Warehousing

Chapter 6
 Introduction

Warehousing and storage is an act of storing and assorting the finished goods
so as to create maximum time utility at minimum cost. Need for storage arises
both for raw material as well as finished products. STORAGE involves proper
management for preserving goods from the time of their production or
purchase till actual use. When this storage is done on a large scale and in a
specified manner it is called WAREHOUSING. Now-a-days, many private
firms are turning to distribution centers rather than constructing the
warehouses.

Meaning
According to Robert Hughes- :"Warehousing is the set of activities that are
involved in receiving and storing of goods and preparing them for reshipment”
 Warehousing Functionality

1. Receiving of goods:-

• Basic important function of warehousing

• Accepts and assumes the responsibility to deliver the goods

• Issues the receipts of the goods

2. Preparations of records:-

• Warehouse keeper check the items and prepares the records

• Records maintained properly to avoid problems at the time of delivery

3. Identification:-

• All the items are marked separately

• Code numbers/tags attached for identification

• Identification helps to separate goods of different firms easily

4. Storing:-

• Major function of warehousing

• Goods are kept safely in warehouse

• Helps in proper protections of goods e.g. food crops , fruits, vegetable etc.

5. Packing:-

• Provided by the warehouse keeper if owner requires such facilities

• Packaging is done in a reasonable way according to size and quantity of goods

6. Information about receipts:-

• Warehouse keeper checks and informs about the goods to the concerned department

7. Breaking of bulks:-

• Generally goods delivered in bulk

• If owner wants in small quantity, keepers packs according to the requirements of customer
8. Search the goods:-

• Warehouse keeper searches efficiently and provides the goods to the owner, whenever he
demands

9. Delivery of goods:-

• Documents are checked and prepared and

• Goods are loaded over transport

 Benefits of Warehousing
A) Economic benefits :

1.Consolidation:

The benefits and features are:

- Realization of lowest possible transportation rate.

- Reduction of congestion at a customer’s receiving dock.

- Manufacturing plants can use warehouse as a forward stock location or as sorting and
assembly facility.
- Combines the logistical flow of small shipments to a specific market area.

- A single firm may use consolidation warehousing or a number of firms may join together
and hire the consolidation service.

3. Break bulk

• Break-bulk operations receive combined orders from manufactures and ships them to
individual customers.

• Break-bulk warehouse splits individual orders and arranges for local delivery.

• Cross-dock facility is similar to break-bulk except that it involves multiple manufacturers.

• In transit-mixing and release as well as manufacturing support are also included in cross
dock facility.
3. Cross Dock

The features and benefits of cross-dock facilities are:

- The full trailer loads of product arrive from multiple manufacturers and as the product is
received it is sorted and allocated to customers.
- The product is then moved across the dock to be loaded onto the trucks destined for
appropriate customer.
- The trucks are then transported to retail outlets once the same have been filled with the
mixed product from multiple manufacturer.
4. Processing/ postponement

Warehouses can also be used to postpone, or delay production by performing

processing and light manufacturing activities. A warehouse with packaging and
labelling capability allows postponement of final production until actual demand is
known.For example, vegetables can be processed and canned at the manufacturer’s end
without pre-attached labels. No pre-attached labels means the product does not have to
be committed to a specific customer. Once a specific customer order is received, the
warehouse can complete final processing by adding label and finalizing the packaging.

5. Stock piling[seasonal storage]

Useful for seasonal storage such as: Blankets and Knitting wool are produced year
round and primarily sold during a very short marketing period. Agricultural products
are harvested at specific times with subsequent consumption throughout the year. In
both the above situations, stockpiling becomes necessary to support the marketing
efforts. Stockpiling provides for a buffer inventory allowing for a balance between the
availability of materials and the market demand.
B) Service benefits

1. Spot stocking

Used often in physical distribution particularly in case of seasonal products. Selected amount
of firm’s product line is placed or spot stocked in a warehouse to fill customer orders during
a critical market period. Spot stocking allows inventories to be placed in a variety of markets
adjacent to key customers just prior to a peak selling period of season. For examples,
suppliers of agricultural products to farmers often use spot stocking to position their
products closer to market during growing season and once the sales season is over, the
remaining inventory is withdrawn to central warehouse.

2.Assortment

Assortment warehouse stocks product combinations in anticipation of customer orders.

Assortment represents multiple products from different manufacturers or special assortments
as specified by the customers. For instance, a wholesaler of athletic clothing would stock
products from number of clothing suppliers so that the customers can be offered assortments.
Wholesalers would create a specific uniform for the team including shirts, pants, and shoes.
3. Mixing

Several shipments from different manufacturers are involved. Truckloads of products are shipped from
manufacturing plants to warehouses and each large shipment enjoys lowest possible transportation cost.
Upon arrival at the mixing warehouse, factory shipments are unloaded and desired combination of each
product for each customer is selected. An effective service benefit because inventory is sorted to precise
customer specification.

4.Production support

Production support warehouses provides a steady supply of components and materials to assembly
plants. The safety stocks of items purchased from outside vendors are justified because of long lead time
or variation in usage. Production support warehousing is used to supply processed materials,
components, and subassemblies into assembly plant in an economic and timely manner.

5.Market presence

Perceived by marketing managers as an advantage of local warehouses. Local warehouses and hence
local inventory can be more responsive to customer needs and offer quicker delivery than more distant
warehouses. Local warehouse may enhance market share and potentially increase the profitability.
 Warehousing Operating Principle
1. Design criteria

• Product Flow, Warehouse should be designed round Material Handling Flow

• No of stories, one is ideal as against limitations of space, cost of land

• Height utilization, principle of cubic space, principle of ‘go vertical’, limitation on

height utilization due to fire safety and insurance regulations

Use one-story facilities

Move goods in a straight line

Use efficient materials-handling

equipment

Use an effective storage plan

Minimize aisle space

Use maximum height of the building

 2.Handling Technology

• Movement continuity

• Reducing runs

• Reducing short runs with intermediate stops

• Ensuring longer runs

• Movement scale economies

• Movement in large bulk

• Moving material in cases strapped on pallets or Containers

• Handling technology is addressing these issues

3. Storage Plan

• Characteristics of product

• Open air storage for bulky products

• Heavy items closer to floor

• Light items on higher rungs

• Fast moving items in large bulk closer to aisles

• Hazardous items
 TYPE OF WAREHOUSE
1. Private Warehouses
✓ Owned or leased by the product owner

✓ Control is fully with the product owner

✓ Changes can be made to integrate the warehouse with rest of the logistical system

✓ Provides market presence to the product owner

✓ There is no profit to be added to the cost

Advantages

• Better control over movement and storage

• Chances of errors and mistakes are less as products are handled by its own employees
who have full knowledge

• Designing is done according to suitability of owner

• Greater flexibility with respect to storage and material handling needs

Disadvantages

• A lack of corporate operation flexibility

• A low rate of return
• Financial and tax complications
 2. Public Warehouses
✓ Available to companies on hire
✓ Overheads get distributed over a large customer base
✓ As warehousing is their core business public warehouses offer expertise in management
✓ Flexibility of location
✓ Significant scale economies, several users and resultant volume, benefits in transportation costs

Advantages

• More efficient and less expensive

• Cost easily and exactly ascertained
• Fixed cost distributed among many users
• Strategically located and immediately available
• Flexible to meet space requirements of different users
• Companies have a wide choice of locations and warehouse types
Disadvantages

• Space may not be accessible at all times

• There may be lack of available specialized service when required
• System incompatibility may lead to communications problems
3. Contract warehouses

Contract warehouse operators take over logistics responsibility from manufacturing company

✓ Long term relationship and customized service

✓ Expertise of management

✓ Shared resources with several clients.

Advantages

1) Less Investments : Smaller businesses especially do not always have the capital and resources to
adequately expand operations and build an entire warehouse to store product. This is where contract
warehousing can take place of building an operation of your own and thus leading to a reduced financial
investment.
2. ) Risk Elimination - When you are building your own warehouse, this is
especially risky considering the amount of commitment that is needed. As
long-term commitments and a risky outcome become less desirable, contract
warehousing can fulfill this obligation and spare an organization from the
hardships of a failing distribution center.
3) Efficiency Enhancement - Contract warehousing is also able to lower
operation and distribution costs significantly, considering that the warehouse
specializes in only warehousing and distribution - as opposed to every other
area of the business. Warehousing is only one part of an entire business,
which allows them to continuously improve and streamlines process,
ultimately leading to lower operational costs.
Disadvantage
1) Control Loss - A loss of control of a portion of your operation is a component to
consider and the main argument for businesses that are seeking to conduct warehousing
operations themselves. There is a degree of control that is lost, simply because it
includes trusting your product to be held and distributed from another company’s
distribution center. Having said that, contract warehousing and 3PL yields much better
results than customers that may be struggling to get started alone.
2) Challenges With Locating a Good Match - Finding the most appropriate 3PL and
contract warehousing facility can be rather challenging. Depending on your specific
needs and requirements, the search and selection process can take some time and the
result may not be as beneficial as it could be if not conducted adequately. Finding the
best match for you will take time, but could be worth it in the long run.
 Warehousing Strategy
1) Presence synergies: Inventory located nearby in a building that is clearly affiliated
with the enterprise. In Simple words it refers to marketing benefits of having stocks
located nearby the market.

2) Industry synergies: Refer to the operating benefits of collocating with other firms
serving the same industry. For eg. Firm in grocery business receive benefits when they
share public warehouses with other suppliers serving the same industry.

3) Operating flexibility: Refers to the ability to adjust internal policies and procedures
to meet product and customer needs. Private warehouses have more operational
flexibility as owned by enterprise whereas public warehouse have standard polies and
procedures to be followed by all the clients.
4) Location flexibility: Refers to the ability to quickly adjust warehouse location
and number in accordance with seasonal or permanent demand changes.

5) Scale economies: Refer to the ability to reduce material-handling and storage

through application of advanced technologies.
Factors affecting Warehousing Location
The primary considerations while locating the warehouse are:
Cost – Warehouse may be located near production plant to reduce operating cost.
Customer Service – Warehouse may be located near market to serve the customer
well.

Steps in Site Selection of Warehouse

While deciding the location of warehouse following factors are to be considered:
• Desired level of customer service
•
• Nature of product i.e. seasonal, perishable etc.
• Presence of Competitor’s warehouse
• Marketing oriented – closer to market
• Production oriented – closer to plant
•
•
• Cost of distribution to market area
• Availability of transportation facilities and its cost
• Availability and cost of basic infrastructure i.e. power, water, gas,
sewerage etc.
• Availability and cost of labour supply
• Local taxation levied by the local authority in the area.
• Potential for further expansion of warehouse.
• Geographical hazards like floods, earthquake etc.
Factors affecting Warehousing Cost

1. Size of Warehouse
2. Type of Product
3. Transportation
4. Inventory
5. Customer Service Level
6. Degree of Automation & Types of equipment used in
warehousing
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