The Role of Warehouses in Distribution Management - Literature review Example

Name: College: Course: Tutor: Date: The role of warehouses in distribution management Introduction Rushton, Croucher and Baker (2010) assert that distribution characterizes the storage and flows from the end production point to the client or end user. Distribution management therefore is the managing of resources and procedures that are employed when a product needs to be delivered from its production location to the point where it will be sold. This includes the stowage at warehousing locations and/or the delivery to sales distribution points. Also included in distribution management is the determination of ideal quantities of a product for supply to specific warehouses or points-of-sale so as to attain the most efficient delivery to customers. It is a vital process in both the production and sales and marketing logistical processes. According to Kapoor & Kansal (2005), a warehouse serves as a processing or a material holding station in a logistics system, and its functions can be grouped into two broad classes, movement and storage. These two, however, are not the only roles that warehouses play. Warehousing, when harnessed appropriately, can give a business operator a competitive edge over his rivals. Why warehouses are necessary in a logistical system According to Rushton, Croucher & Baker (2010), warehouses are involved in the various stages of obtaining, production and circulation of goods. They also play a crucial role in the handling of raw materials and work-in-progress through to the end products. Trends such as increasing market instability, product range proliferation and the need to shorten customer lead times underpin the necessity of warehouses, and their evolving roles. Kapoor & Kansal (2005) group warehouses into three broad categories. These are material handling; combine and segment products in transit and as such are momentary hostels for goods in movement; storage – their use can be for purposes of maturing products or for speculative storage, and combination warehouses which are a blend of storage and material handling warehouses, and they all play an important role in the supply chain. We first look at the material handling warehouses. Frazelle (2002) states that there some warehouses are referred to raw material and component. These are used to store raw materials at the point of introduction into the production (or assembly) process. There are also work-in-process warehouses. These hold the semi complete assemblies at various stages when they are along the production line. Distribution warehouses and centres accrue and consolidate goods from various points of manufacture within a single or several firms for purposes of combined shipment to common customers. This type of facility typically responds to regular weekly or monthly orders. (Frazelle, 2002). In summarizing the necessity of warehouses in a logistical system, Rushton, Croucher & Baker (2010) assert that where demand for goods is continual, they need to be pulled through the supply chain as per customer demand. This may not be the case where they are manufactured on a one-off basis. Further, where goods cannot be supplied to customers when they require them but are to be delivered, say on the following day or month, it shows that they cannot be obtained and transported within that given timescale. They must be supplied from an inventory, where warehouses come in play. Why warehouses are a ‘necessary evil’ Baker (2007) lends weight to this assertion when he says that a crucial role played by warehouses is that of holding inventory and servicing of customer orders. This is important especially because while a manufacturer continues churning out products, demand may not necessarily be constant. A producer therefore needs to have a place where goods produced are stored to ensure that demands arising are met from that inventory. According to Kapoor & Kansal (2005), warehouses create time utility. This is to say that they increase the worth of goods in storage by balancing the supply and demand forces. Therefore, while they may appear burdensome in terms of costs, both service and transport, they are still vital. Products shipped to the warehouse are held till demand is sufficient enough to allow distribution. Warehouses act as go-between facilities, in-transit stopovers where orders obtained from a regional distribution centre, for example, are sorted and packaged into smaller lots for purposes of distribution to customers. (Rushton, Croucher & Baker, 2010). In this capacity, outlying regions are more easily served. Goods that are returned by clients also end up being handled by warehouses. Environmental legislation and internet shopping contribute to this. (Rushton, Croucher & Baker, 2010). The supply chain connecting manufacturers with their end consumers can never be so well coordinated so that it eliminates warehousing (Frazelle, 2002). This implies that manufactures need warehouses; they are essential to the supply process. There must be a holding facility for goods since a manufacturer, say of bread, cannot always be on standby waiting to make bread and deliver it per individual order. Numerous clients might move on to a competitor if they feel that the rivals are more efficient. Conditions leading to the combination of private and public warehouses Spillan, McGinnis & Kohn (2009) expound on the various advantages and disadvantages of both public and private warehouses as well as those of a hybrid (a combination of the two) which is referred to as contract warehousing. A manufacturer will use public warehousing to conserve capital that would otherwise be used in investing in a private warehouse, avoid incurring the risk of owning an obsolete private facility, benefit from a wider range of dedicated services, as well as to better manage his storage and handling costs. Private warehousing on the other hand gives the owner a high level of control, and if highly utilized, it costs less. They can also be designed to meet specific product and client needs. (Spillan, McGinnis & Kohn, 2009). A combination of the above may be brought about by the desire by a manufacturer to enjoy the benefits of a private warehouse without having to make the substantial investment required in such an undertaking. Further, with such an arrangement, he would be assured of a long-term solution to his warehousing requirements and at the same time evade the risk of having his facility get obsolete since maintenance of the warehouse remains the owner’s prerogative. Role played by warehouse operators in postponement strategies Postponement strategies are organizational concepts where some activities in the supply chain are not performed until a consumer orders a product (Świerczek, 2010). This implies that a product is kept in an unfinished state until such a time that it is ordered, and only then are the necessary adjustments necessary to complete it made. Baker (2007) states that production postponement is one way of reducing inventory. This would enable the enable the easy holding of common components as compared to a host of finished goods. Mangan, Lalwani and Butcher (2008) state that, in a postponed manufacturing structure, the idea is to defer the last value adding practices in the supply chain till orders from a consumer are received. There are different types of postponement strategies employable. According to Pagh & Cooper (1998), there are five postponement strategies namely labelling, assembly, packaging, manufacturing and time. By postponing production, for example, the manufacturer averts the risk of over-producing stock with a low market demand, high shipping costs of finished goods as compared to that of their components and incurring high packaging costs at the point of manufacture due to the varying packaging expectations of his/her client. A strategic delay could be used to ensure different packaging for diverse markets when the demand occurs or the additionof slightly altered components to the base product down the line as deemed required (Mangan, Lalwani & Butcher, 2008). Therefore, as Pagh & Cooper (1998) assert, by employing deferment strategies the performance of firms and of the supply chain can be improved effectively. Warehouse management’s future Every warehouse in its design should be able to meet the precise requirements of the supply chain of which it is part. Warehouse functions are typically receiving; reserve storage; picking orders; sortation; collation and added value services; and marshalling and dispatch (Rushton, Croucher & Baker, 2010). Chiang, Lin & Chen (2011) state that order picking is the most labour-intensive process in manual system operated warehouses, normally accounting for 55% of total operating expenditure. Creation of a shorter picking distance would lead to a higher service level and lower labour costs since pickers employed would be fewer. This is one way to ensure efficiency in a warehouse. Warehousing is moving away from the traditional manual systems of operation. Various software vendors have developed standard Warehouse Management Systems (WMS’s) which control the happenings within a distribution centre. A WMS determines the tasks that need to be performed within the warehouse and sends commands to human workers and automated material handling systems to execute them. All relevant data peculiar to a particular warehouse can be captured by these systems. Tracking is ensured, and so is the tracing and the quality of the distribution centre activities. (Berg, 2007). Industry/market trends are vital factors that ought to be considered when looking at the future of warehouse management, but so are the business plan adopted and not least, external factors(Rushton, Croucher & Baker, 2010). Industry trends affect the warehouse design and operations meaning that those built without up-to-date trends in mind may be incompatible by the time it comes into operation. External factors likely to affect warehouse management could include legal regulations. Laws affecting construction, working hours, fire precautions and health and safety among other areas could also have an impact on the management of warehouses in the future. Conclusion Warehouses play an extremely vital role in the manufacturer to the consumer supply chain. These institutions come in handy in the various stages of product assembly. From the storing of raw materials to be used in the manufacturing process, the components of products kept for purposes of postponement strategies to the distribution points for goods being transited into outlying regions and eventually the clients. It is not without a doubt that though they may be considered a pain, warehouses are here to stay: their role in distribution management is entrenched and quite necessary. Reference list Baker, P., 2007. An Exploratory Framework of the Role of Inventory and Warehousing in International Supply Chains. International Journal of Logistics Management, 18(1), pp. 64-80. Berg, J. P. v. d., 2007. Integral Warehouse Management: The Next Generation in Transparency. Utrecht: Management Outlook Publications. Chiang, D. M.-H., Lin, C.-P. & Chen, M.-C., 2011. The Adaptive Approach for Storage Assignment by Mining Data of Warehouse Management System for Distribution Centres. Enterprise Information Systems, 5(2), pp. 219-234. Frazelle, E. H., 2002. World-Class Warehousing and Material Handling. New York: McGraw Hill Professional. Kapoor, S. K. & Kansal, P., 2005. Basics of Distribution Management: A Logistical Approach. New Delhi: Prentice-Hall of India Private Limited. Mangan, J., Lalwani, C. & Butcher, T., 2008. Global Logistics and Supply Chain Management. West Sussex: John Wiley & Sons Ltd. Pagh, J. D. & Cooper, M. C., 1998. Supply Chain Postponement and Speculation Strategies: How to Choose the Right Strategy. Journal of Business Logistics, 19(2), pp. 13-33. Rushton, A., Croucher, P. &Baker, P., 2010. The Handbook of Logistics and Distribution Management. 4th ed. London: Kogan Page Limited. Spillan, J. E., McGinnis, M. A. & Kohn, J. W., 2009. Private Warehouse Investment Strategies in Small versus Large Manufacturing Firms. Journal of Transportation Management. Świerczek, A., 2010. The Relationships between Postponement Strategies and Manufacturing Performance in Supply Chains: An Industrial Perspective. LogForum, 6 (3). Read More