Assignment 3

Supply Chain Management

Home Work 3 (Chapters 9 – 10)

1(a) Discuss and illustrate the economic justification for establishing a warehouse.

Establishing a warehouse provides economic as well as service benefits. Economic benefits of warehousing occur when overall logistics costs are reduced. When total cost reductions are achievable, the warehouse is economically justified. Four basic benefits are: consolidation and break-bulk, sorting, seasonal storage, and reverse logistics. Warehouses can provide services that enhance top-line revenue growth. When a warehouse is proximately justified on service, the supporting rationale is that profits from sales improvements will more than offset added costs. Warehouses can improve service in spot-stocking, full-line stocking, and value-added services.

1(b) Why would a warehouse be described as a “necessary evil”?

A warehouse may be described as a necessary evil that add cost to the distribution process because the value of strategic storage is not well understood. From this belief came the concept that the middleman increases costs.

2(a) Under what conditions could it make sense to combine private and public warehouses in a logistical system?

It would make sense to combine private and public warehouse in the case of utilizing more warehouse capacity. Full warehouse utilization is rate. As stated in the Supply Chain Logistics Management textbook, a typical warehouse will be fully utilized between 75 and 85 percent of the time 15-25 percent of the time space needed to satisfy peak requirements will not be utilized. This is when it would make sense to combine the two. For example, a deployment strategy may be the use of private warehouses to cover the 75 percent requirement while public facilities are used to accommodate peak demand.

2(b) What role are warehouse operators playing in postponement strategies?

Warehouse operators make sure that they are performing value added services...