Materials Management Policies and Warehouse Requirements: A Case Study

For organizations facing warehouse capacity constraints, the cost of warehouse capacity expansion may be substantial. Through suitable materials management policies and practices, however, it may be possible to postpone or eliminate the need for expansion in many cases. A thorough review of materials and inventory management practices prior to finalizing a decision on capacity expansion can pay off handsomely. This article presents a case study of an engineering company to illustrate the interaction between warehouse space requirements and materials management practices. In this case, the need for warehouse capacity expansion was eliminated through the use of a standardization and simplification program, the removal of dead and slow moving stock, the efficient utilization of storage space, and selected changes in inventory control and stocking policies. The article concludes with recommendations for organizations considering the possibility of warehouse capacity expansion.

INTRODUCTION

Over a period of time, many organizations are confronted with the problem of warehouse capacity constraints. Some organizations are compelled to consider seriously the possibility of expanding warehouse capacity. A variety of factors can produce this situation: increases in production levels, changes in product mix, or perhaps an increase in the variety of materials carried in inventory, to name a few. Overloaded warehouses are difficult to keep organized, and at times can hinder the efficient flow of materials. Such a situation frequently prompts a warehouse manager to seek additional storage space--perhaps an expansion of the facility. On the surface, such a request may be justified, particularly in the eyes of a production-oriented management.

On the other hand, careful analysis of the warehouse capacity expansion problem may also present an opportunity to generate major cost savings. While in some cases warehouse expansion may be absolutely necessary due to substantial increases in production volume or range, in other cases it may well be possible to avoid the expansion altogether. In either case, it is necessary to undertake a thorough investigation before arriving at a decision. Even if a decision is made to expand, it is necessary to identify the additional space requirements on a systematic and objective basis.

The effectiveness with which the materials management function is performed has a direct impact on storage space requirements in the warehouse. Given the cost involved in a warehouse expansion, it is essential first to examine a firm's materials standards program and its practices with respect to inventory management, materials storage and organization, and materials handling.

This article details a case study of a warehouse capacity expansion decision in a machine tool manufacturing company--and subsequently derives a group of relevant generalized recommendations for materials managers.

THE CASE STUDY: MIDEX ENGINEERING

Midex Engineering is a diversified engineering company in India. As part of its expansion plans it acquired a machine tool plant. At the time of acquisition, the plant was manufacturing general purpose machine tools. After the takeover, the product line was expanded rapidly to include special purpose machine tools and transfer lines for machining automobile components. Additionally,...