Warehousing

This can be either company-owned or leased/rented from others. The advantages of company-owned warehousing are: greater flexibility and control, better information feedback and potentially lower unit costs. Regional distribution centres serving regional markets are a new development in the Europe of today; if they are highly automated and can cater for packaging of orders, maintenance of full inventory and combining products from different production centres, they can go a long way towards achieving improved efficiency and increased customer satisfaction. For example, some companies are considering locating regional distributor centres in Maastricht in the Netherlands, Calmar in Alsace and in Bavaria. These regions are also developing the type of infrastructure needed for the functioning of such centres.

The advantages of leasing are: location and space flexibility, and possibly lower costs for seasonal businesses. There is also wider choice available for the type of warehousing needed, e.g. special commodity warehouses for storing agricultural products or refrigerated warehouses. Warehousing firms may also offer a variety of extra services to compete with each other.

It is possible to reduce the need for warehousing by choosing a slower form of transport, e.g. storage in transit. The number and location of warehouses is decided by their purpose and the level of customer service to be provided. They should be so positioned that they will yield the desired service level after all the variables are considered. This solution is unique to each business. The transportation costs decrease as the number of warehouses increases; while the inventory and warehousing costs increase at a diminishing rate.

The locations of the warehouses affect the customer service level and the total costs; they also have a significant effect on the competitive powers of the business. A number of models have been developed to help management make better decisions. The significant factors are the estimates of lost sales due to the distance of the warehouses from the customers, and the costs of operation and of transport.