Jnis Bisenieks', Edgars Ozols^ Latvia University of Agriculture, Faculty of Economics (Latvia) THE PROBLEM OF WAREHOUSE OPERATION, ITS

IMPROVEMENT AND DEVELOPMENT IN COMPANY S LOGISTICS SYSTEM

Abstract. In the artiele author analyzes nature of warehouse in the company's logistics system, identifies main basic problems with what businesses faees, while grappling with warehouse system tasks, as well as gives improvement and optimization recommendations of warehouse operation. The basic problems with what faces warehouse logistics, is closely related to the business management and its leadership?! in an appropriate levels, where the most significant aspect of the problem is related to the warehouse network foundation, what is followed by warehouse mnage elaboration and finally operational level - the management of logistics process in the warehouse. In order to successfully grapple with warehouse mnage challenges, there must be given answers to a whale of questions such as: option of warehouse ownership form, determination of amount of warehouses, placement of warehouse network in definite geographic location, option of warehouse supply forms etc. The time and resources what allows to achieve significant results has to be invested in an improvement of warehouse operation. So that the optimization would be successful, it is done in eight stages - beginning with the identification of reasons, what changed the mnage efficiency of warehouse and concluding with the development of optimization project. KEY WORDS: Logistics, Warehouse, Management.

Introduction
Movement of goods and production raw materials in the logistics chain is not possible without the necessary concentration of the stock in a flxed location and storing in corresponding warehouses. The movement of raw materials of goods through warehouses is associated with processes that increase the final value (costs) of goods. Thereby, functioning of warehouses in the logistics chain has a signiflcant impact on the movement of materials, vehicle use and tumover costs. In the author's view, warehouses are needed not only at the point where the production takes place, but also in other places, districts, cities, countries where the company's products are requested. In this case, the manufacturer sells its product to distribution warehouse which task is to store the products and to deliver them timely in appropriate amounts to customers by offering qualitative services for service. Object: to analyze and determine what are the main problems in the warehouses mnage systems of the businesses, as well as give recommendations to improve the operation. Tasks: I'" to explore theoretically the guidelines of the warehouse logistics; 2" to identify the main problems in the warehouses mnage systems of the businesses; 3"^ to give recommendations for warehouse mnage operation improvement and optimization. Research methods: monographic and abstractedly logical method, statistical analysis, deductive and inductive methods.

1. Nature of warehouse in the company's logistics system

In nowadays, storage is a complex technical structure, what consists of many together to related elements. The warehouse has a definite specific structure and it implements a range of functions which are associated with material displacement, loading, unloading, reprocessing, and distribution of goods among consumers.

Jnis Bisenieks, Mg.oec, Latvia University of Agrieulture, Faculty of Economics, Riga Teacher Training and Educational Management Academy, Faculty of Social Sciences. E-mail: Janis.Bisenieks@rpiva.lv Tel.:+371 26425315 ^ Edgars Ozols, Mg.oec, dipl.iur, Latvia University of Agriculture, Faculty.of Economics. E-mail: Edgars.Ozols@delfi.lv Tel.:+371 26461416

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Also important are the following warehouse system's parameters as decisions planning what is related to technology and space utilization, facility design, multiple loads, which are foreseen for restructuring in warehouses, etc. The warehouse is a system of elements that defines the technical requirements, sets goals and criteria in order to ensure optimal functioning of the warehouse system. (BojirHH B.B. 2007: 23) Based on the foregoing it is apparent that the warehouse system in the logistics chain has to be viewed as an integral part of it. Only in this way it is possible to realize the accomplishment of key functions of warehouses and consequently achieve high profltability level of logistics. By author's opinion in practice should be noted that in each individual case, each particular warehouse has different warehouse system's parameters, elements and structure. While building up the warehouse system it is necessary to take into account the key principles, i.e., cost effective operation of the warehouse system can be achieved only then when the planning and management process takes into account all those factors that are directly related to the warehouse system's operation. Prerequisites to ensure a cost effective operation of the warehouse system are (HHKOJiaiHyK B.E. 2007: 215): 1" the exact determination of warehouse functional tasks; 2'"* detailed serviced loads and material flow analysis in the warehouse and outside of it. Any costs what are resulting in the course of warehouse functioning must be economically justifled, i.e., any technical or rational implementation of the decision what is relating to capital investments, must be well-grounded by rational and expediency standpoint. In order to understand the nature of the warehouse system should need to know, what is the warehouse as the system's element key task? Warehouse main task is the concentration and storage of stock, as well as continuous and planned (rhythmic) ensuring of the demand (goods and other materials) (http://www.cfin.ru/press/loginfo/2001-09/54-56.shtml, - 2009. - February 25). Basic functions of the warehouse can be divided in four groups (Bejcikovs J., Praude V. 2003: 355): 1. The transformation of produced assortment of goods and materials corresponds to consumer's demand, i.e., the building of necessary assortment for customer order's fulfillment. It should be noted that this feature is particularly important in the distribution logistics. Classification of demand is as follows (Drury J. 2003:186): a) Quantitative demand - this is required if the supply of goods and materials happens in quantities and in production they are used temporary; b) Timely demand - it is a demand for goods and materials in order to avoid interruptions (downtime) in production process; c) Qualitative demand - it is a demand what is leading the goods and materials to the quality improvement in the framework of the storage process; d) Demand by value - it divulges as a goal to achieve cost advantages by not motivating it with the technically or economically grounded causes. By author's point of view, if the required assortment is well placed in the warehouse, it helps to fulfill customer orders and expectations effectively and timely, thus supplying products to the extent what is necessary to the client. Building of required (demanded) assortment in the warehouses facilitates efficient customer needs gratiflcation. Here we can moot two aspects (Bejcikovs J., Praude V. 2003: 356): 1) Warehouse functions, ensuring plants with the necessary assortment of goods and materials; 2) Warehouse functions, ensuring customers with goods and materials. 2. Placing and storing allows to offset the difference between output of production and materials and consumption, as well as to implement a continuous production and make a stock of produced goods. The storage of goods is required due to definite type of goods consumption's seasonal character. 3. Freight transportation and consolidation. This is explained by the fact that often there are situations when customers do not need the amount of goods or materials what are capable of providing efficient use of transport, i.e., not provided a full freight. The author in his working practice often had to face such situations. In order to resolve this issue and reduce transport costs, warehouses can implement merging functions. In other words, the author had to think how to replenish smaller freights for several clients simultaneously. 4. Possible services. To offer maximum amount of services, what would provide to the company a high level of customer service, thus making the company more competitive. Services include (Bejcikovs J., Praude V. 2003: 356): Preparation of goods for sale; Functioning test and assembly of devices; Pretreatment and shape's creation of goods; Transport services, etc. Usually warehouse process at least three types of material flow (Bejcikovs J., Praude V. 2003: 356): Ingoing; Outgoing; Internal.

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As the material base for production process ensttring serves warehouse mnage. Warehouse mnage includes: site and buildings for storage of stocks of material resources, equipment for warehouse processing; devices of weighing and measuring, fire safety equipment, systems for information collection and processing and tools. This is necessary (HHKOJianyK B.E. 2007:156): For material, product, structure, raw material, fuel stock storage. To ensure continuous supply of objects and configuration of stock. For loading - unloading and rational organization of warehouse work with minimal expenses. For proper use of the warehouse space and operation of warehouse equipment. For implementation of preparation and consumption of production of material resources. For organization of centralized supply of materials and goods to consumption places. To ensure the security of material value. For timely detection of surplus of material value. In practice, there are several problems what are associated with the successful functioning of the warehouse. Main of them is (HHKOJianyK B.E. 2007:176): The choice between private and public warehouses; Number of warehouses and warehouse network placement; The size and location of warehouse; The choice of warehouse systems. Storage and processing systems in specialized logistics complexes and manufacturing businesses may include the following types of warehouses (HHKOJiaHyK B.E. 2007:219; ) http://www.aqz.ru/sklad_log.htm, - 2009 March 09): 1. Material warehouses. They incorporate in the subsystem of preparation business and are provided for storage of materials what are in the stage of the production stock. Central warehouses. Usually, warehouses of this group receive material resources from the suppliers and when they are recycled as needed forward them to the dealing out warehouses; Dealing out warehouses. They ensure manufacturing processes with materials, assembly components and labor resources; Joint venture, dealing out warehouses which exist mainly in small and medium sized businesses and combines a central warehouse and dealing out warehouse. 2. Manufacturing warehouses. Such warehouses are in the business structure of production's subunits. To them concems: Workshop warehouses; Storage compartments; Tool warehouses. 3. The warehouses of finished products. It is a large group of warehouses and complexes, production storing and processing systems which operates in the movement field. They ensure material flow advancement along the chains of macro-logistics.

2. The problem of warehouse in logistics

The business what has a warehouse mnage in a form of broad network, consist of individual elements warehouses, and business can be attributed to the systems of micro-logistics. The formation of warehouse network is a problem of strategic level and it is addressed, usually, in connection with the change of business strategy. Most often this occurs if changes are done to a market conquest strategy or sale amounts increases. In this case, landmark of warehouse capacity's distribution in "service site" is perspective market region and determination of sales volume in each region. This is done by the marketing department (/^bicKan B.B., 3aiueB E.H., CepreeB B.H., CTepjiHroBa A.H. 2008: 392) In the appropriate period the business practically addresses the task of establishment of optimal logistics system. To solve this task, on the one hand, have to ensure minimiim costs which are associated with the advancement of freight flow to the end user, but on the other hand - have to ensure guarantee service of each customer to a necessary level. According to considered methodology which is based on a system approach, all warehouse logistics tasks require precise successive solution. It is well shown in Figure 1.

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Figure 1. The main problems of warehouse logistics

Strategical level

Strategical and tactical level

The optimization issue

Operational level

Logistics management organization in the warehouse

Source: JJbicKaH B.B., 3aifee E.M., Cepzeee B.M., Cmepjiuzoea A.H. 2008: 392

From the Figure 1. can see with what challenges of warehouse logistics have to face professionals of logistics. Obviously, the challenges are different and depend on the solution -making level. In the strategic level the business has to address the problem of storage network formation. Has to be determined exactly how many warehouses will be required for successful product distribution. The optimization issue is addressed in strategic and tactical levels. Every business wants so that the warehouse mnage would be profitable and not loss making. In operational level business is deciding how can be organized the logistics management in the warehouse so that it would be effective and successful. While determining the contours of the warehouse network, have to move to micro-projecting stage, the place have to be chosen where to build or locate warehouse complex. This solution making stage also refers to the solution-making at the strategic level. Warehouse tasks, intensity of freight flow and the warehouse's average level of goods stocks define the area of warehouse and spot size where will be built the warehouse mnage. Micro-projection's final stage is the choice of optimal solutions for volume planning by taken into account the specificity of warehouse freights and customer requirements for order completion (/l,bi6cKafl B.B., 3aHueB E.H., Cept^eeB B.H., CTepnHroBa A.H. 2008: 393). By the author's experience, location of the warehouse complex has important role. If the warehouse is located at the place where concentrates the largest number of consumers, it allows to save business resources because there will be consumed less fuel, the mileage of vehicles will be insignificant etc. This is not happening always. The building of warehouses is very difficult in such places because beforehand you have to get a lot of coordination documents. Usually in the places where is the most concentrated number of customers are located residential homes or other buildings. The operation of warehouse may disturb such objects. Another reason is related to the fact that purchasing the land area what is necessary for warehouse building is difficult. Even in that case if the entrepreneur got lucky and found a piece of land which can be rented for warehouse utilization, it is difficult to start the business here. The reason of that is the high rents what increases the already high cost. By the author's observations, usually warehouses are located outside the city limits. Tactical planning sphere in the logistics is, e.g., the loads of producing capacities and distribution planning to coordinate a buying plan, storing, management of stock and transportation. In the tactical level of warehouse logistics, specialists of logistics are dealing with the optimization issues o already existing warehouses. The optimization of warehouse operations will depend on the logistics process management in the warehouse. The solutions of warehouse logistics tasks always are practically associated with the selection of optimal variant. The procedure of selection in simplified form includes flve stages: problem identification, the formation of constraints and criteria for decision-making, the search for alternatives, alternative evaluation and final selection. From the positions of logistics the decision making during selection process should be optimal. And problems of logistics have to be solved in a strict order: from strategic to operational level (Drury J. 2003: 444). While solving these problems answers are given to the questions which are related to warehouse logistics tasks. It is well shown in Figure 2.

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Figure 2. The main questions while solving the problems of warehouse logistics

Whatkiiid? How much? Where? How to supply?

How much? Wliatkiiid? Wliat Capacity':' What aiKl Where? How to set up?

HowtoMeasiue? Howtoseaue? How to organize?

|bo gi Stils ma na gement I organization in the I warehouse

Source:

B.B., 3aitee E.M., Cepzeee B.H., Cmepnuzoea A.H. 2008: 393

On basis of the system approach principles for the analysis and synthesis of micro-logistics system, the technology of system approach can be used to solve all problems of warehouse logistics, starting with the fonnation of the warehouse network and ending with the management of logistical process in the warehouse. Any business that has a warehouse or even a whole network of warehouses faces the problems of different levels, from strategic to operational level. All tasks which are solved within problems like these closely are linked among them and should be viewed in a precise order: strategic level of decision-making is related to the warehouse network formation (macro-projection) and with the establishment of a warehouse mnage in the building area (micro-projection) (flbiocKaa B.B., 3aHueB E.H., CepreeB B.H., depjiHroBa A.H. 2008: 394). The management of business with such problems is dealing accordingly to the corporate strategy and data what are prepared by the management of logistics service. In the case of existence of working warehouse mnage, its functioning problem of optimization is solved already in tactical level logistics department is dealing with the following problems. The last problem of the warehouse logistics and all tasks (management of logistics process in warehouse) what are related to it is deah with the help of logistics specialists together with the main manager of the warehouse and they have operational character. By the author's work experience functions of warehouse logistics, as well as other realization of logistical functions in practice requires precise interaction of logistics department with other departments of the business. Coordination's ensuring with other departments is the base of effective functioning of any business structure. The planning of warehouse logistics begins with the solving of strategic tasks, the structures of warehouse network, which are necessary for implementation of business goals has being defined. In fact, the fonning of warehouse network helps business to cover a maximum outlet to adapt to changes of external environment with minimal damage from lost sales. The first and main problem which is being addressed at the strategic level - it is the forming of warehouse network. In this stage of planning business practically solves the task of establishment of optimal logistics system. To solve this task has to ensure, on the one hand, the minimal costs which are associated with freight flow advancement to the end consumer, but on the other - guarantee service of each customer to a necessary level. This stage can be described as a warehouse network macro-projection stage in the outlet. The strategy of warehouse network's forming requires solving of following tasks (/l,bi6cKaa B.B., 3aHueB E.H., CepreeB B.H., CTepjiHroBa A.H. 2008: 398): The choice of storage strategy of warehouse stocks in warehouses (the choice of warehouse property form, which is intended for stocks accumulation); The definition of number of warehouses to ensure all regional sales coverage, by taking into account continued supply of customers; The placement of warehouse network (the of choice of a region, as well as the placement of particular place for warehouse); The choice of warehouse forms of supply in the warehouse network (centralized or decentralized).

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The optimal resolution of pointed tasks is the basis for effective functioning of the business and its competitiveness in the market. A second problem of warehouse logistics is related to the development of warehouse mnage project what is ensuring the establishment of warehouse and adequate infrastructure taking into account the economic advisability and technically - technological necessity. In this stage is solved micro projection problem what includes a general plan the development of warehouse structural area. In case of inefficient work of warehouse mnage the business is dealing with the problem of warehouse and its infi-astructure optimization. List of tasks and solution sequence is similar, however, will have to begin the dissection of planned activities and compliance of the adopted optimization criteria. The basis of effective work of warehouse mnage is rational solving of such tasks as (/JbiGcKaa B.B., 3aHueB E.H., CepreeB B.H., CTepjinroBa A.H. 2008: 398): Development of the general plan; Choosing the warehouse type; The calculation of warehouse capacity requirements, taking into account company's prospects; The choice of optimal system of warehouse storing which will provide capacity of warehouse for maximum us, if the total expenses are minimized for the system's establishment and exploitation. Management of logistics process in the warehouse is the final problem within warehouse logistics which implementation is related to solving of the following tasks: Providing of the management of the logistics process in the warehouse; Achieving logistics coordination with other departments that provide advancement of goods through the warehouse (procurement, marketing, sales and other departments); The organization of freight handling in the warehouse. It may be noted that solving of any warehouse logistics task is closely related to other tasks and requires a complex and methodical approach. While solving localized tasks without guidance on the offering methodology will not be able to provide optimal conditions of warehouse, mnage of warehouse and functionality of warehouse network.

3. The optimization of warehouse mnage

With the tasks of warehouse mnage optimization deals the management of logistics department in the tactical level. Logistics must deal with the optimization problems of warehouse mnage in the result of external changes, what puts the other goals and tasks, both for the business logistics system, and the warehouse. The optimization process of warehouse mnage can affect the building, its technical equipment and storage infrastructure, as well as organization of technological processes in the warehouse. Procedure of solution development optimization takes place in this order (/lucKaa B.B., 3aMueB E.H., CepreeB B.H., CTepjinroBa A.H. 2008: 444): 1) Are defining the reasons that changed the warehouse mnage efficiency in the logistics system; 2) Are assigned a new functionality warehouse mnage aims in the company's logistics systems range. While setting the goals on which must be oriented operation of the warehouse mnage, it needs to formulate them quite speciflcally with direct evaluation possibility. For example: Increasing of the number of orders in one hour for 3%, reducing of warehouse's costs for 2%, service level increasing to 87%. Defining of aims covering global objectives which are related to the business logistics system and concrete localized aims of warehouse mnage functionality; 3) The restrictions are defining for the warehouse functioning which are introducing in the operation of logistics system. These may include: Impossibility of warehouse renovation; Shortage of a barcode on incoming products; Usage of existing facilities; Fixed stock levels in the warehouse; Warehouse work in two shifts; Impossibility of changes of warehouse staff plan; 4) The parameters are designed for the warehouse operation evaluation and the criteria are selected for optimization. Evaluation parameters should be measurable: The size of warehouse's costs - LVL /1; Time of order completion - one hour; Quantity of complied orders - %; 5) Is being developed analytical procedure, technique and methods of analysis are selected; 6) Are making analysis and valuation of the results to determine the disapproval reason for optimization criteria; 211

7) Development of the optimization proposals. Technically - economic justiflcation development for optimization and reorganization (designing of warehouse, technological and logistical processes in the warehouse) in order to optimize the warehouse mnage. Processes that are related to the warehouse mnage reorganization are conducted according to the warehouse mnage designing algorithm; 8) Development of the optimization project: The defining of work schedule with references of phase completion terms, funding phase amounts and terms defining; Outcomes of the project phases; The resotirces needed for project implementation; Budget of the project. While developing some alternative options there is necessity to choose an optimal design solution options according to certain criteria. On the conclusion phase of the design works may be prompted efficiency rating of the reviewing optimization variants. Optimization of warehouse mnage requires a full analysis of all warehouse mnage. The analysis is performed, by taking into account: The flow of goods which pass through the warehouse; The master plan of warehouse mnage; Solutions of the warehouse block planning (basic kinds of premises); Freight handling technologies; Information systems provided to warehouse management; Structure of the warehouse personnel organization and used motivation system; Used accounting system for warehouse work and its evaluation while serving clients; Development and execution of plans; Warehouse costs.

Conclusions
The main objective of logistics is the advancement of work's efficiency, the expansion of outlets, and the advancement of competitiveness and profit's maximization; The main objective of warehouse logistics is the creation of warehouse network and the optimization of logistical process in the warehouse; The forming of warehouse network is a problem of strategic level, and it is handled, usually, in connection with the changes of business strategy; Problems of logistics have to be solved in a strict order: from strategic to operational level; Any solving of warehouse logistics task is closely related to other tasks and requires a complex and methodical approach; Warehouse network is a complicated technically - economic system which analysis and synthesis should be based on a system approach and appropriate logistics methodology; The specialization of warehouse affects objects of production and consumption, as well as physicallychemical properties of materials; All warehouses, irrespectively of their characteristics can be fixed as a minimum of three types of material flow: ingoing, outgoing and intemal; Irrespectively ofthat the storage function is realized or not, the material flows in warehouses, usually, transforms by its own characteristics; The process of warehouse mnage optimization can affect as building, its technical equipment and infrastructure of warehouse, as well as the organization of technological processes in the warehouse.

Suggestions
Entrepreneurs who are making warehouse system must have higher education and meaningful work experience in logistics so that they could properly organize warehouse mnage and follow the main basic principle while building warehouse system; While addressing the question about the choice of warehouse type, all business leaders should analyze their production's demand and tumover, as well as other product-specific features, which can affect the choice of warehouse type; The designers of the warehouses has to be able not only to calculate the required area, but also to address the challenges which are associated with the development of progressive technology of freight handling, implementation and use, using advanced equipment;

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There are many formulas to determine the location of warehouse. However, for the business directors would be good to know a few of them, so they understand the benefits of the chosen warehouse place. There are many specialized economical literature with which it can be done; Often the problems of logistics have to address not only the professionals of business department of logistics, but also specialists from other departments. It is important that the manager of each department gives its employees a clear description of tasks what will help to grapple with logistics problems. References:
1. 2. 3. 4. 5. 6. Belikovs J., Praude V. (2003). Logistika: Mcbu grmata. - Rga: Vaidelote; Drury J. (2003). Building and planning for industrial storage and distribution: Learning book for students and businessmen - second edition - Oxford: Arehitectural Press; HHKOJiaHHyK B.E. (2007). TpaHcnopmno - CKJiadcKan jiozucmuKa: yHeOHoe nocone. - MocKBa: H3aaTejibCK0 ToproBaa KopnopauHJi ,JlamKOB H K"; Pojib u (pyHKiiuu cKada. (2009, February 25): [Online] / KopnopaTHBHbiii MeHe>KMeHT. http://www.cfin.ru/press/loginfo/2001-09/54-56.shtml ; CKJiadbi 8 jiozucmuKe (2009, Mareh 9): [Online] / JIorHCTHKa: 3aflaHH H (JiyHKUHH. http://www.aqz.ru/sklad_log.htm ; flbicKad B.B., 3aHiieB E.H., CepreeB B.H., CTepjiHroBa A.H. (2008). JlozucmuKa: YqeHHK. - MocKBa: 3KCMO.

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