Warehousing

Warehouses are used for the storage of inventory

(stock) at all levels in the supply chain.
Warehousing
Warehouses provide a vital link between producers
Niranjan Krishnan
and consumers.

There are two types of inventories stored in

warehouses:
•Raw materials, components and parts
1
•Finished products 2

Need for Warehousing Warehousing function: Manufacturing

• To achieve economies of scale, scope and density in transportation Supplier A
support
• To achieve economies of scale in manufacturing
• To derive benefits from quantity purchase discounts and forward buys
• To maintain a reliable source of supply
Supplier B
• To achieve high customer level of service Manufacturing
• To meet changing market conditions e.g. seasonality, demand fluctuations Plant
Supplier C Warehouse
• To bridge the time and distance that separate production and
consumption

Supplier D

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Warehousing function: Mixing/ Warehousing function: Breaking bulk

Consolidation
Retailer 1 Distributor 1
A B C
Plant A

Retailer 2 Distributor 2
Plant B Warehouse Plant B Warehouse
A B C

Plant C
Retailer 3 Distributor 3
A B C

Multiple products, multiple production plants, multiple retailers or

customers. 5 6

1
Warehousing function: Cross-docking Types of Warehousing
Direct Store Delivery
Retailer 1
A C Warehousing at the point of origin only (production or marketing).
E.g. mail-order catalog, Amazon
Plant A

Retailer 2 Public Warehousing

Plant B Warehouse A B C Rented space at common warehouse

Private Warehousing
Plant C Space owned or leased by the company
Retailer 3
B C Contract Warehousing
Warehousing function contracted out to an operator
Minimal storage in warehouses. Only for a few hours. Combines the best of public and private warehouses.
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Primary function of warehouse is coordination between suppliers and
customers

Public Warehousing Types Warehousing

General merchandise warehouse
Three activities in warehouses:
Most common type of warehouse used by manufacturers, distributors
and retailers for storing any kind of product
Refrigerated or cold storage warehouse Product Flow
For frozen food products, medicines/pharmaceutical goods etc. Product Storage
Bonded warehouse Information Flow
Surety bonds signed with government for goods’ safety
For imports/exports of controlled items
Customs clearance involved before goods can be moved
Household / Office warehouse
For storing household goods or office matter like documents
Special commodity warehouse
For agricultural commodities like food grains, wool, cotton etc.
Bulk storage warehouse
Tank storage of liquids like oil & gas and cooking oil 9 10

Sheltered storage of coal, ore, sand, chemicals etc.

Warehousing Activities Warehouse Material Handling: Flows

• Receiving, put away
• Storage, inventory tracking
• Order entry Replenishment Replenishment
Broken
Case picking
• Picking, staging, loading Reserve storage and case picking
• Cross-docking pallet picking
• Return processing, repairs, rework
• Packaging
Accumulation, sorting,
• Labeling, wrapping packaging
Put-away to Put-away to
• Light assembly, blending, filling
reserve primary
• Breakbulk / Consolidation
• Transportation
Receiving Cross-docking Shipping
• Import/Export services
• Documentation
• Tracing, billing, customer service
• Information capture and processing 11 IN OUT 12

2
 Public Warehousing
Advantages
Conservation of capital
Ability to increase space by
buying additional capacity
for handling demand surges
and peaks.
Economies of Scale
Availability of a wide range of
special services e.g.
breaking bulk, packaging,
consolidation, equipment
maintenance
Flexibility in adjusting to
changes in the matketplace
Tax benefits
Cost tracking for storage and
handling
Public or Private?
It is not uncommon for firms to use a combination of both since demand and
inventory levels vary with time.
Inventory Level Public
Private
Time
Private Warehousing
Advantages
Disadvantages Disadvantages
Greater degree of control over
Communication breakdown storage, handling and Heavy fixed cost/investment
Not all services and capabilities management. Less flexibility in adjusting
available at all locations Greater flexibility in designing capacity
Space not available when most and operating the
needed warehouse.
Cost advantages in the long
term.
In-house skills and expertise.
Greater care in material handling
and meeting customer
requirements
Tax benefits
Service reliability and sense of
13 permanence due to 14
ownership
Key Warehousing Decisions
How many warehouses to use?
Public or private or both?
Where to locate the warehouses? For what capacity?
Which markets/manufacturers/wholesalers/distributors to service from
which warehouse?
Design and Layout of the warehouse
Work flow inside the warehouse
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