Functions of Warehouses

Go back to Tutorial

The prime objective of most warehouses is to facilitate the movement of goods through the supply chain to the end consumer. It is often necessary to hold inventory, when

  • The demand for the product is continual
  • The supply lead time is greater than the demand lead time

Inventory is therefore often beneficial to smooth variations between supply and demand.

There are two types of storage actions performed,

Planned Storage: Planned storage is the storage required as planned to meet the regular customer demand. The inventory received in the warehouse requires storage for a certain period of time where the duration of storage may vary.

Extended Storage: Extended storage involves storage of inventory in excess of normal warehouse operation. Some of the reasons for extended storage requirements are seasonal demand, erratic demand, discounts, speculative purchases, product conditioning, etc.

  • In order to meet the erratic or seasonality in demand an additional storage of goods in terms of safety stocks could be required.
  • Some products such as food items may be stored for conditioning purposes.
  • Sometimes a firm may buy bulk quantities to avail the discounts that are available or to purchase when the price is low. This is speculative purchases as the goods are bought at a higher quantity due to lower price or due to expectation of higher price in the future.
  • Sometimes due to promotional campaigns such as sales promotion, additional stock may be required to be kept to meet the expected higher demand for the product.

Smooth Movement of Goods

Movement of goods involves inbound activity i.e., unloading of goods brought to warehouse, transfer to storage by transferring the goods from the inbound area to the storage area, order selection involves selection of good in the storage as per order to be shipped and transferring it to shipment area and outbound activity involving checking and loading the gods for shipment.

Managing Information

It helps in keeping a track of information regarding goods that have arrived at the warehouse, stored and shipped out of the warehouse. All the required information relating to the warehouse is stored. All the data is captured by the information system in the warehouse is then passed on to the higher management in order to take better decisions.

Protection of Goods

Warehouse provides protection to goods from loss or damage due to heat, rain, dust, wind etc. It requires special arrangements for different types of products as per their respective nature. Warehouses help in cutting down losses due to spoilage and wastage during storage.

Bearing the Risk

Warehouses aids in taking over the risks incidental to storage of goods. When the goods are received in a warehouse then it is the responsibility of, these goods passes on to the warehouse-keeper. The risk of loss or damage to goods in storage is thus borne by the warehouse keeper. The warehouse is bound to return the goods in good condition and is responsible for any loss, theft or damage etc. Therefore, they take all precautions to prevent any kind of mishap.

Warehouse Financing

For goods deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favour of the owner of the goods, which is called warehouse-keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. The businessmen can also obtain loans from banks and other financial institutions by keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period keeping their goods as security.

Processing

There are certain commodities which are not consumed in the form they are produced. It requires some processing to make them consumable. Sometimes warehouses also undertake these activities on behalf of the owners.

Grading and Branding

Warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale.

Other Functions

Warehouse functions also includes

  • Inventory holding point – It is the holding of critical parts in case of breakdown or acting as a repository (eg for archive records or personal effects).
  • Consolidation centre – The warehouse may perform the function of bringing a number of product lines together for a specific customer need.
  • Sortation centre – It is specific to parcel carrier depots, where goods are brought to the warehouse for the purposes of sorting the goods to a specific region or customer.
  • Assembly facility – The warehouse may thus be used as the final assembly point for the product, involving activities such as kitting, testing and labeling.
  • Returned goods centre – The handling of returned goods can also be taken.
  • Receiving – It involves the physical unloading of incoming transport, checking against purchase orders and recording the incoming goods into the computer system
  • Reserve storage – Goods are normally taken to the reserve or back-up storage area, which is the largest space user in many warehouses.
  • Order picking – If only small quantities of a product are stored in a warehouse, then the reserve and picking stock may be combined, and goods picked from this consolidated area.
  • Collation and added value services – Goods need to be collated into complete customer orders ready for dispatch.
  • Marshalling and dispatch – Goods are marshalled together to form vehicle loads in the dispatch area and are then loaded on to outbound vehicles for onward dispatch.

Need for Holding Stock

Meeting Unexpected Demands

Business must be ready to meet the requirements of the consumers for goods and services when they need them. Thus, businesses usually stock up their inventories to meet these unexpected demands. Consumer demands may result in overcrowding of inventories because it is not known when the consumers would flock to buy the items.

Smoothing of Seasonal Demands

With the changing seasons and comings and goings of major events, most businesses have inventories at hand to smoothen the seasonal demands.

Benefit from Price Discounts

When a business purchases goods in bulk from manufacturers or suppliers, they usually get price discounts if they buy in bigger bulks. Manufacturers and suppliers give these discounts to attract and maintain regular buyers. Taking advantage of price discounts is helpful at times but one must always remember not to overstock the inventory because inefficient buying may cause failure of the business.

Hedging against Price Rise

Businesses usually hold inventory to avoid from the ever fluctuating market price of inventories. Thus, by having efficient and good inventory system, businesses can control their inventory cost.

Getting Quality Discounts

When businesses have inventory in store, they can get quality discounts because they know which goods and services to buy from the suppliers and manufacturers. It helps to learn where to get better deals than no deal at all.

Characteristics of Warehouses

  • Location: Warehouse should be located at a convenient place near highways, railway stations, airports and seaports where goods can be loaded and unloaded easily.
  • Handling Cost: Mechanical appliances should be there to loading and unloading the goods. This reduces the wastages in handling and also minimizes handling costs.
  • Space: Adequate space should be available inside the building to keep the goods in proper order.
  • Storage Facilities: Warehouses meant for preservation of perishable items like fruits, vegetables, eggs and butter etc. should have cold storage facilities.
  • Protection: Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture and pests.
  • Loading/Unloading: Sufficient parking space should be there inside the premises to facilitate easy and quick loading and unloading of goods.
  • Security: Round the clock security arrangement should be there to avoid theft of goods.
  • Fire & Safety: The building should be fitted with latest fire-fighting equipments to avoid loss of goods due to fire.

 

Certified Inventory and Warehouse Analytics Professional

Go back to Tutorial

Get industry recognized certification – Contact us

Menu