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Warehousing – A Term more than just a storage facility

Published by MBA Skool Team in Operations & IT Articles category Last Updated: December 02, 2011Read time:

The modern day world has seen a lot of advancement in the field of information technology and management sciences. Organizations decades ago were following more of a traditional approach as there was hardly any sort of competition in the market and customers were happy with what they receive. Today, with the emergence of more companies, the level of competition has soared to new heights and companies have to keep innovating and discovering ways and means to be in the run. Supply chain and logistics, a management concept has entirely revolutionized the idea of customer service. The ever changing customer demand is the major reason for companies switching over to supply chain management and logistics. Currently, the situation is such that that it is not the companies which compete with each other but is actually their supply chain getting into the act. Warehousing is one part of supply chain or could be called as a link within the supply chain network which adds value to the product. The performance of a warehouse is assessed through its productivity and cost benefit. People have a misconception about warehouses. Most of us think warehouse to be nothing more than just a storage facility which is not true.


Warehouse plays a very important role in managing the inventory. It helps the organization in focusing on its core activities. There are three types of warehouses namely private, public or contract storage facilities which totally depend on the requirements of the company. Framing out a suitable logistics network is not as easy as there are a number of factors which needs to be considered. One can chose either a centralized warehouse or a decentralized one. The former act as a mother warehouse and helps in achieving economies of scale and low operational costs whereas the latter is actually a set of multiple distribution centers in different locations offering better services to the customers. Locating the warehouse is possibly the next step which one has to look into. Investment made in building of a warehouse system is crucial. Most of the warehouses use latest IT tools and advanced communication technologies which is responsible for bringing more visibility to the entire process through speedy information transfer. There should be better internal and external connectivity. Investing in the warehousing activity is encouraged but there should be some gains justifying the investment made. Warehousing is indeed an important service function within the supply chain network and starts with its basic function of material storing. Manufacturing companies often face disruptions in their production process as the customer’s demand never remains static. There is always a mismatch between the consumption cycle and the manufacturing. This is where warehouse comes in to the picture helping the organization in maintaining the inventory until the demand for it rises again. Holding of materials is another important function of the warehouse, where a proper record has to be maintained of the goods which are coming in and going out. The marketing guy studies the current demand of the customer and promises him/her to deliver the goods in time by forming delivery schedule. This makes the goods move out of the warehouse and reach its end customers in a process called dispatching. The holding cost is also a vital component in the warehouse function. The goods coming from various sources are been sent to a single point, where these are collected and consolidated in bigger quantity. These consolidated items are been sent in the form of large shipments to the client which helps in decreasing freight costs and improving economies of scale. Break bulk is a process just the opposite of consolidation. Here, the goods or materials comes in a bulkier quantity and gets segregated into smaller shipments and then sent to the customers. These items will go into several distribution centers located in different regions. Cross docking is another concept in the warehousing activity which is said to be quite similar to that of the break bulk process. Cross docking process in its simplest form is an inbound vehicle which is basically a semi-trailer truck or rail road car, loading the consignment in to the outbound trucks. The concept of cross docking is built for goods which are fast moving and gets perished quickly (FMCG). It takes away the need for a warehouse. There are warehouses which are used as product mixing points where different components from different manufacturing plants get converted into finished products. The product coming into the warehouse has to get packed first and then it gets labeled in accordance with the demand of the customers. Material handling is another function which is carried out within the warehouse. The inbound vehicle carrying the raw materials reaches the warehouse and then it gets unloaded. On the other hand, out bound truck would be waiting for the finished goods inventory to get loaded. The loading and unloading activity has to be done very carefully depending on the nature of goods.  Cycle time is also a very crucial element in the warehousing activity. The order cycle time is very much proportional to the efficiency of the material picker inside the inventory warehouse. Real time information is needed in each warehousing activity and it also applies to other department of the supply chain process.

Managing the inventory is a big challenge for the warehouse manager as he has to look into a number of factors. One of the most difficult questions to be answered in inventory management is how much of an inventory should one hold? The first thing which one could do here is determining the cost of holding the inventory. Few of these costs include procurement costs, management costs, finance costs, human capital, and facility costs. There is something called stock accuracy which should be maintained. A decent stock accuracy level should be at least 98% or better. The nature of inventory also has to be looked upon as there can be critical as well as non critical goods.  There are strategies like vendor managed inventory and postponement logistics which better manage the inventory. In Vendor managed inventory, the producer of goods expect their suppliers to manage the inventory. This helps them in saving more time and money. Sometimes, the customer wants the product to be modified at a later stage. This is when postponement of logistics comes in to the picture by postponing the final assembly of goods to the place where it is sold. The warehouse sometimes faces situation when the inventory which it holds is not getting sold. At that time, one can switch over to JIT which is nothing but just in time production strategy. JIT helps in cutting down the carrying costs and the in- process inventory. Turnaround time of the vehicles also has to be considered. It helps in assessing the efficiency of the truck drivers and the vehicles which could help the upper management to take further decision. Even there are scrap warehouses which takes care of waste. It is part of the replenishment process. In india, majority of the people are unorganized players which include mainly the Kabadi walas. These kaabadi wala collect waste from the nearby localities and supply 75-80% of the waste to the companies, where it again gets converted into useful products. The rest 25% of the waste is used by the kabadi wala themselves. These people are very important and are the key drivers of economy. So, scrap warehouse is a part of this process contributing to the green supply chain.

Warehouse also maintains a safety stock where an additional percentage of the quantity demanded is stored. These safety stocks are used in case of emergency needs. Safety stocks can even be related to buffer stocks. Warehousing in india is not much encouraged and most of the people here limit it to storage alone. India is far behind its western counterparts in terms of using sophisticated materials and upgrading the materials which they use within the warehouse. The major problem which i think lies in the mentality of the people who manage the warehouse. In india, people look at warehouse just as a storage house till the demand from the customer’s side is generated whereas in other countries they see warehouse as a department where they can generate cost advantage for the product. There are even specialized warehouse which are generally referred as cold storage. These are built and specialized for items which are more perishable in nature. Ex; vegetables. If you are looking at improving your warehouse performance then you need to improve the productivity of the materials and create more space. Meeting of throughput requirements by putting up a complete material and operational flow should be your main aim if you want to build a better warehouse. At the same time, there are terms like Ergonomics which is looking for the safety of the people working within the warehouse. Warehousing being an outsourcing activity, is still evolving and holds a promising career for young professionals.

This article has been authored by Sanju Mathew from School of Business Logistics, Chennai.

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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