MODULE

4
Other Key
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Lesson 7:
Warehousing
Lesson 8:
Distribution Functions
Transportation
 Learning Module in Distribution Management 2

Lesson 7: Warehousing
Intended Learning Outcomes
At the end of the lesson, you must have:
Gained insights into the basic principles of warehousing; and
Reviewed warehousing practices of a particular business.

Introduction:
Aside from the channels of distribution, another important element of distribution
management is warehousing. Warehouses are crucial components of most modern supply chain.
They are likely to be involved in various stages of the sourcing, production and distribution of goods,
from the handling of raw materials and work-in-progress through to finished products. In the
distribution management context, we will narrow our discussion on warehousing involved in moving
finished products to the point of consumption.

Keywords
List the keywords in Lesson 7.

Let’s Look Back!

What are the basic functions of distribution management?

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Let’s Learn!
Owing to the nature of facilities, staff and equipment required, warehouses
are often the most costly elements of the supply chain and therefore their successful
management is critical in terms of both cost and service.

The nature of warehouses within supply chains may vary tremendously, and there are many
different types of classification that can be adopted. Exhibit 7.1 outlined this classification.

By the stage in the supply

chain: materials, work-in-
By geographic area By product type
progress or finished
goods

By function: for example, By ownership: owned by

inventory holding or the user or by a third- By company usage
sortation party logistics company

By area: ranging from 100 By height: ranging from By equipment: from

square metres or less to warehouses about 3 largely manual operation
well over 100,000 square metres high through to to highly automated
metres over 45 metres warehouses.

Exhibit 7.1. Classification of Warehouses

THE ROLE OF WAREHOUSES

The prime objective of most warehouses is to facilitate the movement of goods through the
supply chain to the end consumer.
The holding of inventory is just one of a variety of roles that a warehouse may perform. Thus,
with the increasing emphasis on the movement of goods through the supply chain, many of the roles
may be related to the speed of movement as well as to inventory holding. The following list highlights
some of the common roles performed:
 Inventory holding point. This is commonly associated with the decoupling point concept and
may involve the holding of substantial inventory.

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 Consolidation Centre. Customers often order a number of product linesrather than just one,
and would normally prefer these to be delivered together. The warehouse may perform the
function of bringing these together, either from its own inventory holdings or from elsewhere
in the supply chain.
 Cross-dock Centre. If goods are brought from elsewhere in the supply chain (e.g. directly
from manufacturers or from other warehouses) specifically to fulfill a customer order, then
they are likely to be crossed-docked. This means that the goods are transferred directly from
the incoming vehicle to the outgoing vehicle via the goods-in and –out bays, without being
placed into storage.
 Sortation Centre. This is basically a cross-dock centre, but this term tends to be used for
parcel carrier depots, where goods are brought to the warehouse specifically for the purposes
of sorting the goods to a specific region or customer.
 Assembly facility. This is often useful in postponing production as far as possible down the
supply chain in order to minimize inventories. The warehouse may thus be used as the final
assembly point for the product, involving activities such as testing, cutting, and labelling.
 Returned goods Centre. The handling of returned goods is becoming increasingly important.
That is being driven both by environmental legislation and by the growing use of internet
shopping (which tends to be associated with higher percentages of returned goods than in
the case of in-store shopping)

Let’s Try This!

Identify any warehouse that you know. Describe its operation. Based on the classification above,

what type of wholesaler is it?

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Let’s Learn!

WAREHOUSE OPERATIONS
Every warehouse should be designed to meet the specific requirements of the supply
chain of which it is a part. Nevertheless, there are certain operations that are common to most
warehouses. For an inventory holding warehouse, typical warehouse functions and material flows
are illustrated in Exhibit 7.1.

Exhibit 7.2. Typical Warehouse Functions in an Inventory-holding Warehouse

Adopted from Rushton et al. (2010:230)

Receiving
This typically involves the physical unloading of incoming transport, checking against
purchase orders and recording the incoming goods into the computer system. It can also include such
activities as unpacking and repackaging in a format suitable for the subsequent warehouse
operations.

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Reserve Storage
Goods are normally taken to the reserve or back-up storage area, which is the largest space
user in many warehouses. This area holds the bulk of warehouse inventory in identifiable locations.
When required, the goods are taken from reserve storage either directly to marshalling (if, for
example, a full pallet is required by a customer) or to replenish a picking location.

Order Picking
When an order is received from a customer, goods need to be retrieved from the warehouse
in the correct quantity an in time to meet the required service level.

Sortation
For small sizes of order, it is sometimes appropriate to batch a number of orders together
and treat them as ‘one’ order for picking purposes. In this case, the picked batch will have to be sorted
down to individual orders before dispatch.

Collation and Added Value Services

Goods need to be collated into complete customer orders ready for dispatch. Unless the goods
are picked directly into the dispatch containers, they will be assembled or packed together after
picking. This process may also involve final production postponement activities and value added
services, such as labelling.

Marshalling and Dispatch

Goods are marshalled together to form vehicle loads in the dispatch area and are then loaded
on to outbound vehicles for onward dispatch to the next ‘node’ in the supply chain.

As mentioned earlier, the holding of inventory is not the only role of a warehouse. Some
warehouses act as cross-dock or trans-shipment points and, in these situations, there is no reserve
storage function. Such warehouses include parcel sortation centres, fashion garment sortation
centres, and perishable goods centres.
Exhibit 7.3 shows the typical warehouse functions in a cross-dock warehouse.

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Exhibit 7.3. Typical Warehouse Functions in Cross-dock Warehouse

Adopted from Rushton et al. (2010:232)

Receiving
Goods may be received in a condition ready for immediate dispatch to the customer or may
require labelling or some other form of activity.

Sortation
The goods then need to be sorted to their destinations. This may be undertaken manually or
by the use of high-speed sortation equipment. In the case of the latter, the incoming goods may be
already bar-code labelled by the sender so that they can be put directly on to the sortation machine
and sorted into specific customers’ orders or destinations.

Marshalling and Dispatch

The goods are then marshalled into vehicle loads and loaded on to the vehicles. In the case of
parcels, the warehouse may be equipped with boom conveyors that extend directly into the vehicles.

COSTS
Warehousing typically accounts for about 20 to 30 percent of logistics costs, while the
carrying costs for the inventory within them account for a further 18 to 20 percent. Together, these
represent a very significant sum for many companies.
The detailed breakdown of warehouse costs varies by nature of the operation, but typical
figures from the past studies of conventional warehouse operations are as follows:
 Staff: 45 to 50 percent, with half of this often represented by order picking and packing staff;

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 Building: 25 percent, including rent or depreciation on the building;

 Building services: 15 percent, including heat, light, power, building maintenance, insurance
and rates;
 Equipment: 10 to 15 percent, including rental or depreciation, equipment maintenance and
running costs;
 Information technology: 5 to 10 percent, including systems and data terminals.

PACKAGING AND UNIT LOADS

Most goods that pass through a warehouse are packaged. This, may be, for example, to contain
the product, protect or preserve it, improve its appearance, provide information, or facilitate storage
and handling.
Most supply chains are structured around the unit load concept, whereby goods are
transported, stored, and handled in standard modules. The use of such unit loads enables transport,
storage and handling systems to be designed around modules of common dimensions. In
warehousing, some of the most frequently used unit loads are as follows:

 Pallets. These are the most common form

of unit loads stored in warehouses. They
are basically raised platforms, on which
goods can be placed, and into which truck
forks can be inserted to lift and move
them. Most are made of wood, although
some are constructed of plastic or
fiberboard.

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 Cage and Box Pallets. These are used to

contain goods that may otherwise fall off
a standard pallet. They have solid or mesh
sides and may be constructed of, for
example, steel of plastic. They can be
picked up by a fork-lift truck and can
often be stacked on top of each other.

 Roll-cages. These are normally

constructed of steel and often comprise
mesh bottom, sides and shelves. Wheels
are fitted to each corner so that the roll
cages can be pushed. Alternatively, forks
can be inserted under the base so that
they can be moved by a pallet truck. They
are commonly used in retail distribution
for delivery for delivery shops.

 Tote bins. Plastic tote bins are used in

many warehouses for the storage and
handling of small parts. They vary in size
but a typical bin may be 600 millimeters
long by 400 wide by 300 high.
 Dollies. These comprise bases fitted with
wheels, on which plastic trays and tote
bins may be stacked. These are common
in retail distribution.

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 Intermediate bulk containers (IBC).

These are normally used for storing and
transporting liquids and solid particulate
products in unit loads of about one or two
tones.

Let’s Do This!

Name: _____________________________________ Date: ________________ Score: ________

Instruction: Do a research regarding the warehousing activities of the manufacturer you have chosen
in the 5th assessment activity.

1. How many warehouses do they have and what type(s) are those?
2. Describe their warehousing process/functions as they move their finished products from their
plants up to the final consumers.
3. Identify the strong and weak points of their warehousing practices. Give recommendations to
improve their weak areas.

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 Learning Module in Distribution Management 11

Lesson 8: Transportation
Intended Learning Outcomes
At the end of the lesson, you must have:
Gained insights into the different means of transporting goods; and
Reviewed the transportation practices of a particular business.

Introduction:
Another equally important element of distribution aside from warehousing is transportation.
Obviously, it is quite impossible to move finished products up to the point of consumption without
transporting them. This lesson will give you an overview about the different modes of transportation
as well as various factors to consider in deciding which mode to utilize for effective distribution.

Keywords
List the keywords in Lesson 8.

Let’s Look Back!

What is the main objective of using warehouses?

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 Learning Module in Distribution Management 12

Let’s Learn!
All major modes of transport can be considered for the movement of goods
both locally and internationally. The selection of the most appropriate transport mode
is thus a fundamental distribution decision, the main criterion being the need to
balance costs with customer service.

SELECTING MODES OF TRANSPORT

This section outlines the process for selecting a suitable mode of transport. As shown in
Exhibit 8.1, the broad approach is split into four key stages: operational factors, transport mode
characteristics, consignment factors, and cost and service requirements.

Transport
Consignment
Mode
Factors
Characteristics

Cost and
Operational
Service
Factors
Transport Requirements
Modal
Choice

Exhibit 8.1. Modal Choice: Selection Process

Adopted from Rushton et al. (2010:333)

OPERATIONAL FACTORS
Exhibit 8.2 outlines the important components of operational factors.

External
Factors
Customer
Characteristics
Nature of the
Product

Exhibit 8.2. Components of Operational Factors

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External Factors
Encompassing the many operational factors that may need to be considered are those that
are external to direct distribution-related factors. They include:

 The basic infrastructure. In particular, the

transport infrastructure is likely to be important.
For example, the opportunities to use rail will be
significantly affected by the rail network that exists
within a country.
 Law and taxation. Legal requirements may vary
from place to place, especially from country to
country. For example, some very different road
transport and environmental legislation may affect the use of vehicles in terms of size
restrictions, load restrictions, and time restrictions.
 Financial institutions and services, and economic conditions. Elements such as exchange
rate stability and inflation can influence modal choice. Where financial changes occur in a
dramatic rate in a country then speed of delivery may be important.
 Communication systems. These can have an impact, for example, on the supporting
processes and paperwork of freight movements. For instance, deliveries may be managed
effectively if an effective and reliable communication system is established.
 Climate. Extremes of weather, temperature, and humidity can have a major impact on some
products. Thus, modes of transport must be selected carefully to ensure that the prevailing
climatic conditions do not badly affect freight while in transit.

Customer Characteristics
Particular customer characteristics may also have a significant effect on the choice of
transport mode. The main characteristics to consider are:

 Service level requirements. Delivery time constraints can mean that certain relatively
unreliable modes cannot be considered. This may occur when there is a need for delivery to
be at a certain time or on a certain date, or when specific time delivery window is stipulated.
This is very common in retail delivery operations.

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 Delivery point constraints. This factor refers particularly to the physical aspects of delivery,
including the location of the delivery point, any access constraints concerning size of vehicle
that can make the delivery and any equipment requirements for unloading. For example, if
the delivery area is at the mountainous places, then the appropriate type of vehicle must fully
be considered.
 Order size preference. The physical size of an order clearly has an impact on modal choice,
as some modes are more suitable for small orders and others for large ones. For instance, in
retail distribution, small parcels and packages are usually delivered to customers through
motorcycle, while bigger ones are through trucks. There may be significant cost implications
here.
 Customer importance. Most suppliers have ‘A’ rated customers who are deemed to be their
most priority and who really must be given a delivery service that does not fail. For these
customers, service reliability is essential and so certain reliable routes and transport modes
will be preferred.
 Product knowledge. Some products or orders may necessitate some knowledge transfer to
the customer at the time of delivery. This may relate to the need to assemble the product in
some way, or how to use the product. These products may need to be delivered by the
company’s own trained staff or Salesforce.

Physical Nature of the Product

The main factors that need to be considered include:

 Volume to weight ratio. This concerns the relative amount of cubic capacity taken up by a
given weight of product. This is relevant when considering the different charging structures
of the different transport modes---whether charged by weight or by cubic volume. For
example, 1 ton is normally charged the same as 1 cubic meter for sea fright, but the same as
6 cubic meters for air freight. Thus, heavy goods are relatively more expensive by air freight.
 Value to weight ration. This takes into account the value of the product to be transported.
The relative transport cost of a high-value, low-weight product is likely to be so insignificant
to the overall value of the product that the choice of mode from a cost perspective is irrelevant
(e.g. jewelry or computer chips).
 Substitutability (product alternatives). If a product can be substituted by an alternative
from another source or supplier, it may be worthwhile using a fast but expensive mode of

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transport since, if it is not delivered to the customer at the right time, they can easily get
another product alternative from other supplier. Where no substitute is possible, a slower
and less expensive mode can be used for the customer is more likely to wait for the product.
 Special characteristics (hazard, fragility, perishability, time constraints, security). A
hazardous product may be restricted in how it is allowed to be transported (e.g. chemicals),
and a time-constrained product may have to be moved on a fast and expensive mode of
transport to ensure it does not miss its time deadline (e.g. newspapers, important medical
items). Likewise, perishable product have to be delivered fast.

TRANSPORT MODE CHARACTERISTICS

The next main set of considerations involves the various attributes of the different modes
themselves. These major attributes are considered specifically in relation to the factors outlined in
the above discussion.

Conventional Sea Freight

Sea freight is a method of transporting large
amounts of goods using carrier ships. For
conventional sea freight, the main points to note are:

 Cost economies. For some products, the

most economic means of carriage remains
that of conventional sea freight. This particularly applies to bulk goods and to large packaged
consignments that are going long distances. For instances where speed of delivery is
completely unimportant, then the cheapness of sea freight makes it very competitive and
attractive.
 Availability. Sea freight services are widely available, and most types of cargo can be
accommodated.
 Speed. Sea freight tends to be very slow for several reasons. These include the fact that the
turnaround time in port is still quite slow, as is the actual voyage time.
 Delay problems. There are three major delay factors that can lead to bad and irregular
services, as well as helping to slow up the transport time itself. These are over and above the
journey time.

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 Damage. The need to double-handle cargo on conventional ships tends to make this mode
more prone to damage for both products and packaging.

Road Freight
Also referred to as road transport, road
freight is the transfer of goods and mer chandise on
roadways with the use of a vehicle (usually a truck).
Road freight transport is the most important mode for
national movements within most individual
countries. Compared with other forms of freight
transport, the major advantages and disadvantages of
road freight transport services are as follows:
 They can provide a very quick service.
 For complete unit loads with single origin and destination points, they can be very
competitive from the cost viewpoint.
 There is a greatly reduced need to double-handle and trans-ship goods and packages, and for
direct, full-load deliveries this is completely eliminated. This saves time and minimizes the
likelihood of product damage.
 Packaging cost can be kept to a minimum because loads are less susceptible to the extreme
transit ‘shocks’ that other modes can cause.
 The system can provide regular, scheduled services due to flexibility of road vehicle
scheduling.

Rail Freight
Rail freight transport is the use of railroads
and trains to transport cargo as opposed to
human passengers. More conventional rail
freight systems have the major benefit of being
a relatively cheap form of transport. This is
particularly true for bulky and heavy consignments that require movement over medium to long
distances and where speed is not vital. The major disadvantages of rail freight are as follows:

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 Rail wagons are prone to some very severe shocks as they are shunted around goods yards.
Jolting shocks can cause damage to products.
 There are limited number of railheads available at factories and depots, making direct origin-
to-destination journeys very rare.
 Generally, rail transport is a very slow means of carriage, particularly when the whole
journey is taken into account.
 Rail freight transport can be very unreliable. Batches of wagons may arrive at irregular
intervals.

Air Freight
Air freight refers to the transportation of
goods by aircraft. The major a ttributes of air
freight include:
 Air freight compares very well with
other transport modes in terms of speed
over longer international movements.
This is because it has very rapid airport-to-airport transit times over these longer distances.
 Although air freight is very quick from airport to airport, there can be occasions when this
speed factor is diminished because time can be lost due to airport congestion and handling,
paperwork and custom delays.
 Once particular advantage of air freight is known as ‘lead-time economy’. This is the ability to
move goods very quickly over long distances means that it is unnecessary to hold stocks of
these items in the countries in question. For instance, due to availability of air freight, freshly
picked roses in Ecuador can reach New York City undamaged and still fresh.
 The air freighting of products allows for a great deal of market flexibility, because any number
of countries and markets can be reached very quickly and easy. The flexibility of air freight
means that a company need not necessarily set up extensive stock-holding networks in these
areas.
 The movement of goods by air freight can result in a marked reduction in packaging
requirements. The air freight mode is not one that experiences severe physical conditions,
and so its consignments are not prone to damage and breakages.
 Air freight transport is very advantageous for certain ranges of goods, compared to many of
the alternative modes. This includes those commodities with high value to weight ratios (a

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lot of money is tied up, therefore an expensive freight on-cost is not significant), perishables
(where speed is vital), fashion goods (which tend both to be expensive and to have a short
‘shelf life’), emergency supplies (speed again is vital) and finally spare parts (the lack of which
may be holding up the operation of a project).

Let’s Try This!

Suppose you are a supplier of bagoong products located at Metro Manila. Your target market is

scattered among different provinces. What particular mode(s) of transport will you use and why?

Let’s Learn!

CONSIGNMENT FACTORS
There are important consignment factors that may have an impact on the final
decision concerning the best mode of transport for each individual shipment. The main factors
include:

 Routing and through transit responsibility:

- Is a direct route stipulated by the customer?
- Who is responsible for the through transit?
- Who is paying for the freight costs?
 Distance:

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- What is the distance to be moved?

- Does distance restrict the options that are available?
 Type of Cargo:
- If it is bulk or general cargo, will a certain specific route be preferable?
- If it is bulk or general cargo, are certain routes cheaper?
- Does the cargo have specific features that can make certain routes more attractive
(perishable, high value)?
- If hazardous, are all routes available?
 Quantity:
- Full load;
- Part load;
- Small size, etc.
 Unit load:
- Is it a small or large unit load?
 Priority:
- How soon must the goods reach their destination?
- Does ‘urgent’ really mean ‘urgent’?
- Who pays the freight costs for an urgent order?
 Commodity value:
- How important is the transport cost element?
- If it is import/export, how is the commodity rated?
- Will a fast, expensive mode enable reduced inventory holding and associated cost
savings?
 Regular shipments:

COST AND SERVICE REQUIREMENTS

The ultimate decision for modal choice is the familiar logistics trade-off between cost and
service. This must be considered in relation to the relevant operational factors, transport mode
characteristics and consignment factors that have been outlined previously. In theory, the volume of
freight (or size of load) to be moved and the distance to be travelled dictate the choice of mode based
on relative costs. This is illustrated in Exhibit 8.3.

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Exhibit 8.3. Modal Choice Matrix

Adopted from Rushton et al. (2010:333)

On one extreme there is the small parcel that has to go a short distance. This is likely to be
routed via road trip transport or perhaps post if a very small parcel. At the other extreme there is the
100-ton-plus loading going thousands of kilometres. This is most likely to go via sea freight.

Let’s Do This!

Name: _____________________________________ Date: ________________ Score: ________

Instruction: Do a research regarding the transportation activities of the manufacturer you have
chosen in the previous assessment activity.

1. How many transport modes they are using and what type(s) are those?
2. Describe their transportation process/function as they move their finished products from their
plants up to the final consumers.
3. Identify the strong and weak points of their transportation activities. Give recommendations to
improve their weak areas.

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References:
1. Boone, L.E. 2015. Principles of Marketing.
2. Choudhury, R.G. 2020. Distribution Management for Organizational Growth.
3. Rosenbloom, B. 2016. Distribution Management
4. Ross, D.F. 2016. Distribution Planning and Control.
5. Rushton et al 2010. The Handbook of Logistics and Distribution Management. Fourth
Edition. Kogan Pages.

Supplementary Resources:
1. https://www.greatideasforteachingmarketing.com
2. www.mhhe.com/hill

MERAREI G. GONO