SUBJECT: WAREHOUSE

MANAGEMENT
(PSM040)

TOPIC 1: INTRODUCTION TO
WAREHOUSE
MANAGEMENT
BY Rissasi, Mfaume .H.
DBA, BBA, MBA

1
 What is Warehouse?
• Warehouse is the entire process of
keeping custody of goods until they are
needed and throughout the time they
should be in good usable condition until
they are needed.
• Warehouse is a place where goods are
stored.
• Goods includes: Finished goods, raw
materials, WIP, spare parts . Etc.
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 What is Warehouse?
• Its efficient operation depends upon an
adequate understanding of the needs of
the whole organization and not single
out a function such as stock control,
distribution etc.
• Therefore, Warehouse management
simply can be said to be the art or
science of managing number of
warehouse functions.
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 What is Warehouse?
• So when one talks of a warehousing we
must examine beyond the warehouse
manager and look into the whole
organization as a unit, such that
– who finances the operations & source of funds,
– who keeps the items,
– who are the users,
– who are the buyers,
– who provides the services in terms of staffing and
structure are clearly known.
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 What is Warehouse?
• With this concept in mind, then
warehousing is seen as a centre for
holding goods or items but such holding
goods or items but such holding should
not add more value to the goods and
products stored.

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 Warehouse as a Holding centre
• Warehouse are there to hold goods
which is an administrative expense to the
organizations in terms of heating,
lighting, carrying cost.
• These cost can be grouped as holding
cost or carrying cost.

6
 Why Warehouses Holds goods?
• There are a number of reasons for
holding items in a warehouse, which are
1) Speculative
2) Seasonal operations
3) Deliberate holding
4) Operational risks

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 1. Speculative
• Smart business people, when they
anticipate prices to change upwards,
rise or increase will tend to hold
stocks in the warehouse in
anticipation to make huge maximum
profit from that situation.
• When stock is so held it will be
termed as speculative stocks.
 2. Seasonal operations
• Stocks are held in warehouse in larger
quantities when it is a season e.g.
harvesting of farm produce, crops, bulky
arrival of consignments from major
suppliers etc.
 3. Deliberate holding
• Unlike speculative, stocks here are held for
strategic or commercial reasons hence
deliberate stock.
• Eg. Preparation for exhibition, major sales
drive, large production due to maximum
utilization of economies of scale, take
advantages of discounts offered for bulk
purchases.
• Stocks are held for such reasons will be called
strategic stocks on deliberate stocks.
 4. Operational risks
• In operations there are risks that are
involved such as uncertainty in deliveries,
demand cannot be matched with
deliveries such that there occurs
shortages.
• The common term given for this types of
stocks is buffer stock, safety stock,
cushion stocks etc.
 Operational risks (cont..)
• The purpose is to cover anticipated
failures in delivery supply, caused by
various reasons such as failure in
transportation, machine break down,
strikes, stock outs and the like at
suppliers’ premises.
 Warehouse as a Profit Centre
• Stocking of goods in a warehouse, as
explained above have different motives.
• It becomes more sensible when such
motives are economical.
• Storage, on one hand has administrative
holding costs, heating and lighting losses,
theft, damages etc.
 Warehouse as a Profit Centre
• But on the other hand there are
economies of scales for storage eg
the frequency of meeting a certain
demand, more faster, easily
availability of goods when needed,
assurance of continuous supply,
discounts obtained.
 Warehouse as a Profit Centre
• Therefore, when these costs and benefits are
compared and are seen not to have much
negative impact in the profits or if they can be
controlled or reduced significantly, they will
contribute very much to the profitability of
the institution
• Hence warehouse becomes a place where
profit can be generated through its process of
storage.
 Objectives of warehouse
(General objective)
• The general objective of a warehouse can
be stated as
– To customers and stakeholders through
making available required
goods/materials timely and in good
condition (basically the 5 rights of
purchasing must be considered i.e,
quantity, time, quality, price and
source).
 Objectives of warehouse
(Specific objectives)
• The general objective can however be
explained further as follows (so called
specific objectives)
 Minimize stock outs; through proper
stock controls, forecasting and
synthesizing with users demands so as
to reduce shortages.
 Specific objectives of warehouse
Reduce stock holding costs and losses;
through proper arrangement of facilities
proper handling systems, administration
of safety and security precautions and
developing honestly and responsibility in
the staffing engaged in warehouse.
Losses in warehouse can arise from theft,
breakages deteriorations etc.
 Specific objectives of warehouse
 To ensure better and efficient
movement of stocks in the warehouse;
Delays in processing, receiving or
inspection and packing outbound and
inbound consignments- causes delays
and disturbance in a production or user
department or distribution or final
customer.
 Specific objectives of warehouse
 Establishing customer goodwill;
through improved services to customers
on the delivery patterns.
 Bad goodwill affects the profit of the firm.
 Standardizing variety of items stored;
Overstocking is a by product of duplication of
equivalent items stored in a warehouse,
apparently performing the same function.
 Specific objectives of warehouse
 Utilize fully the available storage space
effectively; Underutilization of storage spaces
like floor space, ground space, air right space
results into poor arrangement of stocked
items.
Improper utilization of these spaces result
into some one going for hired
accommodation while there is a lot of space
unutilized.
 Specific objectives of warehouse
 To operate economically by keeping
stocks at an economic at levels; without
tying up high working capital in the
stocks.
Obviously, organizations requires capital for other
commitment other than stock management.
By employing minimum working capital in stocks
(by applying just in time techniques) will definitely
increase turnover rates though not a measure of
warehouse efficiency.
 Qualities of a good warehouse manager
• Apart from been professionally and
academically qualified, competent and
committed person a warehouse manager
should posses the following qualities.
o Integrity
o Dependability
o Initiative
o Cooperative
o Flexible or adaptive
o Tactful
 Functions of warehouse
• Warehouse staff in performing their duties
have several functional responsibilities and
the following are considered to be the basic
ones.
1. Proper receiving and inspection
2. Protection of materials or goods held
3. Issue and dispatch
4. Detection and prevention of waste
5. Giving information
 1. Receiving and inspection
• Proper receiving and inspection of
incoming materials and supplies
• This includes the process of receiving all
materials and goods from all sources,
whether these are to be used in
production, distribution, maintenance or
offices.
 Receiving and inspection (Cont..)
• The process will embrace
Unloading and checking the shipment to
make certain that the full consignment has
been delivered,
To inspect containers for external damages,
To unpack and inspect the materials against
the supplier’s packing slip and against
purchase order,
Receiving and inspection (Cont..)
to verify that the correct items have been
supplied,
to verify the quantity of the shipment in the
same manner,
to inspect the general condition of the
material to determine whether any damage
was incurred was incurred during shipment.
 2. Protection of materials held
• This comprises the management of
warehouses and stockyards, the operation of
handling and storage equipment, and the safe
custody of stock.
• It is important the stores operations facilitates
the minimization of deterioration and
spoilage.
• To ensure this, materials that comes in first
should be issued first, particularly when these
are perishable items.
 Protection of materials held
• For item of special natured characteristics,
special protection is required.
• For instance, metal parts which are
susceptible to rest or corrosion should be
stored in dry areas.
• They may sometimes be covered with suitable
anti rust compounds or rust inhibiting
compounds.
Protection of materials or goods held
• Liquids which are sensitive to heat or cold and
certain granulated materials which are
sensitive to heat or cold and certain
granulated materials which are sensitive to
heat or heat or cold should be stored in
suitable locations.
• If items are vulnerable to pilferage or theft,
they should be stored in locked cabinets or
security cages to reduce temptation and
subsequent losses.
 3. Issue
• Arrangement of speedy issue of the
required materials when properly
requisitioned.
• This is the process of receiving demands,
selecting or picking the required items
from racks and bins and handing them
over to the user after verifying the
authority of the requisition notes.
 Issue (cont…)
• It will further include packaging of issues
and the loading of issues and the loading
of vehicles for delivery when goods are
to be dispatched to outside customers
and branches.
4. Detection and prevention of waste

• Facilitation of localization, detection and

prevention of waste as well as losses through
carelessness, pilferage and theft.
• This will be achieved by periodical
examination and checking if stocked items by
means of stock counting and checking for
condition at the end of trading period or
perpetually throughout the year.
Detection and prevention of waste (Cont..)

• Counting and checking each item against

its book balance at least once in a year is
important not only to detect and prevent
losses, theft and waste, but also to verify
the accuracy of stock records and reveal
any weakness in the whole system of
stock control, storage and management.
 5. Giving information
• Giving information regarding stock
turnover, locked up capital, maximum
and minimum requirements, aver and
under stocking.
• It is of paramount importance for proper
stock control that services are adequate
given to customer by carrying and
making available their requirements.
 Giving information (cont..)
• But this objective should not in any way
be achieved at the expense of the
economy of the organization concerned.
• The stock should be maintained at the
lowest practicable level at all times in
order to economize use of working
capital and to minimize the costs of
storage.
6. Interdepartmental relationship
• In order to discharge its responsibilities
effectively, the warehouse department must
actively co-operate with other department,
not only to provide services to them, but also
to give and receive information so that the
services are efficient.
Purchasing
Production
Interdepartmental relationship (cont…)
 Design and Engineering
 Quality control and inspection
 Finance
 Transport
 Sales

*(Reading Assignment: Explore the relationship

warehouse department/unit have with the above
mentioned departments/units)
 CENTRALIZATION AND DECENTRALIZATION
• Warehouse function may be centralized or
decentralized.
• Centralization is where all the functions are
done centrally in a central place, all
departments, units or branches replenishing
their stocks from the central point
• In this form every activity and operation must
be initiated, passed and controlled through
one centre, be it central store or
headquarters.
 CENTRALIZATION AND DECENTRALIZATION
• Decentralization entails that departments,
branches or operating units have their own
sub units which do all the operations.
• In this arrangement every sub-store in various
section or department has full mandate to do
its own duties independently without referring
to the main store or central store for approval
or advice.
 Advantage of Centralization
• The central warehouse will usually have a
wider choice of items for customers than
sub-warehouse.
• It is possible to apply better and more
scientific methods of stock control.
• It may be possible and more economical,
due to the size of being a central place,
to use modern handling devices becomes
easier.
 Advantage of Centralization
• Better purchase prices to bulk purchase and
delivery to a single point.
• Opportunities for standardization can be
noted as wide range is kept facilitating
identification of similar products.
• Inspection and testing of goods can be more
efficiently organized.
• Deterioration may be minimized or avoided as
stock may be turned over more regularly.
 Disadvantage of Centralization
• Extra handling and transportation costs to and
from branches will result.
• Possibility of recurrent shortages at branches
is there unless the replenishment system is
very efficient.
• Stock investment may rise if branches are not
rigidly.
 Disadvantage of Centralization
• More documentation may be necessary.
• There is risk of greater loss by fire.
 QUIZ
• What are Advantages and
disadvantages of
decentralization?