Introduction to Warehousing

Warehousing

Let’s learn more about warehousing. Warehouses are crucial components of most modern supply chains. They are likely to be involved in various stages of the sourcing, production and distribution of goods, from the handling of raw materials and work-in-progress through to finished products.

Warehouses are an integral part of the supply chains in which they operate, and therefore recent trends, such as increasing market volatility, product range proliferation and shortening customer lead times, all have an impact on the roles that warehouses are required to perform. Warehouses need to be designed and operated in line with the specific requirements of the supply chain as a whole. They are therefore justified where they are part of the least-cost supply chain that can be designed to meet the service levels that need to be provided to the customers.

A distribution centre for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products /goods to be re-distributed to retailers, wholesalers or directly to the consumers. A distribution centre is a primary part, of the order processing element, of the entire order fulfillment process.

Benefits of Warehousing

The various benefits of having a warehouse are,

• Consolidation – With the given arrangement, the consolidating warehouse receives and consolidates materials from a number of manufacturing units destined for a specific customer in a single transportation shipment. Thus getting the lowest possible transportation rate and reduced congestion at a customer’s receiving dock which helps in logistical flow of several small shipments to a specific market area. Also, it may be used by a single firm, or multiple firms may join together and use a for-hire consolidation service.
• Breaking the bulk – A break bulk operation receives combined customer orders from manufacturers and ships them to individual customers. This function involves sorting or splitting of individual orders in a warehouse in order to arrange for local delivery since long-distance transportation movement of a large shipment involves lower transportation costs and less difficulty in tracking.
• Processing (Postponement) – Warehouse can also be used to postpone, or delay, production by performing processing and light manufacturing activities. Postponement allows minimization of the risk as the final packaging is not completed until an order for a specific label and package has been received. Also, the required level of total inventory can be reduced by using the basic product for a variety of labeling and packaging configurations.
• Stockpiling – Stockpiling helps in maintaining inventory buffer, which allows production efficiencies within the constraints imposed by material sources and the customer.

Service Benefits of Warehousing

The various service benefits are:

• Spot stocking – Under spot stocking a selected amount of a firm’s product line is placed in a warehouse to fill customer orders during a critical marketing period. Instead of holding inventory in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets. The utilization of warehouse facilities for stock spotting helps in placing the inventories in a variety of markets adjacent to key customers just preceding to a maximum period of seasonal sales.

Assortment – Assortment operation helps to stock product combinations in anticipation of customer orders. The assortments may require multiple products from different manufacturers or special assortments as specified by customers.

The basic difference between stock spotting and complete line assortment is the degree and duration of warehouse utilization.

• Stock spotting typically involves a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets for a limited time period where on the other hand distribution assortment usually involves a broad product line, which is limited to a few strategic locations, and is functional year-round.
• The combined assortments also allow larger shipment quantities, which helps reduce the overall transportation cost.

Mixing – It involves truckloads of products being shipped from manufacturing plants to warehouses. In mixing situation each large shipment enjoys the lowest possible transportation rate such that upon arrival at the warehouse, factory shipments are unloaded and the preferred combination of each product for each customer or market is selected. It is important part of warehousing.

Production support – The function of a production support warehouse is to supply processed materials, components, and subassemblies into the assembly plant in time yet economically. Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage.

Market presence – Market presence factor is based on the belief that local warehouses can be more responsive to customer needs and offer faster delivery than more distant warehouses. This will enhance market share and potentially increase profitability.

Functions of Warehouses

The prime objective of most warehouses is to facilitate the movement of goods through the supply chain to the end consumer. It is often necessary to hold inventory, when:

• The demand for the product is continual
• The supply lead time is greater than the demand lead time

There are two types of storage actions performed,

• Planned Storage: Planned storage is the storage required as planned to meet the regular customer demand. The inventory received in the warehouse requires storage for a certain period of time where the duration of storage may vary.
• Extended Storage: Extended storage involves storage of inventory in excess of normal warehouse operation. Some of the reasons for extended storage requirements are seasonal demand, erratic demand, discounts, speculative purchases, product conditioning, etc.

Functions of a warehouse includes

• Smooth Movement of Goods – Movement of goods involves inbound activity i.e., unloading of goods brought to warehouse, transfer to storage by transferring the goods from the inbound area to the storage area, order selection involves selection of good in the storage as per order to be shipped and transferring it to shipment area and outbound activity involving checking and loading the gods for shipment. It is important part of warehousing.
• Managing Information – It helps in keeping a track of information regarding goods that have arrived at the warehouse, stored and shipped out of the warehouse. All the required information relating to the warehouse is stored. All the data is captured by the information system in the warehouse is then passed on to the higher management in order to take better decisions.
• Protection of Goods – Warehouse provides protection to goods from loss or damage due to heat, rain, dust, wind etc. It requires special arrangements for different types of products as per their respective nature. Warehouses help in cutting down losses due to spoilage and wastage during storage.
• Bearing the Risk – Warehouses aids in taking over the risks incidental to storage of goods. When the goods are received in a warehouse then it is the responsibility of, these goods passes on to the warehouse-keeper. The risk of loss or damage to goods in storage is thus borne by the warehouse keeper. The warehouse is bound to return the goods in good condition and is responsible for any loss, theft or damage etc. Therefore, they take all precautions to prevent any kind of mishap.
• Warehouse Financing – For goods deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favor of the owner of the goods, which is called warehouse-keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. The businessmen can also obtain loans from banks and other financial institutions by keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period keeping their goods as security. It is important part of warehousing.
• Processing – There are certain commodities which are not consumed in the form they are produced. It requires some processing to make them consumable. Sometimes warehouses also undertake these activities on behalf of the owners.
• Grading and Branding – Warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale.
• Inventory holding point – It is the holding of critical parts in case of breakdown or acting as a repository (eg for archive records or personal effects).
• Consolidation centre – The warehouse may perform the function of bringing a number of product lines together for a specific customer need.
• Sortation centre – It is specific to parcel carrier depots, where goods are brought to the warehouse for the purposes of sorting the goods to a specific region or customer.
• Assembly facility – The warehouse may thus be used as the final assembly point for the product, involving activities such as kitting, testing and labeling.
• Returned goods centre – The handling of returned goods can also be taken.
• Receiving – It involves the physical unloading of incoming transport, checking against purchase orders and recording the incoming goods into the computer system
• Reserve storage – Goods are normally taken to the reserve or back-up storage area, which is the largest space user in many warehouses. It is important part of warehousing.
• Order picking – If only small quantities of a product are stored in a warehouse, then the reserve and picking stock may be combined, and goods picked from this consolidated area. It is important part of warehousing.
• Collation and added value services – Goods need to be collated into complete customer orders ready for dispatch. It is important part of warehousing.
• Marshalling and dispatch – Goods are marshalled together to form vehicle loads in the dispatch area and are then loaded on to outbound vehicles for onward dispatch.

Why to Hold Stock

• Meeting Unexpected Demands – Business must be ready to meet the requirements of the consumers for goods and services when they need them. Thus, businesses usually stock up their inventories to meet these unexpected demands. Consumer demands may result in overcrowding of inventories because it is not known when the consumers would flock to buy the items.
• Smoothing of Seasonal Demands – With the changing seasons and comings and goings of major events, most businesses have inventories at hand to smoothen the seasonal demands.
• Benefit from Price Discounts – When a business purchases goods in bulk from manufacturers or suppliers, they usually get price discounts if they buy in bigger bulks. Manufacturers and suppliers give these discounts to attract and maintain regular buyers. Taking advantage of price discounts is helpful at times but one must always remember not to overstock the inventory because inefficient buying may cause failure of the business.
• Hedging against Price Rise – Businesses usually hold inventory to avoid from the ever fluctuating market price of inventories. Thus, by having efficient and good inventory system, businesses can control their inventory cost.
• Getting Quality Discounts – When businesses have inventory in store, they can get quality discounts because they know which goods and services to buy from the suppliers and manufacturers. It helps to learn where to get better deals than no deal at all.

Characteristics of Warehouses

• Location: Warehouse should be located at a convenient place near highways, railway stations, airports and seaports where goods can be loaded and unloaded easily.
• Handling Cost: Mechanical appliances should be there to loading and unloading the goods. This reduces the wastages in handling and also minimizes handling costs.
• Space: Adequate space should be available inside the building to keep the goods in proper order.
• Storage Facilities: Warehouses meant for preservation of perishable items like fruits, vegetables, eggs and butter etc. should have cold storage facilities.
• Protection: Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture and pests.
• Loading/Unloading: Sufficient parking space should be there inside the premises to facilitate easy and quick loading and unloading of goods. It is important part of warehousing.
• Security: Round the clock security arrangement should be there to avoid theft of goods.
• Fire & Safety: The building should be fitted with latest fire-fighting equipments to avoid loss of goods due to fire.