{"id":593,"date":"2008-10-20T15:20:50","date_gmt":"2008-10-20T22:20:50","guid":{"rendered":"https:\/\/staging.opexlearning.com\/resources\/?p=593"},"modified":"2014-09-25T12:34:00","modified_gmt":"2014-09-25T17:34:00","slug":"the-role-of-the-warehouse-in-ecommerce-and-eretailing-tradeoff-and-benefits","status":"publish","type":"post","link":"https:\/\/staging.opexlearning.com\/resources\/the-role-of-the-warehouse-in-ecommerce-and-eretailing-tradeoff-and-benefits\/593\/","title":{"rendered":"The Role of The Warehouse in eCommerce and eRetailing: Trade-off and Benefits"},"content":{"rendered":"<div class=\"a296a24fa2fc69ef5487857f02f111e8\" data-index=\"9\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- Single Post readerboard -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:inline-block;width:728px;height:90px\"\r\n     data-ad-client=\"ca-pub-8207522353004717\"\r\n     data-ad-slot=\"1144967431\"><\/ins>\r\n<script>\r\n(adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>Efficiently optimizing inventory, storage space, labor, <a title=\"distribution centers can be strategic and can even reduce costs\" href=\"https:\/\/staging.opexlearning.com\/resources\/warehouse-reduce-costs-increase-service-level\/10028\/\">warehouse costs<\/a>, and time in eCommerce (e-retailing) is required to attain customer satisfaction and economic profit. \u00a0There a whole host of <a title=\"warehouse metrics to keep in mind\" href=\"https:\/\/staging.opexlearning.com\/resources\/warehouse-management-metrics\/7310\/\">warehouse management metrics<\/a> that are important too. For the Operations Researcher, this is no easy task; for the in-the-dirt manager with competing priorities and pressures from her chain-of-command, it is even a bigger challenge.<\/p>\n<p>Most people are familiar with the front-end of eCommerce &#8212; the store, search, navigation, the cart, and payment.\u00a0 But, what most consumers don&#8217;t realize is that the true magic and the more technically challenging piece of eCommerce is actually what happens after &#8220;click&#8221; &#8212; The Fulfillment, which often requires a Warehouse.<\/p>\n<p>In what follows, I&#8217;ll discuss the role of a Warehouse and how the Warehouse meets the current needs of eCommerce.<\/p>\n<h2>Background<\/h2>\n<p>After a customer orders online, the order is virtually assigned to a fulfillment center (FC), the item(s) at that fulfillment center <em>decrement in quantity<\/em> and then <em>Age<\/em> (wait to be picked).\u00a0 An FC is several thousand feet in size and typically consists of a <em>Picking Area<\/em> and a <em>Reserve Area<\/em>, where items are stored in bulk on pallets and the items are used to <em>Replenish<\/em> the exhausted items in the Picking Area.<\/p>\n<p>The &#8220;splitting&#8221; of a Warehouse like I have described is technically called &#8220;Multi-Echelon, Two-Stage Serial Systems&#8221; in Operations.<\/p>\n<p>From a General Manager&#8217;s perspective, the Profit Tree below is a good reminder of what we&#8217;re all trying to achieve:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-4404 aligncenter\" title=\"profit-tree\" src=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/profit-tree.jpg\" alt=\"\" width=\"500\" height=\"224\" srcset=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/profit-tree.jpg 500w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/profit-tree-300x134.jpg 300w\" sizes=\"(max-width: 500px) 100vw, 500px\" \/><\/p>\n<h2>The Role of a Warehouse<\/h2>\n<p>It takes labor, capital, space, equipment, and complicated information systems to have a Warehouse.\u00a0 Unfortunately, most firms cannot avoid this expense all-together; reduce, yes, but the Warehouse plays a really important role in the supply chain.\u00a0 Namely, The Warehouse is a strategic response to Supply &amp; Demand, Transportation Costs, and Value-Added Processing.<\/p>\n<h2>Supply &amp; Demand<\/h2>\n<p>A major challenge in managing supply chains is that demand can change very quickly, but supply is takes longer to change \u201d that is, supply is not as responsive because there is usually some transformation that needs to happen, such as raw materials to finished goods, which takes time. But, demand is not very forgiving or patient and can change almost instantly. Supply is more sticky\u009d.<\/p>\n<p>As a response to unknown or seasonal demand, the Warehouse plays a strategic role in assuring that there is product available, so that customers don&#8217;t find themselves wanting and firm doesn&#8217;t find itself unable to meet demand and face loss of sales, goodwill, and morale for the employees.<\/p>\n<p>The Warehouse allows the firm to respond quicker when demand changes. The Warehouse acts as a buffer to changing demand, unreliable transportation, congestion in any part of the supply chain. As an added part of the complexity of supply chain management, the points of congestion in the system must also be managed.<\/p>\n<p>Some questions to consider:<\/p>\n<ol>\n<li>Given the approximate location of 80% of the customers and considering costs, response time, political climate of the country, and transportation reliability, what is the ideal geographical location of material sourcing, manufacturing, assembly, and warehousing?<\/li>\n<li>What inventory buffer stock levels are appropriate for The Warehouse to hold?\u00a0 Replenishment levels?\u00a0 Use-to-Exhaust policies?<\/li>\n<\/ol>\n<h2>Consolidated Product Reduces Transportation Costs<\/h2>\n<p>There is a fixed cost every time product is transported.\u00a0 Given the price of fuel currently and the instability of the US Dollar to other currencies, this is especially true. To amortize or reduce the pain of this fixed cost, it&#8217;s necessary to fill the carrier to capacity. In the industry, this is typically called Full-Truck-Load\u009d and the opposite is Less-Than-Truckload (LTL)\u009d, regardless if transportation is achieved by truck, plane, or boat.<\/p>\n<h2>Provide Value-Added Processing<\/h2>\n<p>The final assembly could be done at The Warehouse.\u00a0 For example, if you produce a product that is private-labeled for your customer, then the product differentiation could be done at The Warehouse.\u00a0 Generic parts can be shipped to The Warehouse and then labeled to the customer specifications to achieve differentiation.<\/p>\n<h2>Inventory Holding Costs<\/h2>\n<p>It must be noted that holding inventory has some explicit and implicit costs associated with it.\u00a0 Some explicit costs are the following:<\/p>\n<ol>\n<li>inventory investment<\/li>\n<li>insurance<\/li>\n<li>taxes<\/li>\n<li>damage<\/li>\n<li>theft<\/li>\n<li>relocation costs<\/li>\n<li>labor<\/li>\n<\/ol>\n<p>As a picture, the Inventory Holding Costs Tree might look like the following:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-4405 aligncenter\" title=\"inventory-holding-costs\" src=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/inventory-holding-costs.jpg\" alt=\"\" width=\"515\" height=\"523\" srcset=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/inventory-holding-costs.jpg 735w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/inventory-holding-costs-600x610.jpg 600w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2008\/10\/inventory-holding-costs-295x300.jpg 295w\" sizes=\"(max-width: 515px) 100vw, 515px\" \/><\/p>\n<p>Notice that the costs above are within-warehouse costs.\u00a0 There is also substantial opportunity on reducing Transportation and Packaging costs into the Warehouse and out-of the Warehouse.\u00a0 The clear implicit costs associated with inventory are the defects and <a href=\"https:\/\/staging.opexlearning.com\/resources\/the-hidden-factory-would-the-customer-pay-for-that\/458\/\">hidden factories<\/a> that inventory tends to hide.<\/p>\n<!--CusAds0-->\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>Efficiently optimizing inventory, storage space, labor, warehouse costs, and time in eCommerce (e-retailing) is required to attain customer satisfaction and economic profit. \u00a0There a whole host of warehouse management metrics that are important too. For the Operations Researcher, this is no easy task; for the in-the-dirt manager with competing priorities and pressures from her chain-of-command, [&hellip;]<\/p>\n","protected":false},"author":12327,"featured_media":4404,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[508],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>eCommerce Warehousing and Distribution<\/title>\n<meta name=\"description\" content=\"eCommerce Warehousing and 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