Lennar Corporation’s Warehousing Management Strategy

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Lennar Corporation, as a company, has an elaborate management system of a warehouse. Being in a real estate and home building business, the kind of warehousing they have adopted for takes into account all the business requirements. In most cases, the company uses warehouses in storing their construction materials when they are contracted to do a construction in any part of the United States of America. Usually, this is done to ensure that the cost of transportation of the building equipment is reduced and to maximize profitability. Consequently, the kind of warehousing management strategy adopted by Lennar Company has enabled Lennar to streamline its business operations. The high cost of land acquisition has informed the decision to lease warehousing space for construction materials. Additionally, the kind of building equipment the company deals with also calls for a well-established warehouse management system. Because of Lennar’s unique nature of warehousing management, the layout of their warehouses, the cost of renting, man-hour costs, facility costs, frequency of delivery, operational costs, square footage of the warehouses and inventory turnover costs will be examined in detail.

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Layout of a Warehouse

The needs of the construction industry and the rising demand for storage facilities determine the type of warehouse layout which is required. Napolitano (2017) claims that the storehouses have been planned in such a way that they cover the areas of loading and unloading, reception, storage, picking, and dispatch. Moreover, Napolitano (2017) states that the offloading spaces are integrated within the storerooms. The layout design adopted by the corporation is the I-shaped warehousing design. Most importantly, Napolitano (2017) argues that this kind of layout is chosen by the company because the heavy construction machineries, which the company deals with, require greater handling speed. In addition, Napolitano (2017) writes that most of the equipment cannot be offloaded by people, so it is deemed fit to do loading and offloading within the warehouses using forklift trucks and rumps. The layout is efficient as it provides a quick and easy accessibility to stored equipment. Despite possessing an efficient warehousing system, reception areas of the warehouses are stationed within the warehouses. Consequently, this has made quality control in the warehouses very problematic, and proper changes should be implemented to increase efficiency.

Capacity of a Warehouse

A capacity of a warehouse is always determined as it is important in decision making when a warehouse has to be rented. Inside the warehouses, pallets are found which enable the goods to be carried with a forklift truck in a more efficient way. The most used pallets in Lennar warehouses are of 48 inches by 48 inches by 72 inches (Napolitano, 2017). By calculations, the average space that can be occupied by a single pallet is 96 cubic feet. However, the maximum sought for space, is the space that can contain 1000 pallets (Napolitano, 2017). It means, therefore, that the sought for is 96,000 cubic feet.

In most cases the space of the warehouse is not all utilized as only part of the warehouse is used for different purposes. Generally, the space that is utilized is about 80% of the total capacity of a warehouse (Napolitano, 2017). The 80% can be attributed to the large size of the blocks and concrete tiles among other building materials stored in the warehouses. Remarkably, the capacity that is in a warehouse has made space utilization to be more purposeful.

Warehouse Inventory Costs

Inventories are maintained at Lennar warehouses to attain desired level of service at the agreed expenses by the management. Most importantly, Muller (2019) argues that inventories serve to weigh between the cost of holding the building equipment and machineries and the cost of constructing a home at agreed price between the client and Lennar Corporation. An ideal objective, therefore, is to reduce costs with maximum service provision. In addition, inventories deal with unpredictability of the increased demand for better homes, the supply of construction materials, or the current business demands by the company.

Inventory costs in Lennar Corporation are caused by many aspects from various departments within the company. Further, Muller (2019) states that costs that are incurred under inventory in the Lennar Corporation warehousing involve value of stockholding, warehouse investment, equipment investment, and Information and Communication Technology investment. The inventory turnover costs are calculated as the sum of the costs of annual borrowing, stock holding costs in a year, ordering costs in a year, and any other particular costs in a year. As the costs under inventory indicate, inventory turnover costs processing is an interactive process and dynamic in nature.

Warehouse Operational Costs

Operational costs that are incurred in warehouse include all the expenses that are involved in maintaining working space for warehouse capacity. The yearly report made by Lennar Corporation takes warehouse expanse to be averagely 300,000 square feet (Richards, 2018). It is this storeroom extent that Lennar Company uses to compare major operating costs in its different construction areas. In New York City, labor cost in a warehouse is estimated at $12 per hour and about $10 in Florida and California metros respectively (Richards, 2018). Not only is labor cost vital in operation costs, but it also informs decisions made by warehouse management.

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Equally important to determining maintenance expenses in a warehouse are the energy expenditures. Electricity expenses are approximated at about $300,000 a year for a city such as Denver in Colorado (Muller, 2019). At the same time, Muller (2019) states that the power costs in a city such as Oakland in California are about $600,000 a year as far as warehouse operational costs are concerned. The energy costs in New York are relatively higher compared to California, Florida, and Colorado states where Lennar Corporation operates. Other costs that are associated with warehousing are natural gas costs, property taxes, and shipping costs, among others. In amounts, the operational costs in a year as far as warehousing is concerned can go to as much as $24,000,000 in New York, $19,000,000 in California, $16,000,000 in Colorado, $13,000,000 in Atlanta, and $12,000,000 in Arkansas (Muller, 2019). Notably, the increasing demand for warehousing services in the operational areas of Lennar Company is also affecting the operational costs to a greater extent.

Man-hour Costs in Warehouse

Man-hour costs in a modern house leased by Lennar Corporation are dependent on regulations and policies in different states in the US. As core time cost constitutes the payment for quality job performed by an individual in an hour, it is considered an enormous aspect in calculation of labor expenses in a warehouse management. This particular cost takes into account the peripheral compensations as well as taxes paid by the company. The fringe benefits which form part of this pay include employees’ compensation insurance, employers own share of health indemnity costs, sick leaves, and any other personal leave (Napolitano, 2017). Warehouse management system adopted by Lennar Corporation takes flextime as a basis for measuring project cost of every storeroom worker and individual’s input to the overall performance of the results. As is required, the management of storehouse has considered different hourly working rates for each group of employees in a warehouse. The senior cadre of laborers has been given higher hourly working cost rates compared to the junior workers (Napolitano, 2017). Evidently, the clock-watching costs have been given the much required attention to ensure there is efficiency in warehouse maintenance.

Procurement Costs

Sometimes, Lennar Corporation has been forced to outsource for equipment from other business partners. Usually, it is a competitive bidding which incorporates different commercial entities presenting their bids to Lennar Company. Muller (2019) asserts that the procurement costs considered in most cases by the company are base expenses, transportation payments, closing prices, taxes and duties levied, and negotiation charges. In exploring these fees, base levy is usually that per-item amount of money in rate which is assigned to a particular commodity procured. Transportation charge is usually incurred as a result of acquiring equipment or a product by Lennar Corporation. As part of acquisition levies, closing amounts entail the legal expense, brokerage payment, or the commissions in acquirement of stock (Muller, 2019). Further, taxes and levies are paid to the government as part of attainment payments. In cases where equipment has been procured from foreign countries, the corporation hires a broker to handle the custom processes (Muller, 2019). The last tariff that is incurred in Lennar’s acquirement process is the negotiation toll which at times becomes the traveling expense paid for a staff of Lennar who is tasked with appropriation negotiations.

Ways to Reduce Procurement Costs

Various methods have been adopted by Lennar Corporation to reduce the ever-increasing procurement costs at any given time. The strategies are developed by the company to reduce financial losses that it keeps on incurring due to procurement costs. In its bid to lessen the acquisition expenditures, the corporation trains its own workers, especially warehouse employees, on stock buying processes (Muller, 2019). Technology is also in place to ensure that purchasing techniques are linked with inventory management and accounting methods through appropriation software (Muller, 2019). The warehousing management team also ensures that the acquirement process does not depend entirely on one supplier and their verdicts (Muller, 2019). Additionally, the corporation also goes for the contracts with value-added facilities such as free cargo freight services and prolonged warranty conditions (Muller, 2019). Moreover, the company reviews patterns of the housing needs at different times to determine consumer demand and requests only the required quantities of materials to satisfy the orders. As a matter of fact, the company is doing its best to ensure that it reduces financial losses due to increased acquisition associated payments.

Theft Costs

When talking about losses in a warehouse, inventory theft has been on the rise. Inventories which are usually stolen from the Lennar Company warehouses account for about 20% of the whole lot of larceny reported (Richards, 2018). The stealing of catalogues is particularly causing a lot of quick financial damage to the company. If it were not for their fast discovery, pilferage of checklists might turn out to be higher.

Different steps have been taken to minimize pilferage of goods in stock or reducing the occurrences. The numbers of doors inventories can be taken through in the warehouses, have been reduced to only one for each warehouse (Richards, 2018). In addition, the company invests in 24-hour CCTV camera systems for surveillance; security personnel stationed in every gate of a warehouse and availing of workers’ tips hotline (Richards, 2018). The efforts have consequently served to deter loss of non-financial assets.

Avoiding Overstocking and Stock Shortages

In the warehouse of Lennar Corporation, increased financial costs have occurred because different construction equipment has been kept in warehouses without creating financial gains. Consequently, this has increased the transport and logistics expenses. To avert the monetary losses and spiraled payments in management of warehouses, different procedures have been laid down to avoid overstocking and running out shortages when operating in construction sites. First, a system has been put in place which detects overstocking within the warehouses (Muller, 2019). A formal decision is then made in view of the results obtained. In addition, a proper plan is usually well drafted to ensure purchases are made as per the goals set by the company, and possible variables which can affect supplies are usually surveyed (Muller, 2019). Moreover, there is a constant assessment of trends to check forecasting in demand of the services Lennar offers (Muller, 2019). The warehouse management also enhances coordination amongst different company departments to help in standardizing criteria for sales of equipment (Muller, 2019). All the processes done by the company to reduce stock shortages and overstocking ensure that the available stock always balances.

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Conclusion

In summary, the importance of a warehouse is only assessed with the important aspects related to its own management. The main facets of a warehouse which play a key role in its operation efficiency include the costs related to its maintenance, the design, and layout. Inventories and the associated prices have in a particular way assisted in ensuring that the levels of services rendered are at the optimum. Energy requirements are also part of the larger operational costs. In addition, the labor charges form a fraction of the workable fees which need to be taken into account when determining serviceable tariffs. It has also been established that for a proper functioning a warehouse, the man-hour expenditures should be ascertained. However, the expenses pointing to the good working direction are the procurement payments, which should be reduced to the lowest levels possible. Furthermore, there is an existential threat to financial profits which are generated by warehouses. An inventory theft has been identified as one of such threats. The analysis of Lennar Corporation warehousing management strategy clears shows a proper functioning warehouse and its positive results on reducing maintenance disbursements.

References

Napolitano, M. (2017). The time, space & cost guide to better warehouse design (2nd ed.). New York: Distribution Center Management.

Muller, M. (2019). Essentials of inventory management (1st ed.). New York: HarperCollins Publishers.

Richards, G. (2018). Warehouse management: A Complete Guide to Improving Efficiency and Minimizing Costs in the Modern Warehouse (3rd ed.). London: Kogan page.

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