The Importance Of Warehousing

Published Date: 02 Nov 2017

A firm producing or owning the goods owns private warehouses. The goods are stored till the delivery time to a retail outlet or sold. The potential advantage of using a private warehouse is the ability to maintain physical control over the facility, which allows managers to address damage, theft, and loss. When not in use they could be rented out. The construction and maintenance of private warehousing can be extremely costly. All the expenses have to be carefully estimated and evaluated. These are:

i. Fixed expenses, building and land 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 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 workers on weekends and holidays

v. Generator and other service charges are required to be taken into account

vi. The cost of maintaining insurance records and 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:

1. There are less chances of errors in the case of private warehousing because the company’s products are handled by their own employees who are able to identify the products of their company better.

2. Private warehousing provides better control over the movement and storage of products as required by the management from time to time.

3. If there is sufficient amount 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.

2. 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 warehousing is sufficiently flexible to meet most space requirements, for several plans are available for the requirement of different users.

c. Public warehouses are usually strategically located and immediately available.

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. The costs of public warehousing can be easily and exactly ascertained, and the user pays only for the space and services he use.

f. Public warehousing facilities can be given up as soon as necessary without any additional liability on the part of the user.

3. 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. Thereby allowing the leasing firm to concentrate on its specialty. They provide customized services, e.g. Value Added Services. 

4. Raw material and component warehouses:It holds raw materials and always in a position to induct raw materials onto a manufacturing or assembly process.

5. Work-in-process warehouses:these warehouses hold partially completed products and assemblies at various points along production line or an assembly line.

6. Finished goods warehouses

It holds inventory usually to balance the variation between production schedules and demand. Normally these warehouses are situated near manufacturing plant, and it is characterized by the flow of full pallets in and full pallets out, assuming the product size and volume authorizes pallet-sized loads.

7. Distribution warehouse and distribution centers

Distribution warehouses accumulate products from various manufacturing points for combined shipment to the common customer. Normally, the warehouses are located central to either the production locations or the customer base. Product movement represented by full pallets or cases in and full case or broken case quantities out.

8. Fulfillment warehouses and fulfillment centers

It receives, pick, and ship small orders for individual consumers

9. Local Warehouses:These warehouses mainly for the purpose of responding to the customer demand. Frequently, single items are picked, and the same item is shipped to the customer every day.

10. Value-added service warehouses:Key product customization activities takes place like packaging, labeling, marking, pricing, and returns processing.

11. Centralized warehouse:Centralization generally refers to the allocation of the warehousing services to one particular business unit which provides services to the whole firm. The decisions are made at the central location for the entire network. The main characteristics of a centralized approach are control, efficiency and good economy.

Benefits:

Improvement in productivity through balancing

Increase in available knowledge

Bundling of product flows

Combined use of production flows

Control on the system

Uniformity in the processes and Improved efficiency

Limitations:

Customer desire of self pickup cannot be provided

Problem of concentration of customers in only certain markets and inhomogeneous

Customer structure.

Long internal transport paths in large central warehouses and higher costs for the infrastructure

Slow process of decision making, less flexibility

High initial costs

Bureaucracy in the system

Inflexibility

Dependent systems

12. Decentralized warehouse: Decentralization approach gives the individual business units autonomy and independency over their own resources without any major considerations over the remaining units unless there is a necessity for the overall organization policy. In this approach each facility identifies its most effective strategy without considering the impact on the remaining facilities in the network and this leads to the local optimization. The main characteristics of the decentralized approach are empowerment of individual business units, flexibility, and service orientation. They provide as good service as the centralized warehouses in terms of customer service level.

Benefits:

Rapid adjustment to the changes

Flexibility

Quality

Innovation

Low startup costs

Customization and catering to individual needs is possible

Increase in responsiveness

Improvement in reliability

Limitations:

Lack of centralized control

Duplication of resources

Extensive use of effort and expertise

Increase in costs (Tompkins, Smith, 1998), (Mulcahy, 1994)

1.3Importance of warehousing

Warehouses are basically intermediate storage points in the logistics system where raw material, work in process, finished goods and goods an 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 in providing 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 type of warehouse will receive the products from various sources and consolidate these into shipments, which are economical for transportation or as required by the customer.

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 inplace 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 which are classified into different types are received from different manufacturers 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 Pilling

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 delivering of products to customer until orders are received from them. It is utilized by manufacturers or distributors for storing products ready up to packaging stage. These products are packaged and labeled for the particular receipt of the order.

7. Positioning

This permits positioning of 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. 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.

9. 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 quantity of single brand.

10. Safety Stocking

In order to cater to uncertainties 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 theoutbound side customer are fulfilled on time.