Practical Handbook of Warehousing

No understanding of the changing role of warehousing can be complete without considering the unusual history of the development of warehousing as an economic function. As George Santayana said: “Those who cannot remember the past are condemned to repeat it.”

To evaluate the use of warehousing in your business, you need to understand ways in which warehousing functions to add value to products. In essence, warehousing provides time and place utility for any product, through efficient management of space and time.

Contract warehousing is a relatively new variation of commercial warehousing. In recent years, contract warehousing has been identified with growth and progress in the warehousing field. In the minds of many users and operators, contract warehousing is good, but the older format of public warehousing is bad.

Strategy is a military term, and it refers to the planning and directing of military movements and operations. Like other military concepts, strategy has moved into the corporate world. In business, strategy typically includes the development of a corporate mission and Objectives. Healthy companies plan to grow, and the question of how to grow is the most critical part of a corporate strategy.

Because the warehouse is part of a larger logistics system, communications to and from it assume critical importance. Sometimes the warehouse serves as a buffer between manufacturer and customer, sometimes between manufacturer and supplier, and sometimes between wholesaler and retailer. It is always a place where accurate and timely communication is vital.

Warehousemen in the United States receive, store, handle, and ship a broad range of products. All products (with the exception of some bulk commodities) are packaged in some way. A food packaging system may consist of a primary package that touches the product, an intermediate or secondary package such as a folding carton showing the advertising message, and a distribution container that identifies and carries multiples of the secondary package. The warehouseman receives, stores, and handles the distribution container but must deal with it according to the size and strength of the total package.

In some companies, warehouse managers are responsible only for operations within the warehouse.2 Perhaps the most important thing those in this position need to know is the right person to talk to in their transportation department when they need help!

Under common business law and practice, someone is accountable for goods at all times. In distribution, goods change hands from manufacturer to carrier, to distribution center, then on to another carrier, and finally to the customer. In these exchanges, the responsibility limits of each handler of the goods must be clearly defined.

When people who say they want to replace their present warehouse, they almost always list one of these eight reasons: Wrong sizeOperating problemsPolicy changeMarket changesTransportation changesTaxesTechnical changesAs a symbol of progress The most common reason most people give for replacing a warehouse is that the present one is the wrong size. When it is too small, expansion may be expensive or impractical. When it is too large, renting excess space to other users may be difficult or impractical.

How well am I doing in managing my warehouse? How well are each of the managers who report to me doing in managing their warehouse operations? Which of our warehouses is doing the best job, and what changes would bring the others up to that standard? How well are each of my foremen doing? How effective is my warehouse crew, and what can I do to upgrade the performance of these people?

Site selection is an art as well as a science. Decisions usually involve weighing priorities, determining which features are critical, and a process of elimination. Since every location has both advantages and disadvantages, the final selection of a site will likely involve some compromises.

There has been a quiet revolution in the construction of warehouse buildings. While the price of other products and services has steadily escalated, the cost of warehouse construction has remained fairly static, and in some cases has gone down. As you look at new construction, consider where the priorities for controlling quality should be placed.

As we look at probable changes in the 21st century, consider the relationship between warehousing and business logistics. Take a more detailed look at the building design itself and how that design can be changed. Understand the major logistics megatrends and how they will influence warehousing. Consider financial factors and in particular the ways in which financial institutions have influenced the design and construction of logistics facilities.

Whenever construction of a new building is planned, you must face the probability that the building will become inadequate before the structure is actually worn out. The building could become obsolescent for several reasons. First, the volume and storage pattern needed when it was planned has changed. Second, the design of the building may become outdated by the introduction of new warehousing technology, or by a change in the product line to be stored. Third, the function and design may still be good, but the location may no longer be effective for the use originally planned. In some cases, faulty construction or poor soil conditions may cause the building to be simply worn out. Finally, substantial expansion or contraction of warehousing volume may cause the structure to be either much too large for current purposes, or too small with no practical means of expansion.

In essence, the warehousing is nothing more than supplying adequate protection for stored goods in a minimal amount of space. Therefore, your goal should be to protect the inventory in your care and at the same time use as little space as possible. Achieving this goal depends primarily on careful planning.

Before the warehouse doors ever open, management should simulate the personnel and equipment requirements for the new operation. The number of people involved will affect parking requirements, as well as numbers of restrooms, locker, and lunch room facilities. A projection of volume and nature of work flow will dictate equipment requirements, and spaces needed for staging, shipping, and receiving.

Contingency planning is preparing in advance for the emergencies not considered in the regular planning process.* The best approach is to ask the question, “What if?” For example, what if our major suppliers are on strike? What if we are unable to obtain sufficient fuel to run our truck fleets? What if we are hit with an earthquake or a tornado at our biggest distribution center? What if we simply cannot find enough secretaries, order pickers, and industrial engineers to staff our distribution facilities? What if we have to recall one of our major products?

“Postponement” in distribution is the art of putting off to the last possible moment the final formulation of a product, or committing it to the market place.The theory of postponement is nothing new. It has been discussed in marketing and logistics textbooks for several decades.

Whether to outsource or not is no different than other make or buy decisions in business.

There are three kinds of major losses that could affect your property: 1A business interruption interferes with the ability of the warehouse to function normally. This includes any occurrence that makes it impossible to ship, receive, or move materials.2Some casualty losses affect both the building and its contents.3Other losses may affect just the warehouse structure.

Protecting merchandise from “mysterious disappearance” requires a careful blend of the physical techniques of security with personnel and procedural precautions.

Because so much lifting, pushing, pulling, and human interaction with power equipment and large mechanical devices is involved, the potential for accidents in warehouses is high. Any of the hundreds of different tasks performed daily in a warehouse can create a condition where serious accidents may happen.

If there is any warehousing job that is usually taken for granted, it is that of taking physical inventories. This job is considered a “necessary evil,” yet it involves a considerable investment in terms of resources—people, equipment, and time. While there are no magic solutions, certain systems, most notably bar coding, can help improve the accuracy and shorten the time needed for physical inventories.

Some companies do little more for the new employee than to explain who the boss is and where the restroom is located. Since every new employee will be “filled-in” on the company by somebody, management should see that this orientation is directed by somebody knowledgeable.

The risk of strikes or other labor disputes is a key consideration in warehousing. In some industries, work stoppages or other disputes among production workers are a likely occurrence, and therefore it’s important to have a strategy for continuous distribution of finished products, even when one or more production plants is on strike.

An incentive is defined by Webster as “something that stimulates one to take action, work harder, and is encouraging and motivating.” The use of incentives in American industry goes back to the early years of the century, when Frederick Taylor developed a 1911 book called Scientific Management. In that book, he described a system in which workers were paid by piecework, receiving a given fee for each wheelbarrow of coal delivered. The steel and textile industries were early users of Taylor’s management theory. In many of these companies, the objective of the incentive system was to stabilize costs. Management could precisely predict the cost of each delivered wheelbarrow because it was predetermined in the piecework pay method.

A business theory known as the Peter Principle says that managers in many organizations are promoted steadily to their level of incompetence. In the warehouse there are times when a lift-truck driver is promoted to foreman primarily because of job performance. But most of the skills in operating a lift-truck are not transferable to a supervisory situation.

Warehousing people, by the nature of their jobs, deal in quantity-based activity. They calculate pounds-per-man-hour and other quantitative measures to show how well they are doing.*

Some executives are convinced that warehousing is a dead expense, a function that adds no value and therefore should be minimized if not eliminated. Others believe that warehousing adds value and they can show the contribution of warehousing to the enterprise. How do you calculate the total costs and value of your warehouse operation? The job is not simple, but we can give you a few clues.

Perhaps the biggest drain on productivity in most warehouses is the “hurry up and wait” syndrome popularly associated with the military. One example is the unloading of a truckload of floor-loaded bags of product at a warehouse. There are at least three alternative loading methods. First, two men may work in the truck to palletize the freight for a lift-truck driver who removes the loaded pallets. Second, a single man may load the pallets, receiving assistance as needed from the fork-lift driver who is transporting the pallets. Third, a single man could work the truck alone, equipped with either a lift truck or a pallet jack to remove loaded pallets. The third method eliminates lost time because there is never a time when anybody is waiting for anyone else. With the first method it is likely that the two workers will sometimes be waiting for the lift-truck driver. With the second method the man in the truck will have no work to do if the lift-truck driver is delayed in returning.

Traditionally, the orientation of most private and third-party warehousing has been toward the need of the producers (manufacturers). This mind-set is typical of a developing market in what is sometimes called an “If I make it they will come” mentality. We know this as “push distribution” with the manufacturers calling the shots, “pushing” inventory into the market.

Most productivity improvement programs concentrate on improving utilization of labor. Yet there are four other major cost areas in warehousing where making better use of assets can boost productivity: space, energy, equipment, and inventory.

The last few decades have seen the popularizing of an old distribution strategy referred to as “just-in-time” or alternatively as “kan ban.” Kan ban means signboard in Japanese, and it was so named because suppliers to a Japanese auto manufacturer were instructed to place inbound materials beneath posted signs that indicated the appropriate part number. Like many popular business developments, just-in-time or JIT is a product of both fact and myth.

As you consider the true cost of controlling space and operating your warehouse, look both at costs related to function and at the concept of opportunity costs.

If managers are not productive, it is unlikely that productivity on the warehouse floor can be improved. In a company where senior managers look down on junior managers, or in a warehouse where supervisors show contempt for workers, even the best external techniques;¦s for improving productivity are likely to fail. Effective management is a prerequisite for any warehousing improvement program.

One of the best ways to improve productivity is to get every job done right the first time.’ The cost of errors in warehousing is high; the cost of an order-picking error, for example, has been estimated as ranging from $30 to $70 for each occurrence. These costs are derived by considering the writeoffs of undiscovered warehouse shortages caused by picking mistakes, the cost of handling returns, cost of supplemental shipment to replace shortages, cost of reversing errors caused by substitution of the wrong product, correspondence to handle credits and adjustments, and, finally, the almost unmeasurable cost of customer dissatisfaction or loss of confidence.

Receiving is a deceptively simple process in many warehouses.28The conventional wisdom says that order picking and shipping are the most labor-intensive activities in warehouse operations, and therefore they deserve and get far more attention than receiving. Yet a faulty receiving process can create as much trouble in a warehouse as poor order picking or shipping operations. This chapter could change your thinking about the importance of receiving. It will detail the process and the physical flow with potential variations in both. The importance of scheduling will be demonstrated, as well as pitfalls that can and do create trouble in receiving.

The ideal shipping routine is roughly the reverse of that just described for receiving. If an order destined for shipping is pulled from inventory by one employee and checked and loaded by another, the likelihood of discovering errors is greatly increased. Insisting on a shipping schedule will do a great deal to prevent unexpected peaks in workload or unpleasant surprises. A specified count of shipping labels or tags is a good way to create a double check of quantities in shipping. The shipping dock is also the last chance to discover mistakes made by order pickers.

Much has been written in on the topic of cross-docking. It has become increasingly clear that cross-docking has almost as many flavors as ice cream, and the flavor you choose has a great deal to do with the cost of the operation.

Most warehouses are designed to store bulk merchandise for volume shipments at ambient temperatures. But there are also some highly specialized warehouses. In this chapter we will look at four that are growing in importance and complexity.

Accurate order-picking is typically the most important warehouse operating responsibility. Actual costs of an incorrectly picked order are estimated at thirty to seventy dollars per bad pick, not counting the customer dissatisfaction.

A warehouse is more than a storage building. To handle cargo, it needs equipment. And it is the selection and use of that equipment that may spell the difference between profit and loss.

Widespread use of the forklift truck had revolutionized warehousing practices before the middle of the 20th century, enabling warehouse operators to justify erecting sprawling one-floor buildings to replace the more compact multistory structures used in the past. Many kinds of mobile equipment are used in warehouses today, but most are variants of the common forklift truck.

Making a profit from investment involves taking risks. Experience enables these risks to be evaluated and the benefits assessed. The main problem with investment in warehouse automation is that it is frequently a once-in-a-lifetime experience and it is easy to make a mistake. The secret of success is meticulous planning and the use of an appropriate level of technology, taking into account the difficulty of predicting what the various operations within the warehouse may be required to do.

Some attempts to unitize marine freight go back to very ancient history. Unitized handling as we know it today really had its impetus with the technologies developed to supply the military during World War II. At that time, the industrial truck was still in its earliest development stages. A wood platform or pallet was recognized as the best way to allow the industrial forklift truck to transport a number of small pieces of freight. The first such platforms were skids, consisting of a deck of wide boards nailed across two or more runner boards which raised the platform enough to allow the forks to move underneath and pick it up. Because of the need for stability in high stacking, the skid evolved into today’s warehouse pallet when additional boards were nailed across the bottom of the runner boards to provide stability. Pallets were and are primarily made of wood, simply because wood is the lowest cost construction commodity available in most countries.

Losses from accidental damage, casualty, or pilferage are not only costly to industry, but can also easily wipe out the productivity gains made elsewhere in the company. Loss and damage in the distribution system are a major source of waste in American industry today. And there is no indication that this waste is declining.

The traditional management of logistics systems, including warehouses, has emphasized the movement of materials from sources of supply to points of consumption. Warehouses are part of the flow process, but we usually assume that the flow goes only from source to consumer.

The clerical section of a distribution center is frequently the most undervalued part of the system. It often receives an inordinately small amount of attention from management. While entire magazines, books, and trade shows inform management about stacker cranes, storage racks, and other hardware associated with the storage and handling functions, relatively little attention is given to the most critical function of all—the clerical operation.

The use of computers in warehouse management is taken for granted so often that we fail to recognize the countless instances where no system exists, or the one that does exist does not function well.

In the entire field of warehousing, perhaps no technical development has shown greater potential than electronic identification. There is more than one way to “machine-read” information from a package, but today the most common method is bar coding. The concept of bar coding has been around for decades, but it is just in recent years that its full potential in warehousing has been realized.