STRATEGIC STORAGE: ANALYZING NEW CONCEPTS

When consumers go to store shelves, they expect to find the products they need, whether the producers are 10 or 2.500 km away. This is the job of logistics: to provide availability of products, where and when they are needed. Often, this means coordinating the flow of products from various suppliers across the country and, increasingly, across the world, so that they reach end customers in the most distant regions.

A basic question of logistics management is how to structure distribution systems capable of economically serving markets that are geographically distant from production sources, offering ever higher levels of service in terms of stock availability and response time.

In this context, attention turns to storage facilities and how they can contribute to efficiently meeting established service level targets. The functionality of these installations will depend on the distribution structure adopted by the company. We can classify them into two large groups:

• Tiered Structures – A typical tiered distribution network has one or more central warehouses and a cluster of warehouses or advanced distribution centers close to market areas.
• Direct Structures – are distribution systems where products are shipped from one or more central warehouses directly to customers.

As we will see later, direct distribution systems can also use intermediary facilities, not to keep stock, but to allow a quick flow of products combined with low transportation costs. These are Transit Point, Cross-Docking, and Merge in Transit type installations. Its application is relatively recent, and contrasts with the traditional view of the function of storage facilities.

ADVANCED DISTRIBUTION CENTERS

Advanced distribution centers are typical of staggered distribution systems, where inventory is positioned at various links in a supply chain. Its objective is to allow a quick response to the needs of customers in a certain geographic area far from the production centers. To provide utility in time, stocks are moved to a point close to customers and orders are then fulfilled by this advanced center, from its own stock.

In addition to seeking quick service, advanced distribution centers make it possible to obtain transport savings as they operate as load consolidating centers. Instead of serving a group of customers directly from the central warehouses, which could involve moving fractional loads over long distances, the use of advanced distribution centers allows the receipt of large consolidated shipments and, therefore, with lower transport costs . Transport to the customer can be done in fractional loads, but this is carried out in short distance movements.

When used by multiple suppliers, advanced distribution centers offer additional benefits. In addition to achieving consolidation in transfer transport, final delivery can also be achieved on a consolidated basis, when customer orders from different suppliers are combined.

For customers, the advantages are also great, as they receive in a single shipment orders that would otherwise be placed by several vehicles. This is the typical case of distribution centers controlled by retail chains or logistics operators serving various industries.

INVENTORY COSTS IN STAGED SYSTEMS

It is then verified that the staggered distribution structures facilitate cargo consolidation, resulting in lower transport costs. However, its effect on stock levels and storage costs must be properly assessed.

The decentralization of stocks, typical of staggered systems, increases the amount of stock needed to meet the desired levels of availability, also making its management more complex. Due to the greater uncertainty caused by the division of demand into regional areas, the maintenance of the entire product line in each advanced center is subject to stockouts. In this way, the initial objective of providing fast service and high availability can be jeopardized by the occurrence of incomplete orders. In addition to the risk of out-of-stocks, there are also greater risks of obsolescence due to the strategy adopted to anticipate demand.

One way to minimize the risk of keeping inventories at advanced points is selective inventory storage. In this case, stocks of slow-moving products, with greater uncertainty in demand and/or with greater added value, are maintained in one or more central facilities. Products with higher turnover, with a more stable demand and/or with lower added value may have their inventories advanced, since the early commitment to these inventories presents less risk.

Depending on the company and the characteristics of its products and market, the most appropriate solution can lead to the centralization of a large part or the entire product line. These companies tend to adopt direct delivery systems, where orders are fulfilled from central facilities.

These systems, due to the great distances from customers and the need to serve them within a certain time window, are much more dependent on reliable and fast transport. In addition, contrary to staggered structures, direct systems generate irregular movements of fractional loads. We see, therefore, that the potential of adopting direct systems is limited by the high cost of transportation.

In order to make direct delivery systems viable, the use of intermediate load-breaking facilities has become increasingly common. These facilities enable transportation consolidation methods that are not based on maintaining high levels of forward inventories and that are compatible with a quick response strategy and a high level of flexibility. They allow, in some cases, transport costs in direct systems to be as low as those in staggered systems.
transit point

Transit Point-type facilities are very similar to advanced distribution centers, but do not hold inventory. The Transit Point is located to serve a certain market area away from the central warehouses and operates as a transit facility, receiving consolidated shipments and separating them for local deliveries to individual customers.

A basic feature of Transit Point-type systems is that the products received already have their destinations defined, that is, they are already pre-allocated to customers and can be immediately dispatched for local delivery. There is no waiting for orders to be placed. This is a key difference from traditional warehousing facilities, where orders are filled from your stock.

Transit Point installations are structurally simple, requiring low investment in installation. Its management is facilitated because storage and picking activities are not carried out, which require a high level of management control. Its maintenance cost is therefore relatively low.

Transit Points have the same transport cost ratios as advanced distribution centers, as they allow movements over long distances to be carried out with consolidated loads, resulting in low transport costs.

The operation of the Transit Point, however, is dependent on the existence of sufficient volume to enable the transport of consolidated cargo on a regular basis. When there is no scale to carry out daily deliveries, for example, procedures such as scheduled delivery may be necessary, where orders from a geographic area are met on certain days of the week.

Cross docking

Cross-docking facilities operate under the same format as Transit Points, but are characterized by involving multiple suppliers serving common customers. Retail chains are natural candidates to use this system and, in fact, there are countless examples of the intensive use of cross-docking in this sector.

Figure 2 illustrates the cross-docking operation. Full trailers arrive from multiple suppliers and then an order picking process begins, moving loads from the receiving area to the shipping area. In automated cross-docking systems, bar code readers are used to identify the origin and destination of each pallet. In this way, the pallets are automatically directed to the respective docks through conveyor belts and loaded onto the vehicles that will make the local delivery. These leave with a full load, made up of products from several suppliers.

As an operational procedure, cross-docking has been used informally for quite some time by several companies in their traditional warehouses. The cross-docking operation occurs, for example, when the dispatch management tries to respond to an emergency request or tries to fill pending orders through products that are being received, before they are directed to the storage area. Management then diverts these products to the shipping docks so they can be shipped as quickly as possible. This procedure, despite offering advantages by minimizing internal warehouse movements, takes advantage of only part of the benefits resulting from the cross-docking concept.

Although it is operationally simple, for the cross-docking operation to be successful, a high level of coordination between the participants (suppliers, transporters) is required, made possible by the intensive use of information systems, such as electronic data transmission and product identification by code. bar. In addition, the existence of warehouse management software (WMS) is of fundamental importance to coordinate the intense and rapid flow of products between the docks.

The advance planning capacity and its strict compliance allow the passage of stock through the installation as quickly as possible. When there is little coordination, with lack of synchronism between cargo receipts, more space will be needed to keep the stock and vehicles may have to wait longer to have their load completed.

Cross-docking facilities that operate at a high level of efficiency have only one platform with receiving docks on one side and shipping docks on the other. The products only cross the platform to be shipped. There is therefore no need for large areas for stock in transit and the use of docks and vehicles is much greater.

This is not to say that this is the only way to cross-dock. It is also possible to work with the “future” cross-docking, where the products, upon being received, are not immediately moved to the local delivery vehicles, but remain in a waiting area for later loading. The more “future” cross-docking is, the greater the need for staging space.

merge in transit

Merge in Transit is an extension of the cross-docking concept combined with “Just in Time” (JIT) systems. It has been applied to the distribution of high added value products, formed by multi-components whose parts are produced in different specialized plants. A clear example are workstations, made up of CPUs, monitors and keyboards.

Traditionally, components are consolidated in central warehouses and shipped to customers from their stocks. This scheme, in addition to leading to redundant movements, presents a high cost of inventory and a high risk of obsolescence given the great perishability of high technology products.

The Merge in Transit operation seeks to coordinate the flow of components, managing the respective production and transport lead times, so that they are consolidated in facilities close to consumer markets at the time of need, without implying intermediate stocks. Coordination needs are much stricter than in traditional cross-docking systems, which is why they use state-of-the-art information systems for tracking and controlling flows.
CONCLUSION

Defining the positioning and function of storage facilities is a strategic decision. It is part of an integrated set of decisions, involving customer service policies, inventory, transport and production policies that aim to provide an efficient flow of materials and finished products throughout the entire supply chain. The functionality of the storage facilities reflects these decisions through what we call the strategic mission of the storage.

Currently, this mission has undergone profound transformations, involving services that go far beyond the traditional short and medium term storage. These changes are consistent with the transformations that logistics is going through. Companies are increasingly seeking to streamline the flow of materials, compressing the time between receipt and delivery of orders to reduce investments in inventory. In this environment, the role of storage is aimed at providing rapid response capacity and many of the services performed are precisely aimed at reducing inventory needs.

The implementation of new operating arrangements such as cross-docking and transit point implies changes that go beyond the company's borders and are extremely dependent on cooperative relationships between the participants in the operation. In addition to a new managerial mindset, these changes require the adoption of new information technologies that allow data sharing that enable the necessary coordination to efficiently execute the new processes.

Traditional staggered structures must be justified from an economic point of view. Often, due to past paradigms, decisions to open warehouses are simply based on the expectation that positioning stocks close to demand points will guarantee the required levels of availability and service time. As we have seen, this is not always true. And there may also be alternative ways of achieving the same results at lower costs.

This table indicates great opportunities to be obtained through a process of revision of the logistic networks. In fact, many companies have reviewed their distribution systems and we can say that there is a trend towards centralization, where the number of warehouses currently operating is smaller than a few years ago.

But there is no single model. The most appropriate solutions depend on the characteristics of each company and the logistics strategy adopted. They can perfectly combine the consolidation advantages of staged systems and the flexibility and responsiveness of direct systems.