- Private warehouses: This facility is owned and managed by the same enterprise that owns the merchandise handled and stored at the facility.
- Public warehouses: This is operated as an independent business offering a range of services such as storage, handling, and transportation- on the basis of a fixed or variable fee. These warehouses generally offer relatively standardized services to all clients.
- Contract warehouses: This has evolved from the public warehouse segment, and provides benefits of both the private and public alternatives. Contract warehousing is a long term, mutually beneficial arrangement which provides unique and specially tailored warehousing and logistics services exclusively to one client, where the vendor and client share the risks associated with the operation.
Private warehouse
A private warehouse is operated by the firm owning the product. The actual facility, however, may be owned or leased, according to company financials. Often it is not possible to find a warehouse for lease that fits the exact requirements of a firm. The major benefits of private warehousing include control, flexibility, cost, and other intangible benefits. Private warehouses provide more control since the enterprise has absolute decision-making authority over all activities and priorities in the facility. This control facilitates the ability to integrate warehouse operations with the rest of the firm’s internal logistics process.
Private warehousing is usually considered less costly than public warehousing because private facility costs do not have a profit markup. This perceived benefit, however, may be misleading since public warehouses often are more efficient or may operate at lower wage scales. Private warehousing has also some intangible benefits, particularly with respect to market presence. A private warehouse with a firm’s name on it may produce customer perceptions of responsiveness and stability. This perception sometimes provides a firm with a marketing advantage over other enterprises. Private warehouses are relatively fixed and difficult to change because buildings have to be constructed or sold.
Public warehouse
Each warehouse type differs in its material handling and storage technology as a result of the product and environmental characteristics. On the basis of the range of specialized operations performed, public warehouses are classified as,
- General merchandise: These warehouses are designed to handle general package commodities such as paper, small appliances, and household supplies.
- Refrigerated: Warehouses (either frozen or chilled) handle and maintain food, medical items, and chemical products with special temperature requirements.
- Special commodity: Warehouses are designed to handle bulk material or items with special handling considerations, such as tires or clothing.
- Bonded Warehouses: These are licensed by the government to store goods prior to payment of taxes or duties. They exert very tight control over all movements in and out of the facility since government documents must be filed with each move. For example, cigarettes are often stored in bonded warehouses prior to having the tax stamp applied. This tactic saves the firm money by delaying tax payments; it also reduces inventory value substantially.
- Household goods and furniture: Designed to handle and store large, bulky items such as appliances and furniture.
Advantages of Public Warehouse
Many public warehouses offer combinations of these operations and have a low variable cost in comparison to privately operated facilities. The lower variable cost may be the result of lower pay scales, better productivity, or economy of scale. Public warehouses result in lower capital costs and hence increases return on investment (ROI) for the firm. Public warehousing offers flexibility in that it is easy to change the location, size, and number of facilities, allowing a firm to quickly respond to supplier, customer, and seasonal demands. Public warehousing offers significant scale economies since the volume for each customer is leveraged with that of other users. This results in high-volume operations that can spread fixed costs and justify more efficient handling equipment.
A public warehouse can also leverage transportation by providing delivery of loads that represent many public warehouse customers. For example, rather than have vendor A and vendor B each deliver to a retail store from their own warehouse, a public warehouse serving both vendors could deliver a single combined load more efficiently. A public warehouse charges clients a basic fee for handling and storage. In the case of handling, the charge is based on the number of cases or pounds handled. For storage, the charge is assessed on the number of cases or weight in storage during the month. Such charges normally exceed the cost of private warehousing if adequate private facility volume exists.
Contract warehouse
Contract warehousing combines the best characteristics of both private and public operations. The long-term relationship and shared risk result in lower cost than typical public warehouse arrangements. Contract warehouse operations can provide benefits of expertise, flexibility, and economies of scale by sharing management, labor, equipment, and information resources across a number of clients. Although it is common for contract warehouse operators to share resources across clients in the same industry such as grocery products, it is not common that direct competitors will want to share resources. Contract warehouse operators are also expanding the scope of their services to include other logistics activities such as transportation, inventory control, order processing, customer service, and returns processing.
Integrated Warehouse strategy
Many firms utilize a combination of private, public, and contract facilities. A private or contract facility may be used to cover basic year round requirements, while public facilities are used to handle peak seasons. In other situations, central warehouses may be private, while market area or field warehouses are public facilities.
Full warehouse utilization throughout a year is a remote possibility. As a planning rule, a warehouse designed for full-capacity utilization will in fact be fully utilized between 75 and 85 percent of the time. Thus for the remaining time, the space needed to meet peak requirements is not utilized. In such situations, it may be more efficient to build private facilities to cover the major requirement and use public facilities to accommodate peak demand.
An integrated warehouse strategy focuses on two aspects. The first concerns how many warehouses should be employed. The second concerns which warehouse types should be used to meet market requirements.
