Contents:-

 Reasons for warehousing

 Benefits
 Warehouse operating principles
 Types of Warehouse
 Warehousing strategies
 Warehouse location strategies
 Site selection
 Transport
Warehousing:-

“Storage or warehousing provides the place utility as part of

logistics for any business and along with Transportation is a
critical component of customer service standards”.
Introduction
 Warehousing means holding and preservation of
goods from the time of their production or purchase
and until their sale or use. It involves decision making
suitable and effective arrangement for goods in proper
condition. It is a place used for storage of surplus
goods. It may defined as an establishment that
assumes responsibility for the safe custody of goods.
Warehousing enable business to produce goods
throughout the year and sell them whenever there is
adequate demand. Its creates time utility by bringing
the time gap between production and distribution.
 Any firm can choose to either have its own dedicated network of
warehouses or share space with other in third party operated
warehouses. The former offers greater flexibility in design to
meet product characteristics and storage needs, greater control
over warehouses operations, effective market feedback and lower
cost per unit as opposed to third party arrangement. However,
third party warehouses require no fixed investment by the firm.
Also flexibility in location and space utilization make this an
attractive alternative. Customer service can be improve
significantly through this approach. These are also called
distribution centers. Weather a firm uses its own or a third party
warehouse , it has to take following decision:
1. Number of warehouses and their location.
2. Level of customer service required to provided to gain a
competitive edge.
3. Cost of distribution
4. Technology to deployed- automated warehousing is now the
order of the day.
 Customer
Analysis
Purchasing/
Order Supplier
Fulfillment Partnering

Integrated Inventory
Warehouse & Supply Chain Management
Transportation Management & Control

Manufacturing/
Re- Demand &
manufacturing / Lead Time
Assembly Management
Materials
Management
Reasons for warehousing:-
 To support the company’s customer policy.

 To maintain a source of supply without interruptions.

 To achieve transportation economies.

 To support changing market conditions and sudden changes in

demand.

 To support any JIT programs.

 To provide customers with the right mix of products at all times and
all locations.

 To ensure least logistics cost for a desired level of customer service.

Functions of Warehouses
1) Balancing Function:- A completely synchronized
production process would be ideal. In reality, various
production lines frequently cannot run at the same
speed. As a result, a linkage buffer between two
production units in a production process performs a
counterbalancing function to coordinate the input and
output of several production units with one another.
2) Security Function:- When a disruption occurs in the
manufacturing facility, production can be secured in
other production units through the use of a material-
planning buffer. In this manner, this disruption buffer
performs a security function.
3) Sorting Function:- The sorting function is carried out
by a material-planning buffer. A typical example of a
material-planning buffer is the intermediate storage
facility that is used before and after the paint shop to
avoid changing color as much as possible, parts are
sent through the paint shop in groups to be painted
the same color. The lots are split up, combined and put
in a new sequence. Once they have gone through the
paint shop, they are resorted so that they can be
delivered to suit assembly needs. The sorting function
is provided by the option of changing the order of
objects moving to and from the warehouse and of
grouping or segmenting lots.
Types of Warehousing
1) Private Warehousing: Private ownership of storage facility
refers to having the entire facility under the financial and
administrative control of the firm, i.e, the firm owning the
product operates the warehouses. The facilities may either be
owned by the firm or taken on lease, for a period of three to
five years. The decision as to which strategy fits an individual
firm is essential financial. Often it is not possible to find a
warehouse for lease that fits the exact requirement of a firm.
For example, a warehouse requires substantial material-
handling activities. Existing or leased facilities may not be
adequately design. As a general rule, an efficient warehouse
should be planned around a material-handling system in
order to encourage maximum efficiency of product flow.
Private warehouse are an attractive proposition under certain
circumstances such as :-
Cont.
1. Product specific material handling and storing
facilities are required which are not available
with other options.
2. Volumes handled are high, ensuring full capacity
utilization and benefits of scale economics.
3. A high degree of control over the operations is
required.
 Public Warehouse:- Public warehouse are used
extensively in logistical systems. Almost any combination
of services can be arranged with the operator either for a
short term or over a long duration. A classification of
public warehouse has been developed. On the basis of
specialized operations performed, they are classified as :-
1. General Merchandise : warehouse are designed to handle
general package commodities such as paper, small
appliances and household supplies.
2. Refrigerated Warehouse:- Refrigerated warehouse (either
frozen or chilled) handle and maintain food, medical
items, and chemical products with special temperature
requirement.
3. Commodity Warehouse:- Commodity warehouse are
designed to handle bulk material or items with special
handling consideration, such as tires or clothing.
4. Bonded Warehouse:- Bonded warehouses are licensed by
the government to store goods prior to payment of taxes or
duties. They exert very tight control overall movements in
and out of the facility since government documents must
be filed with each move for example , cigarettes are often
stored in bonded warehouses prior to having the tax stamp
applied. This tactic saves the firm money by delaying tax
payments; it also reduces inventory value substantially.
5. Household goods and Furniture Warehouses: Household
goods and furniture warehouses is designed to handle and
store large bulky items such as appliances and furniture.
 Contract Warehouses: Contract warehousing combines the
best characteristics of both private and public operations . The
long term relationship and shared risk will result in lower cost
than typical public warehouse arrangements, although
minimum fixed assets are still required for facilities. At the same
time contract warehouse operations can provide benefits of
expertise, flexibility , and economics of scale by sharing
management , labour equipment and information resources
across a number of clients. Although it is common for contract
warehouse operators to share resources across clients in the same
industry such as grocery products, it is not common that direct
competitors will want to share resources. Contract warehouse
operators are also expanding the scope of their services to
include other logistics activities such as transportation inventory
control order processing customer service and returns
processing. There are contract warehouse capable of assuming
total logistics responsibility for enterprises that desire only to
manufacture and market.
Comparison of warehouse options
Basic of Private Public Contract
Comparison
Investment High None Very little
Flexibility in Material handling Location Location
storage and
throughput
planning
Cost per unit Inversely related to Low Inversely related
stored volumes volumes
Level Control High Low Medium
Adequacy of goods High Low High
stored
Risk Due to change in Minimal Minimal
market demand or
consumption
centre's
 Factors effecting selection of warehouse:-
 Infrastructure:- The availability of proper infrastructure such as
approach roads, utilities (water, electricity, communication), and
labour has a great effect on the efficiency and effectiveness of
warehouses operations. For cold storage warehouses the availability of
electricity is major factor influencing site selection. The non-
availability of proper road or rail siding facility will have an adverse
effect on the operations on the warehouse and result in transportation
costs going up considerably. The lack of infrastructure such as wagon
platform and material handling equipment, may pose problems in the
loading and cost unloading of materials and special provisions may
escalate cost.

 Market :- Distribution warehouses are located in proximity to markets

or consumption centers for offering better service to customers.
Frequent deliveries in small quantities as required by the customers
can be easily organized within limited geographical area coverage.
 Access:- The location of the warehouse has the greatest
effect on primary transportations costs. Difficulty in
access, will have influence on transportation cost.

 Primary Transportation Cost:- Transportation cost is the

largest component in product cost , particularly for low
unit price products. The location of the warehouse will
have the greatest influence on primary transportation cost.
The product demand pattern will influence transportation
cost in two ways:-
1. On the frequency of truck trip and
2. On the loading pattern (full partial) of transportation
vehicles.
 Availability:- The availability of warehousing space in
urban areas particularly in metros, at cheap rates is a
remote possibility. In such cases storage has to be
shifted beyond municipal limits, where space is
available at a considerably cheaper rate. However, this
arrangement may add to the transportation cost.
 Product:- The type of product will have a profound
effect on the number of warehouses required and their
location for example perishable products need to be
delivered to the customer within their expiry period
and hence should be located near consumption
centers . Warehouses with delivery limitation in term
of distance and geographical reach should be small
and numerous. Common storage rooms of retail stores
and small shops fit into this category.
 Regulations:- For certain types of products (explosives,
hazardous chemicals, and radio active materials),
which can cause damage to human life; the storage site
selection is guided by government regulations. In such
cases firms have very few options in site selection.
 Local levis:- Depending on the sale tax and the octroi
charges in the region the location of the warehouse is
planned. Due to lack of uniformity in sale tax
regulations across various states, marketers invariably
plan warehouses to make the most of local sales tax
disparities.
Benefits/ Importance of warehousing:-
1) Economic Benefits:- Economic benefits of warehousing
results when overall logistical costs are directly reduced by
utilizing one or more facilities. It is not difficult to quantify
the return on investment of an economic benefit because it is
reflected in a direct cost-to-cost trade off.
2) Consolidation:- Shipment consolidation is an economic
benefit of warehousing with this arrangement, the
consolidating warehouse receives and consolidates material
from a number of manufacturing plants destined to a specific
customer on a single transportation shipment. The benefits are
realization of the lowest possible transportation rate and
reduced congestion at a customer’s receiving dock.
The warehouse allows both the inbound movement from the
manufacturer to the warehouse and the outbound movement
from the warehouse to the customer to be consolidated into
large shipments.
3) Break bulk and cross dock :- Break bulk and cross-dock
warehouse operations and similar to consolidation expect
that no storage is performed. A break bulk operation
receives combined customer orders from manufacturers
and ships them to individual customer.
A cross-dock facility is similar expect that it involves
multiple manufactures. Retail chains make extensive use of
cross-dock operations to replenish fast-moving store
inventories.
4) Assortment:- An assortment warehouse- which may be
utilized by a manufacturer, wholesaler or retailer, stocks
product combinations in anticipation of customer orders.
The assortments may represent multiple products from
different manufacturers or special assortments as specified
by customers.
5) Stockpiling:- The direct economic benefit of this
warehousing service is secondary to the fact that
seasonal storage is essential to select business. For
example, lawn furniture and toys are produced year-
round and primarily sold during a vary short
marketing period. In contrast, agricultural products
are harvested at specific times with subsequent
consumption occurring throughout the year. Both
situation require warehouse stockpiling to support
marketing efforts. Stockpiling provides an inventory
buffer, which allows production efficiencies within the
constraints imposed by material sources and the
customer.
Warehouse Operating Principles:-
Three Principles are:

1) Design criteria:

a) Number of stories in the facility,

b) Height utilization,

c) Product flow
Warehouse Operating Principles:-

2) Handling technology

a) Movement continuity,
b) Movement scale economies.

3) Storage plan
Warehousing Strategy…
 An integrated warehouse strategy focuses on two questions.

1) The 1st concerns how many warehouses should be employed.

2) The 2nd question concerns which warehouse types should be

used to meet market requirements.
Warehousing Strategy:-
 Many firms utilize a combination of private, public, and
contract facilities.

 A private or contract facility may be used to cover basic year

round requirements, while public facilities are used to handle
peak seasons.

 In other situations, central warehouses may be private, while

market area or field warehouses are public facilities.
Warehousing Strategy…
 Full warehouse utilization throughout a year is a remote
possibility.

 As a planning rule, a warehouse designed for full-capacity

utilization will in fact be fully utilized between 75 to 85 % of
the time.

 Thus from 15 to 25 % of the time, the space needed to meet

peak requirements is not utilized.

 In such situations, it may be more efficient to build private

facilities to cover the 75% requirement and use public facilities
to accommodate peak demand.
Warehousing Strategy…
 It may be more efficient to build private facilities to cover the 75 %
requirement and use public facilities to accommodate peak demand.
Warehousing Strategy…
Other qualitative factors that should be considered include:

1) presence synergies: Inventory located nearby in a building that is

clearly affiliated with the enterprise.

2) industry synergies: Refer to the operating benefits of collocating with

other firms serving the same industry.

3) operating flexibility: Refers to the ability to adjust internal policies and

procedures to meet product and customer needs.
Contd…

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.