Chapter 3 Warehousing
3.3 Introduction to Warehousing
3.3.1 Concepts of Warehousing
Warehousing generally relates to those activates and works that are performed in the warehouse. Warehousing is an integral part of every logistics system. 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. Over the years, warehousing has evolved from a relatively minor facet of a firm’s logistics system to one of its most important functions.
Warehousing has been defined as the part of logistic systems that store products (raw materials, parts, goods-in-process, finished 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.
Warehousing can be provided by either Warehouses or Distribution Centers. Warehouse emphasizes the storage of products and their primary purpose is to maximize the usage of available storage space. In contrast, distribution centers emphasize the rapid movement of products through a facility, and thus attempt to maximize throughput (the mount of product entering and leaving a facility in a given time period).
The term Distribution Center is also used, although warehouse is the more generic term. The Transportation-Logistics Dictionary defines a distribution center as a warehouse of finished goods; also applied to the facility from which wholesale and retail orders may be filled; a materials warehouse would also be distribution center for the buyers of its stock.
3.3.2 Importance of Warehousing
Warehousing can be used to support manufacturing, to mix products from multiple production facilities for shipment to a single customer, to breakbulk or subdivide a large shipment of product into many smaller shipments to satisfy the needs of many customers, and to combine or consolidate smaller shipments of products into a higher-volume shipment. Warehousing is used for the storage of inventories during all phases of the logistics process.
Warehousing is also necessary if a company is to take advantage of quantity purchase discounts on raw materials or other products. Not only is the per-unit price lower as a result of the discount, but if the company pays the freight, transportation costs will be less on a volume purchase because of transportation economies. Similar discounts and savings can accrue to manufacturers, retailers, and wholesalers. Once again, however, those savings must be weighed against the added inventory costs that will be incurred as a result of larger inventories.
Warehousing facilities inventories holding and completes storage, which may be necessary in order to maintain a source of supply. For example, the timing and quantity of purchases is important in retaining suppliers, especially during periods of shortages. It also may be necessary to hold an inventory of items that may be in short supply as the result of damage in transit, vendor stockouts, or a strike against one of the company’s suppliers. Two basic types of inventories can be placed into storage: a) raw materials, components, and parts (physical supply); and b) finished goods (physical distribution). Also, there may be inventories of c) goods-in-process, although in most firms, goods-in-process constitute only a small portion of a company’s total inventories.
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 (e.g., seasonality, demand fluctuations, competition).
To overcome the time and space differentials that exist between producers and consumers.
To accomplish least total cost logistics commensurate with a desired level of customer service.
To support the Just-in-Time programs of suppliers, vendors, and customers.
