Warehouses are crucial components of most modern supply chains. They are likely to be involved in various stages of the sourcing, production and distribution of goods, from the handling of raw materials and work-in-progress through to finished products.
Warehouses are an integral part of the supply chains in which they operate, and therefore recent trends, such as increasing market volatility, product range proliferation and shortening customer lead times, all have an impact on the roles that warehouses are required to perform. Warehouses need to be designed and operated in line with the specific requirements of the supply chain as a whole. They are therefore justified where they are part of the least-cost supply chain that can be designed to meet the service levels that need to be provided to the customers.
A distribution centre for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products /goods to be re-distributed to retailers, wholesalers or directly to the consumers. A distribution centre is a primary part, of the order processing element, of the entire order fulfillment process.
One of the key benefits of a distribution centre is the structure of supply network set up which allows a single location to stock a vast number of products. Some organizations operate both retail distribution and direct-to-consumer distribution out of a single facility, sharing space, equipment, labour resources and inventory as applicable. A typical way in which a retail distribution network operates is by setting up centres throughout a commercial market where each centre will then serve a number of stores.
The various benefits of having a warehouse are,
One of the economic benefits of warehousing is shipment consolidation. With the given arrangement, the consolidating warehouse receives and consolidates materials from a number of manufacturing units destined for a specific customer in a single transportation shipment. The principal benefit of a warehouse is the realization of the lowest possible transportation rate and reduced congestion at a customer’s receiving dock which helps in logistical flow of several small shipments to a specific market area.
Breaking the bulk
Breaking the bulk is a warehouse operation similar to consolidation in which no storage function is performed. A break bulk operation receives combined customer orders from manufacturers and ships them to individual customers. This function involves sorting or splitting of individual orders in a warehouse in order to arrange for local delivery since long-distance transportation movement of a large shipment involves lower transportation costs and less difficulty in tracking.
Another advantage of a warehouse is that it can also be used to postpone, or delay, production by performing processing and light manufacturing activities. A warehouse performing packaging or labeling activities have the capability to allow postponement of final production until actual demand is known. Postponement allows minimization of the risk as the final packaging is not completed until an order for a specific label and package has been received. Also, the required level of total inventory can be reduced by using the basic product for a variety of labeling and packaging configurations.
An economic benefit of stockpiling arises from the need of seasonal storage. Stockpiling helps in maintaining inventory buffer, which allows production efficiencies within the constraints imposed by material sources and the customer.
Service Benefits of Warehousing
The various service benefits are,
Spot stocking – Under spot stocking a selected amount of a firm’s product line is placed in a warehouse to fill customer orders during a critical marketing period. Instead of holding inventory in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets. The utilization of warehouse facilities for stock spotting helps in placing the inventories in a variety of markets adjacent to key customers just preceding to a maximum period of seasonal sales.
Assortment – Assortment operation helps to stock product combinations in anticipation of customer orders. The assortments may require multiple products from different manufacturers or special assortments as specified by customers.
The basic difference between stock spotting and complete line assortment is the degree and duration of warehouse utilization.
- Stock spotting typically involves a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets for a limited time period where on the other hand distribution assortment usually involves a broad product line, which is limited to a few strategic locations, and is functional year-round.
- The combined assortments also allow larger shipment quantities, which helps reduce the overall transportation cost.
Mixing – It involves truckloads of products being shipped from manufacturing plants to warehouses. In mixing situation each large shipment enjoys the lowest possible transportation rate such that upon arrival at the warehouse, factory shipments are unloaded and the preferred combination of each product for each customer or market is selected.
Production support – The function of a production support warehouse is to supply processed materials, components, and subassemblies into the assembly plant in time yet economically. Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage.
Market presence – Market presence factor is based on the belief that local warehouses can be more responsive to customer needs and offer faster delivery than more distant warehouses. This will enhance market share and potentially increase profitability.