International trade management

International Baccalaureate Business Studies

Cover page

Massey University

College of Business

Introduction

This essay is about the different types of warehousing solutions available to an organisation. It begins with the role and importance of warehousing in the logistics system and then with different measurements, different types of warehousing solution will be presented to organisations.

Analysis

Roles of warehouse

When talk about warehouse, usually, people will have the idea that it is the place that can store raw materials and finished goods for some a period of time for a business organisation. For example, a manufacturer has to get a warehouse to store its raw material and inventory holds for sales and the warehouse capacity has to meet the normal operational needs of the organisation. Therefore, warehouse is a point in the logistics system where a firm stores or holds raw materials, semi-finished goods or finished goods for varying periods of time (Coyle, Bardi & Langley 2003) and warehousing includes a wide spectrum of facilities and locations. The warehouse performs several value-added functions in the logistics system. Warehouse can consolidate transportation and make it more economy. This function is more important when the organisation faces a lot less-than-truckload shipments. Warehouse can consolidate the LTL shipments and ship a volume unit to other destination. A second function of warehouse is the product mixing for customer order. An organisation will produce various products from separate plants and customer order will not only include one single product, therefore the warehouse can mix these products and efficiently meet the needs of various orders. Warehouse can also provide services. If the organisation has stored the very products that the customer wants, it will sure make them satisfied if the organisation can deliver the products immediately. At the same time, warehouse can also protect some contingencies such as transportation delays, supplier shortage or strikes. Therefore enough storage in warehouse will be useful if the some products are short. Last, warehouse can also used as a buffer in adjusting and smoothing operations. Therefore, warehouse will balance the demand and operation of the organisation. (Coyle, Bardi & Langley 2003) So we can see that warehouse is important in logistics systems and each organisation will design a warehousing solution that will be suitable for its situation.

Types of warehousing solutions

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Types of warehousing solutions

One of the basic standards to divide warehousing solution is from the ownership of the warehouse, that is whether to use private or public warehousing. This is a common distinction between warehouses. Private warehouse is the warehouse that the organisation purchases or builds by itself while the public warehouse is the space that the organisation rent it for according to its storage requirement. (Coyle, Bardi & Langley 2003) Public warehouses are used when the organisation can not justify its facility, or when they need flexibility in terms of available space and location. The major advantage of public warehousing is that it requires no initial private capital investment and space is rented as required. The public warehousing is suitable when the organisation has no large inventory level or has a high seasonal demand for warehousing space. So it will be economy for the organisation to rent the warehousing whenever needed. When entering a new market or an area, the company may also find a benefit to have a public warehousing because the sales level is not stable, so the inventory required also varies. So the public warehousing provides flexibility to the organisation and enable the organisation to react quickly to the change in demand or the transportation services. Generally public warehousing can offer the following services:

Bonded storage
Publicity display areas
Integrated data-processing equipment for incorporating public warehousing information into private plans,
Local deliveries
Unpacking, testing and order assembling operations
Improved protection from pilferage and natural hazards (Attwood1992)

Currently, there is a growing trend of public warehousing to use contract or third-party warehouse.

On the other hand, if the company has a stable demand and locates in the dense market area and the organisation wants to have control of its inventory, it is better for the organisation to have a private warehouse. If an organisation has multiple production lines produce various product, they can have a private warehouse because when the demand for one products decrease, they can use another product as replacement. So the warehouse is always fully used. In addition, the private warehouse should be located near the dense market area because less than load shipment will cost more. So, warehouse that closes to the market or the retailers will financially benefit the company. In addition, an organisation can have a better control if they have a private warehouse. The physical control will have fewer opportunities for the loss or damage to the goods. Further private warehousing can combine use of this facility with company’s other regional needs. For example, the sales and customer services can be in the same building, therefore total cost will be lower than having two separate facilities. (Coyle, Bardi & Langley 2003)With the development of just-in-time inventory and distribution systems, private warehouse become more suitable for those need. Because JIT only requires goods hold in transit, so the amount of inventory is reduced at any stage. Therefore it requires the supplier to be close to the production plants and the products near the market. So most retailing chain stores will have private warehouses because they have to handle huge amount of merchandises in the integrated system and they usually have a central major warehouse that can stock a wide range of products that meet the customers’ need.

Because of the fixed cost required by the private warehouse, therefore it requires relative higher throughput volume to make it financially economy. So if the total volume is less than the throughput volume, it is cost saving for the organisation to use public warehousing and if the volume exceeds the throughput volume, it will be more benefit to use private warehousing.

Considering the warehouse location, functions and numbers, there are centralised and decentralised warehousing solutions to an organisation. Several factors should be considered if the company wants to centralised or decentralised warehouse.

Source: Coyle, Bardi & Langley 2003

If there are a lot substitutes for the products and a high customer service need, the organisation may use decentralised warehousing because it will same time in transportation and reduce the loss of sales. When there are lot small volume purchases, it is also cost beneficial to use decentralised warehouse. But if the products are of high value, the centralised warehousing will be preferred. If the number of the warehoused is reduced, the inventory carrying cost will also reduce. It is also same for the organisation when they have a multiple production lines producing various products. When the storage of a certain product needs for special condition such as temperature and humidity, the use of fewer warehouses will reduce the investment on facilities and equipment.

In addition, based on the facilities, warehouse can also be categorised as simple, mechanised and automated warehouse. (Attwood1992). A simple warehouse is an open store that the all the goods are sorted, stored and picked up manually. The mechanised warehouse will use machines to do the stock handling while automated warehouse will use central computer to control all the stock handling and control.

So there are many different types of warehousing solution based on different standards.

Conclusion

Above all, warehousing solution is important in the whole logistics system and generally, warehousing solution can be divided into public and private warehouses according to the ownership. There are also centralised and decentralised warehouse when considering the location, type and functions of warehouses. Based on the facilities, warehouse can be categorised as simple , mechanised and automated warehouse. No matter which type warehousing solution the organisation, the organisation should let it to balance the imbalances between production and demand. The size, characteristics and types of the warehouses should be determined by the nature of the products, the length of time stock will be held, the area whether close or far away from the market, the cost of running and the characteristics of the demand or order pattern. (Gattorna & Walters 1996)

Reference

John J. Coyle, Edward J. Bardi and C. John Langley Jr (2003) The Management of Business Logistic, A supply chain perspective, 7th edition, Mason, Ohio, South-Western Thompson Learning.

Peter and Nigel Attwood (1992) Logistics of a Distribution System, Aldershot, England Grower Publishing Company Limited

J. L. Gattorna & D.W. Walters (1996) Managing the Supply Chain, a strategic perspective, Hampshire England, Macmillan Press Ltd