Warehouse Design And Organization Structure For Management

Published Date: 02 Nov 2017

SRATEGIC WAREHOUSE MANAGEMENT IN SYDNEY, AUSTRALIA

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Introduction

Australia has a large economy with a GDP of US$1.57 trillion. The economy is dominated by the services sector which contributed to 68% of the total GDP, mining about 19% and the rest by agriculture and industry. Its key export articles include coal, farm products, wool and meat. Australia is a key importer of goods from China, India and other low cost Asian nations. The proximity to Asia, location on key shipping routes and a local population with enormous purchasing power makes it an ideal location for both transhipment and a market. The strong dollar gives a good purchasing power overseas. Milk is an important industry in both Australia and New Zealand. Milk and milk derivatives make for important export products. This large trade volume therefore necessitates a well-defined and developed supply chain and warehousing infrastructure in Australia.

83% of Australia' BRW fast 100 companies have outsourced some function of their business to third party vendors. One of the key functions that have been outsourced is warehousing and logistics. Businesses currently deal with warehousing, product fulfilment, stock management, and, servicing sold stock. Outsourcing could be a good way of businesses to reduce the complexity of managing these processes. Sydney, Australia is chosen as the location for the warehouse.

Third party logistics services have experienced fast growth over the past few years. They afford a means by which companies can cope with rapidly evolving markets in various parts of the globe. Some important benefits that have been projected for a third party logistics provider include - reduced costs, fixed logistics assets, improved order fill rates, shortened order cycle lengths and reduced cash-to-cash cycles. The choice of an inappropriate third party logistics service company could lead to serious consequences for the company. This could include reputation being irreversibly damaged. An inappropriate third party includes a company that provides low grade logistics service or does not fulfil contractual obligations.

To determine the right third party logistics provider it is necessary to identify and understand five key steps (Sink and Langley 1997). These include -

(1) Identify the need to outsource logistics,

(2) Develop feasible alternatives,

(3) Evaluate and select a supplier,

(4) Implement service, and

(5) Assess ongoing service performance

Other studies have also included empirical evidence (Kannan and Tan, 2002) and survey determined factors that can be used to evaluate third party logistics service providers (Spencer et al 1994). These are -on-time performance, service quality, communication, reliability, service speed, and flexibility. The more comprehensive and recent surveys of this type, include that conducted by the International warehousing Logistics association, which in 2003 revealed further factors which determine choice of a third party logistics provider. These include - price, reliability, service quality, on-time performance, cost reduction, flexibility and innovation, good communication, management quality, location, customize service, speed of service, order cycle time, easy to work with, customer support, vendor reputation, technical competence, special expertise, systems capabilities, variety of available services, decreased labour problems, personal relationships, decreased asset commitment, and early notification of disruptions. It must be noted that this list is in descending order of importance. A very recent publication exploring decision making models for choosing a third party logistics service provider, also concludes that information technology capabilities are top ranking decision swingers (Soh, 2010).

Warehouse Design and Organization Structure for Management

There have been numerous innovations in warehouse technology during the past few years (Rouwenhorst B, et al 2000). Warehouse management includes planning and control. Logistics cost in a warehouse are mostly a function of the design. This design includes equipment selection, layout determination and technical specifications. Costs, throughput, capacity and response times have to be met when designing each of these design elements. Where a large number of feasible designs have been created, a systematic process of elimination has to be employed.

A warehouse may be characterized from three different perspectives - process, resource and organization. Products arriving at a warehouse subsequently are taken through a number of steps called processes. Resources refer to all means, equipment and personnel needed to operate a warehouse. Finally, organization includes all planning and control procedures used to run the system. There are many different phases in designing a warehouse - concept, data acquisition, functional specification, technical specification, selection of means and equipment, layout, and selection of planning and control policies. The performance criteria for a warehouse are dependent on it being a production or a distribution warehouse. The design of a warehouse also experiences problems at the strategic, tactical and operational levels.

Considerations for Workforce Management

In September 2008, national legislation was introduced around Australia for fatigue management among employees. This is geared toward providing a safe workplace and safe systems of work under OHS legislation. Fatigue management mostly focused on working time period for employees involved in logistics services, mainly drivers. This has resulted in many transport companies reviewing all their driver scheduling processes and time slotting of trucks delivering and picking up goods from suppliers. Warehouses that run multiple shifts or seven day a week operations must have fatigue management strategies and plans in place. This includes staff medicals, monitoring work hours, secondary employment, drug and alcohol testing, sleeping disorders and fatigue training.

One of the key aspects of management of logistics is the turnaround time. A trend in the United States has been to keep the distance between the warehouse and the customer less than 500 kilometres. This ensures that the drivers can be back to the base station within a day, thus saving on costs associated with overnight stays and delays. This also ensures efficient traffic management.

Key Regulations

There are certain regulations to be followed while setting up a warehousing and logistics service provider in Australia. Warehouses are licensed under section 79 of the Customs Act 1901.  Goods entered for warehousing on a Nature 20 warehouse declaration may be held indefinitely at a warehouse either without payment of any duties and taxes until the goods is entered for home consumption or until they are exported.  The holder of a warehouse licence is responsible for the safe custody and accounting of these goods to the satisfaction of Customs and Border Protection.  Failure to do so will result in the warehouse licence holder being liable for any unpaid revenue. There are a number of categories of warehouse licences, mainly:

Private Warehouse - The licence holder is the owner of the warehoused goods

General Warehouse - The licence holder is storing goods on behalf of other owner/s

Providers and Flight Catering Bonds - The licence holder stores goods which are then supplied to international aircraft or vessels as aircraft or ships stores

Duty Free Store - The licence holder is permitted to sell goods to relevant travellers in a retail-type environment

Activities permitted in warehouses are limited to ensure the security of the goods and the revenue payable to the Commonwealth is protected.  Apart from approved storage, blending, unpacking, repacking and packaging of certain types of goods, any activities that involve "value adding" are not permitted.

Excise equivalent goods (EEGs) are imported alcohol, tobacco and fuel that, if produced or manufactured in Australia, would be subject to excise duty. These are stored in EEG warehouses. From 1 July 2010, responsibility for the administration of EEGs that are warehoused moved from Customs and Border Protection to the Australian Taxation Office (ATO).

With the exception of businesses in the duty free, catering bond and provider industries, an EEG warehouse license is required if the company intends to store EEGs in a warehouse; or is an operator of one or more warehouses and at least one of the warehouses deals with EEGs.

The warehouse lien and storage act of 1990 provides for lien on goods stored in a warehouse.

By law, employers must provide a safe working environment for their workers, so far as is reasonably practicable. This is covered by the Occupational Health and Safety Act 2004. This law enjoins employers to eliminate any risks to health and safety, so far as is reasonably practicable to workers and when it is not reasonably practicable to eliminate risks, efforts must be made to reduce them so far as is reasonably practicable.

Export and Import Procedures

The Australian customs and border protection service work to control cross border trade. Total prohibition applies to the export of protected wildlife, some heritage items, selected weapons and other dangerous goods. Goods which are conditionally prohibited from export may not be exported unless all necessary export permits are obtained from the relevant permit issuing agency. Further, goods may not be exported, or loaded on a ship or aircraft for export, unless they have been entered for export (some exemptions apply) and Customs has given approval to export by means of a "cleared" Export Declaration Number (EDN). Carriers cannot depart from Australia unless Customs has issued a Certificate of Clearance.

The US customs and border protection service acts as an agency that executes restrictions that other US government agencies might have for import of goods into the country. The mandate of the CBP makes it responsible for detecting, interdicting, and investigating fraudulent activities intended to avoid the payment of duties, taxes and fees, or activities meant to evade the legal requirements of international traffic and trade; and for detecting, interdicting, and investigating illegal international trafficking in arms, munitions, currency, and acts of terrorism at U.S. ports of entry.

Risks and Possible Mitigation

In 2010, the Australian warehousing industry experienced a slowdown in the general economy. Warehouses in Australia are cutting back on staffing and casual staff replaced many full time staff. Inventory levels reduced mainly due to a poor sales environment and extremely efficient "just in time" levels. This also led to a decrease in sales of everything including forklifts, pallets, racking systems, and logistics services.

A typical semi-trailer provides a fuel efficiency of 1.87 kilometres on a litre of diesel. Some more fuel efficient trucks will get 2.3 kilometres per litre. In 2011, the average cost to refuel a semi-trailer was around AU$1000. The impact of rising fuel prices is expected to be felt in this sector, quite severely.

Operations Amenable to Outsourcing

Some logistics services that could be considered for management by SWM for its clients include - Warehouse facility including racks and labour, Transport, Freight management including billing, Inventory management and utilization of Information technology for the purpose of inventory management and logistics. These do not include other operations of outsourced warehouse management including - Cross-Docking, marketing, manufacture (packaging and labelling), returns and servicing.

The process of cross docking allows the organisation to have a rapid flow of product through the supply chain. In summary, goods that have been ordered will be ready for dispatch within hours by bypassing the standard receiving storage order assembly and despatch cycle. This product control strategy also allows inventory stock turn ratios to be significantly increased while reducing distribution cost. Cross docking is necessary where the manufacturing location is geographically distinct from the distribution centre. It is also necessary where goods from multiple sources are consolidated into a single shipment.

Budgetary Considerations

When considering the budget for a facility, it is important to keep in mind the following parameters - warehouse lease; warehouse operating expenses including electricity, taxes, insurance and other sundry expenses; cost of leasing out equipment like forklifts and worker cost.

Measurement Metrics

In the USA, the warehousing education research center, which looks into distribution cost metrics, released data for 2010. Best in class was 2.4% as a percentage of sales. Medium measurement was 4.2% and was less than 5.4%. For typical warehousing operations to be outsourced, third party logistics companies need to keep these metrices in mind. Australia has similar cost structures, or even better margins that could be paid out by importers and traders, due to lower cost of shipping from Asia. About 66% of the North American market is has been converted to contract warehousing. A majority of these (approximately 54%) of the contracts are for three years, and some are for five years. The modal operating margin is 10-14.9%. This margin occurs in 34% of the cases, while the modal expected margin is 15-19.9%.

It is also necessary to keep in mind that margins might vary by the sector being focused on by the company. For example, higher margins are obtained for telecommunications, chemicals and garments. Lower margins are available for foods. While these might look upfront due to the perishable and fragile nature of food and beverage products, it is not so ( Saddle creek Corporation, 2007 ). Some hard goods which have low value also offer low margins for warehouses. Therefore, the margins enjoyed by manufacturers of goods, along with the total value of the product determine the margin that a warehouse can elicit from a particular product category.

Conclusion

Australia’s position on international shipping routes and a vast domestic market, make it an attractive market for establishing a warehousing and logistics operation. Australia’s regulations allow for a swift creation of a corporate entity for establishing a third party logistics operation. Design and execution of warehousing operations have developed ad matured over the years into a refined science. It is therefore recommended to setup an integrated third party logistics service in Australia.