet long period till technology changes. Each unit of UPS and inverters are small in size but weight more. Cost of each unit of UPS and Inverter are high. Hence each unit has to be handled (loading and unloading, stacking operation) with utmost care. The electronic retail shops in any given market is relatively small as compared to FMCG products. For example you can find more number of retail shops in any market for FMCG products as compared to Electronic retail shops. Hence the distribution operation related to Electronic items are relatively easy.

For example APC Home Appliance & Lighting UPS 800VA each packed unit is approximately 15 Kgs weight. Five units of UPS are bundled in a pallet and kept in a pallet rack (vertical) in the warehouse. Each pallet now weight approximately 75 Kgs and hence it require fork lift to move the pallet from warehouse to docking area to load the consignment. Since the APC company warehouse uses vertical pallet rack, they require electrically operated fork lift to pick the stocks from the rack. Once the stocks reaches the retailer shop they will use the manual labourers to move the pallet stocks to retailer godown. Since the retailers use manual labour they will keep the pallet using less height pallet rack for easy retrieval.

APC power Inverter 800VA with Tubular Battery. Each packed unit weight approximately 100 Kgs. This item should be stored Horizontally due to weight and Acid used in the battery. At APC company warehouse the movement of Inverter with Battery is done through Fork lift.

While comparing the product nature and distribution pattern between the FMCG products and consumer durable the warehouse design and operations are different. In case of consumer durable the warehouse require pallets, pallet rack, electrically operated forklift etc for efficient storage and retrieval and efficient handling, which involves more cost as compared to FMCG products. Generally, FMCG Warehouse focuses on velocity of transaction (transaction dominance) due to simple operation i.e., inflow and outflow of huge volume of products, by using manual labours with less mechanized equipment.

The above analogy will give users the rough idea about how the product nature will impact on the warehouse design layout and selection of equipments.

In the next session we will take Amul products (Amul Sakthi, Nutramul and Amul chocolate) as example to compute the warehouse storage space requirements.

Wednesday, March 31, 2010

Logistics - Warehouse Management - Part II

In this session we will learn about the factors which influences the Warehouse Decision Making in an organization.

The success of your business depends on logical warehouse plans because this allows you to make the best use of available space. It will also facilitate better inventory control and efficiently coordinate the movement of products in and out of storage.

The decisions related to warehouse are involved at Strategic Level, Tactical Level and Operational Level.

Strategic Level Decisions : These decisions are taken by the company top management, have the long lasting impact on the operation of the warehouse and involve major investment. For example decisions like

• Warehouse Ownership Decision (Role of Private, Public or Contract operations)
• How many warehouses and where to be located ?
• Material Handling Equipment selection

Tactical Level Decisions : Tactical Planning is the process of taking the strategic plan and breaking it down into specific, medium term actions and plans which involves significant investment.

• Facility Layout (Sizing of the warehouse areas and storage Layout) and its equipment
• Stacking Norms, Replenishment schemes and batch sizing

Operational Level Decisions : Decision and policies related to the real-time operation of the warehouse.

Initially we will focus our attention to Tactical Level decisions ie Facility Layout and Stacking norms.

As a Logistics Manager, you have an existing warehouse that you would like to optimize or you're moving to an entirely new facility, a thorough plan will ensure that your company's most important needs are met while still staying within the budget. There are several steps in creating a comprehensive storage strategy.

1) Goal setting. Before you design the warehouse, it is better to understand what your warehousing needs are and set some goals for the new design. Is your main objective to reduce your warehouse costs, or to offer better customer service (e.g., faster shipping or delivery of products)? Perhaps you simply want to get the most space you can out of your facility at the lowest price possible. The Goal setting should be in align with the company's objectives. For example FMCG consumer durable company (Sony, LG) whose objective is to offer good service to their customer. The Logistics Manager should design larger warehouse to keep more stocks and deploy material equipment handling for faster shipment of goods.

2) Information gathering and analysis. Now that you are aware of your goals, it's time for a fact-finding mission about your operation. You'll want to gather information regarding

Types of items that must be stored. For example Hindustan Unilever manufacturing food products like Tea, coffee, Kwality Ice cream, Annapurna Atta and Toiletry products like Domex, Vim bar, Rin etc. In the warehouse food products should be kept separately from toiletry products. Warehouse Manager should follow the guidelines issued by Food & Drug Authority while stacking the food items. In the FMCG company freebies are provided along with items to promote sales. HUL may plan to give ordinary Cricket bat autographed by Sachin Tendulkar during IPL cricket match along with Annapurna Atta to promote their products. In such case the warehouse need to stores not only Annapurna Atta but also cricket bats.

Frequency and volume of shipments and deliveries. Items like Tea, Rin, Vim bar will have high frequency and huge volume of shipments and deliveries whereas Items like Annapurna Atta and Domex will have low frequency and low volume shipments and deliveries.

Month to month fluctuations in inventory. Demand for Kwality ice cream fluctuate according to season. During summer season the demand for Ice cream is high and hence the warehouse should keep more inventory in cold storage and during Winter the ice cream sales will be less and hence one should keep low inventory.

Projected data for growth in the company is expected to change storage needs. Warehouse storage area is planned not only to meet current volume requirement but also future expected growth for next two to three years. If the company project good growth for existing products and plan for new product launches in the coming years the Logistics Manager should plan to have enough space at warehouse to meet the future growth plan.

Keeping current warehouse layout plan is important. If you plan to continue use of certain machinery or processes in new warehouse you may require to include these details in your new report, as well as including any safety concerns for the operation.

3) Layout planning. You have to create the new layout after gathering all the data on your company's warehousing space and requirements, As warehousing needs are hugely differ, there are many different storage models/options to accommodate every type of item. It's important to consider the different options and decide on the best storage methods as well as the most efficient design for your space.

Layout plan should also include product type (size, weight, solid / liquid/ gas, perishable), storage type (Vertical or Horizontal) and the material handling equipments. If your products are slightly heavy in nature like UPS/Inverter and stored in racks, it require Fork lift for speed storage / retrieval and movement. These fork lift require adequate passage (aisles) in the warehouse for movement. Again selection of fork lift (manual or Electric operated) depends upon the product nature and the type of storage. If you keep stocks in vertically (height) rack then you may require electrically operated fork lift to lift the stocks from the height which involves more investment on equipment and require less investment on space utilization due to vertical storage pattern. If you keep stocks in Horizontal rack then you may require manually operated forklift which require less investment in machine and require more investment on space utilization due to horizontal storage. If you plan to have warehouse in major locations like Bangalore, Delhi, Mumbai where square foot (Sq.Ft) space cost is more, then you can work out optimal cost by selecting various option (i) by choosing vertical storage facility with Electrically operated fork lift or (ii) by choosing horizontal storage facility with manually operated fork lift and choose the most benefitted model.

For example APC is well known UPS, Inverter manufacturing company. UPS and Inverter vary in dimension and weight. Packed one unit of UPS or Inverter are termed as Unitization. Normally few pieces of packed UPS or Inverters are kept in palette for batch movement are termed as Palletization. Palletized UPS / Inverters are stored in racks. If they use high rack then they have to use electrically operated forklift to store / retrieval of pallets.

If your warehouse operations are more complex due to different product nature [example Reliance deals with Fresh stores for Vegetables require cold storage facility to preserve vegetables, Reliance Mart for consumer goods require general warehouse with huge space, Petro Products and chemicals and require specialized storage facility], there are companies that specialize in warehouse supplies and equipment often offer planning services along with quotes for the materials required. Their knowledge of warehousing equipment, design and safety is a major asset during this process.

4) Implementing. Implementation is major task. Setting up or re-organizing an existing warehouse can be a very big job. Fortunately, many industrial equipment companies offer this as part of their services as well and they able to assist you in proper execution of the design you have selected. They can also suggest better method to adopt which will be beneficial to the company.

5) Maintenance. Part of the plans for your warehouse must include how the facility will be maintained on an ongoing basis. Procedures for taking regular inventory, continuing excellent safety procedures and maintaining equipment in top condition are necessary to keep your organization running smoothly.

It is clear that there are a lot of factors involved in an efficient, cost effective warehouse design that maximizes available storage space.

The blog users who are new to warehouse management may not familiarize with the terms like pallet, fork lift, rack. I have given below the pictures of pallet, fork lift, rack for better understanding.

In the next session we will do case study by comparing the warehouse operation between FMCG industry (Amul) and APC (Consumer durable). This will make user to understand the concept clearly. Please note that this is only hypothetical case and not real scenario.

Friday, March 26, 2010

Logistics - Warehouse Management (Part I)

In the ongoing session we will learn about Logistics Management Concepts.

Logistics Management is that part of Supply Chain Management that plans, implement and controls the efficient and effective flow (transport or movement) and storage of goods, services and related information between the point of origin (Suppliers of raw material / Manufactures) and the point of consumption (Distributors /Retailers/End Consumers) in order to meet the customer’s requirements.

Logistics Management encompass activities like Warehouse Management (storage of goods), Inventory Management, Transport Management(flow of goods), Distribution or Customer Order Management and Import/ Export procedures.

Hence I intend to cover the following Logistics Management concepts one by one in my SCM Blog with more practical industrial examples.

- Warehouse Management
- Inventory Management
- Transport Management
- Distribution / Customer Order Management
- Channel Management &
- Import & Export Procedure

Please note that the industrial examples given in the blog are fictitious. Currently we will focus our attention to Warehouse Management with focus on Facility Location, Layout Design, Material Handling.

Warehouse Management

A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, exporters, wholesalers, retailers, transport businesses, customs (exporters, Importers), etc. They are usually large plain buildings, equipped with loading docks to load and unload consignment from trucks.  Based upon the size of the goods and volume of operation they also often have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets. 

In simple words, warehouse is a facility where the supply chain holds or stores goods, until they are needed by the customers. Warehouse can be owned by manufactures, wholesalers, retailers to store the goods.

Does it means Warehouse is only a Storage Facility ?

A warehouse is typically viewed as a place to store inventory. However, in many logistical system designs, the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility. The function of warehouse is getting focused from storage-dominance to transaction dominance.

General Functions / Roles of Warehouses

The warehousing functionality today is much more than the traditional function of storage. The following are main function that warehousing serves today:

• Receiving goods – receive and accept responsibility by updating records

• Identifying goods – place, label, color code (Normal stocks, Promotional stocks, Special customer stocks like CSD, Price changes, Batch etc).

• Sorting goods- sort out the received goods based on identification for appropriate storage area. For example Special customer goods , Revised price goods, Promotional goods should be sorted out separately.

• Dispatching/ put away the sorted goods to appropriate storage place- for temporary storage with easy accessibility

• Holding goods- security against pilferage and deterioration

• Selecting, retrieving, packing - items are retrieved and grouped according to customer order for dispatch

• Marshaling goods- check the items of a single order for completeness and order records are updated.

• Dispatching goods- consolidated order is packaged and directed to right transport

• Preparing records and advices- of stocks and replenishment requirements

Apart from the above general roles /functions the warehouse perform following value added roles / functions in terms of Economic (Saving cost) and Service benefits as per details given below.

Economic and service benefits of Warehouses

Economic benefits (Cost Savings):

1. Consolidation: Reduction in transportation cost by consolidating movement. Several plants supply their products for the same customer through a warehouse and from this warehouse the products are sent in bulk shipment to the customer. Instead of transporting the products as small shipments from different sources, it would be more economical to have a consolidation warehouse. The schematic representation is given below.

2. Break-bulk: The warehouse in this case serves the purpose of receiving bulk shipments through economical long distance transportation from plant and breaking of these into small shipments for local delivery to various customers. This enables small shipments in place of long distance small shipments.

3. Cross-dock: This type of facility enables receipt of full shipments from a number of suppliers, generally manufacturers, and direct distribution to different customers without storage. As soon as the shipments are received, these are allocated to the respective customers and are moved across to the vehicle for the onwards shipments to the respective customers at these facilities.

4. Processing/Postponement: This Functionality of warehousing enables postponement of commitment of products to customer until orders are received from them. This is utilized by manufacturers or distributors for storing products ready up to packaging stage. These products are packaged and labeled for the particular only on receipt of the order.

For e.g. Asian Paints has 1000s of SKUs and its literally impossible to store all the SKUs in all of their retail stores. Basically, Asian Paints postpones the “coloring” part to last stage and hence any dealer/retailer when they order a color, can receive the paint within a days time

5. Stock piling: This function of warehousing is related to seasonal manufacturing or demand. In the case of seasonal manufacturing, certain raw materials are available during short periods of the year. Hence, manufacturing is possible only during these periods of availability, while the demand is full year around. This requires stockpiling of the products manufactured from these raw materials. An example is mango pulp processing. On the other hand, certain products like woolens are required seasonally, but are produced throughout the year, and thus need to be stockpiled as such.

Service benefits :

Spot stocking: stocking of products in strategically located warehouses during demand sensitive period is called spot stocking. Agricultural implements are spot stocked during the growing season.

Safety Stocking : In order to meet contingencies like stock outs, transportation delays, receipt of defective or damaged goods, and strikes, safety stocks have to be maintained. This ensures that, on the inbound site production stoppages do not occur, and, on the outbound side customers are fulfilled on time.

In the next few sessions we will focus our attention to various aspects of Warehouse Management System i.e., Types of Warehouse, Facility Location Decision, Warehouse Layout Designing, Storage Plan, Material Handling equipments etc.