Warehousing is an important part of the retail supply chain. A warehouse is simply a storage space where a business owner can store their products for later order deliveries. Warehousing becomes a must thing, especially in businesses like e-commerce. Warehousing offers many functions that we are covering in this article.
Functions of warehousing mean the wide range of activities, which are associated with the physical distribution of goods from the end of the production line to the final consumers. The most common functions of warehousing are purchasing of goods, inventory management, storage, materials handling, protective packing, and transportation.
However, there are so many other important concepts linked to warehousing that must be learned to understand the concept of warehousing to its fullest. Let’s learn warehousing, its functions, advantages, disadvantages, roles and its process in detail.
Concept of Warehousing
To understand the concept and functions of warehousing, let’s first see what does warehousing actually mean?
Warehousing Definition: According to the simple definition of warehousing, Warehousing is concerned with the storing function of goods and commodities. Warehousing also refers to all the activities which are connected with the safekeeping of goods until they are needed for consumption.
In the words of R.E Murphy,
“Warehousing is concerned with storing function in the channel of distribution of goods”.
Or in a more simple definition, warehousing is a planned place for storing goods safely and efficiently until they are required for consumption. Warehousing plays an important role to keep the prices stable and make the goods available at the right time.
Because of the vast functions of warehousing, warehouses (sometimes known as distribution centers) are used by distributors, manufacturers, importers, exporters, businesses, and wholesalers.
The concept of warehousing can be made simpler by an example. We all buy some items in bulk for our kitchen and then we store them for later use. Similarly, businessmen buy goods in bulk and store them in their warehouses and provide them to the market when demanded.
It means warehousing lies at the center of the supply chain and plays a vital role in the success of the supply chain concept.
Warehouses also play an important part when the products are being manufactured but the raw material is not available. Let us explain this by an example.
For instance, sugarcane is not produced throughout the year but only for a few months. To produce sugar, companies need sugarcane throughout the year.
This is where the functions of warehouses come into play and make the availability of the goods on demand.
Difference between Warehouse and Warehousing
So far, we have used some of the warehousing terms that may confuse some students. Because, at first, it seems warehouse and warehousing are the same terms. But in actuality, there is a difference. Let us first clarify the difference here.
Warehouse means a physical location or building that keeps the products/goods safe inside while warehousing is a concept that includes the whole process and functions of warehousing that we are going to explain in a while in this article.
Apart from this, there is another term that you may have heard is, “Inventory Management” which is also used with the warehousing management system.
In simple words, the difference between inventory management and warehouse management is that warehouse management deals with the physical products stored inside the building like how to store the goods to make the warehousing space-optimized and a lot of other related tasks.
While inventory management is related to keeping the records of the goods stored in the warehouse. Inventory management also deals with managing the stock and the trends of the goods’ demand.
Importance of Warehousing in Business
Not all businesses need warehouses, but some of the businesses can’t even run their operations without warehousing like e-commerce where we have to store physical products so they can be delivered quickly when demanded.
The major benefit is you don’t have to worry about increasing the prices of the products because you can stock hundreds of products in warehouses and sell them when required. Otherwise, if you are delivering products based on orders without having stocks in warehouses, then clearly you may face increasing prices issues.
This is where the functions of warehousing (that we are going to discuss in detail shortly) come into play. The rule is simple, if you are selling physical products, then you need a physical storage place.
Objectives of Warehousing
One of the major objectives of warehousing is to facilitate customers by storing the products as close to customers as possible so they get their orders on time.
The other benefit is that warehousing reduces the cost and improves customer satisfaction by ensuring speed of delivery and consistency of delivery.
Moreover, warehousing management also helps to keep track of inventory, stock status, and a lot more other factors.
Elements of Warehousing
Depending on the types of warehouses, warehousing offers many benefits like storing goods or storing goods with fulfillment features. However, to achieve such benefits, a warehouse must have certain elements to keep operations effective.
The most important elements of warehousing are:
- Racks and shelves systems for easy storage and access of products when needed while keeping the space-optimized.
- Security mechanism to keep the products safe from natural disasters and thefts.
- Warehouse management system to control the inventory and keep track of the staff performance.
- Climate control system so that the products stay fresh and safe. For example, edible products, medical products, and other products that need to be frozen require a climate control system.
- Equipment to move products from one place to another place. Such equipment includes forklifts, conveyor belts, dock boards, truck restraints, dock seals and shelters, dock bumpers, and pallet jacks, etc.
- Easy and cost-effective access to the transportation system so that goods can easily be imported or dispatched when needed.
Like any other business, warehouse management also requires a human workforce to keep the business efficient and profitable while keeping the customers satisfied. That’s why several people are recruited to manage different activities and they are assigned different roles based on the type of work expected from them.
The most important roles of warehousing are:
- General Labor
- Drivers and Operators
- Shipping Associates and Shipping Specialists
Let’s have a detailed look at each type of warehousing role.
1. General Labor
This is the very basic rank of a human workforce in warehouse management. General laborers do mostly the physical work like cleaning, carrying goods from one place to another and some other tasks like this.
These people have a tough job as they spend most of the whole time of their job standing or walking.
Loaders have to assemble the ordered products and put them together for shipping. This team makes sure that the right products are put together for delivery. This team is responsible to receive and replace the faulty products as well.
Managers manage the overall tasks of the warehouse and they make sure that all operations work smoothly and efficiently. This is done by creating effective strategies, policies, and protocols.
They are also responsible to make such policies that are compatible with external entities like federal and state policies for packing and delivering goods using approved equipment.
Managers directly report to top management. Reports can be either weekly or monthly depending on the internal policies of the warehouse.
The major responsibilities of managers in a warehouse are:
- Monitoring all operations of the warehouse
- Creating effective and efficient policies and protocols that are favorable to all roles of the warehouse and also beneficial for the overall operations
- Creating security protocols and strategies so that goods are safe and the team as well
- Keeping track of inventory to make sure that most demanding products never get out of stock
- Analyzing and optimizing reports generated by warehouse management systems (WMS)
- Making plans for workers to improve their productivity
- Trying out the new warehouse management software to get the best results possible
- Attending workshops and seminars to improve his/her skills and learn new methodologies
- Handling recruitment, monitoring, coaching, and counseling sub workers to keep them motivated and appraising their work results
Supervisors are at one level up to managers. They directly take reports from managers and monitor their performance. Their main job is to manage the managers and their overall performance.
5. Drivers and Operators
Drivers are forklift drivers who are responsible to load and unload trailers and move goods from one place to another place within the warehouse.
They must be competent and skilled because they have to carry piles of stock that must be taken carefully. Otherwise, if it gets imbalanced, it may put the whole pile of stock to the ground.
Moreover, operators must have technical knowledge of machines so they can fix themselves if any technical issues appear during the job.
6. Shipping Associates and Shipping Specialists
Shipping associates help in making the shipping process efficient. Their main job is to bring all the ordered items to a single place by pulling them out of their bins. They also handle packing and shipping containers along with all shipping documentation.
While on the other hand, shipping specialists deal with the shipping technologies like tracking orders and updating inventory. If there is any issue in the shipment, they are responsible to report to their relevant manager. A shipping specialist also checks the quality of all items before dispatching them to ensure that customers get the same item as they have seen on online stores.
Functions of Warehousing
Below is the list of the important functions of warehousing:
- Storage of Surplus Goods
- Price Stabilization
- Risk Bearing
- Loan Facility
- Advantages to the Importers and Exporters
- Other functions
1. Storage of Surplus Goods
The basic function of warehousing is to provide the facility of storage for the goods which are laying surplus with the businessman. The businessmen produce the goods in anticipation of their demand. They store and preserve the goods which are surplus. They make the goods available in the market when their supply is relatively scarce.
2. Price Stabilization
Warehousing also helps in the stabilization of the prices of goods in the market. When the supply of goods in the market is in excess, the fall in the prices of goods can be avoided by storing some stocks in the warehouses.
Similarly, in case of increasing demand, the rise in the prices of goods can be checked by releasing the goods from the warehouses. The warehouses thus help in the stabilization of prices and safeguard the businessman against the dangers of price fluctuations.
3. Risk Bearing
Risk bearing is also one of the utmost important functions of warehousing. When the businessman hands over the goods to the warehouse keeper, the risk of loss or damage for the stored goods passes to the warehouse keeper.
4. Loan Facility
The businessman can obtain short-term finance from the lenders on the security of goods stored in the warehouses. The producers and manufacturers of goods can continue and increase production with the help of raised working capital from the lenders.
5. Advantages to the Importers and Exporters
The importers can store the imported goods in the bonded warehouses at the port. When they pay the import duty, the goods are then released. The importers have the facility to remove the goods in parts after making payments of the duty and warehouse charges. The exporters can also keep the goods to be exported directly in the bonded warehouse.
In the absence of a warehouse, the exporters would have to take the goods to their warehouse and again to the port for the exports. Thus, the double expenses for transport and storage are saved. No doubt, this is also one of the utmost important functions of warehousing.
Types of Warehouses
The warehouse is not just a big room where products are stored randomly. Depending on the type of products and the application of warehouses, they are categorized into multiple types. Important types of warehouses are:
- Retail Warehousing
- Hazmat Warehousing
- Distribution & Fulfillment Warehouse
- Cold Storage
General categories of warehouses are:
- Public Warehouse
- Private Warehouse
- Bonded Warehouse
Here is a brief definition of each type of warehouse.
1. Retail Warehouse
Generally, retail warehouses are like ordinary warehouses with a maximum of 1000 square meters of space. Retail warehouses are single-story buildings. The major difference between ordinary warehouses and retail warehouses is that retail warehouses also showcase the products stored there.
Some of the space is used for back-office and parking purposes, etc. Retail warehouses are allowed to store only non-sensitive and non-medical products like home improvement, gardening, and other goods of this type.
2. Hazmat Warehouse
Hazmat means hazardous materials like flammable chemicals that need the most care and safe environment. To open up a hazmat warehouse, government agencies visit the place and make sure that the design of the building is safe and not dangerous for the surrounding environment.
Once the place inspection is done, then government agencies give the operating license to the owner of the warehouse.
Generally, such warehouses are built out of the town or near the centers where such hazardous substances are required. Because a single mistake in a hazmat warehouse not just affects the balance sheet, but also puts lives at risk.
3. Distribution & Fulfillment Warehouse
Distribution & Fulfillment warehouses are those storage areas where manufacturers drop the products and the retailers pick up the products from the same place.
Generally, third parties provide such storage areas to reduce the cost and improve the product delivery time.
In simple words, sellers put their products in fulfillment warehouses and they are kept there until they are dispatched to the customer or consumer.
4. Cold Warehouse
Cold warehouses deal with temperature-sensitive products like dairy, meat, medical and other products of this kind. In simple words, the products that we store in refrigerators in our homes are stored in cold warehouses on a large scale.
From the outside, cold warehouses look like normal warehouses but their inner environment is completely different where they implement many restrictions to keep humidity and microorganism away.
5. Public Warehouse
Public warehouses provide their services to the general public without restriction. A public warehouse is an established business owned by either an individual or a corporation that has the sole purpose of doing business in the warehousing market.
However, to set up a warehouse, the owner of the warehouse has to attain a license to operate it under their law and regulation.
Public warehouses play an important role in the success of many e-commerce startups as they provide affordable space. Otherwise, setting up a personal warehouse is an expensive idea.
6. Private Warehouse
Private warehouses are private to big corporations and manufacturers. Private warehouses become affordable only when the business is well established with a large number of products being manufactured or shipped monthly.
7. Bonded Warehouse
Bonded warehouses work under government licenses to store the imported goods until the owner of the goods pays the customs duty. It means, mostly, bonded warehouses are built near the ports so that goods can easily and quickly be stored after they are imported.
Unlike public or private warehouses, even the owner can’t interfere with the goods until they clear all the customs duties applied on their products.
One of the major advantages of a bonded warehouse is that the goods are safe and well-guarded until the custom duties are paid.
Advantages and Disadvantages of Warehousing
Depending on the type of a business’s space requirements, a business can either take advantage or end up in disadvantages. Here are the advantages and disadvantages of warehouses so a person can understand the need for warehouses based on his/her requirement.
Advantages of Warehousing
The major benefits of warehousing are:
Provides Storage Facility
The producers, manufacturers, wholesalers, stockists of goods who do not have their stores or have limited storage capacity can avail of the facility of preserving the goods in the warehouses. They need not curtail production due to the lack of storage facilities.
Quick Service to Customers
The merchants can provide the goods to the customers at smaller expenses and move quickly from the warehouses situated at convenient places.
Payment of Customs Duties in Installments
The importer can get the goods released in installments by making payments only on those portions of goods that are released. The importer is thus saved from the heavy payment of duty in a lump sum.
Transfer of Ownership
The importer can transfer the ownership of goods stored without moving them from the warehouses. The importer can sell the goods by the delivery of the warehouse warrant with his endorsement. The buyer can also dispose of the whole consignment in the same way. The goods stored in warehouses can thus change hands several times in the world market.
Protection against all Risks
The goods stored in warehouses are insured against loss by fire, theft, deterioration, etc. the warehousing thus offers protection against all risks except their change in price in the commodity market.
Sale at Favorable Prices
The producers, manufacturers, produce the goods in anticipation of their demand. If the supply of goods in the market is in excess, the producers can store the products in the warehouses and can sell them at favorable prices at the appropriate time.
Raising of Loans
Warehousing offers the facility of hypothecation of goods. The manufacturer can raise loans from the banks on the security of goods stored in the warehouses. He can thus meet the requirements of working capital and can also pay his obligations in times of crisis.
Easy Movement of Goods
The public warehouses are mainly constructed at favorable points on railways routes and main roads to facilitate the movement of goods at a lesser fare rate and quickly.
Increase in Employment
Warehousing helps in the provision of employment to skilled and semi-skilled persons in various parts of the country.
By preserving goods from the time of production to the time of consumption, warehousing ensures the continued flow of goods in the market.
The warehousing has greatly helped in the widening of the area of the market. Technological advances have now made it possible to produce goods on a larger scale. The surplus production can now be safely, easily, and, at a lesser cost, preserved in warehouses. These then can be sold in the local and overseas markets at favorable prices.
Improvement in Quality
The blending, processing, packing, labeling, etc. done in the warehouses has helped in improving the quality and standard of grades for the products.
Income to the State
The importers and exporters pay duty for the goods stored in the bonded warehouses to the government of the country. The warehouse keepers pay income tax. Warehousing thus provided revenue to the state.
Disadvantages of warehousing
Although warehouses offer many benefits and cost solutions, warehouses also have some drawbacks. The major disadvantages of warehouses are:
Sometimes, businesses may face control issues over goods shipment and other shipping-related operations. This happens only with poor storage providers. That’s why you must be very careful when contracting with a warehouse provider.
Initial setup costs of a warehouse can be very high especially for small-scale companies. However, if a company has enough budget then this should not be the issue. Or if a company is relying on third-party warehouses, then this setup cost is almost zero.
Apart from the initial setup cost, few other things may increase the overall cost. These factors include salaries of warehouse staff, electricity bills, space rent, and so many other administrative costs.
However, when using third-party warehousing services, these costs come under one package that makes it easy to choose the type of warehouse.
Chances of Products Wastage
Storing a large number of products in a big warehouse doesn’t guarantee that all products will be sold. Because of poor marketing, there are chances that products do not sell and ultimately go to wastage.
That’s why business owners must pay attention to the marketing strategies before buying and storing a big quantity of products in a warehouse.
The equipment used by the warehouse workforce is dangerous. That’s why they train their work staff thoroughly to avoid any mishap.
Nobody can control natural disasters, so there is always a chance that natural disasters can ruin a warehouse. Natural disasters can include fire, flood, and earthquakes, etc. However, one can take measures to avoid the possible problems.
For example, to avoid floods, space far away from large bodies of water would be ideal. To avoid fire, the place must not be too dry or hot.
Summary: Warehousing – A Quick Recap
Warehousing is an important component of any business that sells physical products because storing goods in advance makes sure that the customer gets their ordered item on time and the customer is satisfied.
The physical building to store products is called a warehouse and the act of storing and managing goods inside the warehouse is called warehousing. The process of warehousing includes the following activities:
- Receiving Goods
- Moving received goods from the receiving area to the area where the goods are to be stored
- Picking up
- Shipping or Dispatching products to consumers
1. What is warehousing?
The meaning of warehousing is storing physical products in physical stores to deliver the required products efficiently and on time. The physical building is called warehousing while this whole process of storing goods is called warehousing.
2. What is warehouse management?
Storing goods in warehousing is called warehousing while managing this whole process of storing and delivering products to and from warehouses is called warehouse management. Some of the important warehouse management activities are:
- Receiving goods/products
- Keep track of inventory
- Shipping Goods
- Customer Service
3. What are the functions of warehousing?
There are several functions of warehousing, some of the most important functions are:
- Storage of Surplus Goods
- Price Stabilization
- Risk Bearing
- Loan Facility
- Advantages to the Importers and Exporters
4. What is warehousing in marketing?
Generally, businesses buy a large number of products to store for later selling purposes. But when they start marketing (locally or digitally) their products, they keep a separate stock for marketing purposes so that their marketing campaign runs smoothly when they get orders.
This special stock is also stored in warehouses. This is what we call warehousing in marketing.
It means a business needs products available all the time and during all the stages of marketing.
5. What is warehousing in logistics?
Warehouse logistics means receiving goods, storing them in warehouses, and then shipping them to customers when required.
6. What is the difference between warehouse and logistics?
Both warehousing and logistics are important parts of the supply chain process. Warehousing is related to keeping the goods safe inside a building (warehouse) while logistics deals with shipping and delivering these goods to the desired locations. They both work together to make the supply chain smooth.
7. Why is warehousing important?
All businesses, especially e-commerce, struggle hard to retain their customers. This is possible when they fulfill the requirements of their customers. One of the most important requirements of customers is to get products on time.
That’s why businesses need warehousing is required to optimize the product delivery process and keep their customers well-satisfied. It means, for the smooth operation of commerce business, the need for warehousing is a vital part.
8. What is warehouse slotting?
Warehouse slotting means analyzing and organizing inventory data in different storage slots throughout the warehouse for easy product distribution. The main goal of slotting is to maximize work efficiency.
9. What are the basic warehousing procedures?
The most commonly used warehousing procedures are:
- Entry Procedures: Entry procedures handle the safety of goods and warehouse staff by allowing the entry of authorized persons only to the warehouse.
- Return Procedures: These procedures handle the goods returned by end customers for any reason.
- Release Procedures: Release procedures come into play when the customer orders the product.
- Product Delivery Procedures: The Delivery procedures handle the delivery of the good when it is released and ready to be shipped.
- Stock Management Procedures: These procedures handle the warehousing inventory management systems.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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