WAREHOUSING

DEFINITION

A warehouse is a commercial building for storage of goods. Warehouses are used by

manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc.
they are usually large plain buildings in industrial parts of towns. They come equipped with
loading docks to load and unload trucks; or sometimes are loaded directly from railways,
airports, or seaports. They also often have cranes and forklifts for moving goods, which are
usually placed on ISO standard pallets.

INTRODUCTION

Warehouse can play a key role in the integrated logistics strategy and its building and
maintaining good relationships between supply chain partners. Warehousing affects customer
service stock-out rates and firm’s sales and marketing success. A warehouse smoothens out
market supply and demand fluctuations. When supply exceeds demand, a demand warehouse
stores product in anticipation of customer’s requirements when Demand exceeds supply the
warehouse can speed product movement to the customer by performing additional services like
marking prices, packaging products or final assembling etc.

 Warehousing can be defined as a location with adequate facilities where volume

shipments are received from production center, which are then broken down into
particular order and shipped onwards to the customer.

 Warehousing is an integral part of any logistics system. The warehouse is a between

producer&customer.

 Out-bound warehouse help consumers buy on demand without a near4by production

plant warehousing cost are about 10% of total integrated logistics costs for most
companies.

TYPES OF WAREHOUSE

 Private Warehousing,
 Public-Warehousing,
 Contract Warehousing etc…..
Private-Warehousing

A firm producing or owning the goods owns private warehouses. The goods are stored
until they are delivered to a retail outlet or sold. Potential advantage of using a private warehouse
is the ability to maintain physical control over the facility, which allows mangers to address loss,
damage, and theft. When not in use they can rent it out. The construction and maintenance of
private warehousing can be extremely costly. All the expenses have to be carefully analyzed and
evaluated.
These are:
i. Fixed expenses and building and land acquisition costs which are high.
ii. Expenses incurred on ensuring that warehouses are properly equipped with material-handling
equipment like conveyors, forklifts, hand trucks, racks and bins, and dock levelers.
iii. The costs of salaries of staff required for peak activity periods which can be very high since
retrenchment during slack periods may not be possible;
iv. Extra payment to be made for work on Saturday and Sundays and holidays.
v. Generator and other services charges are required to be taken into account.
vi. The office and record-keeping equipment necessary for successful warehousing operations
has to be budgeted for;
vii. To this must be added the cost of such item as fuel, air-conditioning, power and light.
viii. The cost of maintaining insurance records and of the premiums paid for fire, theft, and also
for workmen’s compensation.

Advantages
The advantages and disadvantages of private warehousing as against those of public
warehousing are:
a. Private warehousing offers better control over the movement and storage of products as
required by the management from time to time.
b. There is less likelihood of error in the case of private warehousing since the company’s
products are handled by its own employees who are able to identify the products of their own
company better.
c. If there is sufficient volume of goods to be warehoused, the costs of private warehousing
compares favorably with that of public warehousing. But private warehouse may not be expected
to be packed up to the brim all the while. Therefore the costs of private warehousing per unit
may actually be higher.

Public-Warehousing

A public warehouse rents space to individuals or firm needing storage, some provide
wide array of services including packaging, labeling, testing, inventory, maintenance, local
delivery, data processing and pricing.
All the foregoing cost factors operate in public warehousing as well. But in public
warehousing, the expenses are distributed over several other consignments of other clients. In
most instances therefore can render better service with greater flexibility for the user. A company
running a private warehouse will have to compare costs incurred with the total figure for the
complete service through public warehousing.
Advantages:
a. It is generally less expensive and more efficient.
b. Public warehouses are usually strategically located and immediately available.
c. Public warehousing is sufficiently flexible to meet most space requirements, for several plans
are available for the requirement of different users.
d. Fixed costs of a warehouse are distributed among many users. Therefore the overall cost of
warehousing per unit works out to a lower figure.
e. Public warehousing facilities can be given up as soon as necessary without any additional
liability on the part of the user.
f. The costs of public warehousing can be easily and exactly ascertained, and the user pays only
for the space and services he use.

Contract-Warehousing
Contract warehousing is a specialized form of public warehousing. In addition to
warehousing activities such warehousing provides a combination of integrated logistics services.
Thus allowing the leasing firm to concentrate on its specialty. They provide customized services,
e.g. Value Added Services.

Bonded Warehouses
Private and public warehouses can be “bonded under the customs and excise act and
municipal corporation regulations, facilitating deferred payment of customs, excise or octroi
duty. The warehouseman releases only those goods on which the duty is paid on production of
roof of such payment and release order issued by the appropriate authority.

Field Warehouse
Field warehouses are those which are managed by a public warehousing agency in the
premises of a factory or company which needs the facility for borrowing from a bank against the
certification of goods in storage or in process by an independent professional warehouseman.

Cold Storages:
Cold storage facilities are provided for perishables against payment of a storage charge
for the space utilized by different parties. In a cold storage, it is essential that the temperature is
regulated and temperature variation is controlled to the degree particularly for certain sensitive
items.

Agricultural Warehouses:
These warehouses are meant storing agricultural produce grown in a certain area and are
located in assembling or regulated markets. These warehouses receive agricultural commodities
either directly from the farmers or through their commodities agents, or from wholesalers.

Distribution Warehouses:
These warehouses are located close to the manufacturing concerns or consuming areas.
Their location depends on the nature of the product, the time taken for transit, operating coast
and the need to make the product available in the market in obedience to the demand for it.

Buffer Storage Warehouses:

 These warehouses are built at strategic locations with adequate transport and
communication facilities. They store food grains or fertilizers, etc.

Export and Import Warehousing:

These warehouses are located near the ports from where international trade is undertaken.
They provide transit storage facilities for goods awaiting onward movement. Facilities for break-
bulk, packaging, inspection, marketing, etc., are available at these warehouses.

FUNCTIONS OF WAREHOUSES:

Warehouses are basically intermediate storage points in the logistics system where raw
material, work in process, finished goods and good in transit are held for varying duration of
times for a variety of purposes. The warehousing functionality today is much more than the
traditional function of storage.

The following are main function that warehousing serves today:

1. Consolidation
This helps to provide for the customer requirement of a combination of products from
different supply or manufacturing sources. Instead of transporting the products as small
shipments from different sources, it would be more economical to have a consolidation
warehouse. This warehouse will receive these products from various sources and consolidate
these into shipments, which are economical for transportation or as required by the customers.

2. Break Bulk
As the name suggests, the warehouse in this case serves the purpose of receiving bulk
shipments through economical long distance transportation and breaking of these into small
shipments for local delivery. This enables small shipments in place of long distance small
shipments.

3. Cross Docking
This type of facility enables receipt of full shipments from a number of suppliers,
generally manufacturers, and direct distribution to different customers without storage. As soon
as the shipments are received, these are allocated to the respective customers and are moved
across to the vehicle for the onwards shipments to the respective customers at these facilities.
Smaller shipments accompanying these full shipments are moved to the temporary storage in
these facilities awaiting shipments to the respective customers along with other full shipments.

4. Product Mixing
Products of different types are received from different manufacturing plant or sources in
full shipment sizes. These products are mixed at these warehouses into right combination for the
relevant customers as per their warehouses and continuously provided for the product mixture
shipments requiring these.

5. Stock Piling
 This function of warehousing is related to seasonal manufacturing or demand. In the case
of seasonal manufacturing, certain raw materials are available during short periods of the year.
Hence, manufacturing is possible only during these periods of availability, while the demand is
full year around. This requires stockpiling of the products manufactured from these raw
materials. An example is mango pulp processing. On the other hand, certain products like
woolens are required seasonally, but are produced throughout the year, and thus need to be
stockpiled as such.

6. Postponement
This Functionality of warehousing enables postponement of commitment of products to
customer until orders are received from them. This is utilized by manufacturers or distributors
for storing products ready up to packaging stage. These products are packaged and labeled for
the particular only on receipt of the order.

7. Positioning
This permits positioning products or materials at strategic warehouses near to the
customers. These items are stored at the warehouse until ordered by the customers when these
can be provided to the customers in the shortest lead-time. This function of warehousing is
utilized for higher service levels to customers for critical items and during increased marketing
activists and promotions.

8. Assortment
Assortment warehouse store a variety of products for satisfying the variety requirements
of customers. For example, retailers may demand different brands of the same product in small
quantities rather than larger quantities of the single brand.

9. Decoupling
During manufacturing, operation lead-times may differ in order to enable production
economies. Thus, the batch size and the lead-time of production may differ in consecutive
operations. This decoupling of operations requires intermediate storage of materials required for
the subsequent operation.

10. Safety Stocking

In order to cater to contingencies like stock outs, transportation delays, receipt of
defective or damaged goods, and strikes, safety stocks have to be maintained. This ensures that,
on the inbound site production stoppages do not occur, and, on the outbound side customers are
fulfilled on time.

Advantages of Warehousing
 Warehousing offers many advantages to the business community. Whether it is industry
or trade, it provides a number of benefits which are listed below.

i. Protection and Preservation of goods - Warehouse provides necessary facilities to the

businessmen for storing their goods when they are not required for sale. It provides protection to
the stocks ensures their safety and prevents wastage. It minimizes losses from breakage,
deterioration in quality, spoilage etc. Warehouses usually adopt latest technologies to avoid
losses, as far as possible.
ii. Regular flow of goods- Many commodities like rice, wheat etc. are produced during a
particular season but are consumed throughout the year. Warehousing ensures regular supply of
such seasonal commodities throughout the year.
iii. Continuity in production- Warehouse enables the manufacturers to carry on production
continuously without bothering about the storage of raw materials. It helps to provide seasonal
raw material without any break, for production of finished goods.
iv. Convenient location- Warehouses are generally located at convenient places near road, rail
or waterways to facilitate movement of goods. Convenient location reduces the cost of
transportation.
v. Easy handling- Modern warehouses are generally fitted with mechanical appliances to handle
the goods. Heavy and bulky goods can be loaded and unloaded by using modern machines,
which reduces cost of handling such goods. Mechanical handling also minimizes wastage during
loading and unloading.
vi. Useful for small businessmen- Construction of own warehouse requires heavy capital
investment, which small businessmen cannot afford. In this situation, by paying a nominal
amount as rent, they can preserve their raw materials as well as finished products in public
warehouses.
vii. Creation of employment - Warehouses create employment opportunities both for skilled
and unskilled workers in every part of the country. It is a source of income for the people, to
improve their standards of living.
viii. Facilitates sale of goods- Various steps necessary for sale of goods such as inspection of
goods by the prospective buyers, grading, branding, packaging and labelling can be carried on by
the warehouses. Ownership of goods can be easily transferred to the buyer by transferring the
warehouse keeper’s warrant.
ix. Availability of finance- Loans can be easily raised from banks and other financial
institutions against the security of the warehouse-keeper’s warrant. In some cases warehouses
also provide advance to the depositors of goods on keeping the goods as security.
x. Reduces risk of loss - Goods in warehouses are well guarded and preserved. The warehouses
can economically employ security staff to avoid theft, use insecticides for preservation and
provide cold storage facility for perishable items. They can install fire-fighting equipment to
avoid fire. The goods stored can also be insured for compensation in case of loss.

SQUARE ROOT LAW

 In their aggressive effort to take cost of logistics network, firms are searching for new
ways to reduce levels of inventory without adversely effecting customer service. A currently
popular approach is to consolidate inventories into fewer stocking location in order to reduce
aggregate inventories and their associated cost. Correspondingly, this strategy requires the
involvement of capable transportation and information resources to see that customer service is
held at existing levels and is even improved whenever possible.

Square root law:

The square root law helps to determine the extent to which inventories may be reduced
through such strategy. Assuming the total customer demand remains the same, the Square Root
Law estimates the extent to which aggregate inventory needs will change as a firm increases or
reduced the number of stocking location. In general, the greater the number of stocking
locations, the greater the amount of inventory needed to maintain customer service levels.
Conversely, as inventories are consolidated into fewer stocking locations, aggregate inventory
levels will decrease. The extent to which these changes will occur is understood through
application of the square root law.

The Square Root Law states that: “the total safety stock inventories in the future number of
facilities can be approximated by multiplying the total amount of inventory at existing facilities
by the square root of the number of future facilities divided by number of existing facilities”.

Therefore
Where,
N1 = Number of existing facilities
N2 = Number of future facilities
X1 = Total inventory in existing facility
X2 = Total inventory in future facility

Example
A company presently distributing 40,000 units of product to its customer from eight facility
location throughout India is located at A, B, C, D, E, F, G and H. The company is evaluating an
opportunity to consolidate its operation into two facilities. Square Root Law we will find the
total amount of inventory in the two future facilities.

Solution
Here,
X1 = 40,000
N1 = 8
N2 = 2

THE NUMBER OF WAREHOUSES

 The number of warehouses is another decision parameter impacting a number of cost
variables and customer service. If customer service is taken in cost terms as cost of customer
dissatisfaction, the number of warehouses will affect transportation, inventory, and warehousing
and customer dissatisfaction costs.

Transportation costs initially decreases with increasing number of warehouses. This is

due to the transportation economics obtained by having large-volume long-range transportation
from consolidation warehouses and short-range small-volume transportation from break-bulk
warehouses. However, as the number of warehouses increases beyond a certain value, the
transportation costs starts increasing due to large number of transportation trips in – between the
larger numbers of warehouses. Inventory costs continuously increases with the increasing
number of warehouses beyond the increased space available needs to be utilized and firms
increase the commitment of inventory at these warehouses beyond those actually needed. Transit
inventory costs continuously decrease with the increased number of warehouses due to the
shorter transportation times between the larger number of warehouses. The warehousing costs
increase with more warehouses due to the maintenance and facility costs associated with each
warehouse. For the same space, a single warehouse incurs less warehousing cost than two
warehouses.The increasing number of warehousing leads to increasing customer service levels,
thus, decreasing customer dissatisfaction cost.

WAREHOUSE LOCATION:

Warehousing is important to the firms since it improves service and reduces cost
improvements in service are gained through rapid response to customer request (time utility),
which is a primary factor leading to increased sales. The location decision regarding warehouses
is affected by manufacturing plant, customer and market locations. A traditional classification by
Edgar Hoover classifies warehouse locations as market-positioned, manufacturing-positioned, or
intermediately-positioned.

1. Market-positioned warehouses

Market-positioned warehouses are located near to the customers and markets (point of
product consumption) with the objective of serving them. These generally have a large variety
and low volume of items to service local requirements. Such warehouses reduce cost by
providing place utility. A Market-positioned warehouses functions as a collection point for the
products of distant firms with the resulting accumulations of product serving as the supply source
for retail inventory replenishment. This approach allows large and cost-effective shipments from
the manufacturer with lower-cost, local transportation providing service to individual retailers.
Market-positioned warehouses may be owned by the firm or the retailer (private warehouses), or
they may be an independent business providing warehouses service for profit (public).

2. Manufacturing-Positioned Warehouses
 Manufacturing positioned warehouse are located near to the manufacturing facilities in
order to support manufacturing on the inbound side and to facilitate assortment-creation and
shipping on the outbound side. Improve customer services and manufacturing support achieved
through type of warehouse which acts as the collection point for products needed in filing
customer orders and material needed for manufacturing.

3. Intermediately-Positioned Warehouses

Intermediately-positioned warehouses are those located between manufacturing and

market-position warehouses. These help in consolidation of assortments for shipments from
different manufacturing facilities. A firm may have many manufacturing plant located, for
economic reasons, near the sources of raw material. Under these conditions the cost-effective
warehouse may be at some intermediate point.

A few of the factors governing the warehouse locations are:

• Availability of services
• Land cost
• Availability of transport linkages for example, to a rail siding
• Availability of utilities of water and power
• Taxes and insurance cost
• Expansion space availability
• And soil strength and lay off land for drainage.

SIZE OF WAREHOUSE

Many factors influence how large a warehouse should be. First it is necessary to define
how size is measured. In general, size can be defined in terms of square footage or cubic space.
Some of the most important factors affecting the size of warehouse are:

1.Customer service levels

2. Size of market
3. Number of products marketed
4. Size of the product
5. Material handling system used
6. Production lead time
7. Office area in warehouse
8. Types of racks and shelves used

As a company service levels increase, it typically requires more warehousing space to provide
storage for higher levels of inventory. As the market served by a warehouse increases in number or size,
additional pace is required. When a firm has multiple products or product groupings, especially if they are
diverse, it needs larger warehouse to maintain at least minimal inventory levels of all products. In general,
greater space requirements are necessary when products are large, production lead-time is long, manual
material handling system are used the warehouse contains office, sales or computer activities and demand
is erratic and unpredictable.
Demand Fluctuations Impact Warehouse Size:
 Demand also has an impact on warehouse size. Whenever demand fluctuates significantly
or is unpredictable, inventory levels generally must be higher.This result in a need for more
space and thus a larger warehouse.

WAREHOUSE LAYOUT AND DESIGN:

A good warehouse layout can increase output, improve product flow, reduce cost,
improve service to customers and provide better employee working condition. The optimal
warehouse layout and design for a firm will vary by the type of product being stored, the
company financial resources, competitive environment and needs of customer. The warehouse
manager must consider cost of trade between labor, equipment, space and information. Whatever
layout the company finally selects for its warehouse it is vital that all available space be utilized
as fully and efficiently as possible.

Warehouse operating principles Design criteria:

Three factors, which have to be considered in the design process, are the number of
stories in the facility, height utilization and product flow. Most warehouse houses have 20-30
foot ceiling. Through the use of racking or other hardware it is possible to store product up to the
building ceiling. Warehouse design should also allow for straight product flow through the
facility whether items are stored or not. In general this means that product should be received at
one end of the building, stored in the middle and then shipped from other end.
Figure below illustrates the flow of production.Straight line product flow minimizes congestion
and confusion.

Product flow

Handling technology: The second principle focuses on the effectiveness and efficiency of
material handling technology. The element of this principle concern movement continuity.
Movement continuity means that it is better for a movement handler to make a longer move than
to have a number of handlers. Exchanging the product between handlers wastes time and
increases the potential for damage. Thus, as a general rule fewer longer movements in the
warehouse are preferred.

Storage plan: According to the third principles, a warehouse design should consider product
characteristics, particularly those pertaining to volume, weight and storage. Product volume is a
major concern when defining a warehouse storage plan. High volume sales product should be
stored in a location that minimizes the distance it is moved, such as near primary aisle and in low
storage racks. Such a locations minimizes travel distance. Conversely, low-volume product can
be assigned locations that are distant from primary aisle or higher up in a storage rack. Relatively
heavy items should be assigned to location low to the ground to minimize the effort and risk of
heavy lifting. open floor space or high level racks can be used for bulky or low density product
as it requires extensive storage volume. Storage plan must consider and address the specific
characteristic of each product.
A storage plan based on product movement, In a warehouse layout product are grouped
according to their compatibility, complementarities, popularity.
1. Compatibility refers to whether products can be stored harmoniously
2. Complementarities how often product are ordered together and therefore stored together
3. Popularity relates to different inventory turnover rates or demand rates of products. Items that
are in greatest demand should be stored closest to shipping and receiving docks.

Good warehouse layout and design often involve the use of automated equipment, such
as a conveyor system to handle large number of products packaged in a carton.

WAREHOUSE OPERATIONS

The essential processing of materials in a warehouse involves following operations:

Receiving Goods:
A warehouse accepts the merchandise delivered by a transporter or an attached factory
and then accepts the responsibility for this merchandise.

Identifying Goods:
The appropriate stock- keeping units are identified and a record made of the number of
each item received.

Sorting Goods:
The economic goods are sorted out for appropriate storage area in the warehouse.

Dispatching Goods to Storage:

The goods are kept aside where they can be found later, when needed.

Holding Goods:
The goods are kept in storage under proper protection until needed in the warehousing.

Retrieving Selective or Packing Goods:

Items ordered by customers are taken out from storage and grouped in a manner useful
for the next step.

Marshalling Goods:
The several items making up a single order are brought together and checked for
completeness and order records are prepared or modified.

Dispatching Goods:
The consolidated order is packaged suitably and directed to the right transport vehicle.

Preparing Records and Advices:

 The number of orders received, the items received and on hand etc., are recorded for
replenishment action and stock control.

A warehouse may be used as a physical processing station. For example, goods may be
stored for aging, a form of processing. In some systems, minor assembly work, conditioning,
breaking bulk, adaptive work for special requests, etc., may be carried out as a part of warehouse
activity.

1) Receipt of Goods

The following operations are carried out before the acceptance of goods for storage and issue of
a warehouse receipt:

• The user of the facility or depositor tenders the goods for storage.

• The technical assistant attached to the warehouse examines the goods visually to determine
whether the stocks are worth storage.

• The goods are in good condition and can be stored; the depositor is required to submit an
application for storage of goods, with details of his name and address, nature of the commodity,
number of packages, their weight and value, etc.

• If the goods or commodities require cleaning to bring them up to an acceptable standard, this
must be done by the depositor.

• The goods are sampled as per a set procedure of sampling, depending on the nature of the
commodity.

• The samples so taken are analyzed as per the specifications provided by law.

• The stocks are graded on the basis of such characteristics as moisture content, foreign matter,
shriveled grains dirt, etc.

• If the packages or bags of the stock are not of a standard weight, they are standardized at the
warehouse.

• The bags or packages are counted, if they are standardized, before unloading from the truck and
after stocking, to be doubly sure that the correct number of packages has been tendered.

• Warehouseman takes the specimen signature of the depositor or his agent for future verification
on the cards kept at the warehouse.The warehouseman prepares a warehouse receipt with all the
particulars, such as location of the warehouse, name of the depositor and his address, description
of commodity, its quality or grade, weight, etc.

2) Storage in Warehouse
 One of the fundamental features of warehousing is scientific storage and preservation of
goods. In order to ensure that the quality remains the same and is well preserved, the following
steps are taken:

• One of the samples obtained after a scientific sampling of the stocks is duly sealed with a
signed sample slip put inside the bag and is handed over to the depositor for future verification in
the event of any dispute as regards quality of the commodity.

• The warehouse is demarcated into different sections for storage of different commodities or
items according to their nature. These commodities or items are accepted in the specific section
meant for such goods.

• Different stacking methods are adopted, depending on the size of the packages and the duration
of storage.

• Quick moving goods are stored in a separate section, generally close to the doors, and those
goods which are likely to remain in storage for a long time are stored a little away.

• Gangways and operational spaces between stacks are left for necessary disinfestations
operations, re-stacking, turn-over, etc.

• The goods are periodically inspected to check that there has been no damage during storage.

• If there is damage of goods or if it is found that the goods are not capable further storage, the
warehouseman can take action to have them delivered.

• If the depositor indicated in the notice does not take delivery of goods within the stipulated
period, the goods may be auctioned in the prescribed manner. A notice of auction will be sent to
the depositor indicating the date, time and place of the auction well in advance.

3) Delivery of Goods
The delivery of goods is conditioned by the following factors:

• The goods stored in the warehouse may be delivered in one lot or in installments, as required
by the depositor.

• If the depositor is given an opportunities to examine his goods before taking delivery and if he
find on the time of taking delivery that the goods have been allowed to deteriorate or to get
damaged, he may lodge a protest within 72 hours of his examination, and defer taking delivery.
He has also to advise the licensing authority under the act for necessary investigation and
redresses.

• An application for delivery of goods has to be tendered by the depositor or his authorized
agent.

• The warehouse receipt is surrendered, duly discharged.

• The specimen signature is verified before delivery is made.

• The storage charges, insurance charges, etc., payable are worked out and collected before
delivery is made.

• If a part delivery is required, such delivery is endorsed in the column provided for it in the
warehouse receipt, and the receipt is returned to the depositor or the bank which has produced
the receipt for such delivery.

• If the goods are to be delivered in full, the warehouse receipt, duly discharged, is surrendered to
the warehouseman
.
• Necessary entries in the stack-wise register, godown register, depositor’s ledger, stock register
etc. are made after delivery is made.

• The stocks are delivered against an acknowledgement of the depositor or his agent to the effect
that the goods have been received in goods condition and the sample kept in the warehouse is
returned to the depositor at the time of delivery.
CONCLUSION

The entire area of facilities development that is size and number of warehouses, location
analysis, warehouse layout and design is an important factor yet complex, part of warehouse
management. In recent years, computers have played a more significant role as logistics
executives attempt to optimize warehouse operations.

Thus a warehouse plays a multi-faceted role in the integrated logistic system.