LOGISTICS AND SUPPLY CHAIN MANAGEMENT PROGRAM

Course:
WAREHOUSE ENGINEERING MANAGEMENT
Preparation for Mid-term Test

Lecturer: Assoc. Prof. Dr. Ho Thi Thu Hoa 1

All groups:
Mid-term Test:

1. Date: To be announced (TBA)

2. Time: TBA

3. Manner: this is an open-book examination.

✓ Hard copies of teaching materials, hand written notes, calculator and dictionary are allowed.
✓ Laptop use, discussion and materials transfer are strictly prohibited.

4. Duration: 120 minutes

5. Note: You are required to provide formulas, explanation and analysis for the mid-term test
questions (the marks will be not given if you do not follow the guidelines)

Good luck with your exam!

2
 Contents
1.Chapter 1: Introduction to Warehousing (LP
1)
2.Chapter 2: Inventory, Stock Analysis and
classifying products (LP 2&3)
3.Chapter 3: Warehouse Operations (LP 4-5-6)
4.Chapter 4: Warehouse networking (LP 7-8)

3
References
1. Richards, G. (2014). Warehouse management: a complete guide to improving efficiency and
minimizing costs in the modern warehouse. Kogan Page Publishers.
2. Richards, G. (2018). Warehouse management: a complete guide to improving efficiency and
minimizing costs in the modern warehouse. Kogan Page Publishers.
3. Manzini, Ricardo. Warehousing in the Global Supply Chain. Springer: 2012
4. Tompkins, J. A., White, J. A., Bozer, Y. A., & Tanchoco, J. M. A. (2010). Facilities planning. John Wiley
& Sons
5. Alan Hrrison and et. (2014), Logistics management and strategy competing through the supply
chain (fifth edition), Pearson
6. Martin Christopher(2011), Logistics & Supply Chain Management (4th Edition), Prentice Hall
7. Arnold, Tony J. R., Chapman, S. N., Clive, L. M. Introduction to Materials Management, 7ed.
Pearson: 2016

Assoc. Prof. Dr Ho Thi Thu Hoa 4

 Structure of Mid-term Test

1. Question 1: (15 points)

2. Question 2: (25 points)
3. Question 3: (20 points)
4. Question 4: (20 points)
5. Question 5: (20 points-case study)

5
Chapter 1: Introduction to Warehousing

1. What is warehouse
2. The importance of warehouse
3. Types of warehouse operation
4. Warehouse strategy
5. Supply chain trends affecting warehouses

Assoc. Prof. Dr Ho Thi Thu Hoa 6

 Chapter 2: Inventory, Stock Analysis and classifying products

1. Product classification
2. Demand management and forecasting
3. Inventory function and principles
4. Inventory costs and service
5. Inventory models (Replenishment methods)
6. ABC and Pareto analysis
7. Exercises
7
Simple Moving Average
n

i=1
Di
MAn =
n
where

n = number of periods in
the moving average
Di = demand in period i

Assoc. Prof. Dr Ho Thi Thu Hoa

3-month Simple Moving Average
ORDERS MOVING
MONTH PER MONTH AVERAGE 3
Jan
Feb
120
90 – 
i=1
Di
Mar
Apr
100
75
– MA3 =
May 110 – 3
June 50
July 75 103.3
Aug
Sept
130
110 88.3 90 + 110 + 130
Oct 90
95.0
= 3
Nov -
78.3
78.3
= 110 orders for Nov
85.0
105.0
110.0

Assoc. Prof. Dr Ho Thi Thu Hoa

 Weighted Moving Average
• Adjusts moving average method to more closely
reflect data fluctuations
n
WMAn =  Wi Di
i=1
where
Wi = the weight for period i,
between 0 and 100
percent
 Wi = 1.00

Assoc. Prof. Dr Ho Thi Thu Hoa 12-10

 Example
MONTH WEIGHT DATA
August 17% 130
August: 1 September 33% 110
September: 2 October 50% 90
October: 3 3


Total: 6
August WMA= 1/6 = 17% November Forecast WMA3 = Wi Di
i=1
Sep WMA = 2/6 = 33.3%
Oct WMA = 3/6 = 50%
= (0.50)(90) + (0.33)(110) + (0.17)(130)

= 103.4 orders

Assoc. Prof. Dr Ho Thi Thu Hoa 12-11

 Exponential Smoothing
• Averaging method
• Weights most recent data more strongly
• Reacts more to recent changes
• Widely used, accurate method

Assoc. Prof. Dr Ho Thi Thu Hoa 12-12

 Exponential Smoothing
Ft +1 =  Dt + (1 - )Ft

where:
Ft +1 = forecast for next period
Dt = actual demand for present period
Ft = previously determined forecast for
present period
= weighting factor, smoothing constant

Assoc. Prof. Dr Ho Thi Thu Hoa 12-13

Effect of Smoothing Constant
0.0    1.0

If  = 0.20, then Ft +1 = 0.20 Dt + 0.80 Ft

If  = 0, then Ft +1 = 0 Dt + 1 Ft = Ft
Forecast does not reflect recent data
If  = 1, then Ft +1 = 1 Dt + 0 Ft = Dt
Forecast based only on most recent data

Assoc. Prof. Dr Ho Thi Thu Hoa 12-14

 Exponential Smoothing (α=0.30)
PERIOD MONTH DEMAND F2 = D1 + (1 - )F1
1 Jan 37 = (0.30)(37) + (0.70)(37)
2 Feb 40 = 37
3 Mar 41
4 Apr 37 F3 = D2 + (1 - )F2
5 May 45 = (0.30)(40) + (0.70)(37)
6 Jun 50
7 Jul 43 = 37.9
8 Aug 47
F13 = D12 + (1 - )F12
9 Sep 56
10 Oct 52 = (0.30)(54) + (0.70)(50.84)
11 Nov 55 = 51.79
12 Dec 54

Assoc. Prof. Dr Ho Thi Thu Hoa 12-15

Exponential Smoothing
FORECAST, Ft + 1
PERIOD MONTH DEMAND ( = 0.3) ( = 0.5)
1 Jan 37 – –
2 Feb 40 37.00 37.00
3 Mar 41 37.90 38.50
4 Apr 37 38.83 39.75
5 May 45 38.28 38.37
6 Jun 50 40.29 41.68
7 Jul 43 43.20 45.84
8 Aug 47 43.14 44.42
9 Sep 56 44.30 45.71
10 Oct 52 47.81 50.85
11 Nov 55 49.06 51.42
12 Dec 54 50.84 53.21
13 Jan – 51.79 53.61

Assoc. Prof. Dr Ho Thi Thu Hoa 12-16

 Example problem
A company manufactures a line of ten items. The usage and unit cost are
shown in the following table, along with the annual dollar usage. The latter
is obtained by multiplying the unit usage by the unit cost.
a. Calculate the annual dollar usage for each item.
b. List the items according to their annual dollar usage.
c. Calculate the cumulative annual dollar usage and the cumulative
percentage of items.
d. Group items into an A, B, C classification.

Assoc. Prof. Dr Ho Thi Thu Hoa 17

Answer

Assoc. Prof. Dr Ho Thi Thu Hoa 18

 Answer

In this table, look at second column, the annual usage are rearrange following decreasing order. After that, the
cummulative annual usage are calculated in third column.

Assoc. Prof. Dr Ho Thi Thu Hoa 19

 Chapter 3: Warehouse Operations

1. Introduction (WHS-DC-Fulfillment Center – Crossdocking-Sorting center-

Cold WHS)
2. Materials handling equipment
3. Warehouse operations process
4. Receiving and put-away
5. Storage operations (general, cold- chilled, frozen)
6. Order picking operations
7. Replenishment – Returns and Despatch
8. Warehouse VAL (value-added services)
9. Exercises
20
 Example
1. At the ABC manufacturing firm, the average daily withdrawal rate for
product A is 20 cartons/day, safety stock is 5 days, order lead time is 10
days, and the order quantity is 45 days. What are the maximum and
average quantities of unit loads to be stored?
Assoc. Prof. Dr Ho Thi Thu Hoa 22
 Storage Space Planning (2 of 3)
Dedicated storage Randomized storage
• The planned quantity of unit • The planned quantity of unit loads =
loads = the sum of the openings the number of openings required to
required for each SKU store all SKUs.
Which would result in less storage space?
Suppose 6 products have inventory levels in pallet loads as the below table. Calculate the required
amount of space for (i) dedicated storage; (ii) randomized storage.
Period Product 1 Product 2 Product 3 Product 4 Product 5 Product 6
1 24 12 2 12 11 12
2 22 9 8 8 10 9
3 20 6 6 4 9 6
4 18 3 4 24 8 3
5 16 36 2 20 7 24
6 12 30 6 12 5 18
 • Sum of individual maximum
inventory levels =
Max (Product 1+…+Product 6)
= (24+36+8+24+24+24) = 140

Dedicated storage: 140 pallet positions

Randomized storage: 105 pallet positions

Total: Average inventory

1860 level = 1860/24 = 77.5
Assoc. Prof. Dr Ho Thi Thu Hoa 24
 Storage Space Planning (3 of 3)
• To maximize throughput when using dedicated storage, SKU should be assigned to storage
locations based on the ratio of their activity to the number of openings or slots assigned to
the SKU.
• Despite the greater throughput of dedicated storage, it is not used as often as it should be.
Why?

• The storage philosophy chosen for a specific SKU will not be strictly fixed or random
location storage, but hybrid location storage. Example?
 Storage Layout Planning
• The objectives of a warehouse layout are:
- To use space efficiently;
- To allow for the most efficient material handling;
- To provide the most economical storage in relation to costs of equipment, use of space,
damage to material, handling labor, and operational safety;
- To provide maximum flexibility in order to meet changing storage and handling
requirements;
- To make the warehouse a model of good housekeeping.
• To accomplish the objectives, several storage area principles must be integrated,
including: popularity, similarity, size, characteristics, and space utilization
 Popularity (1 of 3)

• Pareto’s law: 85% of the wealth of the world is held by 15% of the people → How to
interpret Pareto’s law into the popularity of materials stored?
• To maximize throughput, the most popular of materials should be stored such that travel
distance is minimized. As illustrated below, by storing popular materials in deep storage
areas, the travel distance to other materials will be less than if materials were stored in
shallow areas.
Assoc. Prof. Dr Ho Thi Thu Hoa 28
 Popularity (2 of 3)
The impact of storage depth on travel distances
B1 B2 B3 B1 B2 B1
Outsite Outsite Outsite
B4 B5 B6 Aisle B3 B4 Aisle B2 Aisle
wall wall wall
A1 A2 A3

…
Reference Reference
A4 A5 A6 Reference A5 A6 point A6
point point
Storage depth

(a) Storage depth of 3 units (b) Storage depth of 2 units (c) Storage depth of 1 unit
Storage depth
Distance from reference point
3 units 2 units 1 unit
Distance to A6 2 2 2
Distance to A1 5 5 7
Distance to B6 4 5 8
Distance to B1 7 8 13
Average travel distance 4.5 5 7.5
Assoc. Prof. Dr Ho Thi Thu Hoa 30
 Popularity (3 of 3)
Warehouse Receiving
entrance & & shipping Rules for stock location
exit point quantity
Popular materials should be
Same - positioned as close to this point
as possible (shown in picture)
The most popular items should
be positioned along the most
Different Same
direct route between the
entrance & departure points.
The most popular items having
the smallest receiving/shipping
ratio should be positioned
close to the shipping point
along the most direct route
Different Different
between the entrance &
departure points, while the
most popular ones with the
largest ratio close to the Material storage by popularity
receiving point.
Example (Book 4 Facility Planning p.428)
The below table shows the most popular products in a warehouse. How
should these items be aligned along the main aisle?
Average customer
Pr. Quantity per receipt Trips to receive Trips to ship
order size
A 40 pallets 40 1.0 pallet 40
B 100 pallets 100 0.4 pallet 250
C 800 cartons 200 2.0 cartons 400
D 30 pallets 30 0.7 pallet 43
E 10 pallets 10 0.1 pallet 100
F 200 cartons 67 3.0 cartons 67
G 1000 cartons 250 8.0 cartons 125
H 1000 cartons 250 4.0 cartons 250

Receive Main aisle Ship

Warehouse layout
Receiving/Shipping ratio = trips to receive/trips to ship

Assoc. Prof. Dr Ho Thi Thu Hoa 33

Assoc. Prof. Dr Ho Thi Thu Hoa 34
 Chapter 4: Warehouse Networking

1. Introduction
2. Model classification

3. Rectilinear-distance facility location models

Euclidean-distance facility location models

Covering problems
4. Exercises

35
 Example 1
Five warehouses currently have the following cooordinate locations: 𝑃1 =
1, 1 , 𝑃2 = 6, 2 , 𝑃3 = 2, 8 , 𝑃4 = 3, 6 , 𝑃5 = 8, 4 . The cost per unit
distance traveled between the new warehouse and each existing warehouse is
the same. The number of trips per month between the new warehouse and
existing warehouse 1, … , 5 are 10, 20, 25, 20, and 25, respectively.
a. Find the optimum location for a new warehouse.
b. If it is no possible to locate the new warehouse in the optimum location.
Instead, there are three feasible locations: 𝑄1 = 3, 5 , 𝑄2 = 4, 5 , and
𝑄3 = 2, 4 . Which is preferred?
 Example 1 (1 of 3)
a. Solving for the optimum x-coordinate
𝒊
Warehouse 𝒊 Coordinate 𝒂𝒊 Weight 𝒘𝒊 ෍ 𝒘𝒉
𝒉=𝟏
1 1 10 10
3 2 25 35 < 50 10+25
4 3 20 55 > 50 35+20
2 6 20 75 55+20
5 8 25 100 75+25

- Ordering the x-coordinates of the existing facilities give the sequence 1, 2, 3, 6, and
8, with the corresponding weights 10, 25, 20, 20, and 25.
- The sum of the weights is 100. The partial sum of the ordered sequence of weights
first equal or exceeds one-half the total (50) for 𝑖 = 4→ 𝑥 ∗ = 𝑎4 = 3.
Example 1 (2 of 3) Solving for the optimum y-coordinate: Likewise, 𝑦 ∗ = 𝑏5 = 4.
𝒊
Warehouse 𝒊 Coordinate 𝒃𝒊 Weight 𝒘𝒊 ෍ 𝒘𝒉
𝒉=𝟏
1 1 10 10
2 2 20 30 < 50
5 4 25 55 > 50
4 6 20 75
3 8 25 100
Assoc. Prof. Dr Ho Thi Thu Hoa 39
Example 1 (2 of 3)

b. Computing the value of 𝑓(𝑋) for 𝑋 = 𝑄𝑘 , 𝑘 = 1, 2, 3 yeilds:

𝑓 3, 5 = 60 + 120 + 100 + 20 + 150 = 450
𝑓 4, 5 = 70 + 100 + 125 + 40 + 125 = 460
𝑓 2, 4 = 40 + 120 + 100 + 60 + 150 = 470
→ The best site is 𝑄1
Example 1 (3 of 3)

𝑃3

𝑃4

X
𝑃5

𝑃1 𝑃2

Using Excel to solve the single-facility, rectilinear location problem

Good luck for Mid-term Test!

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