Transport and storage — a total approach needed
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• A total approach to transport and warehousing was essential, according to Mr R. V. Baird-Parker, dispatch and transport manager of Boots Pure Drug Co Ltd and chairman of an FTA seminar held on Thursday of last week.
The seminar, Warehousing and its Effect on Transportation, which was held at the National Materials Handling Centre, Cranfield, was designed to acquaint operators and users of transport with the factors involved in warehousing which could effect their operating costs. Two approaches to the problem were presented to the delegates. Papers based on the research programme in progress at the National Materials Handling Centre were presented by Mr J. M. Williams, director of the Centre, and two of his colleagues, while practical aspects of cost control techniques now operated in industry were presented by Mr Martin Downer, cost advisor for the FTA, and Mr Mike Audland, distribution manager, GKN Bolts and Nuts Ltd.
Mr Williams put the delegates on their mettle from the word go by asking them to fill in a questionnaire relating to the estimated cost of a simple warehousing operation. The point of this exercise, Mr Williams said, was to indicate that most people in the industry were not able to answer a basic question on costs and he predicted that the answers given would vary by as much as plus or minus 400 per cent. There was considerable ignorance of costs, he said, mainly as a result of the way in which accounting systems had developed. The tendency was for too much to be included in overheads.
Mr Williams emphasized the importance of costs, not only for ensuring operational control, but for highlighting the high-cost elements which could be improved. One of the main contributory factors in poor materials handling systems was a common ignorance of costs, he said.
The speaker went on to identify the four elements of cost involved in warehousing, namely the building, equipment, labour, and control. There was evidence of an over specification of buildings, Mr Williams had found, and evidence that not sufficient use was generally made of this, the most expensive of assets. The right building governed the costs, he said, and he gave some costs examples to illustrate his point. He also gave details of typical grocery warehousing and distribution costs in the UK on a pence per case basis as follows: From these figures the main cost centres could be identified. For example, the building cost and order selection together accounted for 55 per cent of the warehouse cost and, when combined with the
transport costs (le driver and vehicle amounted to 60 per cent of the total cost. was these items, plus the administratic cost, which constituted the main areas which savings should be sought, N Williams pointed out.
The way in which costs could be reduce under individual headings were discussed t the speaker who said that most of the cos were "built in" at the design stage of th system and were therefore fixed costs whic could not be reduced. Among the particuls items which were highlighted as being maj( costs requiring particular attention wet correct warehouse location, scheduling t reduce mileage, stock policy to increas stock turnover rate, use of correct storag method, layout to achieve minimum tray( distances and careful planning of al operations using method study; payin particular attention to method study.
However, even if the system design wa good, Mr Williams said, the costs wouli escalate in the absence of manageria control. Standards were the most importan tool in this respect and their purpose was u find out where the inefficiencies existed, u measure them and to bring them to th4 attention of those who had authority t( correct them.
Mr K. Firth, advisory service manager a the Centre, discussed warehouse design am equipment selection. He said that 80 pei cent of British warehouses followee conventional design and systems while the other 20 per cent was the trend-setting element using more sophisticated techniques.
The basic design object in a warehouse project, the speaker said, was to establish the lowest cost system which was compatible with the level of service demanded. The secondary objective was the optimization of sub-systems. Mr Firth went on to discuss in detail a variety of warehouse layouts and handling systems.
Mr Martin Downer, presenting a paper in which he intended to show the cost link between warehousing and transport, said that a warehouse was essentially a large box in which goods were stored. If a warehouse was to be efficient, one had to consider not only the means of storage and internal handling and movement, but also the means for getting goods into and out of the box. Careful integration of the warehouse and transport activity was therefore necessary if an efficient operation of both was to be achieved.
Details of warehouse location were discussed in relation to the transport facilities needed, for example its proximity to motorways or rail sidings if rail transport was to be used, and the internal factors governing the use of road transport such as access roads and the manoeuvrability space on the site.
If a mistake was made in the consideration of these matters at the lanning stage of a new warehouse, "then ou are going to have to live with it for a try long time," Mr Downer warned. ,ssessing the provision of adequate icilities for transport in a new warehouse roject, Mr Downer listed three main onsiderations: space for unloading goods iwards; space for loading goods outwards; nd space for the manoeuvring and parking f vehicles.
Documentation and the flexibility of abour were also discussed by this speaker a so far as they affected the relationship letween the warehouse and the transport Iperation. He said that both these functions vere part of the wider concept of physical listribution management. The basic )hilosophy of PDM, he reminded delegates, vas that of deciding the lowest cost for the otal, rather than seeking reduced costs in :ach individual function.
Cost Control in Practice was the subject if the final session and the speaker was a nanager with wide experience of warehouse :osting, Mr Mike Audland, of GKN Bolts tnd Nuts Ltd.
Introducing his paper, Mr Audland said .hat owing to the high level of investment in )oth financial and management terms there lad been an increase in the proportion of warehouse costs that were fixed. The result 3f this was that the operator became very vulnerable if the volume of throughput fell iignificantly below that for which the facility was designed.
Mr Audland went on to outline a system for calculating warehouse rates. He classified the costs under three headings: fixed costs which were space-related; variable costs which were largely throughput-related; and finally the cost of specialized services which could be charged direct to the customer.
To apply the first two items it was necessary to determine the fixed costs and the annual return per square foot to be recovered. This figure was then used to calculate the rent to be recovered from each customer in respect of the proportion of the total facility that his products occupied. The variable costs were reduced to the cost of a man or machine minute and this figure was then applied to the number of minutes needed to handle a set quantity of a customer's products to determine the handling charges to be raised. An element of profit should also be added, Mr Audland said, to produce the required return on capital employed.
The speaker went on to discuss this matter in more detail. He pointed out, for example, that a considerable portion of the building had to be devoted to facilities that could not be used for storage and was not therefore revenue-earning. The remaining space had to generate the revenue required and this, therefore, could be termed the "useful storage space".
Product characteristics and their effect on storage space were discussed; so, too, were utilization factors. Monitoring was the final point and on this subject the speaker said that it was important to check regularly that the parameters on which the quote to a customer were based continued to be maintained.