THE ROLE OF WAREHOUSING IN LOGISTICS MANAGEMENT
Meaning of Warehousing
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. 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. You 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. Thus, 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 till 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 and merchandise are kept is called ‘warehouse’.
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 till their actual use or sale.
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the
time gap between production and consumption of goods. It can also be described as the general
Performance of administrative and physical functions associated with storage of goods and
materials. These functions include receipt, identification, inspection, verification, putting away,
retrieval for issue, etc.
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, to wholesalers or directly to consumers. A distribution centre is a principal part, the
"order processing" element, of the entire "order fulfillment" process.
Distribution centres are usually thought of as being "demand driven". A distribution centre can
also be called a warehouse, a DC, a fulfillment centre, a cross-dock facility, a bulk break centre,
and a package handling centre. The name by which the distribution centre is known is commonly
based on the purpose of the operation. For example a "retail distribution centre" normally
distributes goods to retail stores, an "order fulfillment centre" commonly distributes goods
directly to consumers, and a cross-dock facility stores little or no product but distributes goods to
other destinations.
Distribution centres are the foundation of a "supply network" as they allow a single location to
stock a vast number of products. Some organizations operate both retail distribution and direct-
1
,to-consumer out of a single facility, sharing space, equipment, labour resources and inventory as
applicable.
The way a typical retail distribution network operates is to have centres set up throughout a
commercial market. Each centre will then serve a number of stores. Suppliers will ship
truckloads of products to the distribution centre. The distribution centre will then store the
product until needed by the retail location and ship the proper quantity.
Since a large retailer might sell tens of thousands of products from thousands of vendors, it
would be impossibly inefficient to ship each product directly from each vendor to each store.
Many retailers own and run their own distribution networks, while smaller retailers may
outsource this function to dedicated logistics firms that coordinate the distribution of products for
a number of companies. A distribution centre can be co-located at a logistics centre.
THE NEED TO HOLD STOCKS
Warehousing is necessary due the following reasons.
1. To keep down productions costs. Often it is costly to set up machines, so production runs
need to be as long as possible to achieve low unit costs. It is essential, however, to
balance these costs with the costs of holding stock.
2. To accommodate variations in demand. The demand for a product is never wholly
regular so it will vary in the short term, by season, etc. To avoid stock-outs, therefore,
some level of safety stock must be held.
3. To take account of variable supply (lead) times. Additional safety stock is held to cover
any delivery delays from suppliers.
4. Buying costs. There is an administrative cost associated with raising an order, and to
minimize this cost it is necessary to hold additional inventory. It is essential to balance
these elements of administration and stock-holding, and for this the economic order
quantity (EOQ) is used.
5. To take advantage of quantity discounts. Some products are offered at a cheaper unit
cost if they are bought in bulk.
6. To allow for price fluctuations/speculation. The price of primary products can fluctuate
for a variety of reasons, so some companies buy in large quantities to cater for this.
7. To help the production and distribution operations run more smoothly. Here, stock is
held to 'decouple' the two different activities.
8. To provide customers with immediate service. It is essential in some highly competitive
markets for companies to provide goods as soon as they are required (ex-stock).
2
,9. To minimize production delays caused by lack of spare parts. This is important not just
for regular maintenance, but especially for breakdowns of expensive plant and
machinery. Thus, spares are held to minimize plant shutdowns.
10. Seasonal Production- You know that 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.
11. Seasonal Demand- There is certain goods, which are demanded seasonally, like woollen
garments in winters 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. Warehousing
12. 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 till they are cleared by sales.
13. 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.
14. 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.
15. 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 stabilisation.
3
, Types of Warehouses
Various types of warehouses came into existence, which may be classified as follows.
i. Private Warehouses
ii. Public Warehouses
iii. Government Warehouses
iv. Bonded Warehouses
v. Co-operative Warehouses
i. 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.
ii. Public Warehouses - The warehouses which are run to store goods of the general public are
known as public warehouses. Any one 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 licence 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.
iii. 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.
iv. Bonded Warehouses - These warehouses are owned, managed and controlled by government
as well as private agencies. Private bonded warehouses have to obtain licence 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 till such duty is paid. These warehouses are generally owned by dock authorities and
found near the ports.
v. 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.
Warehouses can also be classified according to the type of goods that are stored in them.
This classification includes the following types:
• Raw material and component warehouses Hold raw materials at or near the point of
induction into a manufacturing or assembly process.
4
Meaning of Warehousing
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. 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. You 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. Thus, 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 till 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 and merchandise are kept is called ‘warehouse’.
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 till their actual use or sale.
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the
time gap between production and consumption of goods. It can also be described as the general
Performance of administrative and physical functions associated with storage of goods and
materials. These functions include receipt, identification, inspection, verification, putting away,
retrieval for issue, etc.
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, to wholesalers or directly to consumers. A distribution centre is a principal part, the
"order processing" element, of the entire "order fulfillment" process.
Distribution centres are usually thought of as being "demand driven". A distribution centre can
also be called a warehouse, a DC, a fulfillment centre, a cross-dock facility, a bulk break centre,
and a package handling centre. The name by which the distribution centre is known is commonly
based on the purpose of the operation. For example a "retail distribution centre" normally
distributes goods to retail stores, an "order fulfillment centre" commonly distributes goods
directly to consumers, and a cross-dock facility stores little or no product but distributes goods to
other destinations.
Distribution centres are the foundation of a "supply network" as they allow a single location to
stock a vast number of products. Some organizations operate both retail distribution and direct-
1
,to-consumer out of a single facility, sharing space, equipment, labour resources and inventory as
applicable.
The way a typical retail distribution network operates is to have centres set up throughout a
commercial market. Each centre will then serve a number of stores. Suppliers will ship
truckloads of products to the distribution centre. The distribution centre will then store the
product until needed by the retail location and ship the proper quantity.
Since a large retailer might sell tens of thousands of products from thousands of vendors, it
would be impossibly inefficient to ship each product directly from each vendor to each store.
Many retailers own and run their own distribution networks, while smaller retailers may
outsource this function to dedicated logistics firms that coordinate the distribution of products for
a number of companies. A distribution centre can be co-located at a logistics centre.
THE NEED TO HOLD STOCKS
Warehousing is necessary due the following reasons.
1. To keep down productions costs. Often it is costly to set up machines, so production runs
need to be as long as possible to achieve low unit costs. It is essential, however, to
balance these costs with the costs of holding stock.
2. To accommodate variations in demand. The demand for a product is never wholly
regular so it will vary in the short term, by season, etc. To avoid stock-outs, therefore,
some level of safety stock must be held.
3. To take account of variable supply (lead) times. Additional safety stock is held to cover
any delivery delays from suppliers.
4. Buying costs. There is an administrative cost associated with raising an order, and to
minimize this cost it is necessary to hold additional inventory. It is essential to balance
these elements of administration and stock-holding, and for this the economic order
quantity (EOQ) is used.
5. To take advantage of quantity discounts. Some products are offered at a cheaper unit
cost if they are bought in bulk.
6. To allow for price fluctuations/speculation. The price of primary products can fluctuate
for a variety of reasons, so some companies buy in large quantities to cater for this.
7. To help the production and distribution operations run more smoothly. Here, stock is
held to 'decouple' the two different activities.
8. To provide customers with immediate service. It is essential in some highly competitive
markets for companies to provide goods as soon as they are required (ex-stock).
2
,9. To minimize production delays caused by lack of spare parts. This is important not just
for regular maintenance, but especially for breakdowns of expensive plant and
machinery. Thus, spares are held to minimize plant shutdowns.
10. Seasonal Production- You know that 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.
11. Seasonal Demand- There is certain goods, which are demanded seasonally, like woollen
garments in winters 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. Warehousing
12. 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 till they are cleared by sales.
13. 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.
14. 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.
15. 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 stabilisation.
3
, Types of Warehouses
Various types of warehouses came into existence, which may be classified as follows.
i. Private Warehouses
ii. Public Warehouses
iii. Government Warehouses
iv. Bonded Warehouses
v. Co-operative Warehouses
i. 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.
ii. Public Warehouses - The warehouses which are run to store goods of the general public are
known as public warehouses. Any one 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 licence 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.
iii. 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.
iv. Bonded Warehouses - These warehouses are owned, managed and controlled by government
as well as private agencies. Private bonded warehouses have to obtain licence 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 till such duty is paid. These warehouses are generally owned by dock authorities and
found near the ports.
v. 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.
Warehouses can also be classified according to the type of goods that are stored in them.
This classification includes the following types:
• Raw material and component warehouses Hold raw materials at or near the point of
induction into a manufacturing or assembly process.
4
