What is Warehousing?
Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed. In other words, warehousing means holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale.
Table of Contents
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the time gap between production and consumption of goods.
Nature of Warehousing
In economic context, warehousing creates time utility, i.e. it increases the values of the goods in storage by balancing the forces of supply and demand. Thus, goods are shipped to the warehouse and held in storage until demand becomes sufficient to allow distribution.
In today’s marketing trend, warehousing is required to:
- provide buffer stock as to guard against loss of production, ensure batches of economic size and stable supply,
- Safeguard the stock from environmental damage and risk of theft, and to
- have an efficient inventory management system.
Though warehousing still remains a necessary element in the distribution of some products, for many, the warehousing may mean difference between success and failure.
Importance of Warehousing
Warehouse management is essential to any logistics system, which is an essential part of supply chain management. While some erroneously view a warehouse simply as a storage facility, some warehousing process elements will play a substantial role in ensuring that the entire supply chain system functions efficiently. In fact, there are a number of benefits that a warehouse offers.
Central location
A warehouse is a central location that allows shippers to receive, store and distribute products. As products arrive at the warehouse, the responsibility for the products will transfer to the personnel in the warehouse. Safety measures should be established. In addition, the product’s organization influences shipping times. For this reason, opt for wooden pallets which make your products easy to move.
Value-adding
The primary objective of a logistics system is to increase efficiency and clientele service by reducing cycle times and lowering overall costs. Storage offers added value to the logistics system allowing businesses to keep an inventory so that products ordered are shipped on time.
Economic Benefits
Storage reduces delivery costs not only for business but also for customers since the products are shipped from a central location and not from multiple locations. In a similar light, storage can effectively manage supply and demand. Since businesses need to remain competitive, the economic benefits produced by a warehouse that is running efficiently will positively impact the profitability of the entire process.
Regular production
Raw materials need to be stored to enable mass production to be carried on continuously. Sometimes, goods are stored in anticipation of a rise in prices. Warehouses enable manufacturers to produce goods in anticipation of demand in future.
Time utility
A warehouse creates time utility by bringing the time gap between the production and consumption of goods. It helps in making available the goods whenever required or demanded by the customers.
Some goods are produced throughout the year but demanded only during particular seasons, e.g., wool, raincoat, umbrella, heater, etc. on the other hand, some products are demanded throughout the year but they are produced in certain region, e.g., wheat, rice, potatoes, etc. Goods like rice, tobacco, liquor and jaggery become more valuable with the passage of time.
Store of surplus goods
Basically, a warehouse acts as a store of surplus goods which are not needed immediately. Goods are often produced in anticipation of demand and need to be preserved properly until they are demanded by the customers. Goods which are not required immediately can be stored in a warehouse to meet the demand in future.
Price stabilization
Warehouses reduce violent fluctuations in prices by storing goods when their supply exceeds demand and by releasing them when the demand is more than immediate productions. Warehouses ensure a regular supply of goods in the market. This matching of supply with demand helps to stabilise prices.
Minimisation of risk
Warehouses provide for the safe custody of goods. Perishable products can be preserved in cold storage. By keeping their goods in warehouses, businessmen can minimise the loss from damage, fire, theft etc. The goods kept in the warehouse are generally insured. In case of loss or damage to the goods, the owner of goods can get full compensation from the insurance company.
Packing and grading
Certain products have to be conditioned or processed to make them fit for human use, e.g., coffee, tobacco, etc. A modern warehouse provides facilities for processing, packing, blending, grading etc., of the goods for the purpose of sale. The prospective buyers can inspect the goods kept in a warehouse.
Financing
Warehouses provide a receipt to the owner of goods for the goods kept in the warehouse. The owner can borrow money against the security of goods by making an endorsement on the warehouse receipt. In some countries, warehouse authorities advance money against the goods deposited in the warehouse. By keeping the imported goods in a bonded warehouse, a businessman can pay customs duty in installments.
Functions of Warehousing
Storage
This is the basic function of warehousing. Surplus commodities which are not needed immediately can be stored in warehouses. They can be supplied as and when needed by the customers.
Price Stabilization
Warehouses play an important role in the process of price stabilization. It is achieved by the creation of time utility by warehousing. Fall in the prices of goods when their supply is in abundance and rise in their prices during the slack season are avoided.
Risk bearing
When the goods are stored in warehouses they are exposed to many risks in the form of theft, deterioration, exploration, fire etc. Warehouses are constructed in such a way as to minimise these risks. Contract of bailment operates when the goods are stored in wave-houses.
Financing
When goods are 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 favour of the owner of the goods, which is called a warehouse-keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery.
So while the goods are in custody of the warehouse-keeper, the businessmen can obtain loans from banks and other financial institutions 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.
Grading and branding
On request 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.
Transportation
In some cases warehouses provide transport arrangement to the bulk depositors. It collects goods from the place of production and also sends goods to the place of delivery on request of the depositors.
Protection of goods
A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature. It cuts down losses due to spoilage and wastage during storage.
Processing
Certain Commodities are not consumed in the form they are produced. Processing is required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners.
Types of Warehouses
After getting an idea about the need for warehousing, let us identify the different types of warehouses.
You have learnt that warehousing caters to the storage needs of different types of commodities. In order to meet their requirement various types of warehouses came into existence, which may be classified as follows.
Private Warehouses
The warehouses which are owned and managed by the manufacturers or traders to store, exclusively, their own stock of goods are known as private warehouses. Generally these warehouses are constructed by the farmers near their fields, by wholesalers and retailers near their business centres and by manufacturers near their factories. The design and the facilities provided therein are according to the nature of products to be stored.
Public Warehouses
The warehouses which are run to store goods of the general public are known as public warehouses. Anyone can store his goods in these warehouses on payment of rent. An individual, a partnership firm or a company may own these warehouses. To start such warehouses a licence from the government is required. The government also regulates the functions and operations of these warehouses. Mostly these warehouses are used by manufacturers, wholesalers, exporters, importers, government agencies, etc.
Government Warehouses
These warehouses are owned, managed and controlled by central or state governments or public corporations or local authorities. Both government and private enterprises may use these warehouses to store their goods. Central Warehousing Corporation of India, State Warehousing Corporation and Food Corporation of India are examples of agencies maintaining government warehouses.
Bonded Warehouses
These warehouses are owned, managed and controlled by government as well as private agencies. Private bonded warehouses have to obtain licence from the government. Bonded warehouses are used to store imported goods for which import duty is yet to be paid. Incase of imported goods the importers are not allowed to take away the goods from the ports till such duty is paid. These warehouses are generally owned by dock authorities and found near the ports.
Co-operative Warehouses
These warehouses are owned, managed and controlled by co-operative societies. They provide warehousing facilities at the most economical rates to the members of their society.
Warehouse Facility Development
Warehouse Facility means any funding arrangement, other than a Residual Funding Facility, with a financial institution or other lender or purchaser under which advances are made to a Warehouse Entity. In other words, the borrowing of funds by a retail lender on a short-term, revolving basis using the loans as collateral.
This form of interim financing is used to raise funds to make the loans and carry the loans until they are securitized (packaged and sold out of the warehouse to the investor). Proceeds from the sale are then used to reduce the warehouse loan.
Maximise and optimise all available space
Rather than expand the footprint of your warehouse, consider better use of vertical space. Adding taller storage units and the right equipment to pick and store material can help you keep more in the same square footage, rather than adding expansion costs. In addition, think about the type and variety of shelving used.
Storing small items on pallet racks wastes space, and makes it easy to misplace items. Rather than using the same racks throughout your warehouse, you may need various types of shelving for different materials. Also, try using standardised bins to help keep shelves neat and orderly.
Lean Inventory
Adopting lean inventory for your warehouse is just as important as it is in manufacturing. The basic premise of lean is only what you need, and nothing more. Possibly reduce or eliminate safety stocks, and try to get suppliers to deliver smaller quantities more frequently.
Adopt enabling technology
A warehouse management system (WMS) or an ERP system with a strong WMS module can improve efficiency by suggesting the best routes and methods for picking or put-away. In addition, the system provides automated pick lists that can be sent to mobile readers and devices to help eliminate mistakes and reduce wasted time and paper. Your warehouse will be neater and greener.
Using barcode or radio frequency identification (RFID) readers can improve accuracy of transactions, and reduce picking errors. In fact, research conducted at the University of Arkansas shows that using RFID increased inventory accuracy by 27 per cent in just 13 weeks.
Organise workstations
Organising workstations improves productivity because workers do not have to search for tools or equipment. Use the “5S” method from lean manufacturing to ensure your workstations are as organised as possible. It consists of: Sort; Set in order; Shine; Standardize; and Sustain – all techniques designed to keep clutter at bay, reduce errors, and improve safety and organisation.
Optimise labour efficiency
If your WMS doesn’t have the ability to generate efficient picking plans, create them manually. Analyse your material usage patterns, and store high-volume items together near the front of the warehouse to eliminate travel time. Also, store items that are frequently sold together near one another.
Basically, you will streamline operations if you try to keep the items you pick most often in the most accessible locations to eliminate picking delays.
Uses of Warehousing Management System
Warehousing offers many advantages to the business community. Whether it is industry or trade, it provides a number of benefits which are listed below:
Protection and Preservation of goods
Warehouse provides necessary facilities to the businessmen for storing their goods when they are not required for sale. It provides protection to the stocks, ensures their safety and prevents wastage. It minimises losses from breakage, deterioration in quality, spoilage etc. Warehouses usually adopt latest technologies to avoid losses, as far as possible.
Regular flow of goods
Many commodities like rice, wheat etc. are produced during a particular season but are consumed throughout the year. Warehousing ensures regular supply of such seasonal commodities throughout the year.
Continuity in production
Warehouse enables the manufacturers to carry on production continuously without bothering about the storage of raw materials. It helps to provide seasonal raw material without any break, for production of finished goods.
Convenient location
Warehouses are generally located at convenient places near road, rail or waterways to facilitate movement of goods. Convenient location reduces the cost of transportation.
Easy handling
Modern warehouses are generally fitted with mechanical appliances to handle the goods. Heavy and bulky goods can be loaded and unloaded by using modern machines, which reduces cost of handling such goods. Mechanical handling also minimizes wastage during loading and unloading.
Useful for small businessmen
Construction of own warehouse requires heavy capital investment, which small businessmen cannot afford. In this situation, by paying a nominal amount as rent, they can preserve their raw materials as well as finished products in public warehouses.
Creation of employment
Warehouses create employment opportunities both for skilled and unskilled workers in every part of the country. It is a source of income for the people, to improve their standards of living.
Facilitates sale of goods
Various steps necessary for sale of goods such as inspection of goods by the prospective buyers, grading, branding, packaging and labelling can be carried on by the warehouses. Ownership of goods can be easily transferred to the buyer by transferring the warehouse keeper’s warrant.
Availability of finance
Loans can be easily raised from banks and other financial institutions against the security of the warehouse-keeper’s warrant. In some cases warehouses also provide advance to the depositors of goods on keeping the goods as security.
Reduces risk of loss
Goods in warehouses are well guarded and preserved. The warehouses can economically employ security staff to avoid theft, use insecticides for preservation and provide cold storage facility for perishable items. They can instal fire-fighting equipment to avoid fire. The goods stored can also be insured for compensation in case of loss.
