[MUSIC] Welcome back to our lesson on Strategic Warehousing Decisions. Upon completion of this lesson learners should be able to describe the facility operating model alternatives. Discuss the importance of distribution facility network planning. And discuss the factors that need to be considered when designing a warehouse. There are three primary mechanisms today for organizations to get needed warehousing services. Public warehousing, private warehousing, and contract warehousing. Let's take a look at the distinctions between these operating models. Private warehouses are typically operated by the firm owning the product. So for the firms seeking the services, the product donors. There is a need for substantial investment in land, building, equipment, and employees. To establish and run the facilities. The buildings themselves may be owned or leased. With the decision being made based on financial security. Availability, reuse, and operational fit considerations. The capital and operating cost budgets directly managed by the operator. Though potentially all or part of the labor workforce. May be outsourced to another party. However, in private warehousing the owner of the goods flowing through the warehouse. Typically manages the workforce handling the product. Public warehousing is a model. Where a service company controls the warehouse space, storage, and material handling equipment. And manages the labor force in the facilities. It uses shared resources to meet the needs of multiple parties seeking warehousing services. And provide a variable storage and throughput model to multiple companies. The services provided may be simple in-store and out-warehousing. Or the provider may offer additional value-add services and/or transportation management services. As a variable utility-like service. The service provider charges the inventory owner, typically monthly. Based on a variable throughput storage services model. Using factors such as pallets or cases in. Pallets or cases out. The space utilized on average across the month. Inventory value. Product characteristics. Cost of value add services provided. And number of shipments processed in and/or out. Contracted warehousing or third party logistics arrangements. Are when a third party provides the inventory owner with warehousing services. On a long term contractual basis. Facility, equipment, labor, maintenance and other costs are borne by the third party. And passed through after markup for profit to the client. Third party logistics contracts typically provide for tailored warehousing services exclusively to one client. 3PL providers provide services to multiple clients across multiple facilities. 3PL relationships differ from public warehousing arrangements in that contracts are for extended time. They support providing services tailored to clients. Facilities generally are single client operations. Though that doesn't necessarily always have to be the case. Capital investments are typically charged to the client over time on a variable basis. And the 3PL may provide a shared multi client warehouse to help reduce operating costs. Additional services and synergies across clients may be offered such as consolidated shipments. We now have a question. Given what you have heard about the nature of public vs private vs contract/3PL operating models. If you were running a start-up company that shipped carton and palletized products. Had high projected seasonality. And also didn't have firm projected volume forecasts. Which model would you think may be best to utilize to handle your warehousing needs? Why? One of the first strategic decisions a firm needs to make regarding warehousing operations. Is how many warehouses or distribution centers to have in their supply chain network. To determine how many facilities to have in the network. Organizations should conduct a network analysis. Looking at different alternatives with different numbers of facilities and locations of facilities. The analysis should be holistic. In that it should incorporate inbound, outbound, and transfer transportation. As well as facility fixed and variable costs and inventory costs. Specialized optimizations software can be used. To evaluate the various costs associated with different strategic scenarios. The costs associated with each scenario should be traded off with the service that can be provided by the various scenarios. Capital cost to migrate to the scenario. And qualitative considerations. The service performance of the selected network should align with the company's business strategy. For example, a company that strives to provide superior service. May choose to select an option with superior service performance. And perhaps comparatively higher network operations costs. Once the number and location of warehouses is determined. Strategic facility design considerations need to be addressed. Including material handling and storage equipment, what kind, how much. What are the tradeoffs of cost, capacity, and flexibility? Considering their products sizes, throughputs, and peak to average volume ratios, etc. Layout. The specific facility layout needs to be determined. Considering a wide variety of factors. Such as the specific plot of land purchased for the facility. Perhaps an existing facility has been acquired. And the layout is limited to the confines of the existing facility. Other factors include expected number of receipts and shipments per day. Which impacts numbers of docks and location of the docks. The space required for storage, shipment, receipt. And value add services must also be considered. Then, a logical flow between these operations needs to be established. Size, a number of the same considerations just mentioned for layout apply to determining the size of the facility. Site plan must take into account not just the facility. But the required number of parking spaces for employees. Space for incoming and outgoing trucks. And allow for proper flow of the facility and other considerations. The labor plan takes into account the number of shifts to be operated. The average operations requirement for employees versus the peak needs. Job flexibility. The desire to use part-time versus full-time labor, seasonality, etc. To determine department-specific staffing plans. And, the number of shifts needs to be determined. As you can see, how it impacts other parts of facility design strategy. Multiple shift operations have pros and cons. Multiple shift provides opportunity to maximize use of the facility, and provide flexibility. Though it may be difficult to find employees in some areas. That are interested in working off shifts. Typically off shifts are reserved for maintenance, restocking, and other operations. With a small crew in the off shifts. In considering the various decisions which were just mentioned. The decision should be made based on tradeoff analysis of alternative techniques. Based on volume, seasonality, storage, and customer requirement assumptions. With the specific parameters to be considered including operating costs. Capital costs. Safety and maintenance considerations. Security. And flexibility. In this lesson, we described the facility operations and ownership model alternatives. Discussed the importance of distribution facility network planning. And discussed the factors that need to be considered when designing a warehouse. Thank you for joining us, and we'll see you on the next lesson. [SOUND]
