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Logistics and Supply Chain Management
Notes The primary determinant of the warehousing required to support manufacturing is the specific
production strategy being implemented. Three basic manufacturing strategies – make to plan
(MTP), make to order (MTO), and assemble to order (ATO). The extent of demand faced
warehousing can be directly linked to the support requirements of each manufacturing strategy.
In a general sense, MTO manufacturing strategies require supply facing warehousing support
but little, if any, demand facing storage. Conversely, MTP manufacturing strategies, which
focus resources to achieve maximum manufacturing economy of scale, require substantial
demand facing warehouse capacity.
12.2.3 Market Distribution Drivers
Market support warehouses create value by providing inventory assortments to wholesalers
and retailers. A warehouse located geographically close to customers seeks to minimize inbound
transportation cost by maximizing consolidation and length of haul from manufacturing plants
followed by relatively short outbound movement to final destination customers. The geographic
size of a market area served from a support warehouse depends on the desired service speed,
size of average order, and cost per unit of local delivery. A large number of market distribution
warehouses are operated as public or contract facilities by thirdparty logistics service providers.
Regardless of who operates the warehouse, the facility exists to provide inventory assortment
and replenishment to customers. A warehouse is justified if it offers a way to achieve a
competitive service or cost advantage.
Rapid Replenishment
Market distribution warehouses have traditionally provided assortment of products from varied
manufacturers and various suppliers for retailers. A retail store typically does not have sufficient
demand to order inventory in large quantities directly from wholesalers or manufacturers. A
typical retail replenishment order is placed with a wholesaler who sells a variety of different
manufacturer products.
Market support warehouses are common in the food and mass merchandise industries. The
modern food distribution warehouse usually is located geographically near the retail stores it
services. From this central warehouse, consolidated product assortments can rapidly replenish
retail inventories because of the close geographical proximity. Large retail stores may receive
multiple truckloads from the warehouse on a daily basis.
Notes Location of the warehouse within the market served is justified as the least cost way
to rapidly replenish an assortment of inventory to either an end customer or a retailer.
Market-Based ATO
The design of a market distribution warehouse network is directly related to inventory
deployment strategy. The establishment of market distribution warehouses is a result of forward
inventory deployment in anticipation of future market requirements. This assumption means
that a manufacturing firm utilizing such a distributive network is to some degree depending
upon anticipatory inventory deployment to offset response time to meet customer requirements.
Based on the preceding discussion, inventories deployed forward after manufacturing are typical
in situations where firms are manufacturing to plan and when they are engaged in decentralized
assembly to order. In ATO situations, common or undifferentiated components are stocked in
warehouse inventory in anticipation of performing customized manufacturing or assembly at
the warehouse upon receipt of customer orders.
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