The FMCG Fast Moving Consumer Goods industry is extremely competitive. Consumers have high demands on price and quality, and focus is on bringing high volume products at lower prices to the market. Producers must differentiate their products and must manage to quickly bring them to market.
Manufacturers must adapt and must be able to produce products in smaller batch sizes to win the battle on the shelf. It is necessary to have the freshest product in FMCG sector. Additionally, demand for FMCG can be very seasonal, thus the manufacturers must be very flexible to produce different goods. Thus faster time to market with an innovation is very important to win customers. A very fast setup and installation of a production line is necessary to achieve this.
FMCG products are consumed shortly after they are produced, so it is important to keep production uptime high at all times. Any stop in production can cause empty shelves and lost market share. Products and packaging cannot be allowed to be damaged during the manufacturing process.
In the FMCG industry, improved warehousing and logistics solutions are major drivers of productivity development. Warehouse can play a key role in the integrated logistics strategy and its building and maintaining good relationships between supply chain partners.
Warehousing affects customer service and firm’s sales and marketing success. A warehouse smoothens out market supply and demand fluctuations. When supply exceeds demand, a demand warehouse stores product in anticipation of customers’ requirements when demand exceeds supply the warehouse can speed product movement to the customer by performing additional services like marking prices, packaging products or final assembling etc.
The warehouse is thus a link between producer and customer. Warehouses are planned space for the storage and handling of goods and materials with the appropriate equipment equipped. The activities of warehouses include transportation consolidation, break bulk, product mixing, cross-docking, protection against contingencies, smoothing of supply chain and provide value added services. Thus, there is a strong correlation between the warehousing activities and the FMCG sector.
Successful warehouse layouts must accomplish the following objectives, regardless of material being stored:
The objectives of warehouse layout and operation can be easily recognized, but warehouse layout problems are complicated by:
â€¢ large varieties of products that need storage,
â€¢ varying areas of required storage space and
â€¢ fluctuations in product demand.
Need for Warehousing
Warehousing is necessary due the following reasons.
Types of Warehouses
On the basis of Ownership:
i. Private Warehouses – The warehouses which are owned and managed by the manufacturers or traders to store their own stock of goods exclusively are known as private warehouses.
ii. Public Warehouses – The warehouses which run to store goods of the general public are known as public warehouses in which anyone can store his goods on payment of rent. An individual, a partnership firm or a company may own these warehouses. The functions and operations of these warehouses are managed by government.
iv. Bonded Warehouses – These warehouses are owned, managed and controlled by government as well as private agencies together. Private bonded warehouses have to obtain licence from the government. Bonded warehouses are used to store imported goods for which import duty is yet to be paid. They are owned by dock authorities and are found near the ports.
v. Co-operative Warehouses – These warehouses are owned, managed and controlled by co-operative societies and provide warehousing facilities at the most economical rates to the members of their society.
On the basis of benefits realized:
Benefits Realised from Strategic Warehousing
ECONOMIC BENEFITS SERVICE BENEFITS
(5 basic economic benefits) (Five basic service benefits)
a) Consolidation 1) Spot Stock
b) Break bulk 2) Assortment
c) Cross dock 3) Mixing
d) Processing/postponement 4) Production Support
e) Stock pilling 5) Market Presence
On the basis of locations/positions
1. Market-positioned warehouses
Market-positioned warehouses are located near to the customers and markets (point of product consumption) with the objective of serving them with a large variety and low volume of items. These warehouses may be owned by the firm or the retailer (private warehouses), or may be an independent business providing warehouses service for profit (public).
2. Manufacturing-Positioned Warehouses
Manufacturing positioned warehouse are located near to the manufacturing facilities in order to support manufacturing on the inbound side and to facilitate assortment-creation and shipping on the outbound side.
3. Intermediately-Positioned Warehouses
Intermediately-positioned warehouses are located between manufacturing and market-position warehouses. They help in consolidation of assortments for shipments from different manufacturing facilities.
The warehouse is an integral part of the logistical systems and the effectiveness of customer service, depends to a great extent, on the way warehouse operations are carried out. The warehouse is a service function in the supply chain of the company and it performs the following functions:
MATERIAL STORAGE FUNCTION
MATERIAL HANDLING FUNCTION
INFORMATION HANDLING FUNCTION
MATERIAL STORAGE FUNCTION:
The primary function of a warehouse is to store material till it is delivered to the customers. As the manufacturing and the consumption cycle never match, manufactured material has to be stored somewhere till the demand for the same is generated. Storage is designed to accommodate the four functions:
HOLD: Holding is the most primary function of the warehouse. Depending on the demand or the order booking pattern and the delivery schedule promised to the customer by the marketing department, goods are dispatched from the warehouse. The material holding function has to be carefully planned considering variables like product categories, product mix, product characteristics, shipment arrival time, expiry dates etc.
CONSOLIDATION: If supplies are originating from various sources in small quantities, it may be economical to collect these small shipments at one centre, to combine them, and make into a large shipment to send it to the customers. Consolidation will ensure cost saving on freight.
BREAK-BULK: The function of this facility is directly opposed to that of the consolidation warehouse. Here the material that has arrived in bulk is divided into small shipments to deliver to the end customers.
CROSS DOCKING: This is similar to the break bulk activity, except that it involves multiple suppliers. The usage of this warehouse is for a short period of time. The material arriving in bulk is broken into smaller consignments for further despatch to customers. The materials stay in the warehouse for a maximum of 48 hours. It is commonly used in retail chains.
MIXING: A warehouse is sometimes used as a product mixing point in the case of companies having a number of plants manufacturing different components, which are combined, at a convenient place, to make the final product.
MATERIAL HANDLING FUNCTION:
This function is divided into the following three activities-
LOADING AND UNLOADING: The unloading activity is performed when goods arrive at the warehouse. The material is offloaded from the transportation vehicle. Loading is the last function performed in the warehouse. The material packed in boxes is loaded on the transportation vehicle. Loading includes additional efforts of bracing the load to prevent damages.
MATERIAL MOVEMENT: These activities are carried out either manually or with the help of material handling equipment. The incoming material ,which is unloaded has to be moved to its assigned place for temporary storage, while during order picking the material has to be moved from storage to the packing area and then to the loading area.
ORDER FILLING: The final activity of material handling is order filling. This includes the selection of material from various lots at various locations in the warehouse, as per the customer’s order. This activity is done manually or with the help of robots.
INFORMATION HANDLING FUNCTION:
For effective and efficient customer service, it is essential for marketing personnel to know the availability of stocks and the likely dispatch schedule. The following information is required:
Inspection and auditing
Transit damage and breakage
Information is power and it helps in taking speedy decisions in today’s competitive environment for building a competitive edge over the rivals. Hence proper warehouse information system enhances the quality of customer service to both internal and external customers of the organization.
Characteristics of Ideal Warehouses
Any warehouse is said be an ideal warehouse if it possesses certain characteristics, which are given below:
i. It must be located at a very convenient place near highways, railway stations, airports and seaports where goods can be easily loaded and unloaded.
ii. There must be availability of mechanical appliances to load and unload the goods. This will reduce the wastages in handling and also minimize handling costs.
iii. Availability of adequate space inside the building to keep the goods in proper order.
iv. Availability of cold storage facilities in the warehouses meant for preservation of perishable items like fruits, vegetables, eggs and butter etc.
v. To protect the goods from sunlight, rain, wind, dust, moisture and pests, proper arrangements must be made.
vi. There must be sufficient parking space inside the premises to facilitate easy and quick loading and unloading of goods.
vii. To avoid theft round the clock security arrangement should be there.
viii. There must be latest fire-fighting equipments to avoid loss of goods due to fire.
Steps in designing warehouses for FMCG
1) Goal setting
Understand what the main objective is? Whether to reduce warehouse costs, or to offer better customer service (e.g., faster shipping or delivery of products)? The Goal setting must be in align with the company’s objectives.
2) Information gathering and analysis
We can gather information regarding:
Types of items to be stored
Frequency and volume of shipments and deliveries.
Month to month fluctuations in inventory.
3) Layout planning
Layout plan must consider:
â€¢ product type (size, weight, solid / liquid/ gas, perishable),
â€¢ storage type (Vertical or Horizontal) and
â€¢ the material handling equipments.
Implementation is a very crucial job necessary for setting up or re-organizing an existing warehouse. Many industrial equipment companies offer implementation as part of their services and assists in proper execution of the design selected.
How the facility will be maintained on an ongoing basis is an important thing to consider. Procedures for taking regular inventory or continuing excellent safety procedures and maintaining equipment in good condition are necessary to keep our organization running smoothly.
Points to be considered while deciding a warehouse location (Selecting location of a warehouse):
(Market/ Production/ Intermediary Positioned)
Cost of the warehouse
Order cycle time
Desired customer service level
Nature of the products (seasonal/ perishable)
Market service area and cost of distribution
Cost and availability of transport facilities
Location of competitors warehouses
Availability of basic infrastructure such as power, water, etc.
Labor supply situation and wage structure
Government rules, taxes, levies, etc.
Potential for further expansion of warehouse
Re-sale value in future
Possibility of change in the use of facility at later stage
Geographical hazards like flood, earthquakes, etc.
Factors determining Area of Warehouse:
Desired customer service level
Size of market to be served
Number of products marketed
Types, size and shape of the products to be stored and for what period
Material handling system to be used
Product throughput (sales volume) present and future
Production lead time
Economies of scale
Stock layout arrangements
Aisle and gangways required for movement of goods
Office area requirement
Fluctuations in demand (high inventory required to meet erratic demand)
Activities to be performed in warehouse
Factors determining warehouse layout (design):
Types of products to be stored
Company’s financial resources
Warehousing storage principles:
Grouping by product compatibility
Grouping by complimentarily (functionally rated items)
Grouping by physically similar items
Grouping by popularity (fast moving items to closer exit points and slow moving items at remote place in warehouse)
Working stocks and buffer stocks are to be kept separately
To minimize workload (time) for order picking and shipping aisles are redesigned to facilitate more efficient flow of products to and from dock areas
Advantages of layout:
Increase in output
Improved product flow
Reduced cost of operations
Improvement in customer service level
Provide better employee working conditions
Basic warehousing decisions
Ownership, site location, design are some of the important warehousing decisions.
The decisions related to warehouse are involved at Strategic Level, Tactical Level and Operational Level.
The figure shows a strategy continuum ranging from private to contract to public.
Qualitative considerations, listed on the vertical dimensions, are (1) presence synergies, (2) industry synergies, (3) operating flexibility (4) location flexibility and, (5) Scale economies. Each consideration and its rationale are explained below.
(1) Presence synergies: Presence synergies refer to the marketing benefits of having inventory located nearby in a building that is affiliated with the enterprise. The customers are more comfortable when suppliers maintain inventory in nearby locations.
(2) Industry synergies: Industry synergies refer to the operating benefits of collocating with another firm in the same industry.
(3) Operating flexibility: Operating flexibility means the ability to adjust internal policies and procedure so that product and customer needs could be fulfilled. Private warehouses are usually perceived to demonstrate more operating flexibility.
(4)Location flexibly: Location flexibly is the ability to quick adjust warehouse location and number as per seasonal or permanent demand changes.
(5)Scale economies: The ability to reduce material handling and storage cost through application of advanced technologies is referred as scale economies.
Warehouse Design Strategies
Relative dominance of picking or storage activity is key to effective designing. These warehouse functions have opposing requirements.
Maximizing space utilization techniques tend to complicate picking and render it inefficient while large storage areas increase distance and also reduce picking efficiency. Ideal picking requires small stocks in dedicated, close locations. This reduces storage efficiency.
Automation of picking, storage, handling and information can compensate for these opposing requirements to a great extent. However, automation is quite expensive to install and operate.
The figure below shows how different transaction volumes, storage requirements and technologies lead to different design concepts.
Case Study: Procter & Gamble — Lima, Ohio
Warehouse management requires coordinating activities in sequence i.e. receive before picking, pick before loading, load before shipping.
Transportation & Warehouse Optimization saved “P & G Lima,OH $3.5 million/year.”
â€¢ What to stock by location
â€¢ Which orders ship from where
â€¢ Dock Schedule
â€¢ Pick Schedule
â€¢ Replenishment moves
Overview: This organization makes liquid Tide. As this product’s popularity and market share rose, the attached plant warehouse became increasingly overburdened, able to hold less than 2 days of production, the site had many outside warehouses. Only 40% of customer shipments were shipped from the plant–meaning 60% was outsourced. Once AutoScheduler started to deploy inventory based on orders, to determine the best ship-site for each order and manage the repositioning of product, the 40% number became more than 80%. This resulted in more than $2 million savings per annum. Also the other areas of waste were also reduced as:
â€¢ More product went straight from the palletizer to the truck
â€¢ There were more opportunities to cross dock
â€¢ The workload was spread more evenly by flexing the drop-lot
Solution: AutoScheduler — PC based scheduling tool
AutoScheduler is a smart planning system that plans all the activities and inventory in one or multiple warehouses. It gathers data from:
â€¢ Production schedules
â€¢ Order management systems
â€¢ Warehouse management
â€¢ Operational constraints
The system makes decisions such as:
â€¢ What shipments need to be unloaded first or loaded first
â€¢ Where to put product when it comes off the line
â€¢ What shipments can be loaded early to voids in the schedule — without hurting other shipments
â€¢ How to optimally use product before it becomes over-age
AutoScheduler is a WMS add-on that uses an expert planning engine to schedule constrained resources, such as dock doors, while “optimally” deploying inventory to meet customers’ needs.