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.
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.