Consolidation Warehousing

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Consolidation Warehousing

• Aubrey Blacker
• Brigham Young University

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Agenda

• Define Consolidation Warehousing
• How can it be used in your organization?
• Nuts and Bolts
• How it Works
• Real-World Example
• Exercise

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What is Consolidation Warehousing?

• A form of warehousing that pulls together small
  shipments from a number of sources (often plants)
  in the same geographical area and combines them
  into larger, more economical, shipping loads
  intended for the same area

-Like Carpooling!
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Small, flexible shipments in-Large, economical
shipments out
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How can Consolidation Warehousing be used in your
organization?
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How would implementing Consolidation Warehousing
affect your organizations

• Profitability?
• Delivery Time?
• Inventory Levels?
• Customer Satisfaction?
• Reputation within the industry?

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Nuts and Bolts

• Consolidation warehouses are constructed at a
  strategic location between manufacturers and
  customers
• Third-Party Logistics Providers (3PLs) manage and
  maintain the consolidation warehouse and the
  information system needed to run it
• Goal Maximize transportation utilization and
  minimize costs
• Warehouses can either be client-dedicated or
  multi-user facilities

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How it Works

• 1.Customer places several small orders from
  multiple manufacturers in the same area

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How it Works

• 2. Several Less-than-truckloads (LTL) of product
  from manufacturers in the same area arrive at the
  consolidation warehouse

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How it Works

• 3. The 3PL strategically consolidates these small
  orders from multiple manufacturers into one full
  Truck Load (TL) headed to the customer using
  tactical transportation modeling tools

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How it Works

• Tactical Transportation Modeling Tools
• Input Customer and purchase order date
  requirements
• Look to minimize cost by selecting
• Most appropriate mode of transportation
• Most appropriate carrier within that mode of
  transportation
• Optimize routes and generate a detailed load plan

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How it Works

• 4. Customer receives product orders from various
  manufactures in one transaction
• -As load size increases, shared transportation
  costs among manufactures decreases

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Benefits of Consolidation Warehousing

• Lower shipping costs for participants
• More efficient transportation
• No capital investment required
• Reduces risk
• Allows manufactures to focus on their core
  competencies
• Lower product costs for customers
• Lower inventory levels required

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Concerns associated with Consolidation Warehousing

• Manufactures and customers information systems
  must be aligned with the 3PLs
• Could be costly
• Takes immediate control of product transportation
  out of the manufacturers hands
• Requires collaboration among suppliers, customers
  and carriers
• May be hard to coordinate

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A Real World Example

• Frozen Food Industry

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A Real World Example

• Situation
• Retailers wanted smaller, more frequent shipments
• More profitable because it keeps inventory levels
  down
• Truck shortage
• Shipping LTLs became very costly

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A Real World Example

• 3PLs provided dry, refrigerated/frozen warehouse
  space to keep products fresh
• Managed required product information by using
• Barcodes
• Scanning
• Instant Messaging
• Internet
• Other internet-based information systems

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A Real World Example

• Multiple Manufacturers in the same area used
  these consolidation warehouses to combine LTL
  deliveries to retailers

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A Real World Example

• Result
• CW maximized truck utilization
• Solved capacity shortage issue in the trucking
  industry
• And minimized costs/maximized profitability
• Decreased shipping costs
• Helped retailers maintain low inventories and
  retain high profits

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An Exercise

• The Penny Game!

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Summary

• Consolidation Warehousing pulling together
  small shipments from a close geographical area
  and combining them to make larger, more
  economical, shipments to the customer
• Used to minimize transportation costs and
  maximize efficiency
• Beneficial for manufacturers and retailers
• Applicable across many industries

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Readings list

• Bozarth, Cecil C., Handfield, Robert B.
  Introduction to Operations and Supply Chain
  Management. Pearson Prentice Hall, United States
  of America, 2005.
• Frazelle, Edward H. Supply Chain Strategy.
• Blacklick, OH, USA McGraw-Hill Education Group,
  2001. p 228.
• http//site.ebrary.com/lib/byuprovo/Doc?id100414
  12ppg240
• Chill Challenge. Food Logistics Age. July 2005.
  Cygnus Business Media Inc.
• US Logistics 2005. Transport Intelligence Ltd.
  June 2005 USL0506.
• Warehousing Education and Research Council
  (WERC) www.werc.org