Consolidation Warehousing

Aubrey BlackerBrigham Young University

Agenda:• Define Consolidation Warehousing

• How can it be used in your organization?

• Nuts and Bolts

• How it Works

• Real-World Example

• Exercise

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!

Small, flexible shipments in-Large, economical shipments out

How can Consolidation Warehousing be used in your

organization?

How would implementing Consolidation Warehousing affect

your organization’s…

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

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

How it Works:

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

How it Works

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

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

How it WorksTactical 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

How it Works

4. Customer receives product orders from various manufactures in one transaction

-As load size increases, shared transportation costs among manufactures decreases

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

Concerns associated with Consolidation Warehousing

• Manufacture’s and customer’s information systems must be aligned with the 3PLs– Could be costly

• Takes immediate control of product transportation out of the manufacturer’s hands

• Requires collaboration among suppliers, customers and carriers– May be hard to coordinate

A Real World Example

Frozen Food Industry

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

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

A Real World Example

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

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

An Exercise

The Penny Game!

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

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?id=10041412&ppg=240

• “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