41

I WAREHOUSING I

scientifically store, handle and retrieve business documents that business firms otherwise find difficult to
handle, as it is neither their core activity nor do they have any expertise in the preservation documents.
KarRox has a dedicated warehouse of 2 lakh sq ft and a fleet of specially designed vehicles to transport
documents from the clients' premises to their warehouse and vice versa. They ensure delivery of any
preserved document to the client within four hours, anywhere in Mumbai. Their customer base covers
leading banks, corporate business houses, and, insurance companies.
Source: Websites, Press Releases and Company Brochures

4.2 WAREHOUSING FUNCTIONS

The warehouse is the integral part of the logistical system and the effectiveness of customer
service, depends to a great extent, on the way warehouse operations are carried out. Broadly
speaking, the warehouse is a service function in the supply chain of the company and it performs
the following functions:
Material Storage Function

The primary task of a warehouse is to store material till it is delivered to the customer or end user. As
the manufacturing and consumption cycle never match, manufactured material has to be stored
somewhere till the demand for the same is generated and delivery is confirmed. In fact, storage is
designed to accomodate the following four functions:
Hold Holding is the most primary function of the warehouse for finished products ready for market

delivery. Depending on the demand or order booking pattern and the delivery schedule promised to
the customer by the marketing department, goods are despatched from the warehouse. At the
warehouse there is a continuous inflow and outflow of material. A proper record of the material,
which goes in and out, has to be maintained for information on inventory levels at any given point of
time. The area allocations for materials at different points of time is necessary to retrieve the material
as and when required for further delivery to a particular customer or markets. Hence, the material
holding function has to be carefully planned considering variables like product categories, product
mix, product charact teristics, shipment arrival time, expiry dates etc.
Manufacturing
Plant

Warehouse
(Finished Goods)

Customer

Figure 4.1 Finished goods warehouse

Consolidation If supplies are originating from various sources in small quantities, it may be

economical to collect these small shipments at one centre, to combine them, and make into a large
shipment to send it to the customer. Consolidation will ensure cost saving on freight.
For import or export of goods for large buyers, whose requirement does not warrant large
volumes for shipment from each source, consolidated shipments ensure potential cost savings. In
such cases planning a warehouse for shipment consolidation may be the ideal proposition. The
cost savings will offset the cost of setting up a place for consolidation.

42

I LOGISTICS MANAGEMENT

Source 1

C Source 2

Buyer 1
C minadacin _______

Warehouse

Source 3

C-Buyer 2
Buyer 3 Th

Figure 4.2 Consolidation warehouse

Break bulk The function of this facility is directly opposed to that of the consolidation warehouse.
Here, material that has arrived in bulk is divided into small shipments to deliver to the end customer.
Bulk cargo of fertilisers. oil, and chemicals coming from the manufacturer is broken into small consignments as per the requirements of buyers.

CustomerLD
eanufacturIng

Plant

13reekbullt
Wareho

Customer

Customer 3.)

Figure 4.3 Break-bulk warehouse

Distribution warehouses of manufacturing firms routinely break bulk. The firm saves substantially on
freight by despatching bulk shipments to its regional distribution centres, where they are divided into
small packets for further despatch to the end user, as per quantity requirements.
Cross docking This is similar to the break bulk activity, except that it involves multiple suppliers. The
usage of warehouse is for a short period of time. The material arriving in bulk or in fully loaded trucks is
broken into smaller consignments for further despatch to customers. The material stays in the
warehouse for a maximum of 48 hours. Cross docking is most commonly used in retail chains wherein
the mother warehouse receives different materials from multiple suppliers, which is divided into smaller
consignments or sorted (break bulk), and consolidated (repacked in small consignment) for despatch to
various retail stores, as per requirements.
Mixing A warehouse is sometimes used as a product mixing point in the case of companies having a
number of plants manufacturing different components, which are combined, at a convenient place, to
make the final product.

WAREHOUSING I

43

PlantA
(Ingredient
1)
Plant A

<Customer 2")

(Ingredient
Plant A

C u s to m e r D

(Ingredient

Figure 4.4 Mixing warehouse

The process involved is simple mixing. Orders can be fulfilled without mixing, by sending the ingre'
ass in small uneconomical volumes from individual plants to the customer. However, transportation as
becomes prohibitive in the shipment of individual ingredients to customers. A common mixing peke
permits large volume shipments of ingredients to a single location where they are assembled and
iimpatched to the customer in sizable lots in order to economise on transportation cost.
raatponement With postponement, the anticipated risk of finished goods inventory maintenance is
minced considerably. Parts and components are warehoused at strategic locations and final assembly

*kept on hold till the customer places or modifies the order. Strategic suppliers in the supply chains are
seed to postpone the delivery of parts till other critical items required for assembly arrive at the
facturing plant. Thus, the postponement function of the warehouse reduces the risk of finished pods
inventory and space blockage.
Peddng This is the most important function carried out in the warehouse after break bulk operation.
Be repacking of material as per the ordered quantities of the individual customer, is done at the
warehouse. The packs are labelled and marked as per packaging regulations or as per requirements
of the customer.

Illetsrial Handling Function

function is divided into the following three activities:

Loading and unloading The unloading activity is performed when goods arrive at the warehouse.

I
a
U

The material is offloaded from the transportation vehicle. Loading is the last function performed in the
warehouse. The material packed in boxes is loaded on to the transportation vehicle at the loading area.
Lading includes additional efforts of bracing the load to prevent damages.
activities are carried out either
mantle or with the help of material handling equipment. The incoming material, which is unloaded, has

Material movement (to and from the storage area) These

to k moved to its assigned place in the warehouse for temporary storage, while during order pickup the
mistrial has to be moved from storage to the packing area and then to the loading area. For material
movement, the most common equipment in use are the trolley, crane, conveyor, and forklift.
Order filling The final material handling activity is order filling. This includes the selection of mate-ell

from various lots at various locations in the warehouse, as per the customer's order. This activity

44

LOGISTICS MANAGEMENT I

is done manually or with the help of robots. The order cycle time, which is the most critical parameter
in customer service, is very much dependent on the speed of material picking.
Information Handling Function

For effective and efficient customer service, it is essential for marketing personnel to know the availability of stocks and the likely despatch schedule. Also, at any point of time it is of crucial importance
to the top management, to know the inventory level and its impact on the cash flow of the firm. This is
possible with the help of a proper warehouse information system. Information regarding the following
is also required:
Goods inwards
Inspection and auditing
Goods outwards
Stock outs
Excess stocks
Invoicing
Warehouse expenses
Transit damage and breakage
Consignment tracking
Information is power and it helps in taking speedy decisions in today's highly competitive environment for building a competitive edge over the rivals. Hence, a proper warehouse information system
can considerably enhance the quality of customer service, to both internal and external customers of
the organisation leading to customer satisfaction.
4.3 WAREHOUSE OPTIONSA STRATEGIC DECISION
For acquiring warehouse space. the following three options are available:
Private warehouse
Public warehouse
Contract warehouse
Considerations for exercising these options depend on various factors such as product characteristics, demand fluctuations, investments, cost of operation, degree of control, scale economics etc.
Table 4.1 Warehouse Options
Private Public

Flexibility in

Contract

Investment
Material handling,

High

None

Location

Location

Very little

storage and throughput planning

Cost per unit stored

Inversely related to volumes

Low

Inversely related to volumes

Level of control

High

Low

Medium

Adequacy of goods stored High

Due to change in market
Risk
demand
centres

or

consumption

Low
Minimal

High
Minimal

I WAREHOUSING I

45

The warehouse option is a strategic decision having a long term effect on system efficiency and
effectiveness. The option may be exercised after a thorough evaluation of the logistics system design
mix. Firms invariably go in for a combination of the above three options at different locations.
Private Warehouse
Private ownership of storage facility refers to having the entire facility under the financial and administrative control of the firm, ie, the firm owning the product operates the warehouses. The facilities may
either be owned by the firm or taken on lease, for a period of three to five years. These facilities may
include a production oriented captive warehouse or a distribution warehouse located in the field for
customer service. Private warehouses are an attractive proposition under certain circumstances, such
as:
Product specific material handling and storing facilities are required, which are not available
with other options
Volumes handled are high, ensuring full capacity utilisation and benefits of scale economics
A high degree of control over the operations is required
The benefits of private warehouses are flexibility, full management control, and lower operating
cost. Private warehouse operating cost is less, as they do not have a profit markup. Material handling
and storage facility can be changed as per product mix, which is not possible in the case of public or
contract facilities. Hence, there is complete flexibility. Private warehouse facilities can be planned
close to markets to service the customer efficiently and effectively. This enhances customer
confidence in the supplier.
Public Warehouse
Public warehouses are similar to private carriers in transportation service. Firms having warehousing
space. storage facility, and material handling equipment for their own use, provide these services to
others as well. These warehouses are extensively used in logistical systems. Public warehouses are
designed for handling the most general packaged products or commodities, which do not require
specialised storage or handling arrangement. The products normally stored are food grains, paper
rolls, bulk material (cement, fertilisers), furniture, chemicals etc.
Bonded warehouses under 'customs' control are mostly often public warehouses licensed to store
goods meant for exports or imports till the time they are cleared by the customs authority for further
movement.
The public warehouse provides financial flexibility. Newly formed firms, desirous of expanding
their distribution network need not invest in developing a private warehouses. They have the option of
hiring space in a public warehouse and channelling their funds into other productive activities. This
will substantially improve their performance and thereby increase return on investment. Public
warehouses allow locational flexibility. Due to geographical changes in consumption centres, firms
can close storage facilities in one market and open them at other places without any financial losses.
The greatest disadvantage of a public warehouse is the absence of control over operations. As
product specific facility is not available, product damages during storage and handling may be on the
higher side. The speed of order fulfillment is slow/resulting in a lower level of customer service.
Economies of scale can be achieved with public warehouses because of volumes generated through
a large number of facility users. Transportation charge can be considerably brought down,
leveraging large volume shipments of assorted products from various depositors.

46

I LOGISTICS MANAGEMENT

Contract Warehouse
These are the product specific warehouse facilities acquired for a specific period against fixed charges.
Contract warehouses can provide the benefits of both private and public warehouses. This facility
provides economies of scale, flexibility, and customised facilities. Resources like labour, material handling equipment, storage arrangement, and communication equipment can be shared with depositors
from the same industry to economise on operating costs. As the facilities are product specific, product
damages are few. The large volume will apportion fixed costs with co-users.
Obviously the choice between the above options will depend on the demand pattern of the product,
volumes handled, geographical location, seasonality of the product, standardisation of product packaging. financial strength of the firm. service level expectation\ of the customer. and competition.
4.4 WAREHOUSE SITE SELECTION
The consideration of warehouse site selection revolves around two major factors, ie, service and cost.
Product availability can be greatly enhanced by locating the warehouse near the market. Smaller and
frequent deliveries, which customers prefer nowadays, can be organised. This will enhance customer
confidence in the supplier. However, the transportation cost, which is the major element in logistical
cost, depends on the location of the warehouse. The other factors affecting site selection are:
Infrastructure The availability of proper infrastructure such as approach roads, utilities (water, electricity, communication), and labour has a great effect on the efficiency and effectiveness of warehouse
operations. For cold storage warehouses, the availability of electricity is a major factor influencing site
selection. The non-availability of proper road or rail siding facility will have an adverse effect on the
operations of the warehouse and result in transportation costs going up considerably. The lack of
infrastructure, such as wagon platform and material handling equipment, may pose problems in the
loading and unloading of materials and special provisions may escalate cost.
Market Distribution warehouses arc located in proximity to markets or consumption centres for
offering better service to customers. Frequent deliveries in small quantities, as required by the custom ers, can be easily organised within limited geographical area coverage.
Access The location of the warehouse has the greatest effect on primary transportation costs. Diffi culty in access will have influence on transportation cost.
Primary transportation cost Transportation cost is the largest component in product cost, particularly
for low unit price products. The location of the warehouse will have the greatest influence on primary
transportation cost. The product demand pattern will influence transportation cost in two ways
on the frequency of truck trips and on the loading pattern (full or partial) of transportation
vehicles.
Availability The availability of warehousing space in urban areas, particularly in metros, at cheap
rates is a remote possibility. In such cases storage has to be shifted beyond municipal limits, where
space is available at a considerably cheaper rate. However, this arrangement may add to the
transportation cost.
Product The type of product will have a profound effect on the number of warehouses required and
their location. For example, perishable products need to be delivered to the cutomer within their expiry