Learner Guide OC Knowledge Module 3

KnowKNleOdWLgeLaeErDnTGehEr eGMouOirdDyeUGLEu3ide 3

Warehouse and
Distribution Theory

OCCUPATIONAL CERTIFICATE | CLEARING AND FORWARDING AGENT
SAQA ID 96368
KNOWLEDGE MODULE 3 | LEARNER GUIDE

LG-96368-333101000-KM-03

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SAQA 96368 Knowledge Module 3

Table of Contents

Introduction............................................................................................................................... 2
Welcome............................................................................................................................................. 2
Purpose and Rationale of the Qualification...................................................................................... 2
Structure of Qualification...................................................................................................................4
Purpose of Knowledge Module [333101000-KM-03]........................................................................5
Resources............................................................................................................................................ 6
Structure of this Module.................................................................................................................... 7

Chapter 1 | Introduction to warehousing and distribution operations [KM-03-KT01]...................8
Topic 1.1: Types and roles of role players in warehousing and distribution operations [KT0101]...... 9
Topic 1.2: Concept and principles of warehousing and distribution [KT0102]................................... 11
Topic 1.3: Protocols for warehousing and distribution operator and customer [KT0103].................32
Topic 1.4: Basic concepts of customer relationship [KT0104]..............................................................32

Chapter 2 | Construction layout and Safety [KM-03-KT02]........................................................... 33
Topic 2.1: Construction, layout, and safety consideration for warehouse [KT0201]..........................34
Topic 2.2: Types of materials and relations to different forms of warehousing [KT0202]................. 34
Topic 2.3: Principles of Safety, Health, Environment, Risk and Quality (SHERQ) Management
[KT0203]................................................................................................................................................. 34

Chapter 3 | Basic Concepts of Physical Distribution Systems [KM-03-KT03]................................ 37
Topic 3.1: Types and roles of role-players in cargo distribution [KT0301].......................................... 38
Topic 3.2: Role of information technology in modern distribution systems [KT0302].......................41
Topic 3.3: Appropriate routing for a consignment [KT0303]............................................................... 44

Chapter 4 | Administration and Documentation for Warehousing [KM-03-KT04]...................... 50
Topic 4.1: Calculating warehouse and distribution charges [KT0401].................................................50
Topic 4.2: Document filing systems [KT0402].......................................................................................54

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Introduction

Welcome

Dear Learner

Welcome to the module entitled ‘Warehouse and Distribution Theory’. The curriculum
code for the module is 333101000-KM-03. In terms of the curriculum, this module has been
designated as a ‘Knowledge Module’ and is the third in a series of four (4) knowledge
modules related to the qualification specified below.

This module will prove to be both interesting and challenging for you. In order to
successfully complete this module, you will be required to devote at least 50 ‘notional’
hours to comprehensive reading and study of the learning resources provided to you
(including but not limited to this Learner Guide), as well as completion of the relevant
assessments. Notional hours will be explained later in this introduction.

This module is part of a qualification titled ‘Occupational Certificate: Clearing and
Forwarding Agent’ which registered with the 1South African Qualifications Authority (SAQA)
and administered by the 2Quality Council for Trades and Occupations (QCTO).

Purpose and Rationale of the Qualification

Purpose:

3The purpose of this qualification is to prepare a learner to operate as a Clearing and
Forwarding Agent.

A Clearing and Forwarding Agent carries out customs clearing procedures and ensures that
insurance, export/import licences, and other formalities are in order to facilitate the
movement of cargo internationally and locally and ensures compliance with current
legislation.

A qualified learner will be able to:

1. Forward cargo within the local and international logistics environment.
2. Observe compliance with statutory requirements within the local and international

logistics environment.
3. Conduct warehousing operations within the local and international logistics

environment.

1 http://www.saqa.org.za/ 2
2 https://www.qcto.org.za/
3 http://regqs.saqa.org.za/viewQualification.php?id=96368

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4. Assist with distribution of cargo within the local and international logistics
environment.

Rationale:

This qualification reflects the workplace-based needs of the international logistics and
freight forwarding industry that relates to the clearing and forwarding operations that have
been expressed by all role-players to meet both current and future needs. It will contribute
to the upliftment of the industry and set a standard of professionalism in the industry.

This qualification serves to equip the qualifying learner with the fundamental skills,
knowledge, and attitudes necessary to support the provision of world-class services and
improve customer service in international logistics and supply chain management to
promote an efficient and comprehensive national and international cargo movement
system.

The intention of this qualification is - to ensure that South Africa remains compliant with
national and international standards for the movement of cargo within and across its
borders, by promoting the development of functional knowledge and competencies that are
required in the Freight Forwarding and Customs Compliance environment; and providing
opportunities for career pathways and life-long learning for learners in the Freight
Forwarding and Customs Compliance environment.

The Forwarding and Clearing Industry (F & C) comprises economic activities and supply
chains that relate to all imports and exports of goods entering or leaving South Africa as well
as those transiting this country. This is essential for the success of every industry in South
Africa and therefore contributes to the growth of the South African economy as a whole.
This industry is critical to the ongoing performance of South Africa as an international
trading nation, and its activities facilitate all forms of physical trade. Though there are many
areas of commerce and industry critical to the long-term performance of the economy,
there are few more so than this industry.

Logistics, a major component of the supply chain, contributes substantially to the costs of
the goods in South Africa, and is above the international norm. A large proportion of this
overspend could be attributed to inefficiencies and lack of competence. In order to compete
globally, South Africa needs to achieve just-in-time delivery as an essential requirement of
its cost efficiency. This requires the maintenance of world-class supply chains, competence,
and skills.

The F & C Industry serves as an input to nearly every industry in the national and
international economy and utilises all modes of transport involved in the carriage of goods,
cargo, and freight, be it by ocean, air, rail, or road. The industry is also a service provider of
warehouses, transit sheds and the associated management of shipment tracking, costing,
and accounting data. The transport sector, including the Forwarding and Clearing Industry,
comprises a substantial proportion of South Africa's national carbon footprint, and is

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therefore the ideal environment to maximise the impact of practical, new, green logistics
approaches and technologies.

Structure of Qualification

The Clearing and Forwarding Agent qualification is structured in the manner outlined in the
table below:

KNOWLEDGE MODULES

Module Code Module Title Credits

333101000-KM-01 Freight Forwarding Practice and Procedures Theory 20
12
333101000-KM-02 Compliance and Brokerage Theory 5
3
333101000-KM-03 Warehouse and Distribution Theory 40

333101000-KM-04 Environment, Energy Efficiency and Ethics Credits

TOTAL (KM) MODULE CREDITS 10
8
PRACTICAL SKILLS MODULES
8
Module Code Module Title
10
333101000-PM-01 Plan and co-ordinate freight movement of cargo
10
333101000-PM-02 Plan and co-ordinate customs clearing, delivery and 5

pickup of cargo 3
54
333101000-PM-03 Prepare and process data/documentation associated
Credits
with international trade in compliance with applicable
8
and current legislation 8
2
333101000-PM-04 Audit commodities against customs and other statutory
8
requirements
26
333101000-PM-05 Apply rebate, drawback, and bond facilities
120
333101000-PM-06 Prepare documents for receipt, storage, and removal of

warehoused cargo

333101000-PM-07 Prepare receipts of cargo to be distributed

TOTAL (PM) MODULE CREDITS

WORK EXPERIENCE MODULES

Module Code Module Title

333101000-WM-01 Conduct cargo forwarding processes

333101000-WM-02 Process customs compliance procedures

333101000-WM-03 Communication and documentation for warehousing

processes and requirements

333101000-WM-04 Documentation for distribution processes and

procedures

TOTAL (WM) MODULE CREDITS

TOTAL (QUALIFICATION) MODULE CREDITS

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Purpose of Knowledge Module [333101000-KM-03]

The main focus of the learning in this knowledge module is to build an understanding of to
build an understanding of the theory required for warehouse and distribution. The
knowledge acquired will enable learners to demonstrate an understanding of introduction
to warehousing and distribution operations, construction layout and safety, basic concepts
of physical distribution systems and administration and documentation for warehousing.

SAQA Exit Level Outcome Associated with this Module.

The ‘Exit Level Outcome’ associated with this module as found in the relevant qualification
document for SAQA qualification ID – 96368 is:

Exit Level Outcome 3: Conduct warehousing operations within the international logistics
environment.

Associated Assessment Criteria for Exit Level Outcome 3

The ‘Associated Assessment Criteria for Exit Level Outcome 3’ for this module, as found in
the relevant qualification document for SAQA qualification ID 96368 are:

 Compliance of incoming and outgoing goods is verified against industry regulatory
requirements.

 Cargo is checked for completeness and possible losses and damage.
 Just-received inbound document to confirm loss or damage is completed, amended,

and recorded according to the policies and procedures of the company.
 Documentation or data notification to the warehouse to reflect incoming and

outgoing cargo/goods is generated.
 The goods received/goods dispatched notes according to standard operating

procedures and regulatory requirements are completed.
 All required documents to confirm weight and dimensions of the cargo are completed.
 The type of cargo for storage and risk-profiling purposes is assessed according to

physical attributes.
 Storage space for different types of cargo allocated to clients is identified, evaluated,

and recorded.
 Stock-taking activities according to international logistics regulatory requirements

are conducted.

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Resources

In order to assist you in your learning experience, you will be provided with the following
resources:

Resource Description and Purpose
Learner Guide The Learner Guide serves as your main resource manual and textbook. It
is also alternatively referred to as a Knowledge Module.

It provides detailed content in terms of the theoretical knowledge
components of the curriculum which you are required to demonstrate an
understanding of.

You will receive one (1) Learner Guide per Knowledge Module.

NB: The qualification you are undertaking comprises four (4) Knowledge
Modules.

Learner Workbook The Learner Workbook serves as your Assessment Guide and contains
quizzes/questionnaires/tests and exercises which will form part of the
formative assessment process of your training.

These formative assessments will be based on the Internal Assessment
Criteria (IACs) as outlined in the curriculum document which pertains to
this qualification.

Your facilitator will advise and guide you regarding the due dates and
manner of submission of your assessments. Furthermore, your
answers/responses to these formative assessments will be appropriately
collated, graded and filed physically and/or electronically.

These assessment records should and will be kept as part of your
Portfolio of Evidence (POE).

References Your Learner Guide will contain multiple footnotes and other references
in the b which bibliography which you are encouraged to refer to in order
to supplement your knowledge and mastery of the subject matter being
discussed in that particular topic.

Furthermore, your Facilitator may also provide you with additional
readings or information in the form of handouts in relation to any of the
various topics which you will be studying.

You are encouraged to file and keep a record of these handouts for
reference when needed.

Practical Skills You will receive seven (7) Practical Skills Modules or one (1) integrated
Module(s) Logbook(s) Practical Skills Module depending on the preferences of your Facilitator
and/or Assessor.

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Resource Description and Purpose

Work Experience You will be required to utilise the logbooks to record evidence of your
Module(s) Logbook(s) having completed the activities outlined therein. You will also be
required to submit this evidence for incorporation into your Portfolio of
Hyperlinks Evidence (POE).

Both you and your Assessor will be required to sign-off the activities in
the logbook.

You will receive four (4) Work Experience Modules or one (1) integrated
Work Experience Module depending on the preferences of your
Facilitator and/or Assessor.

You will be required to utilise the logbooks to record evidence of your
having completed the activities outlined therein. You will also be
required to submit this evidence for incorporation into your Portfolio of
Evidence (POE).

Both you and your Workplace Supervisor will be required to sign-off the
activities in the logbook.
If you are accessing this document electronically, whenever you see
underlined blue text, please note that you may click on that hyperlinked
text to access more resources relevant to the topic at hand.

Structure of this Module

This module delivered at 4NQF Level 5. It comprises a total of 5 credits, hence the 50
notional hours of study required.

1 credit is equivalent to 10 notional hours of study.

The module is broken down into ‘Chapters and ‘Topics’ or Topic Elements.

The chapters are outlined as follows and have been set to be in sync with the curriculum:

Chapter Chapter Description Component

1 Introduction to warehousing and distribution operations KM-03-KT01
2 Construction layout and Safety KM-03-KT02
3 KM-03-KT03
4 Basic Concepts of Physical Distribution Systems KM-03-KT04
Administration and Documentation for Warehousing

4 National Qualifications Framework: See SAQA website for definition of NQF. 7

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Chapter 1 | Introduction to warehousing and distribution
operations [KM-03-KT01]

The Topic Elements to be covered in the chapter referenced above include:

Topic Topic Element/Heading Knowledge/Theory
No. Code

1 Types and roles of role players in warehousing and KT0101
distribution operations
2
3 Concept and principles of warehousing and distribution KT0102

4 Protocols for warehousing and distribution operator KT0103
and customer

Basic concepts of customer relationship KT0104

By the end of this chapter, you should be able to demonstrate an understanding of the
following Internal Assessment Criteria (IAC) or Learning Outcomes relevant to this topic:

No. Outcomes IAC

1 Describe the concepts of warehousing and distribution and IAC0101
their relation to freight operations
IAC0102
2 Discuss the roles of different stakeholders in warehousing and
distribution IAC0103

3 Define customer relations concepts

***

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Topic 1.1: Types and roles of role players in warehousing and distribution
operations [KT0101]

Warehousing – An Integrated Supply Chain Component

In the context of supply chain management, logistics exists to move and position inventory
to achieve desired time, place, and possession benefits at the lowest total cost. Inventory
has limited value until it is positioned at the right time and at the right location to support
ownership transfer or value-added creation. If a firm does not consistently satisfy time and
place requirements, it has nothing to sell. For a supply chain to realize the maximum
strategic benefit of logistics, the full range of functional work must be integrated. Decisions
in one functional area will impact cost of all others. It is this interrelation of functions that
challenges the successful implementation of integrated logistical management. The diagram
below provides a visual representation of the interrelated nature of the five areas of
logistical work:

 Order processing

 Inventory

 Transportation

 Warehousing

 Materials handling

 Packaging 9

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 Facility network.
As described below, work related to these functional areas combines to create the
capabilities needed to achieve logistical value.
The relations between warehousing and other functional areas are depicted in diagram
below.

(1)

(5) (2)

(4) (3)

The first three functional areas of logistics in the supply chain – order processing, inventory,
and transportation – can be engineered into a variety of different operational arrangements.
Each arrangement has the potential to contribute to a specified level of customer service
with an associated total cost. In essence, these functions combine to create a system
solution for integrated supply chain. The fourth functionality of logistics – warehousing,
materials handling, and packaging – also represents an integral part of a logistics operating
solution. Warehousing, materials handling, and packaging are an integral part of other
logistics areas. For example, inventory typically needs to be warehoused at selected times
during the logistics process. Transportation vehicles require materials handling for efficient
loading and unloading. Finally, the individual products are most efficiently handled when
packaged together into shipping cartons or other unit loads.
When distribution facilities are required in a supply chain system, a firm can choose
between the services of a warehouse specialist or operating their own facility. The decision
is broader than simply selecting a facility to store inventory since many value-adding
activities may be performed during the time products are warehoused. Examples of such
activities are sorting, sequencing, order selection, transportation consolidation, and, in
some cases, product modification and assembly.

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Within the warehouse, materials handling is an important activity. Products must be
received, moved, stored, sorted, and assembled to meet customer order requirements. The
direct labour and capital invested in materials handling equipment is a significant element
of total supply chain /logistics cost. When performed in an inferior manner, materials
handling can result in substantial product damage. It stands to reason that the fewer the
times a product is handled, the less the potential exists for product damage and the overall
efficiency of the warehouse is increased. A variety of mechanized and automated devices
exist to assist materials handling. In essence, each warehouse and its materials handling
capability represent a mini system within the overall logistical process.

To facilitate handling efficiency, products in the form of cans, bottles, or boxes are typically
combined into larger units. This larger unit, typically called the master carton, provides two
important features. First, it serves to protect the product during the logistical process.
Second, the master carton facilitates ease of handling, by creating one large package rather
than a multitude of small, individual products. For efficient handling and transport, master
cartons are typically consolidated into larger unit loads. The most common units for master
carton consolidation are pallets, slip sheets, and various types of containers.

When effectively integrated into an enterprise's logistical operations, warehousing,
materials handling, and packaging facilitate the speed and overall ease of product flow
throughout the logistical system. In fact, several firms have engineered devices to move
broad product assortments from manufacturing plants directly to retail stores without
intermediate handling.

Topic 1.2: Concept and principles of warehousing and distribution [KT0102]

Warehousing incorporates many different aspects of supply chain operations. Due to the
interaction, warehousing does not fit the neat classification schemes used when discussing
order management, inventory, or transportation. A warehouse is typically viewed as a place
to hold or store inventory. However, in contemporary supply chain systems, warehouse
functionality can be more properly viewed as inventory mixing. This chapter provides a
foundation for understanding the value of warehousing contributes to supply chain of
organization. The discussion is relevant for all types of warehouses ranging from distribution
centres, consolidation terminals, break-bulk facilities, and cross-docks. The objective is to
introduce general managerial responsibilities related to warehousing.

While effective logistics systems should not be designed to hold inventory for extended
times, there are occasions when inventory storage is justified on the basis of cost and
service.

Strategic Warehousing

Storage has always been an important aspect of economic development. In the pre-
industrial era, storage was performed by individual households forced to function as self-
sufficient economic units. Consumers performed warehousing and accepted the attendant
risks.

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As transportation capability developed, it became possible to engage in specialization.
Product storage shifted from households to retailers, wholesalers, and manufacturers.
Warehouses stored inventory in the supply chain pipeline, serving to coordinate product
supply and consumer demand. Because the value of strategic storage was not well
understood, warehouses were often considered "necessary evils" that added cost to the
distribution process. The concept that middlemen simply increase cost follows from that
belief. The need to deliver product assortments was limited. Labour productivity, materials
handling efficiency, and inventory turnover were not major concerns during this early era.
Because labour was relatively inexpensive, human resources were used freely. Little
consideration was given to efficiency in space utilization, work methods, or materials
handling. Despite such shortcomings, these initial warehouses provided a necessary bridge
between production and marketing.

Following World War II, managerial attention shifted toward strategic storage. Management
began to question the need for vast warehouse networks. In the distributive industries such
as wholesaling and retailing, it was traditionally considered best practice to dedicate a
warehouse containing a full assortment of inventory to every sales territory. As forecasting
and production scheduling techniques improved, management questioned such risky
inventory deployment. Production planning became more dependable as disruptions and
time delays during manufacturing decreased. Seasonal production and consumption still
required warehousing, but overall need for storage to support stable manufacturing and
consumption patterns was reduced.

Changing requirements in retailing more than offset any reduction in warehousing obtained
as a result of these manufacturing improvements. Retail stores, faced with the challenge of
providing consumers an increasing assortment of products, found it more difficult to
maintain purchasing and transportation economics when buying from suppliers. The cost of
transporting small shipments made direct ordering prohibitive. This created an opportunity
to establish strategically located warehouses to provide timely and economical inventory
replenishment for retailers. Progressive wholesalers and integrated retailers developed
state-of-the-art warehouse systems to logistically support retail replenishment. Thus, the
focus on warehousing shifted from passive storage to strategic assortment that leads to
strategic supply chain management providing the organization with competitive advantage
in the competition.

Improvements in retail warehousing efficiency soon were adopted by manufacturing. For
manufacturers, strategic warehousing offered a way to reduce holding or dwell time of
materials and parts. Warehousing became integral to Just-in-Time (JIT) and stockless
production strategies. While the basic notion of JIT is to reduce work-in-process inventory,
such manufacturing strategies need dependable logistics. Achieving such logistical support
across the U.S. geography requires strategically located warehouses. Utilizing centralized
parts inventory at a central warehouse reduces the need for inventory at each assembly
plant. Products can be purchased and shipped to the strategically located central warehouse,
taking advantage of consolidated transportation.

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At the warehouse, products are sorted, sequenced, and shipped to specific manufacturing
plants as needed. Where fully integrated, sortation and sequencing facilities become a vital
extension of manufacturing.

On the outbound side of manufacturing, warehouses can be used to create product
assortments for customer shipment. The capability to receive mixed product shipments
offers customers two specific advantages. First, logistical cost is reduced because an
assortment of products can be delivered while taking advantage of consolidated
transportation. Second, inventory of slow-moving products can be reduced because of the
capability to receive smaller quantities as part of a consolidated shipment. Manufacturers
that provide assorted product shipments can achieve a competitive advantage.

An important charge in warehousing is maximum flexibility. Such flexibility can often be
achieved through information technology. Technology-based applications have influenced
almost every area of warehouse operation and created new and better ways to perform
storage and handling. Flexibility is also an essential part of being able to respond to
expanding customer demand in terms of product assortments and the way shipments are
delivered and presented. Information technology facilitates this flexibility by allowing
warehouse operators to quickly react to changing customer requirements.

Warehouse Planning

Initial decisions related to warehousing are planning based. The basic concept that
warehouses provide as an enclosure for material storage and handling requires detailed
analysis before the size, type, and shape of the facility can be determined. This section
reviews planning issues that establish the character of the warehouse, which in turn
determines attainable handling efficiency.

1. Site Selection

The first task is to identify both the general and then the specific warehouse location. The
general area concerns the broad geography where an active warehouse makes sense from a
service, economic, and strategic perspective. The general question focuses on the broader
geographic area as illustrated by the need to place a warehouse in the Midwest, which
generally implies having a facility in Illinois, Indiana, or Wisconsin. There are a number of
techniques that can assist in determining the best combination of general warehouse areas.

Once the combinations of broad areas are determined, a specific building site must be
identified. Typical areas in a community for locating warehouses are the commercial zone,
outlying areas served primarily by motor truck only, and the central or downtown area.

Drivers in site selection are service availability and cost. Land cost is the most important
factor. A warehouse need not be located in a major industrial area. In many cities,
warehouses are among industrial plants and in areas zoned for light or heavy industry. Most

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warehouses can operate legally under the restrictions placed upon general commercial
property.
Beyond procurement cost, setup, and operating expenses such as rail sidings, utility hook-
ups, taxes, insurance rates, and highway access require evaluation. The cost of such services
typically varies extensively between sites. For example, a food-distribution firm recently
rejected what otherwise appeared to be a totally satisfactory warehouse site because of
projected insurance rates. The site was located near the end of a water main. During most
of the day, adequate water pressure was available to handle operational and emergency
requirements. However, a water problem was possible during two short periods each day.
From 6:30 A.M. to 8:30 A.M. and from 5:00 P.M. to 7:00 P.M. the overall demand for water
along the line was so great that a sufficient pressure was not available to handle
emergencies. Because of this deficiency, abnormally high insurance rates were required,
and the site was rejected.

Several other requirements must be satisfied before a site is purchased. The site must offer
adequate room for expansion. Necessary utilities must be available. The soil must be
capable of supporting the structure. The site must be sufficiently high to afford proper
water drainage. Additional requirements may be situationally necessary, depending upon
the structure to be constructed. For these reasons and others, the final selection of the sight
must be preceded by extensive analysis.

Warehouse design must consider product movement characteristics. Three factors to be
determined during the design process are the number of floors to include in the facility, a
cube utilization plan, and product flow.
The ideal warehouse design is a one-floor building that eliminates the need to move product
vertically. The use of vertical handling devices, such as elevators and conveyors, to move
product from one floor to the next requires time, energy, and typically creates handling
bottlenecks. So, while it is not always possible, particularly in central business districts
where land is restricted or expensive, as a general rule warehouses should be designed as
one-floor operations to facilitate materials handling.

Warehouse design should maximize cubic utilization. Most warehouses are designed with
20- to 30-foot clear ceilings, although modem automated and high-rise facilities effectively
use heights over 100 feet. Maximum effective warehouse height is limited by the safe lifting
capabilities of materials handling equipment, such as lift trucks, rack design, and fire safety
regulations imposed by sprinkler systems.

Warehouse design should facilitate continuous straight product flow through the building.
This is true whether the product is moving into storage or is being cross docked. In general,
this means that product should be received at one end of a building, stored as necessary in
the middle, and shipped from the other end.

The diagram below illustrates straight-line product flow that facilitates velocity while
minimizing congestion and redundant handling.

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Basic Warehouse Design
2. Product-Mix Analysis
Another independent area of quantitative analysis is detailed study of products to be
distributed through the warehouse. The design and operation of a warehouse are related
directly to the product mix. Each product should be analysed in terms of annual sales,
demand, weight, cube, and packaging. It is also desirable to determine the total size, cube,
and weight of the average order to be processed through the warehouse. These data
provide necessary information for determining warehouse space, design and layout,
materials handling equipment, operating procedures, and controls.

3. Future Expansion
Because warehouses are increasingly important in contemporary logistical networks, their
future expansion should be considered during the initial planning phase. Well-managed
organizations often establish 5- to 10-year expansion plans. Potential expansion may justify
purchase or option of a site three to five times larger than required to support initial
construction.
Building design should accommodate future expansion without seriously affecting on-going
operations. Some walls may be constructed of semi-permanent materials to allow quick

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removal. Floor areas, designed to support heavy movements, can be extended during initial
construction to facilitate expansion.

4. Materials Handling Considerations

A materials handling system is the basic driver of warehouse design. As noted previously,
product movement and assortment are the main functions of a warehouse. Consequently,
the warehouse is viewed as a structure designed to facilitate efficient product flow. It is
important to stress that the materials handling system must be selected early in the
warehouse development process.

5. Layout

The layout or storage plan of a warehouse should be planned to facilitate product flow. The
layout and the material handling system are integral. In addition, special attention must be
given to location, number, and design of receiving and loading docks.

It is difficult to generalize warehouse layouts since they are usually customized to
accommodate specific handling requirements. If pallets are utilized, an early step is to
determine the appropriate size. A pallet of nonstandard size may be desirable for
specialized products. However, whenever possible, a standard size pallet should be used
throughout a warehouse. The most common pallet sizes are 40 x 48 inches and 32 x 40
inches. In general, the larger the pallet load, the lower the movement cost per pound or
package over a given distance. One lift truck operator can move a large load at the same
time and with the same effort required to move a smaller load. Analysis of product cases
and stacking patterns will determine the size of pallet best suited to the operation.
Regardless of the size finally selected, management should adopt one pallet size for the
overall warehouse.

The second step in planning warehouse layout involves pallet positioning. The most
common practice in positioning pallets is 90 degree, or square, placement. Square
positioning is widely used because of layout ease. Square placement means that the pallet is
positioned perpendicular to the aisle. The diagram below illustrates this method of
positioning.

900 or Square Placement

Aisle

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Basic Method of Pallet Placement

Finally, the handling equipment must be integrated to finalize layout. The path and tempo
of product flow depend upon the materials handling system. To illustrate the relationship
between materials handling and layout, two systems and their respective layouts are
illustrated. These examples represent two of many possible layouts.
Layout A, illustrated in Figure 2-8, illustrates a materials handling system and layout utilizing
lift trucks for inbound and inventory transfer movements and tow tractors with trailer for
order selection. This scenario assumes that products can be palletized. This layout is greatly
simplified because offices, special areas, and other details are omitted.
The floor plan of layout A is approximately square. The advocates of square design feel that
it provides the best framework for overall operating efficiency. As indicated earlier in this
chapter, products should be positioned in a specific area of the warehouse for order
selection. Such is the case in layout A. This area is labelled the selection, or picking, area. Its
primary purpose is to minimize the distance order pickers must travel when assembling an
order.
The selection area is supported by a storage area. When products are received, they are
palletized and moved to the storage area. The selection area is replenished from storage as
required. Within the selection area, products are positioned according to weight, bulk, and
replenishment velocity to minimize outbound movement. Customer orders are assembled
by an order selector using a tow tractor pulling trailers through the selection area. The
arrows in layout A indicate product selection flow.

Layouts A and B
Layout B illustrates a materials handling system utilizing lift trucks to move product inbound
and for transfer movements. A continuous towline is used for order selection.

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The floor plan in layout B is rectangular. In a system using a continuous-movement towline,
the compact selection area is replaced by order selection directly from storage. Products are
moved from receiving areas into storage positions adjacent to the towline. The orders are
then selected directly from storage and loaded onto carts, which are propelled around the
warehouse by the towline.
Merchandise is stored or positioned to minimize inbound movement. The weakness of the
fixed towline is that it facilitates selection of all products at an equal speed and frequency
and does not consider special needs of high-velocity products. The arrows in layout B
indicate major product movements. The line in the centre of the layout illustrates the path
of the towline.

As indicated, both layouts A and B are greatly simplified. The purpose is to illustrate the
extremely different approaches managers have developed to reconcile the relationship
between materials handling and warehouse layout.

6. Sizing

Several techniques are available to help estimate warehouse size. Each method begins with
a projection of the total volume expected to move through the warehouse during a given
period. The projection is used to estimate base and safety stocks for each product to be
stocked in the warehouse. Some techniques consider both normal and peak utilization rates.
Failure to consider utilization rates can result in overbuilding, with corresponding increase in
cost. It is important to note, however, that a major complaint of warehouse managers is
underestimation of warehouse size requirements. A good rule of thumb is to allow 10%
additional space to account for increased volume, new products, and new business
opportunities.

Initiating Warehouse Planning

To initiate warehouse operations, management must plan and perform initial stocking,
personnel staffing, and work procedures, as well as implement a Warehouse Management
System (WMS) and outbound distribution operations. Although this focuses on the
warehouse start-up process, many of these activities are relevant for on-going warehouse
operations as well.

1. Stocking

The ideal initial stocking procedure is to receive and stock all inventory items prior to
initiating operations. Individual products to be distributed through the warehouse and the
quantities of each inventory SKU are determined during warehouse planning. The challenge
in initial stocking is to schedule and sequence product arrival. Time required to initially stock
a warehouse depends upon the number and quantity of products. In most situations the
initial stocking process will require 2 to 4 weeks for completion.

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In a storage area, full pallet loads of product are assigned to predetermined positions. Two
common methods of slot assignment are variable and fixed. A variable-slot placement
system, also called dynamic slotting, allows the warehouse location to be changed each
time a new shipment arrives.

The goal of variable slotting is efficient utilization of warehouse space. A fixed-slot system
assigns product to a permanent location in the warehouse. The product is stocked at this
location as long as it sustains volume. As volume increases or decreases, the product
location may be reassigned. The advantage of fixed slotting is that warehouse operations
personnel become familiar with the location of specific product, making them more efficient.
However, newer WMS and RF capabilities have substantially increased location recording
accuracy. Regardless of which slotting system is employed, each inbound product must be
assigned an initial location.

2. Training

A major concern in logistical operations over the past several decades has been labour
productivity. The basic nature of raw materials, parts, and finished goods flowing through
and between a vast network of facilities makes logistics labour-intensive. In fact,
warehousing is the single largest consumer of logistics labour.

Hiring and training qualified personnel to operate a warehouse is a challenge. Regardless of
how efficient the proposed warehouse system is in theory; in practice it will only be as good
as its operating personnel. Part of the challenge is to attract competent, productive workers
to a warehouse environment. Because warehousing is demanding physical work completed
at times and in locations that are less than ideal, it becomes particularly difficult to attract
workers in periods of relatively full employment. Compounding this challenge in warehouse
start-up as well as on-going operations is the need to find operating personnel who can pass
necessary aptitude and drug tests. Newer materials handling equipment requires the ability
to interface with computers and the discipline to follow specific directions. The drug tests
are required to reduce the liability for personal injury or damage while operating materials
handling equipment.

Once hired, personnel then must be properly trained to ensure desired system results. The
full workforce should be available for test operations prior to the arrival of merchandise.
Personnel hired for specific assignments should be fully trained to perform job
requirements and to understand the role of their contribution to total system performance.
After orientation, all employees should be given specific training. Personnel hired to operate
a warehouse may be grouped in the following categories: administrators, supervisors,
selectors, equipment operators, labourers, material handlers, and support workers such as
maintenance.

Prior to actual operations it is desirable to simulate the work that each group performs.
Such simulation provides hands-on experience doing work without the risk of creating
operational problems. When initial warehouse stocking begins, the workforce receives
actual experience in merchandise handling. Normally, the manufacturer supplying the basic

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materials handling system and equipment provides instruction regarding operations under
both simulated and initial stocking conditions. Once the initial inventory is on hand, it is
good practice to simulate fulfilling customer orders. Simulated orders can be selected and
loaded into delivery trucks, and the merchandise may then be treated as a new arrival and
transferred back into stock.

3. Warehouse Management Systems

The development of work procedures goes hand in hand with training warehouse personnel.
Most firms implement a WMS to standardize work procedure and encourage best practice.
It is management's responsibility to see that all personnel understand and use these
procedures.

In a mechanized warehouse, approximately 65% of personnel are employed in some facet of
order selection. The two basic methods of order picking are individual and area selection,
also known as batch selection. Using individual selection, one employee completes a
customer's total order. This system is not widely used. Its primary application occurs when a
large number of small orders are selected for repack or consolidated shipment, such as e-
commerce fulfilment. Under the more commonly used area selection system each
employee is assigned responsibility for a specific portion of the warehouse. To complete a
customer's order, several different selectors are required. Because each employee has a
thorough knowledge of a specific selection area; less time is required to locate items.

Work procedures are also important for receiving and shipping. Established procedures for
receiving and ensuring product entry into inventory records are critical. If pallets are used,
the merchandise must be stacked in appropriate patterns to ensure maximum load stability
and consistent case counts. Personnel working in shipping must have knowledge of trailer
loading practices. In specific types of operations, particularly when merchandise changes
ownership, items must be checked during loading.

Work procedures are not restricted to floor personnel. Procedures must be established for
administration and maintenance. Replenishment of warehouse inventory can cause
operational problems if proper ordering procedures are lacking. Normally, there is limited
interaction between buyers and warehouse personnel although such communication is
improving with integrated supply chain management organizations. Buyers tend to
purchase in quantities that afford the best price, and little attention is given to pallet
compatible quantities or available warehouse space.

Ideally buyers should coordinate with warehouse personnel before commissioning large
orders or introducing new products. The experience of some companies has forced
management to require buyers to predetermine warehouse space assignment prior to
ordering. Another potential problem is the quantity of cases ordered. The goal is to
purchase in pallet-multiple quantities.

For example, if a product is ideally stacked on pallets in a 50-case pattern, the buyer should
order in multiples of 50. If an order is placed for 120 cases, upon arrival the cases will fill

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two pallets plus 20 on a third pallet. The extra 20 cases will require the warehouse cubic
space typically used for a pallet of 50 and will require the same number of materials
handling capacity to move.

4. Security

In a broad sense, security in a warehouse involves protection against merchandise pilferage
and deterioration. Each form of security requires management attention.

5. Pilferage Protection

In warehouse operations it is necessary to protect against theft by employees and thieves as
well as from riots and civil disturbances. Typical security procedures used throughout a
business should be strictly enforced at each warehouse. Security begins at the fence. As
standard procedure, only authorized personnel should be permitted into the facility and
surrounding grounds. Entry to the warehouse yard should be controlled through a single
gate. Without exception, no private automobile, regardless of management rank or
customer status, should be allowed to enter the yard or park adjacent to the warehouse.

To illustrate the importance of security guidelines, the following experience may be helpful.
A firm adopted the rule that no private vehicles would be permitted in the warehouse yard.
Exceptions were made for two office employees with special needs. One night after work,
one of these employees discovered a bundle taped under one fender of his car. Subsequent
checking revealed that the car was literally a loaded delivery truck. The matter was
promptly reported to security, who informed the employee not to alter any packages taped
to the car and to continue parking inside the yard. Over the next several days, the situation
was fully uncovered, with the ultimate arrest and conviction of seven warehouse employees
who confessed to stealing thousands of Rands worth of company merchandise. The firm
would have been far better off had it provided transportation for the two special-needs
employees from the regular parking lots to their work locations.

Shortages are always a major concern in warehouse operations. Many are honest mistakes
that occur during order selection and shipment, but the purpose of security is to restrict
theft from all angles. The majority of thefts occur during normal working hours.

Inventory control and order processing systems help protect merchandise from being
carried out of the warehouse unless accompanied by a computer release document. If
samples are authorized for salesperson use, such merchandise should be maintained in a
separate inventory. Not all pilferage occurs on an individual basis. Organized efforts
between warehouse personnel and carrier truck drivers can result in deliberate over-picking,
or high-for-low-value product substitution occurring in order to move unauthorized
merchandise out of the warehouse. Employee work assignment rotation, total case counts,
and occasional complete line-item checks can reduce vulnerability to such collaboration.

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A final concern is the increased incidence of hijacking over-the-road trailer loads from yards
or while in transit. Hijacking is a major logistical concern. Over-the-road hijack prevention is
primarily a law-enforcement matter, but in-yard theft can be eliminated by tight security
provisions.

Such over-the-road theft is a significant problem in developing countries. One beverage
company manager reported that he budgeted to lose one truck a week due to theft for his
South American operation. He instructed his drivers to simply turn over the keys and walk
away rather than risk their life.

6. Product Deterioration

Within the warehouse, a number of factors can reduce a product or material to non-
saleable status. The most obvious form of product deterioration is damage from careless
materials handling. For example, when pallets of merchandise are stacked in great heights, a
marked change in humidity or temperature can cause packages supporting the stack to
collapse. The warehouse environment must be carefully controlled and measured to
provide proper product protection.

Of major concern is warehouse employee carelessness. In this respect, the lift truck may
well be management's worst enemy. Regardless of how often lift truck operators are
warned against carrying overloads, some still attempt such shortcuts when not properly
supervised. In one situation, a stack of four pallets was dropped off a lift truck at the
receiving dock of a food warehouse. Standard procedure was to move two pallets per load.
The Rand cost of the damaged merchandise exceeded the average daily profit of two retail
supermarkets. Product deterioration from careless handling within the warehouse is a form
of loss that cannot be insured against or offset with compensating revenue.

Another major form of deterioration is incompatibility of products stored or transported
together. For example, care must be taken when storing or shipping chocolate to make sure
that it does not absorb odours from products it is being transported with, such as household
chemicals.

Most shipments from distribution warehouses to customers are completed by truck. When
private trucking is utilized, a managerial concern is to schedule shipments to achieve
efficient transportation. Computer-assisted load planning and equipment routing
techniques are especially useful for organizing transportation requirements.

7. Safety and Maintenance

Accident prevention is a concern of warehouse management. A comprehensive safety
program requires constant examination of work procedures and equipment to locate and
take corrective action to eliminate unsafe conditions before accidents result. Accidents
occur when workers become careless or are exposed to mechanical or physical hazards. The

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floors of a warehouse may cause accidents if not properly cleaned. During normal operation,
rubber and glass deposits collect on aisles and, from time to time, broken cases will result in
product seepage onto the floor.
Proper cleaning procedures can reduce the accident risk of such hazards. Environmental
safety has become a major concern of government, such as OSHA, and cannot be neglected
by management.

A preventive maintenance program is necessary for materials handling equipment. Unlike
production machines, movement equipment is not stationary, so it is more difficult to
properly maintain. A preventive maintenance program scheduling periodic checks of all
handling equipment should be applied in every warehouse.

Warehouse Functionality

Benefits realized from strategic warehousing are classified on the basis of cost and service.
No warehouse functionality should be included in a supply chain system unless it is fully
justified on some combination of cost and service basis. Ideally a warehouse will
simultaneously provide economic and service benefits and an improved supply chain
management.

Economic Benefits

Economic benefits of warehousing occur when overall logistics costs are reduced. For
example, if adding a warehouse in a supply chain 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.
Five basic economic benefits are:

 Consolidation and break-bulk

 Assortment

 Postponement

 Stockpiling

Warehouse Operations

Once a warehouse mission is determined, managerial attention focuses on establishing the
operation. A typical warehouse contains materials, parts, and finished goods on the move.
Warehouse operations consist of break-bulk, storage, and assembly procedures. The
objective is to efficiently receive inventory, possibly store it until required by the market,

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assemble it into complete orders, and initiate movement to customer. This emphasis on
product flow renders a modern warehouse as a mixing facility.

As such, a great deal of managerial attention concerns how to perform storage to facilitate
efficient materials handling.

The first consideration focuses on movement continuity and scale economies throughout
the warehouse. Movement continuity means that it is better for a material handler with a
piece of handling equipment to perform longer moves than to undertake a number of short
handlings to accomplish the same overall move. Exchanging the product between handlers
or moving it from one piece of equipment to another wastes time and increases the
potential for product damage. Thus, as a general rule, longer warehouse movements are
preferred. Goods, once in motion, should be continuously moved until arrival at their final
destination.

Scale economies justify moving the largest quantities or loads possible. Instead of moving
individual cases, handling procedures should be designed to move cases grouped on pallets,
slip sheets, or containers. The overall objective of materials handling is to eventually sort
inbound shipments into unique customer assortments. The three primary handling activities
are receiving, in-storage handling, and shipping.

1. Receiving

Merchandise and materials typically arrive at warehouses in large quantity shipments. The
first handling activity is unloading. At most warehouses, unloading is performed
mechanically, using a combination of a lift truck and manual processes. When freight is floor
stacked on the transport vehicle, the typical procedure is to manually place products on
pallets or to use a conveyor. When inbound product has been unitized on pallets or
containers, lift trucks can be used to facilitate receiving. A primary benefit of receiving
unitized loads is the ability to turn inbound transportation equipment more rapidly.
Receiving is usually the unloading of a relatively high volume of similar product.

2. In-Storage Handling

In-storage handling consists of movements within the warehouse. Following receipt and
movement to a staging location, product must be moved within the facility for storage or
order selection. Finally, when an order is processed it is necessary to select the required
products and move them to a shipping area. These two types of in-storage handling are
typically referred to as transfer and selection.

There are at least two and sometimes three transfer movements in a typical warehouse.
The merchandise is initially moved from the receiving area to a storage location. This
movement is typically handled by a lift truck when pallets or slip sheets are used or by other
mechanical means for other types of unit loads. A second internal movement may be

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required prior to order assembly depending upon warehouse operating procedures. When
unit loads have to be broken down for order selection, they are usually transferred from
storage to an order selection or picking area.
When products are large or bulky, such as appliances, this intermediate movement to a
picking area may not be necessary. Such product is often selected from the storage area and
moved directly to the shipping staging area. The shipping staging area is the area adjacent
to the shipping dock. In order selection warehouses, the assembled customer order is
transferred from the selection area to the shipping staging area. Characteristically, in-
storage handling involves lower volume movements than receiving but still relatively similar
products.

Order selection is one of the major activities within warehouses. The selection process
requires that materials, parts, and products be grouped to facilitate order assembly. It is
typical for one area of a warehouse to be designed as a selection or picking area to
assemble orders. For each order, the combination of products must be selected and
packaged to meet specific customer order requirements. The typical selection process is
coordinated by a warehouse management system.

3. Shipping

Shipping consists of order verification and transportation equipment loading. Similar to
receiving, firms may use conveyors or unit load materials handling equipment such as lift
trucks to move products from the staging area into the transportation vehicle. Relative to
receiving, warehouse shipping must accommodate relatively low-volume movements of a
mixture of product, thus reducing the potential for economies of scale. Shipping unit loads is
becoming increasingly popular because considerable time can be saved in vehicle loading. A
unit load consists of unitized or palletized product.

To facilitate this loading and subsequent unloading upon delivery, many customers are
requesting that suppliers provide mixed combinations of product within a unit. The
alternative is to floor stack cases in the transportation vehicle. Shipment content verification
is typically required when product changes ownership. Verification may be limited to a
simple carton count or a piece-by-piece check for proper brand, size, and in some cases
serial number to assure shipment accuracy.

4. Storage

The second consideration is that warehouse utilization should position products based upon
individual characteristics. The most important product variables to consider in a storage
plan are product volume, weight, and storage requirements.

Product volume or velocity is the major factor driving warehouse layout. High volume
product should be positioned in the warehouse to minimize movement distance. For
example, high-velocity products should be positioned near doors, primary aisles, and at

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lower levels in storage racks. Such positioning minimizes warehouse handling and reduces
the need for frequent lifting.

Conversely, products with low volume should be assigned locations more distant from
primary aisles or higher up in storage racks. The figure below illustrates a storage plan based
on product movement.

Storage Plan based on Product Movement.

Similarly, the storage plan should take into consideration product weight and special
characteristics. Relatively heavy items should be assigned storage locations low to the
ground to minimize lifting. Bulky or low-density product requires cubic space. Floor space
along outside walls is ideal for such items. On the other hand, smaller items may require
storage shelves, bins, or drawers. The integrated storage plan must consider individual
product characteristics.

A typical warehouse is engaged in a combination of active and extended product storage
alternatives. Warehouses that directly serve customers typically focus on active short-term
storage. In contrast, warehouses use extended storage for speculative, seasonal, or obsolete
inventory. When controlling and measuring warehouse operations, it is important to
differentiate the relative requirements and performance capabilities of active and extended
storage.

5. Active Storage

Regardless of inventory velocity, most goods must be stored for at least a short time.
Storage for basic inventory replenishment is referred to as active storage. Active storage
must provide sufficient inventory to meet the periodic demands of the service area. The
need for active storage is usually related to the capability to achieve transportation or
handling economies of scale. For active storage, materials handling processes and
technologies need to focus on quick movement and flexibility with relatively minimal
consideration for extended and dense storage.

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The active storage concept includes flow-through distribution, which uses warehouses for
consolidation and assortment while maintaining minimal or no inventory in storage. The
resulting need for reduced inventory favours flow-through and cross-docking techniques
that emphasize movement and de-emphasize storage. Flow-through distribution is most
appropriate for high-volume, fast-moving products where quantities are reasonably
predictable. While flow-through distribution places minimal demands on storage
requirements, it does require that product be quickly unloaded, de-unitized, grouped and
sequenced into customer assortments, and reloaded into transportation equipment. As a
result, the materials handling emphasis is or accurate information-directed quick movement.

6. Extended Storage

This is a somewhat misleading term, refers to inventory in excess of that required for
normal replenishment of customer stocks. In some special situations, storage may be
required for several months prior to customer shipment. Extended storage uses materials
handling processes and technologies that focus on maximum space utilization with minimal
need for quick access.

A warehouse may be used for extended storage for several other reasons. Some products,
such as seasonal items, require storage to await demand or to spread supply across time.
Other reasons for extended storage include erratic demand items, product conditioning,
speculative purchases, and discounts.

Product conditioning sometimes requires extended storage, such as to ripen bananas. Food
warehouses typically have ripening rooms to hold products until they reach peak quality.
Storage may also be necessary for extended quality checks.

Warehouses may also store goods on an extended basis when goods are purchased on a
speculative basis. The magnitude of speculative buying depends upon the specific materials
and industries involved, but it is very common in marketing of commodities and seasonal
items.

For example, if a price increase for an item is expected, it is not uncommon for a firm to buy
ahead at the current price and warehouse the product for later use. In this case, the
discount or savings has to be traded off against extended storage and inventory carrying
cost. Commodities such as grains, oil, and cardboard are often stored for speculative
reasons.

The warehouse may also be used to realize special discounts. Early purchase discounts may
justify extended storage. The purchasing manager may be able to realize a substantial price
reduction during a specific period of the year. Under such conditions the warehouse is
expected to hold inventory in excess of active storage. Manufacturers of fertilizer, toys, and

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lawn furniture often attempt to shift the warehousing burden to customers by offering off-
season warehouse storage allowances.

Different types of storage facilities and types of commodities that would be stored within
such facilities.

Warehouse Ownership Classification

Warehouses are typically classified based on ownership. A private warehouse is operated by
the enterprise that owns the merchandise handled and stored in the facility. A public
warehouse, in contrast, is operated as an independent business offering a range of for-hire
services, such as storage, handling, and transportation. Public warehouse operators
generally offer a menu of relatively standardized services to customers. Contract
warehousing, which is a customized extension of public warehousing, combines the benefits
of private and for-hire warehousing. Contract warehousing is a long-term business
arrangement that provides unique or tailored logistics services for a limited number of
customers. The client and the integrated service supplier typically share the risks associated
with the operation. The important differences between contract and public warehouse
operators are the anticipated length of the relationship, degree of exclusive or tailored
services, and shared incorporation of benefits and risks.

Private Warehousing

A private warehouse is typically operated by the firm owning the product. The building,
however, may be owned or leased. The decision concerning ownership or lease is essentially
financial. Sometimes it is not possible to find a warehouse for lease that fits specialized
logistical requirements; for example, the physical nature of an available building may not be
conducive for efficient materials handling, such as buildings with inappropriate storage
racks or with dock well or pillar constraints. The only suitable course of action may then be
to design and arrange for construction.

The major benefits of private warehousing are control, flexibility, cost, and a range of
intangibles. Private warehouses offer substantial control since management has authority to
prioritize activities. Such control should facilitate integration of warehouse operations with
the balance of a firm's logistics operations.

Private warehouses generally offer more flexibility since operating policies and procedures
can be adjusted to meet specific customer and product requirements. Firms with very
specialized customers or products are often motivated to own and operate warehouses.

Private warehousing is usually considered less costly than public warehousing because
private facilities are not operated for a profit even though they may be required to make
some contribution to the firm to ensure competitiveness. As a result, both the fixed and
variable cost components of a private warehouse may be lower than for-hire counterparts.

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Finally private warehousing may offer intangible benefits. A private warehouse, with the
firm's name on its sign, may stimulate customer perceptions of responsiveness and stability.
This perception may provide marketing advantage over competitors.
Nonetheless, the use of private warehousing is declining due to an increasing interest in
reducing logistics assets since warehouse facilities account for a substantial portion of those
assets. Also, the perceived cost benefit of private warehousing is potentially offset by a
public warehouse's ability to gain economies of scale based on leveraging the combined
throughput of multiple clients.

Public Warehousing

Public warehouses are used extensively in logistical systems. Almost any combination of
services can be arranged on a for-hire basis for either short or long term. Public warehouses
have traditionally been classified based on operational specialization such as (1) general
merchandise, (2) refrigerated, (3) special commodity, (4) bonded, and (5) household goods
and furniture.

General merchandise warehouses are designed to handle package products such as
electronics, paper, food, small appliances, and household supplies. Refrigerated warehouses
typically offer frozen or chilled capacity designed to protect food, medical, photographic,
and chemical products requiring special temperatures. Special commodity warehouses are
designed to handle bulk material or items requiring special handling considerations, such as
tires or clothing. Bonded warehouses are licensed by the government to store goods prior
to payment of taxes or import/export duties. They exert tight control over movements in
and out of the facility since documents must accompany each move. Finally, household
goods or furniture warehouses specialize in handling and storing large, bulky items such as
appliances and furniture. Of course, many public warehouses offer a combination of
services. Public warehouses provide flexibility and shared services benefits. They have the
potential to offer operating and management expertise since warehousing is their core
business.

From a financial perspective, public warehousing may be able to achieve lower operating
cost than private facilities. Such variable cost differential may result from lower pay scales,
better productivity, shared resources, and economy of scale. Public warehouses typically do
not require capital investment on the part of customers. When management performance is
judged according to return on investment, the use of public warehousing can be an
attractive alternative. Public warehousing offers flexibility concerning size and number of
warehouses, thus allowing users to respond to supplier, customer, and seasonal demands.
In comparison, private warehouses are relatively fixed and difficult to change because
buildings have to be constructed, expanded, or sold.

Public warehousing can also have the potential to share scale economies since the
combined requirements of users can be leveraged. Such leverage spreads fixed costs and
may justify investment in state-of-the-art handling equipment. A public warehouse may also

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leverage transportation by providing combined customer delivery consolidation. For
example, rather than requiring both supplier A and supplier B to deliver to a retail store
from its own warehouse, a public warehouse serving both clients could arrange combined
delivery, thus providing reduced transportation cost for the customer. Below summarizes
the types of services and capabilities characteristic of many public warehouse operators:

 Cross dock/trans-loading

 Customer returns

 Customization /postponement

 Home or catalogue delivery

 In-transit merge

 Inventory control

 Kan Ban

 Kitting

 Labelling/pre-ticketing
 Lot control

 Manufacturing support

 Order fulfilment

 Put-away/Pick/pack.

 Pool distribution

 Repair/refurbish.

 Returnable container management

 Reverse logistics

 Sequencing/metering

 Specialty packaging

 Store support/direct store delivery (DSD)

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A great many firms utilize public warehouses for market distribution because of the variable
cost, scalability, range of services, and flexibility. In a variety of situations, public warehouse
facilities and services can be designed and performed to meet exact operational
requirements.

A public warehouse charges clients a basic fee for handling and storage. In the case of
handling, the charge is assessed on the cases or pounds moved. For storage, the charge is
assessed on the cases or weight in storage over a designated time period. Special or value-
added services are typically priced on a negotiated basis.

Contract Warehousing

Contract warehousing combines characteristics of private and public operations. A long-
term contractual relationship will typically result in lower total cost than a public warehouse.
At the same time, contract warehouse operations can provide benefits of expertise,
flexibility, scalability, and economies of scale by sharing management, labour, equipment,
and information resources with multiple clients.

Contract warehouses typically offer a range of logistical services such as transportation
management, inventory control, order processing, customer service, and return
merchandise processing. There are contract warehouse operators, typically called ISPs, who
are capable of assuming total logistics responsibility for an enterprise.

For example, Kraft Foods has increasingly utilized contract warehousing as a replacement
for private and public frozen and dry grocery facilities. Since the late 1990s, Kraft has used
AmeriCold Logistics, an integrated warehousing and distribution Services Company, to
perform storage, handling, and distribution services. The arrangement has multiple benefits
for both parties.

The long-term contractual arrangement allows Kraft to expand its distribution network
without incurring the time or cost of building expansion. Kraft is assured that there will
always be space for new products, so its distribution network is protected. AmeriCold does
not have to be concerned with selling space for the Kraft warehouses – it can focus on
providing service. Moreover, the longer Kraft utilizes AmeriCold's services, the better the
contract warehousing firm's capability to understand business needs and provide
customized services.

As would be expected, many firms utilize a combination of private, public, and contract
facilities. Full warehouse utilization throughout a year is rare. As a managerial guideline, a
typical warehouse will be fully utilized between 75 and 85% of the time; so, from 15 to 25%
of the time, space needed to satisfy peak requirements will not be used.

In such situations an attractive strategy may be the use of private or contract warehouses to
cover the 75% requirement while using public facilities to accommodate peak demand. The
diagram below illustrates this concept.

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Combined Private and Public Warehouse Facilities
Developing a warehouse strategy requires answers to two questions. The first is how many
warehouses should be established. The second question focuses on which warehouse
ownership types should be used in specific markets. For many firms, the answer is a
combination of warehouse alternatives, differentiated by customer and product. Specifically,
some customer groups may be served best from a private warehouse, while public or
contract warehouses may be appropriate for others. This warehouse segmentation is
increasingly popular as key customers are requiring more customized and focused services
and capabilities.

Topic 1.3: Protocols for warehousing and distribution operator and customer

[KT0103]

Already covered above.

Topic 1.4: Basic concepts of customer relationship [KT0104]

Already covered above.

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Chapter 2 | Construction layout and Safety [KM-03-KT02]

The Topic Elements to be covered in the chapter referenced above include:
Chapter referenced above include:

Topic Topic Element/Heading Knowledge/Theory
No. Code
Construction, layout, and safety consideration for
1 warehouse KT0201

2 Types of materials and relations to different forms of KT0202
warehousing
3 KT0203
Principles of Safety, Health, Environment, Risk and
Quality (SHERQ) Management

By the end of this chapter, you should be able to demonstrate an understanding of the
following Internal Assessment Criteria or Learning Outcomes relevant to this topic:

No. Learning Outcomes IAC

1 Discuss the consideration for construction, layout, and safety of IAC0201
a warehouse
IAC0202
2 Explain the principles of SHERQ

***

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Topic 2.1: Construction, layout, and safety consideration for warehouse [KT0201]

See topic 1 above.

Topic 2.2: Types of materials and relations to different forms of warehousing

[KT0202]

See topic 1 above.

Topic 2.3: Principles of Safety, Health, Environment, Risk and Quality (SHERQ)
Management [KT0203]

SHERQ is a widely implemented management system to address concerns about health,
safety, risks, and quality. Indeed, the acronym stands for Safety Health Environment Risk
and Quality. The implementation of such a system focuses on developing a scientific
approach to dealing with the health and safety issues at the workplace, and to protect
visitors to the said premises while minimising the risk to the environment and improving
overall quality.
Why Implement SHERQ?
Implementation of the risk management approach helps the organisation and its employees
to accurately identify potential health and safety risks which, if not addressed, can lead to
serious injury, disease, environmental disaster, financial loss and the loss of human, animal,
and plant life. It gives the necessary framework in which to implement policies and
procedures for the identification, monitoring, controlling, and managing of risks.

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Companies, apart from minimising negative effects on the environment and human
population, save money through implementation.

Environmental spills cost money to clean up and the company can be penalised through
fines and imprisonment of responsible parties. Should the company’s actions, for instance,
lead to people being injured because of a biochemical spill, the company is also liable for
compensation towards the injured parties. Any loss of work time because of injuries or
disease costs the company money. As such, most firms see the relevance and benefits of
SHERQ implementation and embrace the approach to reduce risks and subsequent costs
associated with these.

Implementation of the system furthermore leads to an improvement in work environment
quality, products and ultimately customer satisfaction. With a standardised approach to
handling the environmental, health, quality and safety risks, the company can create an
audit trail, prevent future incidents, and gain a competitive edge over companies that do
not follow the SHERQ approach. Apart from these, the company ensures compliance with
legal requirements.

Implementation

For any management system to be successful, it must be implemented throughout the
entire company. Top-level management must be involved, and employees be made aware
of the benefits associated with following the SHERQ management system approach.
Consistent application of the various underlying principles is key to the success of the
system. Policies and procedures manuals are in place on how to identify the various risks,
control them, minimise effects, investigate incidents, report on such, make
recommendations and prevent future incidents.

Importance of Training

Unless the employees are aware of the principles of SHERQ, trained in the various aspects of
quality control, health and safety, environmental management, and risk assessments, they
will not be able to consistently apply SHERQ principles. This will cause weak links in the
company’s approach. As such, it is essential to have employees trained according to their
job levels and responsibilities. SHERQ officers and representatives must be appointed to
manage the risks, while training in incident investigation is essential for the health and
safety officers. The representatives must be trained in communicating the safety plans to
the employees of the organisation.

Those employees that are responsible for reviewing company policies and procedures,
departmental application thereof, and identification of shortcomings, must attend internal
auditing courses. This type of training includes how to plan, conduct, and conclude the
internal audit process and report on findings.

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What is the Policy Framework?

The SHERQ policy framework is the guideline document in which the company sets out
provisions for and management of health and safety facilities, hygiene rules, identification
of the various risks, their management, initiating controls and identifying risks. A framework
example is to:

 Have a system in place for promoting health and safety of employees and visitors to
the workplace through the reduction and control of health and safety risks.

 Provide policies and procedures for the guidance of workers regarding identification.

 management, control, and elimination of the relevant risks.

 Implement a system of corrective steps for improvement of quality.

 Implement a system to reduce errors.

 Following an approach to eliminate repeat incidents.

The health and safety policy guideline can, for instance, make provision for the
management of hygiene through set procedures to follow, like washing hands after visiting
the restrooms and before working with food. As part of the environmental framework,
specific procedures can be developed for the monitoring of possible chemical spills and
steps to take should there be a spill. Proper identification of hazardous substances by means
of standard labelling and procedures for storage of the chemicals can form part of the policy
and procedures manual.

SHERQ is an essential system to implement for the improvement of the health and safety
profile of the company, to reduce its impact on the environment and to ensure consistency
in quality.5

See this government publication on SHERQ.

SHERQ MANAGEMENT POLICY (SAFETY, HEALTH, ENVIRONMENT, RISK, and QUALITY)

http://www.dpsa.gov.za/dpsa2g/documents/ehw/sherq/SHERQ%20POLICY%20Reviewed%
2019%20december%20final.pdf

5 https://www.wwise.co.za/what-is-sherq-and-why-implement-the-
approach/#:~:text=SHERQ%20is%20a%20widely%20implemented,Health%20Environment%20Risk%20and%
20Quality.

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Chapter 3 | Basic Concepts of Physical Distribution Systems

[KM-03-KT03]

The Topic Elements to be covered in the chapter referenced above include:

Topic Topic Element/Heading Knowledge/Theory
No. Code
Types and roles of role-players in cargo distribution
1 Role of information technology in modern distribution KT0301
2 KT0302
systems
3 Appropriate routing for a consignment KT0303

By the end of this chapter, you should be able to demonstrate an understanding of the
following Internal Assessment Criteria or Learning Outcomes relevant to this topic:

No. Learning Outcomes IAC

1 Explain the liabilities and responsibilities of a warehouse IAC0301
operator towards the client’s cargo
IAC0302
2 Select the mode of transport based on service requirements,
final destination, special instructions, and description of goods IAC0303

3 Explain and demonstrate and understanding of modern-day
technology in the freight forwarding environment

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Topic 3.1: Types and roles of role-players in cargo distribution [KT0301]

Logistics management is often described as both an art and a science — it is the integration
of the interconnected processes and movements that take a product from its origin all the
way to end user delivery. The process incorporates numerous partners and systems, and it
sets the foundation that allows the supply chain to transform raw materials into finished
goods. Ideally, the activities of logistics management should be almost invisible to the end
user.

The entire logistics management process encompasses the functions of inbound logistics,
which includes acquisition, transportation, and storage of the raw materials, information,
and support needed to develop a new product or service. Outbound logistics takes that new
product/service and provides the support and process to deliver it into the hands of the end
user. In between, many other utilities support these main functions, including the following:

 Sourcing/procurement/purchasing/supplier logistics.
 Reverse and green logistics
 Production planning/construction logistics
 Inventory and warehousing logistics
 Transportation logistics: Global/customs and domestic

The processes that comprise the logistics network can be integrated and adapted to support
the day-to-day functions of numerous industries and organizations. They can also be
formulated and deployed for short-term or situational needs, such as in response to natural
or man-made emergencies.

There are many moving parts to a logistics management program, and when they work in
harmony, they can strongly support cost and efficiency optimization. This is where today’s
information technology automation and frameworks can make a difference for large-scale
logistic initiatives.

For example, transportation and warehousing are two integral elements of logistics. As such,
they get the most attention by service providers. Fleets and freight management select the
best transportation routes and services, whether sea, air, rail, road, or a combination. Time-
zone and border issues affect scheduling, planning, and packaging as well. To keep track of
inventories, floor capacity, and storage — of both inbound resources and outbound
products — organizations must carefully schedule, handle, and manage people, equipment,
data, and processes. Other departments may be called on to assist too.

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To coordinate these disparate functions and stay atop of the communication between all
parties, companies need effective information collection and automation systems
(Smartsheet, 2019).
Infrastructure required to distribute commodities from the various storage facilities.
6Types of Freight Facilities

Freight facilities are punctual fixed infrastructures used to support freight transportation
and comes in a wide variety of shapes, sizes, and functions. At start, they serve a
combination of three standard functions, each having a respective degree of importance:

 Fabrication. Involves assembling goods out of parts, fabricating the parts themselves
or performing a task changing the physical characteristics of a good (packaging,
labelling, etc.). This is usually a transformation related function.

 Storage. Holding goods in inventory for an extended period of time and releasing
them on demand. This is usually a buffer related function and related to
intermediate goods.

6 Source: https://transportgeography.org/?page_id=4430

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 Distribution. Consolidating, deconsolidating, sorting a cargo load or changing the
load unit. This is usually a throughput related function involving final goods.

The main difference between the storage and distribution functions relates to the time the
inventory is spending within the facility; usually less than a few days and less than 48 hours
in high throughput facilities. Based upon these three functions (fabrication, storage, and
distribution), freight facilities are of five main types:

 Manufacturing facilities. A pure fabrication facility is essentially considered as a
factory, which always have an associated storage function. While the main purpose
of manufacturing facilities is fabrication, light manufacturing systems are usually
more integrated to supply chains (e.g., just-in-time inventory management),
implying that they rely on distribution capabilities to effectively operate. This
requires the goods to spend some time in the manufacturing plant’s warehouse with
some parts being stored before assembly. Heavy manufacturing tends to have more
storage-based inventory management, mainly because of the ponderous
characteristics of their inputs and outputs.

 Terminal facilities. Terminal facilities are freight facilities as well. Outside their
standard role of transferring cargo from one mode to another, they also act as a
buffer in the transport chain with a significant storage function. While for a
container terminal this function is subject to dwell time considerations (usually less
than 7 days for a port), for a bulk terminal, storage is part of the services offered by
the facility and can last much longer. A transloading facility such as an automobile
terminal is also highly storage dependent. Therefore, terminal facilities are balancing
the buffer and throughput functions with the container terminal more a throughput
facility and the bulk terminal more a buffer facility.

 Storage facilities. The purpose of a storage facility is to hold inventory for a period of
time. Bulk warehouses are usually single purpose facilities for storing bulk materials
(sometimes in break bulk form such as stored in bags or drums) such as grain or
fertilizers. For a standard warehouse, different types of storage models exist such as
racks and pallets, which are related to the goods they are storing. For instance, rack-
supported warehouses are pure storage facilities with the rack system being the
basic structural support for the building. They offer a high storage density along with
a comparatively low land use footprint, many of which are automated. The most
general warehouse is the multitenant facility which are general purpose facility
usually rented through short to medium term leases and where the tenant uses the
facility depending on their respective supply chain requirements. When users reach
a critical mass, they tend to build and operate their own facilities since they fit better
their operations (custom designed). Still, an active warehouse leasing market
remains, and even large enterprises relying on it when it fits their strategies.

 Distribution facilities. These facilities are more based on the concept of throughput
of the inventory they carry, implying a much higher level of integration within supply
chains.

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For instance, a distribution centre temporarily holds the inventory for the market
area it services, implying that some storage will take place and on occasion light
manufacturing activities will be performed such as inspection, packaging, and
labelling. Still, the main purpose of distribution centre is its ability to fulfil a variety of
orders in a timely manner. A cross-docking distribution centre is a good example of a
pure distribution facility with no (or very little) storage function. Due to the
perishable nature of many goods being shipped, such as food, cold storage facilities
(mostly refrigerated warehouses) are jointly able to perform fabrication (e.g.,
packaging before final delivery) and distribution functions. The urban logistics depot
is also a facility mostly focusing on distribution with the main purpose of
deconsolidating cargo loads (mostly parcels) for urban deliveries (which are usually
using adapted vehicles).

 Parcel facilities. While parcel delivery services have been around for close to a
century, the surge brought by the growth of e-commerce has expended parcel
facilities substantially to the point that many are solely dedicated to e-commerce
supply chains. First, the e-fulfilment centre is a facility designed to handle a large
number of online orders to be mostly put in parcels. Such a facility is storage-based
(holding a very high range of goods), but also rely on a high level of throughput
because of the timely nature of online orders. Sortation centres, particularly large
parcel hubs, are facilities designed on the cross-docking principle with the main
purpose of sorting parcels to a wide array of destinations, usually as part of a hub-
and-spoke distribution system.

Consequently, there is a wide variety of freight facilities each servicing a specific role
depending on the nature, operations, and constraints of the supply chains they are
supporting.

Topic 3.2: Role of information technology in modern distribution systems [KT0302]

This topic has been covered extensively in module 1.

Warehouse Automation

Warehouse automation 7is widely touted as one of the most effective ways to boost ROI by
reducing labour demands, enhancing accuracy, and improving efficiency. “One indisputable
fact exists,” according to Supply Chain Management Review. “Warehouse automation is one
of the last areas where long-term costs can be significantly reduced.” But some think of
warehouse automation as software, while others think about the idea of automating a
warehouse as implementing automated storage and retrieval systems (AS/RS). In reality,
complete warehouse automation entails automating a variety of aspects of operations, from
automatic data capture to software systems, storage, and retrieval, and more.

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Still, according to a 2014 report from Monteage Technologies, 90% of warehouses
worldwide today are either entirely manual or have implemented only low-level automation
into their operations. And while the average logistics division might be looking at a period
of four to five years before realizing a return on investment for automation innovation, the
payoff is well worth the wait for those who make smart, strategic investments in
automation.
The Basics of Warehouse Automation
At its core, automation revolves around identifying repetitive tasks that are process-
oriented, time-consuming, or error-prone, and finding ways to automate them. And as
anyone in the warehousing industry is well aware, warehouses are rife with repeatable,
process-oriented, and error-prone tasks, ranging from manual documentation errors to
picking and stocking errors, shipping and receiving errors, and much more. For this reason,
there are many aspects of warehouse operations that can be automated, including:

 Picking automation – The process of picking is a clear example of a repetitive and
time-consuming process. Modular shelving systems combined with warehouse
robotics are making it possible to automate the picking process, which once
depended entirely on humans. And anytime humans are involved, the likelihood of
introducing human error is very real.

 Barcode labels and scanning automation – Warehouses rely heavily on
documentation to keep track of which items are moving in and out of the facility,
where specific items are stored (to speed up the picking and stocking process) and
manage inventory. Warehouses save dramatic amounts of man hours by automating

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these documentation processes with barcode labels, rack labels, warehouse signs,
and the hardware necessary to read these signs and labels.

Barcode labels combined with the right software and scanning technology can
practically eliminate errors and drastically speed up documentation processes.

 Automated vehicles – Forklifts and pallet jacks are among the traditional equipment
used to move goods throughout a warehouse facility, but even this aspect of
warehousing is becoming automated today thanks to self-guided forklifts and pallet
carts, known collectively as automated guided vehicles (AGVs). The key differentiator
is that these automated vehicles do not require human operators; instead, they
follow digital paths through the facility to load and unload pallets, boxes, and other
containers. AGVs can be implemented in an existing warehouse without a complete
overhaul to the layout and overall system, and it is not an all-or-nothing investment
– warehouse operations can add AGVs as necessary, gradually replacing human-
operated machines with automated equipment over time. Plus, they can be leased
or purchased, so warehouses can even try before they commit to buying.

 Inventory automation – In a 2014 report, “From Cost Centre to Growth Centre:
Warehousing 2018,” Motorola notes that 41% of warehouse facilities were still
reliant on pen-and-paper methods for cycle counts. This results in errors related to
data entry and transcription, as well as inconsistent inventory processing and, in
some cases, disruptions to overall operations. Yet, automating inventory
management processes is one of the easiest and most cost-effective strategies
warehouses can implement to start realizing the benefits of automation.

 Back-office automation – Inventory automation often goes hand-in-hand with
automating back-office processes. According to Motorola’s report, nearly one-third
(32%) of warehouses do not have access to real-time data in their warehouse
management system (WMS), leading to inaccurate inventory counts – which can
cause supply chain disruptions ranging from mild to catastrophic – and other
inaccuracies. In today’s fast-paced warehousing industry, access to accurate, real-
time data is crucial.

Relying on outdated, manual processes not only leads to errors and delays, but they are
practically guaranteed to have a negative impact on the company’s bottom line. Out-of-
stock conditions can lead to dissatisfied partners and customers, damaging brand
reputation, and excess inventory that spends too much time sitting idle on racks and shelves
continues to eat at bottom-line storage and operational costs, and when downtime occurs
as a result of lost productivity or more serious errors, warehouses are either hindering
growth or actively lowering profits.

Driven by the demand for less disruption, increased productivity, and improved visibility,
Motorola predicted in 2014 that by 2018, just 12% of warehouses would still be relying on
manual cycle counts, and that 65% of warehouses would have real-time access to a WMS
from mobile devices.

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Topic 3.3: Appropriate routing for a consignment [KT0303]

This topic has been covered extensively in module 1.

Distribution Management

The physical movement and delivery of goods and services to customers is a key objective of
supply chain management. The three key aspects of customer service are specification,
price, and timing. Specification and timing are often measured by the metric, ‘on time in
full’ and are the direct result of distribution management. Distribution management is
closely linked with the ‘customer intimacy’ model of Treacy and Wiersema (1993) but many
organizations outsource distribution management to third-party hauliers thus reducing the
frequency of direct customer contact.

Web-based software and e-market places have increased opportunities available to e-
supply chain managers in all operations including the service industry. Information
technology and the Internet has improved the access to information, enabled currency
transactions, and improved data accuracy. However, the real effectiveness of supply chain
management is the physical movement of materials from source to customer. Important
components for every e-commerce, on-line trading and virtual supply chain are factories,
warehouses, and transport.

It is vital that a physical distribution process is in place to ensure the performance of e-
supply chain for both virtual and physical activities, but it is well recognized that supply
chain order fulfilment is the Achilles heel of the e-business economy.

This building block, distribution management addresses the challenge of
distribution efficiency under three headings:

1. Physical distribution
2. Strategic alliances
3. Customer relationship management

Physical Distribution

In the same way that enterprise resource planning (ERP) is concerned with information flow,
suppliers and inbound logistics, distribution management is likewise concerned with
materials flow, customers, and outbound logistics. Inbound logistics is characterized by
demand variability, and outbound logistics is characterized by variable service levels.

With the management of distribution, which is the physical transportation of goods from
the factory through the various components of the supply chain to the customer, invariably
some stock will be held in the system to buffer the variability of demand and to make

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allowance for vagaries in supply lead times. The focus on outbound logistics is to balance
customer service level against cost.
Cost of distribution is not just transportation costs but also includes warehousing including
special requirements such as refrigeration, insurance and financing of stock, and stock
slippage (deterioration, damage, pilfering and obsolescence). The more stock that is held
the greater the cost of storage and the greater the chances of losses.
The main components of distribution management are:

 Distribution strategy
 Warehouse operations
 Stock management
 Transport planning

Distribution Strategy
It is important that a company in a consumer-focused business has a defined distribution
strategy. The first criterium of distribution strategy is to decide whether the management of
activities should be by the company or by a third party. With assets (buildings, equipment,
and transport vehicles) the strategy can go three ways:

1. Own the assets or some of the assets.
2. Lease or rent assets.
3. Contract (outsource)

Some of the various strategy mixes are shown in the below. Note there are 64 possible
combinations, for example own premises, leased premises, own management of premises,
third-party management of premises, own transport, leased transport, or third-party
supplied and managed transport, and so the table below shows 24 of the most likely
combinations.

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There are some obvious advantages of distribution management by a third party, for
example the distribution expertise of third-party companies, the avoidance of capital outlay
and under-utilized equipment.
It has become a popular practice with many original equipment manufacturers (OEMs)
organizations to outsource warehousing and transport to third-party companies.
However, as the delivery of the finished products is closest to the customer on the supply
chain, there could be some degree of risk if the management of outbound logistics is totally
left to third parties. A distribution strategy is significantly influenced by economic factors,
channels of distribution and their location, location of service centres and warehouses.
Shorter channels are ideal especially for perishable items, services requiring closeness to
customers, and urgent products. An intermediary in the channels of distribution can reduce
distribution costs where; the sources of supply are not in abundance, there are numerous
destinations, or transportation is difficult or expensive. The choice of location is usually
driven by cost objectives for warehouses and manufacturing facilities and by revenue
objectives for service type operations. With the impact of Internet, the distance of a service
centre to customer has become less important (Basu & Wright, 2008).

Channels of distribution

It is important for a manufacturer of fast-moving consumer goods (FMCGs), that the
distribution strategy should consider the opportunities for both present and future business
through an appropriate mix of the channels of distribution.

Examples are >>

Factory to:

 distributor,
 wholesaler,
 supermarket,
 direct to end user (e.g., Dell).

The distribution strategy should also include the company policy of exclusive agents or
stockists and of direct mail or on-line order to end users.

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The diagram above illustrates an example of the channels of distribution in a typical FMCG
business. The selection of a strategy may be influenced by the cost of distribution, and it
should be tempered by the business judgement of customer service and future
opportunities.
The channel of distribution is also determined by the stages required to deliver products or
services depending on the type of business. An organization exercises more control or
influence on the service for a single stage channel, which is delivering product or service
directly to the customer. If, however, more stages exist with intermediaries between the
organization.
and the customer then each party may have some influence over such decisions as stock
holding, service levels and market cover. The table below typical shows examples of stages
in distribution channels in different kinds of organizations.

Facilities location
Another important aspect of distribution strategy is location of distribution warehouses. The
location, design and operations of distribution warehouses are all vital ingredients of a
supply chain – not only for cost optimization but also for the quality and safety standards of
products and for improving customer service by a faster turnaround at the warehouse.
There are computer simulation models available for determining the size and location of a
distribution.
centre, but local body planning regulations, the proximity of a highway and a big demand
centre very often will be the prime determinants of the location.

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The location of a warehouse can be influenced by many factors both objective and
subjective. The factors which generally affect the selection of a warehouse site can be
grouped in three sets of factors:

1. Cost factors
2. Revenue factors
3. Local factors

The cost factors have three main components: variable cost, fixed cost, and inventory cost.
The variable cost of a warehouse operation includes the costs of labour, material, and
utilities. The accessibility to labour and materials will affect the variable cost. The fixed costs
are associated with the provision and maintenance of facilities and the cost of security
services. When the number of facilities is reduced there is a saving in the fixed cost (Basu &
Wright, 2008).

Warehouse operations

The operations of a distribution warehouse in general, can be represented by Figure 9.2.
There are good opportunities of ‘re-engineering’ the warehouse functions when the total
process from reception to dispatch is critically examined.

The design issues of a warehouse include:

(a) Storage systems

– block stock
– back-to-back racking
– double deep racking
– narrow aisle racking
– drive-through racking
– mobile racking

(b) Handling systems

– counterbalanced trucks
– reach trucks
efficiently meet their requirement was to design the facility ‘from the
inside out’.

The approach: Due to the sensitive nature and possible closure of warehousing it was
important to keep the study confidential. The project started with a feasibility study into
various configuration options. As the client had available land to build the new warehouse, a
study into the location was not needed and this meant that we could start calculating the
required size immediately. The stock was analysed and activity data from the three
warehousing locations to work out the site size needed in conjunction with the proposed
layouts. After the decision on the favoured design had been made, the option was

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Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021

SAQA 96368 Knowledge Module 3
developed to the level where the scheme could be put-out to a design and build
organization for tendering. During this stage detailed analysis was produced of proposed
floor space, equipment requirements and pallet racking locations. Another aspect of the
project was the production of staffing requirements together with a staff structure diagram.
The result: The floor space was reduced from the three combined units of 80,000 to 50,000
square feet in the new single distribution centre by removing duplication of stock and
improving operating techniques. Also, reduced were staffing levels by 30 and other costs.
Trade counters with minimal stock holdings at the old sites were retained but the major
storage facilities were closed. Due to its central location, the new warehouse provides
consistent, accurate delivery throughout mainland UK within 3–4 working days from receipt
of order.8

8 *Fosroc Expandite is one of the largest manufacturers of construction and civil engineering products in the
world. Source: Supply Chain Planning UK Ltd. (2007)

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Learning materials developed by Global Maritime Learning Solutions (Pty) Ltd for the Transport Education
Training Authority (TETA). v 2021