CHAPTER 3

INTRODUCTION TO WAREHOUSE
By the end of this chapter you should be able to:

• Define warehouse
• Discuss types of warehouse
• Assessing issues affecting warehouse
• Discuss functions of warehouse
Warehouse Explained……….
We need different types of goods in our day-to-day life. We may buy some of these
items in bulk and store them in our house. Similarly, businessmen also need a
variety of goods for their use. Some of them may not be available all the time.
But, they need those items throughout the year without any break. Take the
example of a sugar factory. It needs sugarcane as raw material for production of
sugar.
We know that sugarcane is produced during a particular period of the year. Since
sugar production takes place throughout the year, there is a need to supply
sugarcane continuously. But how is it possible? Here storage of sugarcane in
sufficient quantity is required. Again, after production of sugar it requires some
time for sale or distribution.
Therefore, the need for storage arises both for raw material as well as finished
products. Storage involves proper arrangement for preserving goods from the
time of their production or purchase until the actual use. When this storage is
done on a large scale and in a specified manner it is called warehousing‘. The
place where goods are kept is called a warehouse‘. The person in-charge of the
warehouse is called warehouse-keeper‘.
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.
In other words, warehousing means holding or preserving goods in huge
quantities from the time of their purchase or production until their actual use or
sale. Warehousing is one of the important auxiliaries to procurement process
and business in general as it creates time utility by bridging the time gap between
production and consumption of goods.
Across the supply chains, warehousing is an important element of activity in the
distribution of goods, from raw materials and work in progress through to
finished products. It is integral part to the supply chain network within which it
operates and as such its roles and objectives should synchronize with the
objectives of the supply chain. It is not a stand-alone ‘element of activity and it
must not be a weak link in the whole supply chain network.
Warehouses are built in all shapes and sizes, from facilities of a few thousand
square Metres handling modest throughputs, to large capital intensive
installations with storage capacities in the 1,00,000 pallet-plus range, with a
very high throughputs.
Warehouses are used by manufacturers, importers, exporters, wholesalers,
transport businesses, customs, etc

Four categories of warehouse costs

Handling. All expenses associated with moving product in or out of the
warehouse should be included in the handling cost centre. The largest
component is the labour used to handle the product that moves through the
distribution centre. It includes receiving, put-away, order selection, and loading.
It also may include labour to re-warehouse, repackage, or refurbish damaged
product. Handling also includes all costs associated with the equipment used to
handle product in the warehouse, such as the depreciation of equipment cost,
and the cost of fuel, or electricity to power the equipment. Other handling
expenses are the detention of truck or rail cars, operating supplies, and trash
disposal. In effect, handling includes all those costs that are associated with
―goods in motion.‖
Storage. Storage expenses are costs associated with ―goods at rest. These costs
would be incurred whether or not any product ever moved. Because storage
expenses are related to the cost of occupying a facility, and these costs are
normally accumulated each month, storage is expressed as a monthly cost. If an
entire building is dedicated to an operation, storage expenses are the total
occupancy cost for that facility.
Operations administration. These expenses are incurred to support the
operation of the distribution centre. Closing the facility would eliminate these
costs. Included are costs for line supervision, clerical effort, information
technology, supplies, insurance, and taxes.
General administrative expenses. Expenses not incurred for a specific
distribution centre are included in this category. General management, non-
operating staff, and general office expenses are examples. Allocation of such
expenses to each warehouse is a judgment call.

Need for Warehousing

Warehousing is necessary for the following reasons:
Seasonal Production - Agricultural commodities are harvested during certain
seasons, but their consumption or use takes place throughout the year.
Therefore, there is a need for proper storage or warehousing for these
commodities, from where they can be supplied as and when required.
Seasonal Demand - There are certain goods, which are demanded seasonally,
like woolen garments in winter or umbrellas in the rainy season. The production
of these goods takes place throughout the year to meet the seasonal demand. So
there is a need to store these goods in a warehouse to make them available at
the time of need
Large-scale Production - In case of manufactured goods, now-a-days
production takes place to meet the existing as well as future demand of the
products. Manufacturers also produce goods in huge quantity to enjoy the
benefits of large-scale production, which is more economical. So the finished
products, which are produced on a large scale, need to be stored properly until
they are cleared by sales.
Quick Supply - Both industrial as well as agricultural goods are produced at
some specific places but consumed throughout the country. Therefore, it is
essential to stock these goods near the place of consumption, so that without
making any delay these goods are made available to the consumers at the time
of their need.
Continuous Production - Continuous production of goods in factories requires
adequate supply of raw materials. So there is a need to keep sufficient quantity
of stock of raw material in the warehouse to ensure continuous production.
Price Stabilization - To maintain a reasonable level of the price of the goods in
the market there is a need to keep sufficient stock in the warehouses. Scarcity
in supply of goods may increase their price in the market. Again, excess
production and supply may also lead to fall in prices of the product by
maintaining a balance of supply of goods, warehousing leads to price
stabilization.
Types of Warehouse

• Private Warehouses
• Public Warehouses
• Government Warehouses
• Bonded Warehouses
• Co-operative Warehouses
Private Warehouses - The warehouses which are owned and managed by the
manufacturers or traders to store, exclusively, their own stock of goods are
known as private warehouses. Generally these warehouses are constructed by
the farmers near their fields, by wholesalers and retailers near their business
centres and by manufacturers near their factories. The design and the facilities
provided therein are according to the nature of products to be stored.
A warehouse may be privately owned and operated by a company making its own
merchandise. This is called a private warehouse
Public Warehouses - The warehouses which are run to store goods of the general
public are known as public warehouses. Anyone can store his goods in these
warehouses on payment of rent. An individual, a partnership firm or a company
may own these warehouses. To start such warehouses a license from the
government is required. The government also regulates the functions and
operations of these warehouses. Mostly these warehouses are used by
manufacturers, wholesalers, exporters, importers, government agencies, etc.
A warehouse may be owned and operated by another organisation, including a
government agency, and only used by a company on certain terms and
conditions. This is called a public warehouse. A public warehouse may be owned
by a company in the private sector but used by the general public.
Government Warehouses -These warehouses are owned, managed and
controlled by central or state governments or public corporations or local
authorities. Both government and private enterprises may use these warehouses
to store their goods. Central Warehousing Corporation of India, State
Warehousing Corporation and Food Corporation of India are examples of
agencies maintaining government warehouses.
Bonded Warehouses - These warehouses are owned, managed and controlled
by government as well as private agencies. Private bonded warehouses have to
obtain a license from the government. Bonded warehouses are used to store
imported goods for which import duty is yet to be paid. In case of imported goods
the importers are not allowed to take away the goods from the ports until such
duty is paid. These warehouses are generally owned by dock authorities and
found near the ports.
Co-operative Warehouses - These warehouses are owned, managed and
controlled by co-operative societies. They provide warehousing facilities at the
most economical rates to the members of their society.

BASIC 3 FUNCTIONS OF WAREHOUSE

Warehouse has 3 basic functions namely;

• movement,
 • storage
• Information transfer.
The movement function of a warehouse:
1. Receiving -This includes the physical unloading of incoming transport,
checking, recording of receipts, and deciding where the received goods are to be
put away in the warehouse. It can also include such activities as unpacking and
repackaging, quality control checks for damages and temporary quarantine
storage for goods awaiting clearance by quality control.
2. Transfer or Put away – Binning and storing the goods in their respective
locations, including the temporary locations, from the receiving docking area.
3. Order picking / selection – Goods are selected from order picking stock in
the required quantities and at the required time to meet customer orders. Picking
often involves break bulk operations, when goods are received from suppliers in,
say, whole pallet quantities, but ordered by customers in less than pallet
quantity. Order picking is important for achieving high levels of customer service;
it traditionally also takes a high proportion of the total warehouse staff
complement and is expensive. The good design and management of picking
systems and operations are consequently vital to effective warehouse
performance. Packing slips are made up at this point.
4. Cross-docking - Move products directly from receiving (incoming truck to the
shipping dock, outgoing truck) – these products are not stored in the warehouse.
Cross-docking is commonplace in warehousing because of its impact on costs
and customer service. For example, approximately 75% of food distribution
involves the cross-docking of products to retail food stores. Eliminating the
transfer or put away of products reduces costs and the time goods remain at the
warehouse, therefore improving customer service levels.
5. Shipping – Picked goods as per the customer order are consolidated and
packed according to customer order requirements. It is shipped according to
customer orders and respective destinations.
The storage functions of a warehouse:
1. Temporary storage –emphasises the movement function of the warehouse
and includes only the storage of product necessary for basic inventory
replenishment. Temporary storage is required regardless of the actual
inventory turnover. The extent of temporary storage depends on the design of
the logistics system and the variability experienced in lead time and demand.
A goal of cross-docking is to utilize only the temporary storage function of the
warehouse.
2. Semi-permanent storage – is the storage of inventory in excess of that
required for normal replenishment. This inventory is referred to as buffer or
 safety stock. The most common conditions leading to semi-permanent storage
are:
• Seasonal demand,
• Erratic demand,
• Conditioning of products such as fruits and meats,
• Speculation or forward buying, and
• Special deals such as quantity discounts.
The information transfer functions of a warehouse:
They occur simultaneously with the movement and storage functions.
Management always need timely and accurate information as it attempts to
administer the warehousing activity. Information on inventory levels, throughput
levels (amount of product moving through the warehouse), stock keeping
locations, inbound and outbound shipments, customer data, facility space
utilization and personnel is vital to the successful operation of a warehouse.
Organisations are relying increasingly on computerized information transfer
utilizing Electronic Data Interchange (EDI) and bar coding to improve both the
speed and accuracy of information transfer.
Issues affecting Warehousing……………..
Since warehouses, stores and distribution centres have to operate as essential
component elements within supply chain networks, key decisions when setting
up such facilities must be determined by the overall supply chain strategies for
service and cost. The factors that should be considered include the following:
Market and product base stability: Long term market potential for growth and
for how the product range may expand will influence decisions on the size and
location of a warehouse facility, including space for prospective expansion. These
considerations will also impact on the perceived need for potential flexibility,
which in turn can influence decisions on the type of warehouse and the level of
technology to be used.
Type of materials to be handled: Materials handled can include raw materials,
work-in progress (WIP), auto spare parts, packaging materials and finished goods
in a span of material types, sizes, weights, products lives and other
characteristics. The units to be handled can range from individual small items
through carton boxes, special storage containers for liquids, drums, sacks, and
palletized loads. Special requirements for temperature and humidity may also
have to be met in the case of perishables and all of these will impact on the type
of warehouses and technology level.
Warehouse Facility: type, size and location: The type of operation, the design
capacity and size of a warehouse and its location will all be influenced if not
directly determined by its exact role and position in the supply chain network,
and the role, capacity and location of any other facilities in the supply chain. The
customer base, level of inventory, the need for optimization of inventory, time
compression in the supply chain and the overall customer service levels should
also be considered when deciding on type, size and location. A further
consideration here is whether the warehouse facility should be an own-account
operation run by the company or outsourced and run by a 3PL (third party
logistics provider).
Inventory and Inventory Location: Within a supply chain network there is an
issue not only of what materials to stock and in what quantities, but also in what
locations. Options can include distribution centres devoted to specific markets
or parts of the product range distribution. The option depends on factors such
as customer base, product range and service levels required.
Level of technology: can range from very basic installations with high manual
input and least mechanization to fully automated and robotic installations. The
decision can be influenced by:

• Company-wide strategic marketing or employment policies,

• Financial considerations,
• Ability to achieve specified degree of throughput,
• Required customer service level

Other factors can include the need for flexible operation to meet important
demand fluctuations such as seasonal variations, and the perceived future
stability and growth of the market and product range. The level of technology
adopted in any particular application should be chosen because it almost nearly
matches the given requirements and objectives. It is not true that automation or
similar technologies are accurate in every case. It is true that good, probably
computer based communication and information systems are vital in every
application, irrespective of the technology level.
Choice of Unit load: The option of unit load or loads i.e. pallets, roll or cage
pallets, tote bins, will be determined by the nature and characteristics of the
materials passing through the supply chain, and this clearly encompasses an
enormously wide range of goods, unit quantities, and pack types and sizes This
may appear as a very important factor more subject to basic operation than to
strategic influences. However, within the warehouse it can influence the option
of handling equipment and the types of storage systems. In the wider context it
will affect transport operations in terms of vehicle loading and unloading and
vehicle utilization.
THE END…………………………………………………………..
Source; Warehouse Management & inventory Management
(COS)