Issue link: https://read.dmtmag.com/i/95785
INDUSTRY INSIDER arehouses, distribution centers and cross-docking are common words inside the trucking industry. Most drivers have delivered to at least one of these facilities in their career. Have you have ever wondered what differentiates a warehouse from a distribution center? What are the reasons shippers may need warehousing? Why do they exist and what efficiencies do they add inside the supply chain? This article will take a look at the differences and give characteristics that separate each form of warehousing management. Before we get started let's define warehous- Warehouse Management W 44// OWNER OPERATOR ing. According to Paul Murphy and Donald Wood, warehousing refers to that part of a firm's logistics system that stores products (raw materials, parts, goods-in-process, finished goods) at and between points of origin and point of consumption, and transportation are substitutes for each other, with warehousing having been referred to as "transportation at zero miles per hour." Companies need to build warehouses when seasonal consump- tion does not equal seasonal production. For example, Christmas wrapping paper. Compa- nies spend 12 months of the year preparing for demand that is consumed in approxi- mately eight weeks. There is no way a paper company can manufacturer an entire year's supply of wrapping paper between July and November. So, due to this supply and demand calendar imbalance; companies have to obtain space to warehouse products. Another reason companies use warehousing is due to purchas- ing volumes and discounts. In certain circum- stances, companies may have the opportunity to buy raw materials at a discounted price assuming they buy in large quantities. When this occurs, the savings should be greater than the warehousing or inventory carrying costs. // DECEMBER 2012 By Doug McElhaney For example, a company may be able to save 500,000 dollars under volume purchasing. If the inventory carrying cost is 200,000 dollars per year and the product will be used in one year, then the firm will save 300,000 dollars under the volume discount. This scenario would be considered a no brainer to the supply chain manager. A well planned warehousing management strategy will actually reduce transportation costs as well. Transportation and shippers can actually gain efficiencies when a ware- house is used. This concept can be hard to comprehend. A warehouse can be used as a gathering point. For example, a warehouse can be used to consolidate and form larger shipments. Larger shipments help transporta- tion companies create economies of scale or efficiencies. As we all know, full LTL trailers create a perfect opportunity for profits. So, if a warehousing staff does a good job of break bulking and consolidating freight; the supply chain can experience cost reductions on the transportation side. The next area of discussion is distribution centers. Distribution centers (DC) can some- times be used as a warehouse, but their main function is to maximize throughput. Through- put is the amount of product that enters and leaves a given facility during a specific amount of time. When I think of optimal distribution centers, Wal-Mart comes to mind. An optimal supply chain has the need for speed. The idea here is to keep products moving at a steady pace inside the supply chain. The faster you complete the cycle the more money a business can earn. DC's gain efficiencies inside the supply chain by making sure every trailer is loaded to the maximum. This is one reason Wal-Mart can offer the lowest product price. They gain and create efficiencies in their supply chain. Another competitive advantage a DC can provide is an acceptable customer service level. When DC's are placed in the right areas, a store can restock overnight. When stores can restock overnight, this prac- tice helps companies keep acceptable or high customer service levels. The final area of discussion is cross dock-