Throughout this report an investigation has been conducted to evaluate an exploration of warehouse facility design and capacity management in DHL. The purpose of this report is to discuss the different types of warehouse designs/layouts that DHL operate and how they use these facilities to achieve objectives and satisfy consumer needs. An analysis of the organisations warehouse flow will be conducted to determine what benefits it brings to the company, followed by an insight into the DHL warehouse facility design as the organisation aims to maximise its capacity management.
DHL is the worlds largest logistics provider. They operate in 220 countries worldwide, satisfying the needs of its customers in global markets while employing 380,000 people. They are involved in the movement of freight by air, ocean, road and rail. The size and scale of the DHL organisation provides logistic solutions to its many customers, whatever industry they are competing in.
One of the most popular warehouse layouts is the U-shape flow design.
Receiving and shipping docks are located on the same side of the warehouse to ensure utilization. Space Utilisation is the concept that an organisation makes practical use of an area. Richards (2018) explains that the fastest moving items are located closest to the shipping bay. This is done to allow the items to travel as little as possible ensuring that the process runs smoothly. Products flow in at the receiving bay, they are then moved into storage at the back of the warehouse.
The products are then transported to the shipping dock which is located next to receiving bay on the same side of the warehouse. See appendices figure 1.1 for pictorial layout of a u-shaped product flow.
Another common warehouse layout is the through-flow design. Richards (2018) mentions how a through-flow warehouse provides a layout where the movement of goods is in straight lines. This allows the goods to pass through the warehouse easily as there are no issues with congestion. Incoming goods are received from the one side. Items are spread across from left to right with the medium and high demand items located in the centre of the warehouse. Selection and cross docking occur here. Richards et al (2017) explains that cross-docking is an activity whereby goods are received and dispatched without putting them away into storage. This helps avoid overcrowding issues in a warehouse.
Frazelle (2002) highlights that modular flow design is well suited for large-scale operations and uniquely designed buildings. For this reason, warehouses that choose this layout are divided into multiple sections in order to facilitate different products or process needs. A modular design layout is a good approach for grocery distributors as items can be split into different sections allowing them to be transported from receiving to shipping without getting mixed up.
A multi-storey layout is a warehouse which consists of more than one floor. Multi-storey warehouses are popular in certain parts of the world where large areas of land are difficult to locate such as Singapore, Japan and other European city locations. Goods are moved from higher levels to the ground floor in order for products to be shipped. Frazelle (2002) argues that multi-storey buildings are the least desirable of the flow-path alternatives because of the material handling difficulties. One major disadvantage of multi-storey layout is the difficulty in transporting goods between different floors. These difficulties can result in significant loss of downtime for the company. One of the advantages of operating a multi-storey layout warehouse is that it provides more storage area as result of having multiple floors, particularly in comparison to other warehouses that utilise one floor.
Upon reviewing the different warehouse layouts, DHL adopt an approach in line with the modular design layout as indicated by Frazelle. Adopting a modular design layout has many benefits for DHL as an organisation. One of the advantages of operating a modular designed warehouse is that DHL can provide a specialised service to a specialised industry. For example, DHL opened a pharmaceutical facility in Dublin. This is a temperature-controlled facility which is divided into different storage environments. All DHL employees working in this pharmaceutical facility are trained in Good Distribution Practice. Due to pharmaceutical regulations, all goods are constantly monitored and easily traced within the warehouse. DHLs ability to cater to this specific industry, at a large scale, affords the business an advantage against its competitors. Specialising in an industry with one of its main focuses on increasing productivity, whilst ensuring value to the consumer, creates economies of scales for the organisation.
Another benefit of the modular design warehouse to DHL is it has allowed the organisation to partner with car manufacturing company Ford. DHL (2017) explains how the challenges of this partnership were to ensure timely production to meet the challenges of a highly competitive market, whilst aiming to save costs. DHL created a supply chain team that would manage the logistics of all of Fords raw materials in various automotive facilities across Europe. Through this partnership, DHL has managed to improve Fords vehicle utilisation by over 15% while also reducing its CO2 emissions by an estimated 20,000. Through its ability to engage in long term contracts with manufacturers in specific industries, DHL is able to reach its business objective of providing the best possible service in conjunction with the most cost-effective model for its consumer. This is another example of how adopting a modular design approach has allowed DHL to increase its market share.
Due to the scale of DHLs operations, the company has many different types of warehouses located all across the world to tailor for its consumers needs. According to DHL (2019), the organisation offers specialist expertise within the Automotive, Consumer, Chemicals, Energy, Engineering & Manufacturing, Life Sciences & Healthcare, Retail and Technology sectors. As a result of operating multiple warehousing facilities, the organisation has been able to improve quality and gain a competitive advantage against its competitors.
Technology can play a huge role in how warehouses operate. According to Kawa (2012), it is believed that logistics companies cannot gain a competitive advantage without functioning IT systems. DHL are constantly updating their IT systems and warehouses in order to satisfy their consumer needs and remain one step ahead of its opposition. For example, in 2016 DHL launched multi-customer facility in Singapore. This facility was the companys first warehouse to introduce a new multi-customer automation system.
Dpdhl (2019) explains that this technological enhancement uses 130 robotic shuttles to pick and store products from 72,000 locations across 26 levels. By implementing this automation system into its warehouse, the company has been able to improve its picking efficiency by 20% while also utilizing 40% less space in comparison to conventional warehousing. The implementation of the robotic shuttles has helped decrease the workload for employees as it minimizes the need for employees to handle heavy objects. The system has been pre-programmed so that it is aware of the pick locations of every single item that enters the warehouse. By updating its warehouse management systems to facilitate employee and consumer needs in Singapore, DHL has been able to dramatically increase productivity within the warehouse, while ensuring that goods bound for delivery are shipped on time.
Over recent years DHL have started to use new advancements in technology to enhance efficiency in its warehouses when it comes to picking orders. The company is slowly moving away from the conventional methods of order picking in order to shorten delivery times to a minimum. According to Dpdhl (2019), the organisation will be one of the first customers worldwide to use the latest generation of smart glasses in its warehouses. Smart glasses are designed to make the picking process for its employees easier.
The smart glasses are linked to the companys IT system. The employee first picks up and scans a trolley using the smart glasses. They then find, pick and scan the ordered items. The employee then places the ordered items into the scanned trolley along with the rest of the scanned orders ready for delivery. In the past, DHL would use a more conventional order picking process of scanning barcodes with a device. This requires the employees to use their arms to carry out this task. With the introduction of the smart glasses, the employees hands are free to pick products to fulfil consumer orders. By introducing smart glasses, the company has managed to dramatically reduce error rates for order picking as well as ensuring an agile, quick fulfilment of its consumers orders.
When developing an optimal warehousing network, the organisation must take time considering a number of factors in order to maximise the productivity and efficiency of the facility. According to Frazelle (2018), the warehouse has never been asked to do so much and at the same time been strapped for resources. Nowadays before organisations start the decision-making process of a warehouse, management must consider several factors before making a decision such as cost of land, access to public transport, transport links for staff, availability of finances, and cost of utilities. This is all relevant for a management team to discuss before deciding on the location of a warehouse. Businesses might ask themselves how big a warehouse should function. There is no definite answer to this question as each warehouse should be tailored to suit the employees and consumers needs as well as the quantity and type of product the warehouse is storing.
The more customers DHL serves in a certain region, the bigger the warehouse in that area will need to be in order to have adequate room to store inventory. DHLs headquarters are located in Germany. DHL is the countrys main international courier. As a result of this, the DHL warehouses located in Germany are some of the largest the company owns in order to satisfy the countries large customer service levels. DHL only operate private warehouses because the company serves so many different products and industries. Because of this the organisation needs to have a higher degree of control over its inventory in order to meet customer demands. By operating private warehousing, DHL has over time been able to reduce the overall costs of the company as a result of consistently achieving optimal utilisation of its inventory.
DHL requires large warehouses as a result of high service levels and a wide range of products that the organisation brings into its facilities on a daily basis. As service levels increase, companies require bigger warehousing facilities in order to keep up with consumer demand and to provide more storage space for its products.
Economies of scale is a huge factor affecting the size of the warehouses that DHL decides to build. The more warehouses that DHL decides to build, the more building material the organisation needs. Therefore, if the organisation decides that it wants to build 100 new facilities across Europe by 2020, they can purchase the raw materials required to build these warehouses in bulk. This in turn will drastically reduce the cost of the raw materials as the more the organisation purchases in bulk, the less they pay for the materials.
Cost of lost sales is defined as the money lost from potential sales for whatever reason. An example of a cost of lost sale for DHL would be if the organisation was to deliver a phone to a consumer. However, if during transit the phone were to break, DHL would have to reimburse the customer for the cost of the phone which would ultimately result in the loss of the sale for that device. Lost sales are very important to an organisation and they can be difficult to calculate as they can vary by company, industry, product and customer. In the case of DHL, the cost of lost sales for the company would be extremely difficult to calculate as the number of warehouses the organisation operates is constantly increasing. DHL (2019) notes that the organisation operates 1400 warehouses and offices worldwide. The cost of lost sales for each warehouse is very different as a result of operating many different types of warehouses.
The more warehouse facilities that an organisation operates, the more expensive the inventory costs are going to be. Inventory costs are one of the most significant costs for a logistics company like DHL. The more warehouses DHL owns, the more inventory costs the company has to pay for capital costs, service costs, storage costs and risks costs. Capital cost is the cost of the physical products stored in the warehouses. As DHL has specific warehouses dedicated to products and industries, the turnover rates are both fast and slow, which requires more space. In DHLs case, capital costs are the largest elements of inventory cost for the organisation. The main reason for this is because the company operates over 1400 warehouses and offices worldwide, the company must also pay capital costs on every product in all of its facilities all over the world.