Warehousing- Key Success Factors and Risks

Posted in Operations & IT Articles, Total Reads: 783 , Published on 01 May 2016
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Warehouses are used for storing goods. It provides the storage facilities for the goods, where goods are stored until they are dispatched to customers or end users. Whenever any goods are produced, it requires time to be get used/consumed by an end user. For that specific period, it is necessary to store goods, and warehouse provides the platform for storing. Suppose, some goods are produced throughout the year, but its requirement is only for some specific period.

Similarly some goods are produced in some specific season but its demand is throughout the year. For both cases, warehouses provides the ultimate solution by storing the goods produced until they are dispatched to customers or end users. Thus, warehouses play an important role in maintaining the quality and help in checking the wide fluctuation in the price of goods.


Major Segments in Warehousing

There are mainly two major segments in warehousing industry, these are;

I. Industrial Warehousing

II. Agricultural Warehousing


Image: pixabay


Industrial Warehousing:

Industrial warehousing provides storing facilities and logistics requirement to sectors like pharmaceuticals, retails, consumer durables, automotive and FMCG. Industrial warehousing in India is much unorganized, based on the requirement small warehouses are available throughout the country. Goods and service tax (GST) implementation will help in organizing the unorganized industrial warehouse and curb the number of warehouses available as of now. Major players in Industrial warehousing field are;

Private Sector

1. Future Supply Chain

2. TVS Logistics

3. Mahindra Logistics


Public Sector

1. Central Warehousing Corporation

2. State Warehousing Corporation

3. Central Railside Warehousing Company


Agricultural Warehousing:

Agricultural warehousing involves storage of agricultural products like wheat, pulses, food grains, cereals, oilseeds, fruits & vegetables etc. Agricultural warehousing plays an important role in meeting the supply demand function of public distribution system in India. Major players in Agricultural Warehousing field are;

Private Sector

1. Star Agriwarehousing

2. JICS logistics

3. National Collateral Management Services

 

Public Sector

1. Food Corporation of India (FCI)

2. Central Warehousing Corporation

3. State Warehousing Corporation


Activities in Warehousing Process:

Activities include collection of articles, putaway & storage, value addition, (repackaging, MRP tagging, inventory management etc), order processing, pickup and sending it to the market.

 

Warehousing Holistic View

If we study in details the warehousing sector, then we can come up with the following in-depth analysis of sector,

 

Warehousing Sector business models

• Ownership

• Operator

 

Player Categories

• Clearing and forwarding agents

• Transporters

• Stockist

• Third Party logistics

• Independent Players

 

Service offerings

• Industrial warehousing

• Agricultural warehousing

 

Key products

• Agri Warehousing: Wheat, maize, rice, cotton etc.

• Industrial Warehousing: Auto Components, FMCG, Pharmaceuticals, etc.

 

User Segments

• Manufacturers

• Exporters/Importers

• Wholesalers

• Retailers

• Transporters

 

Technology

• Warehousing Management Systems (WMS)

• Manual

 

Key Success Factors

1. Location: Location plays an important role in the success and profit of a warehouse. Owner always want their warehouses to be located nearby industrial hubs or consumer ends, ports, railway stations or highway, to have strategic advantage from its competitor. But cost of labor and land near by such areas are always on higher side. So normally it is not possible for owner to have warehouse in such locations. So it is important to choose right location which will be economically beneficial in serving the purpose.

2. Optimization of warehouse space: It is always advisable to use each corner of space available of the warehouse. The more optimize use of space, the more will be the revenue. Warehouse design should be given importance, so that storage space can be used properly.

3. Value added services: Warehousing sector in India is much unorganized. There are number of players in the market. So to have competitive edge and to charge premium to customer, warehouse should provide value added services like, inventory management, reverse logistics, customer services, distribution services, customs clearance, other value added services (MRP tagging, bundling, quality check etc.). So by providing such services, player can attract customer and charge them premium.

4. Automation: It is quite clear that manual labor restricts proper utilization of storage space. Manual labor can be optimized by using automation. Automation can be achieved by implementing IT system like warehouse management systems (WMS) and latest machineries like fork lift, cranes, conveyers etc. Availability of storage space means revenue. Each storage space availability will raise the scale. So automation will increase scalability as well as help in managing the warehouse more effectively.

 

Key Risk Factors

1. Damage to goods: Consumable products or agricultural products are prone to pest attack. So measures must have to be taken for tackling such attacks and regular disinfestation services needs to be carried out. Also other products, which are susceptible to damage, their storage must be taken into considerations. Proper measures need to be ensured while storing.

2. Lack of Automation: Sometime retrieving a good takes ample amount of time. These all results in delay in dispatching and customer complaint. Manual entry and long retrieving activities reflect on the inefficiency of a warehouse. To minimize such activities automation is necessary, it will help in managing the inventory and as well in replenishment.

3. Production: Agricultural warehouse depends on the production of crops. Poor production will leads to unavailability of agri-goods for the warehouse. That will lead to non-utilization of warehouse capacity and will lead to loss.

 

Conclusion

The size of the Indian warehousing industry is valued at about INR560 billion and the industry is growing at the rate of 6-8% CAGR. But the main concern is the unorganized structure of the warehouse industry. Goods and Service Tax (GST) will help in organizing/aligning the unorganized warehouse industry. First thing GST will do is it will totally abolish the central state tax (CST). Under CST, company has to pay tax for the goods which are produced in one state and sold at other state. To avoid CST, consumer goods companies operate with at least a warehouse or a clearing and forwarding agent in each state. GST will certainly encourage organized players to setup large warehouse in key strategic location and achieve economies of scale, which will in turn reduce the storage cost and encourage companies to outsource their warehousing requirements. Simultaneously, it will help in minimizing the risks and boost the success parameters for a quality warehouse.

 

This article is authored by Rahul Burman from IIM Kashipur

 

References:

1. http://www.ey.com/IN/en/Services/Transactions/EY-Summarizing-the-key-warehousing-segments-in-India

2. https://en.wikipedia.org/wiki/Warehouse

3. https://www.crisilresearch.com

 


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