A warehouse is a location with adequate facilities where volume shipments are received from a production center, broken down, resembled into combinations representing a particular order or orders and shipped to the customer’s location or locations. The rationale for establishing a warehouse in a distribution network is the creation of a differential advantage for the firm. This advantage accrues from achieving a lower overall distribution cost and/or obtaining service advantage in a market area.
The concept of a distribution warehouse or a distribution center is vastly different from the earlier concept of a godown for storage. The need of that system is sue to
- Ensuring protection against delays and uncertainties in transportation arising from a variety of factors.
- Eliminating lack of sophistication in production control and consequent uncertainties in the availability of product at the desired time and place.
- Providing for adjustment between the time of production and the time of use because production and use can be seldom synchronized.
- Serving as a reservoir of goods, receiving surplus goods when production exceeds demand and releasing them when a scarcity of goods is anticipated.
The modern distribution center or distribution warehouse is a pivot in the physical distribution system. So according to this system movement is the primary objective of a warehouse. As per this new concept a warehouse is a location where inputs (incoming factory shipments) are converted into outputs (outward shipments representing orders of customers). This conversion takes place without consuming too much time.
Thus a warehouse may be defined as a location of temporary storage facility and from where they are dispatched with the main objective of maintaining the flow of goods throughout the system. These goods may be raw materials or finished products. Prima facie, a warehouse adds to the cost of distribution. But with the modern concept of warehousing, the other benefits which accrue far outweigh the additional cost.
Warehousing is an integral part of every logistic system in which it plays a vital role in providing a desired level of customer service at the lowest possible total cost. The warehousing activity is the link between the producer and the customer, and is increasingly playing a critical role in the function of logistics. Warehousing can be defined as that a component of a firm’s logistic chain that stores product such as raw materials, parts, good-in-process and finish goods at and between point-of-origin and point-of-consumption, and provides information to management on the status, condition, and disposition of items being stored. In simplicity, warehouse is a temporary storage of goods before their use.
The essential processing of materials in a warehouse involves the following operation
- Receiving goods: A warehouse accepts the merchandise delivered by a transporter or an attached factory and then accepts the responsibility for this merchandise.
- Identifying goods: The appropriate stock – keeping units are identified and a record made of the number of each item received. It may be necessary to identify the item by an item code, tag, a code of the carrier or container, and/or by physical properties.
- Sorting goods: The incoming goods are sorted out for appropriate storage area in the warehouse.
- Dispatching goods to storage: the goods are kept aside where they can be found later when needed.
- Holding goods: The goods are kept in storage under proper protection until needed in the warehouse.
- Retrieving selecting or packing goods: Items ordered by customers are taken out from storage and grouped in a manner useful for the next step.
- Marshalling goods: The several items making up a single order are brought together and checked for completeness and order records are prepared or modified.
- Dispatching goods: The consolidated order is packaged suitably and directed to the right transport vehicle. The necessary shipping and accounting documents are also prepared.
- Preparing records and advice’s: The number of orders received, the items received and on hand etc., are recorded for replenishment action and stock control and the demand and receipt data are forwarded to a control center located elsewhere.
Types of Warehouses
- Bonded Warehouses: Private and public warehouses can be “bonded under the customs and excise act and municipal corporation regulations, facilitating deferred payment of customs, excise or octroi duty. The warehouse man releases only those goods on which the duty is paid on production of proof of such payment and release order issued by the appropriate authority.
- Field Warehouses: They are managed by the public warehousing agency in the premises of a factory or company which needs the facility for borrowing from a bank against the certification of goods in storage or in process by an independent professional warehouse men.
- Cold Storage’s: Cold storage facilities are provided for perishables against payment of a storage charge for the space utilized by different parties. In a cold storage, it is essential that the temperature is regulated and temperature variation is controlled to the degree particularly necessary for certain sensitive items.
- Agricultural Warehouses: These warehouses are meant for storing agricultural produce grown in a certain area and are located in assembling or regulated markets. These warehouses receive agricultural commodities either directly from the farmers or through their commission agents or from wholesalers. They make is possible for the owners of the commodities to avoid distress sale and obtain better prices at a later case. They also encourage speculative trading.
- Distribution Warehouses: These warehouses are located close to the manufacturing concerns or consuming areas. Their location depends on the nature of the product, the time taken for transit, operating costs and the need to make the product available in the market in obedience to the demand for it.
- Buffer Storage Warehouses: These warehouses are built at strategic locations with adequate transport and communication facilities. They store food grains or fertilizers etc by or for the government for easy marshalling and supply to various far off or nearby consuming areas in response to the orders of the government or government agencies.
- Export and Import Warehouses: These warehouses are located near the ports from where international trade is undertaken. They provide transit storage facilities for goods awaiting onward movement. Facilities for break- bulk, packaging, inspection, marking, etc., are available at these warehouses. Import warehouses also provide customs bonding facilities and the facility of deferred payment of duty.
In a warehouse basically two types of functions that are performed. These are:
The movement function sub divided into receiving, in- storage handling and shipping.
- Receiving: Merchandise and materials arrive at the warehouse in quantities larger than what is dispatched. The activities involved are, unloading the materials from the transportation vehicle using hoists or cranes and the materials are stacked on pallets to from unit load for movement efficiency.
- In storage handling: On receipt of the product, it becomes necessary to transfer the merchandise within the warehouse to position it for storage pr order selection. When the order is received, the required products are accumulated and transported to a shipping area. This helps in selection process for grouping materials, parts, and products into customers’ orders.
- Shipping: Shipping involves checking and loading orders onto transportation vehicles. Shipping in unit loads leads to considerable saving of time in loading the vehicle. Checking operations are required to be done when merchandise changes ownership as a result of shipment.
Storage is another function performed in a warehouse. Storage can either be planned or extended.
- Planned storage: Storage for basic inventory replenishment is referred to as a planned storage. Its duration varies depending on the performance cycle length. Planned storage must provide sufficient inventory to fulfill warehouse’s function within the logistical system.
- Extended storage: Extended storage refers to inventory in excess of that planned for normal warehouse operation. This becomes necessary as;
- Sometimes storage may be required for several months prior to customer shipment.
- Seasonal items require storage to wait for demand or to spread across time.
- Erratic demand, product conditioning, speculative purchases and discounts call for extended storage.
Importance of Warehousing
Warehousing is used for the storage of inventories during all phases of the logistics process. Two basic types of inventories can be placed into warehousing are
- Raw materials
- Finished goods.
So in general the warehousing of inventories is necessary for the following reasons.
- To achieve transportation economies.
- To achieve production economies.
- To take advantage of quantity purchase discounts and forward buys.
- To maintain a source of supply.
- To support the firm’s customer service policies.
- To meet changing market conditions.
- To overcome the time and space differentials that exists between producers and consumers.
- To accomplish least total cost logistics commensurate with a desired level of customer service.
- To support the Just in Time (JIT) programs of suppliers, vendors, and customers.
Some of the services that can be provided in a warehousing programme are,
- Temporary storage
- Quick delivery
- Balancing of supply and demand
- Manipulation in transit (marking, bottling, packing, grading etc)
- Maintenance of stock inventories for emergencies or regular programmes
- Specialized services for particular commodities such as cotton, tobacco, chemicals, and liquors etc.
- Refrigeration or cold storage
- Bonded warehouse services
- Invoicing and collection
- Payment and distribution of transportation charges
- Elimination of consignment selling
- Protection against temporary factory shutdowns
- Sales promotional activities