Question
Strategic Warehouse Management, Inc. (SWM) is a U.S. based warehousing organization in the construction and management of warehouse operations. The CEO’s market development team has determined that there is an opportunity to open a warehouse in Australia that could serve multiple businesses. The CEO plans to open a “non-resident company” (Land and Tax News, 2012). The CEO has also decided that the warehouse can be opened in any city in Australia. Some clients in Australia have also asked SWM to manage the flow of goods from Australia to U.S. locations. The CEO wants to get a preliminary plan developed as soon as possible before going further.
The CEO asked you to design a supply chain that includes warehouse operations in any city in Australia. In addition, the CEO has a number of items he’d like to see you cover in the report. He has asked you to:
Develop requirements for the warehouse design and to provide an organization structure to manage the warehouse in Australia.
Present considerations for Workforce Management
Investigate key regulations and other key issues (e.g. labor climate) related to managing a warehouse in Australia as a foreign entity.
Develop export procedures and import procedures in the U.S.
Discuss supply chain risks and possible mitigations.
Analyze which operations SWM would outsource and which operations SWM would directly manage and explain why.
Outline the budget line items that would need to be considered (it is not necessary to develop a budget with dollar figures).
Determine the metrics you would use to measure success of the warehouse and the total supply chain.
Answer
Strategic Warehouse Management
Warehouse design is a complex process that involves taking into consideration multiple factors. An appropriate warehouse design should aim at reducing costs and improving the quality of services provided. Warehouses have numerous operations that must be taken into account during the design process such as picking, sorting, sorting, and dispatch operations. It can be more difficult when developing a warehouse to serve multiple businesses. This paper will provide a feasibility study on the possibility of opening a warehouse that serves multiple businesses in Australia. In particular, the analysis will look at the general requirements, legal factors, and operability of the warehouse.
Requirements for the warehouse design & organizational structure
Warehouse design is crucial to the future usability of a warehouse. In warehouse design, it is critical to take into considerations a number of metrics to be put in place during warehouse construction. A warehouse should be specially designed for the specific purposes it will serve. The first requirement for the warehouse design is the structure and site. The structure involves the physical materials used to construct the warehouse. Concrete is preferred to wood when it comes to the construction of a warehouse. Wood may not last long and may susceptible to elements of weather and destructive insects. The warehouse should be located on a good site preferably close to supporting infrastructure such as road and rail network, power and communication infrastructure. In addition, the location should not be prone to natural calamities such as floods (Emmett, 2005).
The warehouse should be well equipped with appropriate security features to ensure safety of the goods stored. Appropriate measures should be taken to minimize cases of goods theft or loss either by employees or from outsiders. As such, the warehouse should be equipped with burglar alarm systems, CCTV systems, motion detectors, well secured perimeter fence, inventory management systems, and physical access controls for employees working in the warehouse. Physical access controls for stuff may include measures such as liming the physical access of employees by using physical barriers or giving access cards to certain areas. The warehouse should be equipped with appropriate fire safety equipments. Fire safety is of great concern to warehouse designers. It is thus important for a warehouse design to include fire safety features such as automatic sprinklers, fire alarms, smoke detectors, and other fire protection equipments.
The warehouse design should have enough floor space to allow free movement of goods and equipments in an out of the warehouse. The floor plan should be carefully designed and include necessary features such as loading bays in the right place. The floor plan should have sufficient space to allow easy maneuvering of fork-lift trucks, racking and other material handling systems. The loading docks, receiving docks and storage locations should be in close proximity to minimize travel distances. Other features which may be considered in warehouse design include ensuring appropriate lighting, building insulation, drainage systems, and waste disposal areas. Lastly, the warehouse design should allow modifications to be made with ease and give room for future expansion.
Besides the structural design requirements for a warehouse, it is important that an appropriate organizational structure is put in place for proper management of the warehouse. At the helm of the leadership scale is the logistics manager who is charged with overseeing the entire operations of the warehouse. Below this level seats the various warehouse supervisory officers. These may be divided into a trading supervisor, customs supervisor, materials supervisor, purchasing supervisor, merchandise supervisor, logistics supervisor, and warehousing supervisor. Each of the supervisors should have assistants working under them. For instance, there should be a documentation assistant, customs specialist, material supervisor assistants, purchasing assistants, merchandising specialists, courier specialists under logistics, and warehouse assistant supervisor. The final level may include ordinary employees involved in various tasks such as loading and stock taking.
Present considerations for workforce management
Proper workforce management is essential to ensure the warehouse is adequately staffed and eliminate redundancies among existing staff. Since this is a new warehouse, there are numerous considerations to take into account relating to workforce management. For example, housing for employees should be considered prior to the construction of the warehouse. Apart from this, there are other important considerations that should also be taken into account. Of great importance, the new workforce should have adequate knowledge and skills for handling all job tasks in the warehouse. Employees must be properly inducted through training so as to learn all mechanical skills required on the job. Managers should be able to provide basic knowledge training to employees and also enhance knowledge development among the employees. Employees should be trained on basic mathematics skills that can help them in counting products stacked in tires.
Training should encompass a number of key areas in warehouse management. These areas include basic computer skills, math skills, skills in machine operations, communication skills, basic inventory management skills, and interpersonal skills. Training can be conducted by professional trainers either through in-job training or through organized training programs. Common training methods include cross-training, classroom type training, mentorship programs, and involving employees in teamwork (Terry et al., 2014). Managers should be responsible for ensuring employees are highly motivated in performing their duties. This can be achieved through rewards, words of encouragement, offering promotions based on performance and providing employees with the opportunity to advance their careers. Performance measurement evaluation will also be conducted on a periodic basis. It is important to obtain feedback concerning the performance of each and every employee in the warehouse. Feedback is important since it reveals weak areas among employees and provides guidelines on awarding employees promotions and bonuses.
Key regulations and labor issues relating to managing a warehouse
Australia has enacted various rules and regulations guiding the operations of foreign entities in the region. In general, Australian government practices an open border policy by encouraging foreign investors into the country. All investment proposals are analyzed to ensure they are in accordance to the national interest of the country and also as a way of ensuring they are within the confines of Australian government’s foreign investment policy. Investors wishing to establish warehouses in Australia are required to submit a written application to the government requesting for approval of operations. Foreign entities are registered under the Corporations Act of 2001. Foreign entities wishing to acquire land or housing must apply to the Foreign Investment Review Board (FIRB). Strategic Warehouse Management Inc. must heed to the above regulations before commencing operations in Australia. All warehouses are required to develop a safety management system to enhance safe operations in the warehouse (“Australian Customs Service,” 2005).
Strategic Warehouse Management Inc. must also take into consideration the various regulations in the labor market that have a significant impact in the company’s employee relations. Under the Australian employment laws, all facilities classified as Major Hazard Facilities (MHF) which include warehouse operations must institute a Safety Management System (SMS) for managing risks and health issues that may arise in the course of operations. The System Management System should have adequate control measures in relation to incidents which may occur in the warehouse. Labor laws in Australia are guided by the Commonwealth Constitution. The Commonwealth Constitution comprise of 6 member states and two territories. The Commonwealth Constitution defines the legal relation between the states. As such, the Commonwealth Constitution can enact labor laws and to prevent or solve industrial disputes.
Export procedures and import procedures in the U.S.
Warehouses frequently engage in import and export of products across different countries. Strategic Warehouse Management Inc. will be specifically importing and exporting products to the United States. It is thus important to outline the legislative requirements expected to be fulfilled.
The Australian custom laws do not require importing companies to hold import license for goods in the Australian market. Nonetheless, there are a number of regulations that importers must comply with. Goods brought into Australian market from the U.S. and other parts of the world must go through Customs for clearance. Importers are required to obtain clearance from Customs for goods above $250 value and imported through sea or air, and for goods above the value of $1000 imported via the postal system. Goods below the above respective values can be cleared by acquiring an Informal Clearance Document (ICD) from Customs offices. Goods imported into Australia from the U.S. attract a Customs duty or a Goods and Services Tax. The rates are determined by the type of goods as well as the country of origin. In 2004, the Australia-United States Free Trade Agreement (AUSFTA) pact was signed between the two countries allowing U.S. goods to enter the Australian market at preferential duty rates.
In order to obtain preferential duty rates, certain documentation is necessary to importers so as to substantiate their claims on origins of their cargo. Importers may claim preferential duty rates even without written advice. However, it is much easier when importers obtain verifying documents about the country of origin. The most common forms of proof on the origins of the goods include a Certificate of Origin and a Producer Statement. Both of these documents, even though not mandatory, can help in proving the origin of goods (“Australian Customs Service,” 2005).
Export procedures of goods into the U.S. market are also impacted by the Australia-United States Free Trade Agreement. Under the trade agreement, majority of Australian exports can freely enter the United States market. Australian exports into the U.S. are thus tax exempt and also exempted from other costs such as the merchandise processing fee. Export of goods is regulated by the Department of Immigration and Border Protection (DIBP) in Australia. In order to begin the export process, the exporter of goods is required to notify Customs. This also includes the transshipment as well as the in-transit cargo. In moving goods from Australia into the U.S. market, the exporter is first supposed to obtain an export declaration document from Customs. A warehouse release notice is then produced for the cargo to be released from the warehouse. Customs also issues a depot receiver notice to the respective depot. A Customs Authority Number is also issued to mark the cargo. In the departure of cargo, a certificate of clearance is issued (“Australian Customs Service,” 2014).
Supply chain risks and possible mitigations
Supply chain management has undergone radical transformation from the traditional form. This can be seen in adoption of new technologies, and changes in sourcing arrangements, often embracing modern practices such as outsourcing. There are a number of inherent supply chain risks that may impact Strategic Warehouse Management Inc.
Supply risks – supply risks may arise due to such factors as supplier continuity, pricing of raw materials, viability of supplier, strategic sourcing issues, counterfeiting issues, and inbound logistics affecting suppliers. Inherent risks involving suppliers are all the factors that may hinder the suppliers from delivering products on time. These risks may be as a result of channel complexity, quality controls, financial impediments, and communication breakdown between the warehouse and the supplier.
Demand risks – these types of risks will also have a significant impact on the operations of the warehouse. Demand risks are multifaceted but generally arise due to factors such as changes in market trends, consumer income, consumer interests, new product development, demand management issues, and distribution requirements planning. Inherent risks in this category include actions of various competitors, disruptions in distributions, logistic issues, customer sentiment, brand management and lastly product reputation in the market.
Process risks – process risks encompass a broad range of factors that may impact warehouse operations. These factors include marketing strategy, IT system in place, mergers and acquisitions, quality of products, and frameworks in place. Risks typical of processes include equipment breakdowns, stock shortages, quality problems, late delivery of products, and IT failures.
Environmental risks – environmental risks are supply chain risks that can be attributed to the business environment surrounding the warehouse. Environmental risks include government policies, fluctuations in currency exchange rates, economic blips, compliance issues, natural disasters among other factors. Inherent risks include civil unrest, pandemics, economic fluctuations and other factors found in the macro environment (Schlegel & Trent, 2014).
Strategic Warehouse Management Inc. can adopt three broad strategies to mitigate risks. The first strategy involves physical mitigation measures. These measures include use of multiple suppliers, maintaining a safe level of stock and excess capacity. The second mitigation strategy is analytical mitigation. Analytical mitigation involves the warehouse taking appropriate planning measures through forecasting, proper budgeting techniques and general operations planning. Analytical mitigation measures emphasize on proper planning especially in the area of materials movement. The last category is financial mitigation. This involves such practices as taking insurance covers to address financial risk challenges (Sodhi & Tang, 2012).
Operations to outsource and to directly manage
The following are the operations which SWM should outsource.
Information Technology services (IT) – warehouses must invest in up-to-date information technology infrastructure in order to facilitate stock control, communication, invoicing activities and electronic data management. Logistics IT commonly employed by warehouses is rapidly evolving. It would be very difficult for the warehouse to keep track of new developments in the field while still concentrating on the core activities of the warehouse such as storage and dispatch of goods (Folinas, 2013). SWM should therefore outsource its IT function to a third party provider. This will enable SWM to concentrate in its core business activities, while the IT Company concentrates on ensuring SWM has up-to-date information system in place.
Security – the security activities should also be outsourced. A third party should be responsible for ensuring safety and security of products as well as the entire warehouse. It is difficult and time consuming for warehouses to make security arrangements (Folinas, 2013). Physical security is thus best when outsourced to a third party company. SWM should outline all requirements to be met by the security team as part of the contract with the third party security provider.
Transport and delivery – this involves the physical delivery of products across different levels in the supply chain. For example, it may involve the movement of products from regional level to last mile locations. Outsourcing the transport activities of the warehouse will enhance on-demand transportation of products to various points. The warehouse will also save money since there will be no need to purchase transport facilities such as vehicles.
The following operations will be directly managed by the warehouse.
Importation and exportation activities – importation and exportation of goods and services will remain the primary activity of the management. The management will be responsible for the movement of goods in and out of the country. The management should be in charge of customs clearance and also ensure that local regulations are adhered to. Importation and exportation are core activities of the warehouse and hence should not be outsourced.
Inventory control – stock control is a key function of the management and hence should not be outsourced. The management should be able to properly plan and use forecasting techniques to ensure that stock levels are optimum.
Communications – customers a critical for the survival of any business. The warehouse should maintain direct communication with clients. The communication function should therefore not be outsourced to third parties.
Budget line items to be considered
There are a number of budget line items to be considered in the establishment of the warehouse. Key among the budget line items is an inventory control system. A warehouse must have an adequate stock control system in place so as to facilitate movement of goods in out and out of the warehouse. Although it is quite expensive to install an inventory control system, a modern warehouse cannot adequately function without one. An inventory control system is particularly used for managing purchases and dispatch activities, shipping, tracking, receiving, storage, reordering among other activities (Minis, 2011). The design and layout of the warehouse is of critical importance. The design and layout is determined by the type of goods the warehouse will handle. The design and layout should provide adequate room for movement of materials in and out of the warehouse. Conveying and sorting equipments are also critical in ensuring smooth running of the warehouse. It is important for the warehouse to have appropriate material handling and storage equipments such as cold rooms, automated retrieval systems, mobile racks, conveyer belts, picking carts and others.
Metrics to use in measuring the success of the warehouse and supply chain
Accuracy – accuracy metrics can be used to evaluate the performance of the warehouse. Accuracy metrics can inform the management how the warehouse is generally performing in various activities. Accuracy can be accessed in different areas such as inventory accuracy, order accuracy and picking accuracy, inventory turnover, and others.
Productivity metrics – productivity metrics will be used to assess efficiencies in the utilization of resources in the warehouse. For example, productivity metrics can be used to assess whether vehicles are fully utilized. The management should ensure that vehicles are filled to capacity in order to reduce transport costs. Productivity measures can also be used to assess the productivity of individual employees.
Time – time metrics can be used to determine the amount of time taken to complete specific tasks. Time metrics can be used to identify areas where additional employees are required for improvement of overall supply chain performance. For example, picking and packing of order may consume much of the labor hours. Time metrics can be important in identifying picking labor costs and cycle times and thus help in establishing the right number of employees to include.
Customer retention – this metric will assess the percentage of clients who return in subsequent operational periods. Customer retention indicates the quality of services provided and the overall customer satisfaction.
In conclusion, it is important to conduct a thorough analysis prior to making an investment decision in order to determine viability of a particular project. In designing a warehouse for multiple businesses, it is important to evaluate a number of factors. For example, it is important to establish an appropriate design and layout that allows easy movement and storage of materials. A detailed environmental analysis is also crucial to determine important factors such as the regulatory framework and labor relations in the foreign country. Lastly, it is important to establish a way of evaluating the success of the warehouse as well as the supply chain.
References
Terry, L., et al. (2014). Council of Supply Chain Management Professionals Certification Collection. FT Press.
Russell Kennedy Pty Ltd, (2014). Corporate Counsel’s Guide to Doing Business in Australia. Retrieved from: http://c.ymcdn.com/sites/www.ialawfirms.com/resource/resmgr/Doing_Business_Guides/ Austral ia-Real_Estate.pdf
Australian Customs Service, (2005). Australia – United States Free Trade Agreement: Claiming a Preferential Rate of Customs Duty. Retrieved from: https://www.border.gov.au/Customsnotices/Documents/acn0554.pdf
Australian Customs Service, (2008). Export Cargo Reporting Overview Manual. Retrieved from http://www.border.gov.au/Cargosupport/Documents/ics_exp_1_0.pdf
Schlegel, G., Trent, R. (2014). Supply Chain Risk Management: An Emerging Discipline. Boca Raton: CRC Press.
Sodhi, M. M. S., & Tang, C. S. (2012). Managing supply chain risk. New York: Springer.
Emmett, S. (2005). Excellence in warehouse management (1st ed.). West Sussex, England: John Wiley & Sons Ltd. ISBN: 978-0-470-01531-5
Folinas, D. (2013). Outsourcing management for supply chain operations and logistics services. Hershey, PA: Business Science Reference.
Minis, I. (2011). Supply chain optimization, design, and management: Advances and intelligent methods. Hershey, PA: Business Science Reference.
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