Nature & Importance of Warehousing - Operations, Logistics Management | Logistics Management - B Com PDF Download

Warehousing

Flow of Actions

1. Location of the warehouse
2. Inventory level at the warehouse
3. Storage requirement of the product
4. Packaging and repackaging requirement of the product
5. Shelf life of the product

Important Factors
1. Availability of space
2. Availability of proper material handling systems
3. Strategic location
4. Packing and Re-packing facilities
5. Information and allied services

Techniques
1. Third Party Logistics
2. Third party Warehousing

DEFINITION OF WAREHOUSING 

Warehouse is a location provided with adequate facilities, where bulk shipments are received from production centers, which are then broken into small order size for shipment to the customers as per their requirement.

Need for Warehousing (Warehousing Operations) 

1. Receiving finished goods from production centers
2. Performing quality and quantity checks
3. Sorting goods at specific locations
4. Packing the products for executing customer’s order
5. Shipping goods by selected mode of transport
6. Preparing records and documents of stock.
7. Information transfer to management

OBJECTIVES OF WAREHOUSING 

1. To fulfill expected customer service level.
2. To achieve transportation economies by moving higher volume of goods.
3. To achieve economies of scale in production by accommodating additional quantity of produced.
4. To maintain steady source of supplies by balancing supply and demand.
5. To provide mixed products option to customers.
6. To provide temporary storage of materials to be disposed off (reverse logistics)

WAREHOUSING DECISIONS 

1. Type of Warehouses
2. Location of Warehouses
3. Size of Warehouses
4. Layout Warehouses
5. Number of Warehouses

Types of Warehouses
Companies might own private warehouses or rent space in public warehouses or both. Both have their advantages and disadvantages. Owning a private warehouse brings more control, ties up capital, and is less flexible if locations change. On the other hand, public warehouses charge for rented space, provide additional services for inspecting, packaging, shipping and invoicing goods but at a cost and offer wide choice of locations and warehouse types.

Basic types of warehouses are:

• Bonded warehouses: Warehouses which are bonded under the Customs and Excise Act and Municipal Corporation regulations, facilitating deferred payment of customs, excise or octroi duty.
• Field warehouses: Field warehouses are those which are managed by a 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 warehouseman.
• Cold storages: Cold storage facilities are provided for perishables against payment of storage for the space utilized by different parties.
• Agricultural warehouses: Used for storing agricultural produce grown in a certain area.
• Distribution warehouses: Ones located close to the manufacturing concerns or consuming areas. These are designed to move goods rather than just store them. They are large and automated warehouses designed to receive goods from suppliers, take orders and deliver goods to customers.
• Buffer storage warehouses: These are built at strategic locations with adequate transport and communication.
• Facilities: Used for storing 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: They are located near the ports from where international trade is undertaken.

1. Private Warehouse

These are the warehouses owned by the company for their exclusive use of storing the goods manufactured or traded by them for onward selling in the market.

Advantages:

1. Better control over storage and movement of goods
2. Less chance of errors in handling the goods
3. Customised design and flexibility in operations
4. Cost effective and economic

Disadvantages:

1. Lack of geographical flexibility
2. Requires stable demand and high product throughput
3. Requires initial larger financial investment
4. Has permanent liability 

2. Public Warehouses                                                                                                           

These are the warehouses hired from other agencies for storing the goods for a specific period of time by paying agreed rent. E.g. Central Warehousing Corporation (CWC)

Advantages: 

1. Generally located near ports and market place and thus has fixed periodic operating cost
2. Great flexibility in location changeover.
3. No permanent liability.
4. Adjustments as per season are possible.

Disadvantages:

1. Lack of flexibility in operations
2. Not suitable for specialised services.

3. Contract Warehouses

It is a specialised form of public warehouses managed by Third Party Logistics companies for providing total warehousing services by paying the agreed charges.

Advantages:

1. Great flexibility in location changeover
2. No permanent liability.
3. Adjustments as per season are possible.
4. Availability of expert manpower and dedicated resources.

Disadvantages:

1. Less control on operations
2. Performance of organisation depends on the performance on third party

4. Co-operative Warehouses

These warehouses are owned, managed and controlled by co-operative societies. They provide warehousing facilities at the most economical rates to member of society.

LOCATION OF WAREHOUSE

The primary considerations while locating the warehouse are:

1. Cost – Warehouse may be located near production plant to reduce operating cost.
2. Customer Service – Warehouse may be located near market to serve the customer well.

Steps in Site Selection of Warehouse 

While deciding the location of warehouse following factors are to be considered:

1. Desired level of customer service
2. Nature of product i.e. seasonal, perishable etc.
3. Presence of Competitor’s warehouse
4. Marketing oriented – closer to market
5. Production oriented – closer to plant
6. Cost of distribution to market area
7. Availability of transportation facilities and its cost
8. Availability and cost of basic infrastructure i.e. power, water, gas, sewerage etc.
9. Availability and cost of labour supply
10. Local taxation levied by the local authority in the area.
11. Potential for further expansion of warehouse.
12. Geographical hazards like floods, earthquake etc.

DESIGN AND LAYOUT OF WAREHOUSE 
Steps in Design / Layout of Warehouse 

1. Number and nature of activities to be performed
2. Nature of products to be stored
3. Frequency of in and out movement of the products
4. Storage and handling equipments to be used
5. Total space availability
6. Statutory requirements
7. Safety and security of people and products

NUMBER OF WAREHOUSES
Factors Deciding Number of Warehouse 

1. Desired level of customer service
2. Nature of the products
3. Presence of Competitor’s warehouse
4. Size of the market
5. Number of customer and their buying habits
6. Current and potential demand
7. Total operating cost of warehouse

SQUARE ROOT LAW 
Square Root Law states that the total inventory in a system is proportional to the square root of the number of warehouses.

Law: The law determines the extent to which inventory reduces by reducing the number warehouses. Provided that the total customer demand remains constant.

L = Total inventory in future warehouses

L1 = Total inventory in existing warehouses

W1 = Number of existing warehouses

W2 = Number of future warehouses

Assumptions:

1. Inventory transfer from one warehouse to other is not done.
2. Lead-time for supply of goods is constant.
3. Customer service level does not change from any warehouse.
4. Demand level is well distributed from all the warehouses.