Storage has always been an important aspect of economic development. For manufacturers, strategic warehousing offered a way to reduce holding or dwell time of materials and parts. On the outbound side of manufacturing, warehouses can be used to create product assortments for customer shipment. An important charge in warehousing is maximum flexibility. Ideally a warehouse will simultaneously provide economic and service benefits. Warehouses offer many economic benefits for companies.
One economic benefit of a warehouse is derived from the ability to consolidate products from a number of production plants into large, consolidated shipments delivered to customers. Also, big shipments from production plants are often broken into smaller shipments and arranged for local delivery. Break bulk shipments significantly reduce freight costs. In addition, warehouses allow production to be postponed or delayed until actual demand is certain. Once demand is determined in terms of product type and quantity, minor processing can quickly make final products available, reducing inventory requirements.
Warehouses also provide buffers for seasonality, improve production efficiency, and support marketing efforts that often send logistics managers scrambling to meet surges in demand. Economic benefits of warehousing occur when overall logistics costs are reduced. For example, if adding a warehouse in a logistical system reduces overall transportation cost by an amount greater than required investment and operational cost, then total cost will be reduced. When total cost reductions are achievable, the warehouse is economically justified.
Four basic economic benefits are: Consolidation and Break-bulk, Sorting, Seasonal storage, and Reverse logistics. The economic benefits of consolidation and break-bulk are to reduce transportation cost by using warehouse capability to increase shipment economies of scale. Consolidation occurs when a warehouse pull together small shipments from a number of sources and combine them into larger, more economical, shipping loads intended for same location. Small, flexible shipment in. Large, economical shipments out.
The benefits of consolidation are the lower in transportation cost as goods could be ship full truckload and quicker delivery instead of transporting the products as small shipments from different sources. With larger volume, you are able to get the lower rates, improved service, shorter transit time and less handling of your freight. Economy of scale is achieved by transporting the large shipment from origin to destination. Break-bulk occurs when a warehouse receive bulk shipments and breaking these small shipments for delivery to various customer.
Break-bulk warehouse operations are similar to consolidation except there no storage is performed. The long-distance transportation movement is a large shipment, transport cost is lower and there is less difficulty in tracking. Both consolidation and break-bulk arrangement use warehouse capacity to improve transportation efficiency. Many logistical arrangement involve both consolidation and break-bulk. How do warehouses perform assortment? The basic benefit of sorting is done to reconfigure freight as it flows from origin to destination.
There are three types of assortments performed in the warehouses namely – Cross docking, Mixing, and Assembly are widely performed in logistical systems. The objective of cross-docking is to combine inventory from multiple origins into an assortment for a specific customer. This operation is used by retailers for the fast moving store inventories. The distributor cross dock process consolidates inbound products from different vendor into mixed product pallet, which is delivered to the customer when the final item is received.
The transportation cross dock process combines shipments from a number of different carriers in the less-than-truckload ( LTL ) and small package industries to gain economy of scale. The retail cross dock process involves the receipt of products from multiple vendors and sorting onto outbound trucks for a number of retail stores. The benefits of cross docking is to reduction in cost, as the product no longer requires picking and put away in the warehouse. The reduction in time from production to customer, which helps improve customer satisfaction.
The reduction in the need for warehouse space, as there is no requirement to storage of products. The objective of supply mixing is to support manufacturing operations. Products and components are supplied to a mixing warehouse located in close proximity to the manufacturing plant, when requested by the plant, necessary sortation will be carried out and ship to the plant directly. It is a popular strategy to support manufacturing firms with JIT (Just-In-Time) and MRP ( Materials Requirement Planning) system. Mixing is performed at an intermediate location between shipment origin and destination.
In this process the inbound products are combined with those regularly stored at the warehouse. The net effect is to reduce the overall product storage in a logistical system while achieving customer specific assortment and minimizing transportation cost. Assembly supports manufacturing operations. The components from a variety of second tier suppliers are assembled in a warehouse located close to the manufacturing plant. Products and components are assembled from a variety of second-tier suppliers by a warehouse, often referred to as lead suppliers or tier one suppliers, located in close proximity to the manufacturing plant.
While manufacturing organizations have traditionally performed assembly, it has become common to utilize value-added services performed by a lead or tier one supplier or an integrated service provider (ISP) to sort, sequence, and deliver components when needed in manufacturing. Like cross-docking and mixing, assembly serves to achieve a process grouping of inventory at a precise time and location. The direct economic benefit of storage is to accommodate seasonal production or demand. For example, Santa Clarita storage and toys are typically produced year-round but are sold only during a very short marketing period.
In contrast, agricultural products are harvested at specific times, with subsequent consumption occurring throughout the year. Both situations require inventory storage to support marketing efforts. Storage provides an inventory buffer, which allows production efficientcies within the constraints imposed by material sources and consumers. Reverse logistics is concerned with controlled and regular inventory. Controlled inventory consists of hazardous materials and product recalls that have potential consumer health or environmental considerations.
The reclamation of controlled inventory must be performed under strict operating scrutiny that prevents improper disposal. As one might expect, varied governmental agencies, such as the Consumer Product Safety Commission, Department of Transportation (DOT), the Environmental Protection Agency(EPA), Food and Drug Administration (FDA), and the Occupational Safety and Health Administration (OSHA), are directly involved in disposal of controlled inventory. A broader perspective includes all relating to logistics activities carried out in source reduction, recycling, substitution, reuse of materials and disposal” , Council of Logistics Management.
This means that, reverse logistics are basically discarded products, used products, products or parts previously shipped, hazardous and non-hazardous waste from packages and products, information, raw material, in process inventory and finished goods. Currently, reverse logistics deals not only with return processing but also with repair, customer service, parts management, end-of-life manufacturing and order fulfillment. Less attention has traditionally focused on reclamation of regular inventory.