Page 269 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes
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Caution In many situations, customer perceptions concerning local presence continue to
influence decentralization of inventory. The answer to the question, how much local
presence is desirable, is best understood by carefully examining the relationships that
drive logistical system design.

Self Assessment

Fill in the blanks:

1. …………………… include all locations at which materials, work-in-process, or finished
inventories are handled or stored.
2. Rapid advances in …………………… have reduced the time required to identify and
communicate customer requirements.

12.2 Warehouse Requirements

Warehouses are established in a logistical system to lower total cost or to improve customer
service. In some situations, the benefits of lower cost and improved service can be achieved
simultaneously. Warehouses create value for the processes they support. Manufacturing requires
warehouses to store, sort, and sequence materials and components. Facilities used for inbound
materials and components are often referred to as supply facing warehouses. Warehouses are
also used to store, sequence, and combine inventory for consolidated shipment to next level
customers in the supply chain. Warehouses used support market distribution is often referred to
as demand facing warehouses.

Did u know? Demand facing warehouse requirements are directly related to manufacturing
and market distribution strategies.
Because of specialized materials handling and inventory process requirements, warehouses
typically specialize in performing either supply or demand facing services. Warehouses
committed to supporting manufacturing are typically located close to the factories they support;
in contrast, warehouses dedicated to marketing distribution are typically strategically located
throughout the geographical market area serviced.
The combinations of information technology, e-procurement fulfilment, and response-based
business strategies have combined to radically alter how and why warehouses are used. The
economic justification and desired functionality of a warehouse can be distinctly different for
facilities dedicated to procurement, manufacturing, or market distribution.

12.2.1 Procurement Drivers

Procurement drivers centre on using warehouses to help purchase materials and components at
the lowest total cost. Sophisticated purchasing executives have long realized that the combination
of purchase price, quantity discount, payment terms, and logistical performance is required to
achieve lowest delivered cost. In an effort to develop and support improved working
relationships, most firms have reduced the number of suppliers they do business with. The logic
is to develop a limited number of relationships with suppliers who can be operationally integrated
into a firm’s supply chain.

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