LOGISTICS: Warehousing

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, demand warehouse stores products 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 link between
producer and 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.
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

TYPES OF WAREHOUSES

1. Private Warehousing
2. Public Warehousing
3. Contract Warehousing

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.

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 labeling 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.