4. Warehouse can play important role in the integrated logistics
Strategy and its building and maintaining good relationships
between supply chain partners. A warehouse smoothens out
market supply and demand fluctuations. When supply exceeds
demand, demand warehouse stores product in anticipation of
customer’s requirements when demand exceeds supply the
warehouse can speed product movement to the customer by
performing product or final assemble etc. Warehouse is a link
between producer and customer.
5. Benefits Of Warehouses
Warehousing or storage refers to be holding and preservation of goods until they
are dispatched to the consumers…There is a time gap between the production
and consumption products. By bridging this gap, storage create time utility. There
is a need for storing the goods so as to make them available to buyers as and
when required. Storage enables the firm to carry on production in anticipation of
demand in future. Some Products are produced thorough out the year but
demanded only during a particular season. Warehousing facilitates production
and distribution on a large scale..
6. • Benefits from warehouse:
1. Regular production:
Raw materials need to be stored to enable mass production to be carried on
continuously. Sometimes, goods are stored in anticipation of a rise in prices.
Warehouses enable manufacturers to produce goods in anticipation of
demand in future.
7. 2. Time utility
A warehouse creates time utility by bringing the time gap between the
production and consumption of goods. It helps in making available the
goods whenever required or demanded by the customers..Some goods are
produced throughout the year but demanded only during particular
seasons, e.g., wool, raincoat, umbrella, heater, etc. on the other hand, some
products are demanded throughout the year but they are produced in
certain region, e.g., wheat, rice, potatoes, etc. Goods like rice, tobacco,
liquor and jaggery become more valuable with the passage of time.
8. 3. Store of surplus goods
Basically, a warehouse acts as a store of surplus goods which are
not needed immediately. Goods are often produced in anticipation
of demand and need to be preserved properly until they are
demanded by the customers. Goods which are not required
immediately can be stored in a warehouse to meet the demand in
future.
9. 4. Price stabilization
Warehouses reduce violent fluctuations in prices by storing goods when
their supply exceeds demand and by releasing them when the demand is
more than immediate productions. Warehouses ensure a regular supply of
goods in the market. This matching of supply with demand helps to
stabilize prices.
10. 5. Minimization of risk
Warehouses provide for the safe custody of goods. Perishable
products can be preserved in cold storage. By keeping their goods in
warehouses, businessmen can minimize the loss from damage, fire,
theft etc. The goods kept in the warehouse are generally insured. In
case of loss or damage to the goods, the owner of goods can get
full compensation from the insurance company.
11. 6. Packing and grading
Certain products have to be conditioned or processed to make
them fit for human use, e.g., coffee, tobacco, etc. A modern
warehouse provides facilities for processing, packing, blending,
grading etc., of the goods for the purpose of sale. The
prospective buyers can inspect the goods kept in a warehouse.
12. 7. Financing
Warehouses provide a receipt to the owner of goods for the goods
kept in the warehouse. The owner can borrow money against the
security of goods by making an endorsement on the warehouse
receipt. In some countries, warehouse authorities advance money
against the goods deposited in the warehouse. By keeping the
imported goods in a bonded warehouse, a businessman can pay
customs duty in installments.
13. LAYOUT AND DESIGN PRINCIPLES /
OPERATING PRINCIPLES
• While the discussion thus far has delineated a typical warehouse’s various space
needs, we need to consider layout in more details.
• We first consider some general layout design principles and then examine layout
in the context of the space category previously. The most commonly accepted
warehouse design and layout principles are as follows:
• First, use a one story facility wherever possible, since it usually provides more
usable space per investment dollar and usually it is less expensive to construct.
• Second, use straight-line or direct flow of goods into and out of the warehouses,
to avoid backtracking.
14. • Third principle is to use efficient materials handling equipment and operations. The next
section explores materials-handling fundamentals. Among other benefits, materials-
handling equipment improves efficiency in operations.
•A fourth principle is to use an effective storage plan on the warehouse. In other words, the
firm must place goods in the warehouse in such a way to maximize warehouse operations
and avoid inefficiencies. Stated simply, we are trying to utilize existing space as completely
and effectively as possible while providing both adequate accessibility and protection for
the goods we are storing.
•The fifth principle of good layout is to minimize aisle space within the constraints that the
size, type, and turning radius of materials-handling equipment impose. We must also
consider the products and the constraints they impose.
•Sixth principle is to make maximum use of the building’s height-that is to utilize the
building’s cubic capacity effectively.
15. •This usually requires integration with materials handling.
•Thus company should not make warehousing decisions once and then take them for
granted; rather, the company should monitor productivity regularly during warehouse
operations.
•While monitoring methods vary widely, the company should set goals and standards for
cost and order-handling efficiency and then measure actual performance in an attempt to
optimize the warehouse’s productivity.
•By improving productivity, a company can improve its resources uses increase cash flow,
profits and return on investment; and provide its customer with better service.
•To begin a productivity program, a company should divide warehouse operations into
functional areas and measures each areas productivity, utilization and performance,
focusing on improvements in labor, equipment and making comparisons with standards if
they exist.
16. Types Of Warehouse
1. Private Warehousing.
2. Public Warehousing.
3. Contract Warehousing Or Third Party
17. 1. Private warehousing
1.A firm producing or owning the goods may owns private warehouses.
2. The goods are stored until they are delivered to a retail outlet or sold.
3. Potential advantage of using a private warehouse is the ability to maintain
physical control over the facility, which allows managers to address loss, damage,
and theft.
4. When not in use they can rent in out.
5. The construction and maintenance of private warehousing can be extremely
costly.
6. All the expenses have to be carefully analyzed and evaluated. These are:
18. i) Fixed expenses & building and land acquisition cost which are high.
ii) Expenses incurred on ensuring that warehouses are properly equipped you
with material-handling equipment's like conveyors, fork lifts, hand trucks, racks
and Bins & dock levelers
iii) The office and record-keeping equipment necessary for successful
warehousing operations has to be budgeted for.
iv) To this must be added the cost of such item as fuel, air-conditioning, power,
& light.
V) The cost of maintaining insurance records and of the premiums paid for fire,
theft,& also for workmen’s compensation.
19. Advantages of Private Warehouse
• A) Degree of control: From inventory control, optimum space utilization,
maintenance of equipment, internal material flow, handling routines, supervision, &
associated cost control, the firm has direct control &clear visibility for the product
customer takes possession or delivery. Thus, this will allow the firm to integrate
function more easily into its total logistics system.
• B) Flexibility: With more control, there is greater flexibility of designing and
operating the warehouse to suit the needs of its customers and the characteristics of
products. This means that companies who have specialized handling for its products
find public warehousing viable. In addition, the warehouse can also be modified
expansion or renovation to facilitate product changes, which is not possible on a
warehouse.
• C) Better use of Human resources: There is greater care in handling and storage
when the firm’s own workforce operates the warehouse. This means that the
utilize the expertise of its technical specialists.
20. Disadvantages of Private
Warehousing
• A)Costly & less flexible: The major drawback t is too costly, because of its fixed size & costs.This means
that in the short run,the private facility cannot expand or contract to meet increases or decreases in demand.
demand is low, the firm still assumed the fixed costs as well as the lower productivity linked to unused
However, the disadvantages can be minimized if the firm is able to rent out part of its space. Moreover, it loses
in its strategic location options. They can’t change quickly to rapid changes in market size, location and
this may mean that they will lose an excellent business opportunity.
• B) High opportunity cost (high risk): ROI on other investments may be greater if funds are channeled into
other profit-generating opportunities. Besides, there is also a potential probability of not being able to sell the
in the later period due to its customized design.
• C) High start-up cost: Firms have to generate enough capital to build or buy a warehouse. A warehouse is
often a long, risky investment. Moreover, there is cost of hiring and training of employees, and the purchase of
handling equipment. The high cost involved may force the company to seriously consider public warehousing as
option.
21. 2. Public Warehousing
• A public warehouse rents space to individuals or firm needing storage, some provide wide
array of services including packaging, labeling, testing inventory, maintenance, local
delivery, data processing and pricing.
• All the foregoing cost factors operate in public warehousing as well. But in public
warehousing, the expenses are distributed consignments of other clients. Over several
other consignment of the clients.
• In most instances therefore the net result is lower cost for each. Warehousing has become
a highly specialized service and a public warehouseman can render better service with
greater flexibility for the user.
• A company running a private warehouse will have to compare costs incurred with the
total figure for the complete service through public warehousing.
22. Advantages of Public Warehousing.
• A) Zero capital investment in Warehousing: A major advantage is there is no capital
investment (eg. Leasing of building, material handling equipment and startup cost of
hiring and training personnel) from the user to do one’s own warehousing. The cost of
warehousing is a variable cost component.
• B) Provides Capability to Expand Market: For companies that are expanding, public
warehousing provides economical and practical means to reach out to new markets.
• C) Adjusts for seasonality: If firm’s operations has seasonality, then having public
warehouse allows the user to rent as much of warehouse space during peak season.
there is this distinct advantage of allowing storage costs to vary directly with volume.
23. Disadvantages of Public Warehousing
• A) Communication problem: There is a potential problem of incompatible computer
terminals and systems. They may not have another terminal just to suit the needs of just one
customer. Thus, the lack of standardization in contractual agreements makes communication
regarding contractual obligations difficult.
• B) Lack of specialized services: Spaces or specialized services needed may not always be
available in a specific location. Most public warehouse facilities provide local services which
be useful for the big MNC who requires more specialized services.
• C) Space may not be available: Public warehousing space may not be available when any
where a firms wants it. Shortage of space can happen in some places especially during peak
and this may affect the firm adversely.
24. 3. Contract Warehousing
• A variation of public warehousing is contract warehouse
• Contract warehousing is a specialized form of public warehousing.
• In addition to warehousing activities such warehousing provides a
combination of integrated logistics services.
• Thus, allowing the leasing firm to concentrate on its specialty. They provide
customized services. (Value-added services)
25. Advantage of Contract Warehouses
• A) Gives long-term contract and/or services.
• B) Operated by a specialized third party.
• C) Customized services/space over a long term.
• D) A trade-off between location flexibility for assured space over the contract
period and a lower price that is usually lower than warehousing rates.
• E) Contact for either an entire building or for a defined, fixed portion of square-
foot or cubic-foot space.
26. Disadvantages of Contract Warehouses
• A) In case of contract warehousing, the lessee or the client is expected to enter
into a contract for a specific period of time.
• B) The duration of the contract is generally three years. A public warehouse
allows the client to store goods for both short and long periods of time.
• C) In fact, the client can avail storage facilities for as short a period as one
month.
• D) Unlike contract warehouses, both private and public warehouses allow
flexibility when it comes to duration.
28. 1.)Presence synergies
Presence synergies refer to the marketing benefits of having inventory located nearby in a building that is
clearly affiliated with the enterprise. It is widely thought that customers are more comfortable when
suppliers maintain inventory in nearby locations. Products and customers that benefit from local presence
should be served from private or contract warehouse.
2.)Industry synergies
Industry synergies refer to the operating benefits of collocating (maintaining fied relationships) with other
firms serving the same industry. For example, firms in the grocery business often receive substantial
benefits when they share public warehouse facilities with other suppliers serving the same industry.
Reduced transportation cost is the major benefit since joint use of the same public warehouse allows
frequent delivery of consolidated loads from multiple suppliers Public and contract warehousing increase
the potential for industry synergy.
29. 3. Operating flexibility
Operating flexibility refers to the ability to adjust internal policies and procedures to meet product and
customer needs. Since private warehouses operate under the complete control of the enterprise, they are
usually perceived to demonstrate more operating flexibility. On the other hand, a public warehouse often
employs policies and procedures that are consistent across its clients to minimize operating confusion. There
are many public and contract warehouse operations that have demonstrated substantial flexibility and
responsiveness.
4. Location flexibility
Location flexibility refers to the ability to quickly adjust warehouse location and number in accordance with
seasonal or permanent demand changes. Example, in-season demand for agricultural chemicals requires that
warehouse be located near markets that allow customer pickup. Outside the growing seaso Fo however,
these local warehouses are unnecessary. Thus, the desirable strategy to be able to open and close local
facilities seasonally. Public and contra warehouses offer the location flexibility to accomplish such
requirements.
30. 5. Scale economies
Scale economies refer to the ability to reduce material-handling and storage
through application of advanced technologies. High-volume warehouses
generally have greater opportunity to achieve these benefits because they can
spread technology’s fixed cost over larger volumes. In addition, capital
investment in automated equipment can reduce direct variable cost. Public
and contract warehouses are generally perceived to offer better scale
economies since they are able to design operations and facilities to meet
higher volumes of multiple clients.
31. Factor affecting warehouses
Warehousing decisions play an important role in logistics management. A logistics
manager has to take various decisions with respect to warehousing. They are:
1. Types of warehouses
2. Number of warehouses
3. Warehouse location
4. Layout and design of warehouse
5. Size of warehouse
Size of the warehouse depends on various factors like capital, land acquisition cost,
nature of product, government formalities and regulations. The laws and acquisition
related risks have to be looked after as well.
