Page 206 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 9: Warehousing

Notes
Example: Vegetables can be processed and canned in “Brights” at the manufacturer.
Brights are cans with no preattached labels.
The use of Brights for a private label product means that the item does not have to be committed
to a specific customer or package configuration at the manufacturer’s plant. Once a specific
customer order is received, the warehouse can complete final processing by adding the label
and finalizing the packaging.

Processing and postponement provide two economic benefits. First, risk is minimized because
final packaging is not completed until an order for a specific label and package has been received.
Second, the required level of total inventory can be reduced by using the basic product (Brights)
for a variety of labelling and packaging configurations. The combination of lower risk and
inventory level often reduces total system cost even if the cost of packaging at the warehouse is
more expensive than it would be at the manufacturer’s facility.

Stockpiling

The direct economic benefit of this warehousing service is secondary to the fact that seasonal
storage is essential to select businesses.

Example: Lawn furniture and toys are produced year-round and primarily sold during
a very short marketing period.
In contrast, agricultural products are harvested at specific times with subsequent consumption
occurring throughout the year. Both situations require warehouse stockpiling to support
marketing efforts. Stockpiling provides an inventory buffer, which allows production efficiencies
within the constraints imposed by material sources and the customer.

Service Benefits

Service benefits gained through warehouses in a logistical system may or may not reduce costs.
When a warehouse is primarily justified on the basis of service, the supporting rationale is an
improvement in the time and place capability of the overall logistical system.

Example: Placing a warehouse in a logistical system to service a specific market segment
may increase cost but might also increase market share, revenue and gross margin.
At a conceptual level, a service-justified warehouse would be added if the net effect was profit-
justified. At an operational level, the problem is how to measure the direct revenue impact.
Five basic service benefits are achieved through warehousing: spot stock, assortment, mixing,
product support, and market presence.

Spot Stock
Stock spotting is most often used in physical distribution. In particular, manufacturers with
limited or highly seasonal product lines are partial to this service. Rather than placing inventories
in warehouse facilities on a year-round basis or shipping directly from manufacturing plants,
delivery time can be substantially reduced by advanced inventory commitment to strategic
markets. Under this concept, a selected amount of a firm’s product line is placed or “spot stocked”
in a warehouse to fill customer orders during a critical marketing period. Utilizing warehouse
facilities for stock spotting allows inventories to be placed in a variety of markets adjacent to
key customers just prior to a maximum period of seasonal sales.

LOVELY PROFESSIONAL UNIVERSITY 201