Role of Warehousing
Warehouses are shed-like buildings arranged with an open plan layout. They have minimal fixtures and fittings. The ordered goods are assembled using trolleys, fork lift trucks or automated systems. There is usually a large space for loading, unloading and moving vans and trucks. Warehouses may have loading bays through which trucks are loaded.
Warehouses are likely to be located in industrial areas where land is relatively cheap and they can occupy sites with sufficient room for a large building and for trucks to man oeuvre. Warehouses belonging to manufacturers will usually be sited on a factory site. Warehouses operated by wholesalers will have to be near the customers to save on transport costs. They will also have to be convenient for suppliers with good road connections. Regional distribution centres (RDC), the warehouses of large-scale retailers, will need to be central to the branches they supply with good road connections close to the main highways.
Functions of a Warehouse
- To provide storage for raw materials before manufacturer, components to be used in the manufacturing process, e.g. light, batteries for cars, machines and tools, semi-processed products which may be assembled in another factory, finished goods awaiting transport, sales or export.
- To protect goods from theft, deterioration, weather and damage. Warehouses may not be able to prevent deterioration but may help to extend the life of a product especially if goods have less chance of being stolen if they are locked in a warehouse than if they are left in the open air. One of the problems with warehouses sometimes is pilferage by the staffs who work there. Some years ago the new manager of a wallpaper company, brought in to improve the company, found that more wallpaper was being taken by staff to decorate their own houses than was being sold to customers.
- To help in stock piling. Warehouses act as reservoirs for production ahead of demand. Warehouses helps to balance out the supply of goods with the demand for them. It help to prevent goods flooding on the market as well as shortages of goods.
- To provide a place for any packaging, grading, sorting and labeling to take place before goods are offered for sale. Some goods maybe packed in smaller quantities or in attractive packaging. Some goods improve in quality with time. Products such as wine, spirit and cheese are often warehoused for some time to mature.
- To even out the supply so that prices are kept reasonably stable.
- To provide a place for product collection and distribution. Some warehouses such as regional distribution centres belonging to large-scale retailers are collecting points for the variety of products required in the branches of chain of supermarkets. From these warehouses, goods are distributed to the branches of the supermarket in the area serviced by the RDC.
- To offer special facilities, e.g. cold storage for storing perishables.
- To break bulk quantities into smaller quantities.
- To provide places where prospective buyers can inspect goods. Retailers may go to a wholesale warehouse. Retailers will need to go to cash and carry warehouses, be able to examine them and load them on to the trolleys.
- To enable production to be ahead of demand. Manufacturers usually make goods ahead of demand. They need warehouses, either their own, wholesalers’ or retailers’ warehouses until demand appears.
- To meet expected demand. If the rainy season is unexpectedly long, the demand for umbrellas and raincoats may increase. Unless there is surplus stock in a warehouse, this demand cannot be satisfied. In very hot weather, large quantities of bottle water, cold drinks and ice-cream will be consumed. Retailers may run out. Unless they can obtain emergency suppliers from a warehouse, they will miss valuable sales.
Importance of Warehouse in Trade
The main function of a warehouse is to provide storage between the time goods are produced and the time they are traded, either in the home market or exported.
Many goods are produced ahead of demand in very large quantities. They are transported in bulk to points close to their markets. From there they are distributed in much smaller quantities to consumers as they need them.
Delivery times have become an increasingly important factor for many businesses wishing to remain competitive. Manufacturers may operate ‘just in time’ deliveries of raw materials to economise in storage and to avoid typing up working capital in unused materials. They require supplies when they want to use them. Retailers want to economise on storage space so they require regular deliveries on time to prevent storages.
Consumers do not want to wait for goods. Shorter delivery times are used as a method of attracting them to buy goods. A company that can deliver the next day is going to gain trade over one whose goods arrive a week after the order has been placed. Goods need to be stored so that delivery times can be shortened. Warehousing and the logistics of getting goods to the consumer, using system which make them quickly available, is becoming increasingly important in trade.
Companies wish to expand their production and their trade which is not possible without adequate warehousing. Companies will use mass or batch production methods to produce goods in large quantities. They can then reduce the unit costs of production. Without adequate storage, this production would be wasted.
Warehousing also helps to reduce transport and distribution costs. Bulk deliveries are made to warehouses, e.g. RDC or wholesalers’ warehouses which maybe close to markets, e.g. shops. When orders are received, trucks or vas can take full loads to supply these shops. Many retailers own their own road transport to move goods from their warehouses to their shops. Without strategically placed warehouses across the country, these transport fleets would not function effectively and would not be worthwhile.
Effects of Warehouses on Seasonal Production, Demand and Price Stability
Warehouses play an important part in minimizing the effects of seasonal production. Products that are produced only at certain times of year such as potatoes, apples, rice, and mealie meal can be stored in warehouses and then released throughout the year. This enables everyone to have these basic commodities throughout the year. It also helps to stabilize prices. If all the mealie meal came on the market as soon as it was harvested, much of it would be wasted. The price would also be very low. For the rest of the year there would be no or little mealie meal available and the price would be very high. There would also be shortage and hardships among the many consumers who are dependent on it as a major part of their diet but who cannot afford very high prices.
Seasonal production should not be confused with goods for which there is only seasonal demand, e.g. summer clothing, garden furniture, greeting cards for festivals. These may be produced all the year round so that continuous production can be maintained. These products are then stored in warehouses awaiting demand.
It is however, possible that artificial storages can be created. Dealers withhold stocks to push up prices. If storages become noticeable to the consumer, many of them will buy even if they do not need the product at the time. Demand increases. Suppliers are limited. Prices will rise.