Warehouse Management

Concept & Definitions

Functions of
warehousing
Types of Warehouses
Warehousing costs
Warehousing
Decisions

Warehousing : Concept & Definitions

Warehouse:
A warehouse is a commercial
building for storage of goods.
It is used by manufacturers, importers,
exporters, wholesalers, transport business,
customers etc.
The person in-charge of warehouse is called
Warehouse-manager, Warehouse-incharge, Warehousekeeper Etc

Warehousing : Concept & Definitions

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.
It is part of firms logistics system that stores products at and
between point of origin and point of consumption.
It provides time and place utility for raw materials, industrial
goods, and finished products, allowing firms to use customer
service as a dynamic value-adding competitive tool.
It is considered as a switching facility in
logistical network.

Typical Warehouse Layout

Material Inward and Inspection

Bulk Storage
Place

Rack/Bin
Storage
Place

Order Picking Section

Packaging Section
Material Dispatch Section

CHARACTERISTICS OF
IDEAL WAREHOUSES
Convenient location (easy accessibility)
Proper layout and design
Availability of mechanical appliances to load and
unload goods like cranes, forklift, trolley, conveyer
belt etc
Cold storage/ Refrigeration facilities (if required)
Proper arrangement for protection
Sufficient parking space
Round the clock security arrangement
Latest fire fighting equipments
Implementation on Information Technology

Warehouse- How it can be a

tool for getting Competitive
Advantage
Maximum utilisation of storage space
(floor & cubic space).
Higher Labour productivity
Maximum assets utilisation
Reduce material handling
Reduce operating cost
Increased inventory turnover
Reduced order fulfilling time

Functions of Warehousing
Functions of warehousing can be
broadly categorized as-

Material Storage Function

Material Handling Function
Information Handling
Function

Functions of Warehousing
(Cont)
MATERIAL STORAGE FUNCTION

Stock holding
Stock Consolidation
Break-bulk
Cross-Docking
Mixing/Assembling
Postponement
Packaging & Labeling (Value Added Function)

 Stock Holding:
This is the most basic and important function of
a warehouse for the finished products ready for
delivery. Till dispatch, the goods should be
stored safely and to be dispatched easily when
required. At the warehouse there is continuous
inflow and outflow of materials. A proper record
of inflow and outflow, storage location, level of
stock etc to be maintained.
Stock Consolidation:
If the supplies are coming from various sources
in small quantities, it must be collected at some
center(warehouse) to combine them into a large
shipment for sending to the customer

 Break Bulk:
This is opposite to the consolidation. Here
goods are arriving in large quantities and
further broken down in smaller quantities as
per the order of the customer. Ex- Fertilizer,
Cement, Iron, Oil etc comes in bulk at a
place (warehouse) and further distributed in
smaller quantities.
Cross Docking:
This is similar to the break bulk activity
except that it involves multiple suppliers and
the usage of a warehouse is for a short time.
Here, warehouse is working more like a
switching facility rater than storage facility.

 Mixing/Assembling :
Sometimes, Parts or ingredients from different
suppliers needs to be collected at a convenient
place to mix or assemble for further shipment
to customers.
Postponement : Sometimes production of
finished goods are required to be postponed
mainly because of poor demand and over
supply. Hence production of finished goods are
either stopped or slow down till the sale of
existing stock. One more reason of
postponement may be to defer the excise duty.
Packaging & labeling: Many times goods are
repackaged and relabeled as per the
requirement.

Functions of Warehousing
(cont)

MATERIAL HANDLING FUNCTION

Loading & Unloading
Material Movement (To and From the
storage area)
Order Filling

Functions of Warehousing
(Cont)

INFORMATION HANDLING FUNCTION

Goods inwards
Inspection & Auditing
Goods Outward
Stock Out
Excess Stock
Invoicing
Warehouse Expenses
Transit Damage & Breakages
Consignment Tracking

Types of Warehouses
On the basis of
Ownership:
Private
Warehouses
Public Warehouses
Contract
warehouses

On the basis of
Service:
Bonded Warehouse
Field Warehouse
Cold Storage
/Refrigerated
Warehouse
Distribution
Warehouse
Buffer Storage
Warehouse
Export & Import

Warehousing Costs
1. Receipt, Handling and Despatch
(RHD) Cost
RHDrefers to any expenditure on moving the
goods into or out of the warehouse.
Most of the cost is human labour, including
receiving, storing and loading the goods for
delivery etc.
Secondary to labour is the equipment cost,
depreciation and energy/fuel.

2. Storage Cost:
This cost is similar to rent for your goods.
It is often charged either per pallet per
week/month (pallet storage cost) or per
square foot of footprint.

Warehousing Costs (Cont..)

3. Construction/Installation Cost:
This refers to cost of capital involved in the
construction/installation of the warehouse

4. Operational & Administrative Costs :

This cost is the cost of keeping the facility
open and live. This includes fuel, electricity,
supervision & security, Clerical support,
Insurance, Taxes, IT

Which Warehouse to be
used..?
PUBLIC
Private
Contract

Storage Alternatives
Factors

Private
WH

Public
WH

Contract
WH

Investment

Very high

None

Very less

Controls

High

Low

Medium

Operation Flexibility

High

Low

Medium

Cost per unit stored

Inversely
related to
volumes

Low

Inversely
related to
volumes

Risk

High

Low

Medium

Warehouse Site Selection Decision

Decision regarding site selection revolves around two major
factors1, Service & 2. Cost.
The other factors affecting site
selection are:

Market proximity- If the warehouse (specially

distribution warehouse) is closer to the market, product
availability will be enhanced greatly. Frequent deliveries
in small quantities can be possible resulting in better
customer service but at the same time rental will be
higher compare to remote location warehousing facility.

Infrastructure
:
Availability of Approach Road,
Electricity, water, communication (mobile & internet
network), Distance from Railway station, Rail siding
facility, Availability of labour, Availability of material

Access to site :The location of the

warehouse has greatest effect on Primary
transportation cost.

Availability of space : The availability of

warehousing
space
in
urban
area,
particularly in metro cities is very difficult or
almost impossible. In such cases the site
has to be shifted to a suitable remote
location.

Nature of the product: In case of

perishable products, warehouse should be
near to the place of consumption.

Value Density of product: Unit price per unit weight

or volume of a product and its logistical reach will
influence decision making on investing in a warehouse
facility and its location. For example- Jewellery,
precious metals and stones, electronic devices, luxury
goods etc

Taxes and levies : Sales Tax, Service tax, Municipal

Tax, different Levies applicable to the location also
needs to be considered while site selection.

Regulation : There are different rules and regulations

regarding storage of certain types of products like
explosives,
hazardous
chemicals,
inflammable
chemicals, radio active materials etc which can cause
damage to the human life of ecological system. These

Warehouse Decision Model

Product
Characteris
tics

Tactical Decision

Value
Density

Transportation

Logistics
reach
Perishability
Hazardous

Product
Type
Solid
Liquid
Gases

Storage allocations

Order picking

Objectiv
es

Resource
s

Cost
Reduction

Competenc
y level

Customer
Service

Financial
resources

Stock
Turnover

System

Productivity

Warehou
se
Network

Strategic
Decisions

Private

Equipment

Public

Storage scheme

Contract

IT

Layout

Operational
Decisions
Work allocations
Job scheduling
Performance
monitoring

Warehousing Strategies
1. Capacity Switching : To handle
seasonal fluctuations in demand,
warehouse may be planned on the
basis of average demand and for
additional requirement a public or
contract warehouse may be used.

Warehouse Capacity Planning

Public or contract
warehouse
(for 25 % of capacity)
Storage
capacity
requireme
nt

Private warehouse
(for 75 % of
capacity)

J
N

D
Months

Warehousing Strategies
(Cont..)
2. Hub Networking : To reduce the
level of inventory and improve
control on the distribution,
warehousing hubs are planned at a
few strategic locations to serve the
entire market. Ex. Most FMCG
companies are having warehousing
hubs at Delhi, Mumbai, Kolkata and
Chennai to cater North, West, East
and South respectively.

Warehousing Strategies
3. Cobbling : (Cont..)
This strategy works
well where different market players
are not competitors and cater to the
needs of similar customer having a
similar distribution channel. ExNestle, HUL, Johnson & Johnson.
4. Outsourcing: Most of the firms
dont have expertise in warehousing
operations. Hence, for gaining
logistical competitiveness entire
warehousing operations are

Warehouse Performance Parameters

Stock turn over ratio ( Ratio of sales to average

inventory)

Warehouse cost to sales ratio.

Warehouse cost per unit handled

Warehouse occupancy rate

Assignment questions
1. Explain the function of a warehouse?
2. Explain the various types of
warehouses?
3. Explain decision making parameters
with respect to Private, public and
Contract warehouse.
4. Explain different warehousing costs
5. Explain Site selection parameters?