The warehouse decision model helps in identifying the strategic, tactical and operational needs of a warehouse system to fit into the overall objectives of a supply chain (see Figure 4.6).
Product The nature of a product will primarily decide on the type of warehouse required for the storage of goods. For example, perishable agro products will obviously require a temperature-controlled facility, while hazardous or explosive products will call for extra safety and handling requirements during storage as per the regulations. The location of such a facility will be subjected to the approval of the government authority. A warehouse for pharmaceutical products attracts FDA approval.
Characteristics For any product, the value density (unit price per unit weight or volume of a product) and logistical reach will influence decision making on investing in a warehouse facility. For example, investment in a storage facility is justified for products such as computers, jewellery, luxury goods where the unit price is very high, the logistic reach is wide and distribution centres are limited in number. Due to high margins and shorter payback period the heavy investments are justified.
Objectives In a selection amongst the various warehouse options, the objectives have to be clearly defined. Volumes will justify private warehouses while the seasonality will justify public or contract storage places. For customer satisfaction through reliable delivery, investment in material handling and information processing system is justified.
Strategic Decisions Strategic decisions on layouts, material-handling systems, and storage schemes are solely dependent on the objectives, available financial resources, return on investment and pay back period. These decisions will have a long-term effect and help in developing a competitive advantage.
Tactical Decisions Tactical decisions will have an effect on the warehouse performance parameters such as reduction in the order processing cycle, efficiency in material handling, packaging to reduce product damages, increasing warehouse productivity, reducing customer complaints, and enhancing the customer satisfaction level.
Operational Decision Operational decisions will bring efficiency in the warehouse operations and will help in reducing the operation cost.
Number of Warehouses This decision will have to be taken in light of the available financial resources, managerial skills to manage product varieties and volumes, and expected market coverage.
Warehouse Options A decision on warehouse options depends on the financial resources, market coverage, and degree of control on the operation. For customized arrangement and scale economics, a private warehouse is the best option. While for generalized bulk goods a public warehouse will reduce the storage cost. It will also help in flexibility in shifting the site.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.
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