Definition of a warehouse
It is a designated place where goods are stored to balance demand & supply uncertainty, to serve customers in much better way, to consolidate upstream flow and distribute downstream flow as per requirement, to do last mile value addition such as packaging, kitting etc. and to reduce last mile distribution cost. Warehouses permit high‐volume transportation over long distances between factory and markets. Strategically locating regional warehouses in market areas minimizes the high cost of small‐volume shipments from the plant to individual customers. Warehouses also improve service levels by locating inventory close to the customer for quick delivery. They thus serve both a transportation and marketing purpose.

Warehousing was a customer’s function conventionally anywhere in the world. Customer to protect himself from shortages at the time of inclement weather always used to store provisions and other utilities in his house. Consumer’s own stores were underground cellars, smoke houses to store variety of items. Poor communication infrastructure was mainly the cause for this storage by customer. Producers and tradesmen conveniently shrugged off their responsibility for storage and passed it on to the customer who was left with no option. Traditional concept of warehouse as store or godown has undergone major change now. Warehouse is considered a value adding facility now, playing a remarkable role as a function of logistical management.
As the times changed, manufacturer started applying modern scientific management techniques to improve productivity in his factories. Manufacturer visualized the need of a buffer between factory and market, now the warehouse became storehouse to stock production. This role of the warehouse supported production.

The store did not receive any engineering attention to handling and storage activities. All activities were manual as the labor was cheap. Items getting lost, damage in handling and accidents were rampant in those warehouses. Storing as much as possible was the main function of warehouses. Post war thinking made inventory shrink and production became streamlined to demand as the market started changing and retailers encountered a new breed of customers. Warehouse now became a support for marketing rather than for production as was the case earlier. Demand for variety in every product increased and retailers experienced the need for a facility to hold the stock and provide the product mix demanded by the market.
Production units started using the concept of warehouse as a facility to optimize production [minimize cost]. Decades of 1960 & 70 saw engineering focus on material handling, storage & information.

Concept of strategic storage
We have discussed earlier that warehouse is not a store but a facility that yields economic and service benefits. But we cannot forget that storage also can be a value adding activity under special situations like stock piling and spot stocking.

Objectives of Warehousing
· Provide timely customer service.
· Keep track of items so they can be found readily and correctly.
· Minimize the total physical effort and thus the cost of moving goods into and out of
· Provide communication links with customers.

Characteristics of Warehouses
As with other elements in a distribution system the objective of a warehouse is to minimize cost and maximize customer service.
i. Warehouse should be located at a convenient place near highways, railway stations, airports and seaports where goods can be loaded and unloaded easily.
ii. Mechanical appliances should be there to loading and unloading the goods. This reduces the wastages in handling and also minimises handling costs.
iii. Adequate space should be available inside the building to keep the goods in proper order.
iv. Ware houses meant for preservation of perishable items like fruits, vegetables, eggs and butter etc. should have cold storage facilities.
v. Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture and pests.
vi. Sufficient parking space should be there inside the premises to facilitate easy and quick loading and unloading of goods.
vii. Round the clock security arrangement should be there to avoid theft of goods.
viii. The building should be fitted with latest fire-fighting equipment to avoid loss of goods due to fire.
Warehouse Activities
To operate a warehouse there are several processing activities that have to take place and the efficient operation of the warehouse depends upon how well these are performed:

  1. Receive the Goods. The warehouse accepts goods from outside transportation or an attached factory and accepts responsibility for them. The warehouse must:

· Check the goods against an order and the bill of lading
· Check the quantities
· Check for damage and if necessary fill out damage reports
· Perform inspection if required

  1. Identify the Goods. The item must be identified with the appropriate stock‐keeping unit (SKU) number (part number) and the quantity received recorded (Place, label, color code)
  2. Dispatch Goods to Storage. The goods must be sorted and put away. Consolidated order is packaged and directed to right transport
  3. Hold Goods. The goods are kept in storage and under proper protection until needed; security against pilferage and deterioration
  4. Pick Goods. Items required from stock must be selected from storage and brought to a marshalling area

6. Marshall the Shipment. The goods making up a single order must be brought together and checked tor omissions or errors. Order records must be updated. check the items of a single order for completeness and order records are updated

  1. Dispatch the Shipment. The order must be packaged, shipping documents prepared, and the goods loaded on the right vehicle.
  2. Operate an Information System. For each item in stock a record must be maintained of the quantity in stock, received, and issued and where the SKU is located in the warehouse.
  3. Preparing records and advices- of stocks and replenishment requirements

In various ways all of these activities take place in any warehouse. The complexity depends on the number of SKUs handled, the quantities of each SKU, and the number of orders received and filled. With any particular mix, to maximize productivity and minimize cost, warehouse management must be concerned with the following:
Categories of Warehouses
General Warehouse
Where goods are stored for relatively long periods and where the prime purpose is to protect goods until they are needed. There is little handling, little movement, and little relationship to transportation. Furniture storage or a depository for documents is examples of this type of storage. It is also used for inventories built in anticipation of seasonal sales.
Distribution Warehouse
Has a dynamic purpose‐movement and mixing. Goods are received in large‐volume uniform lots stored briefly, and then broken down into small individual orders of different items required by customer in the marketplace. The emphasis is on movement and handling rather than on storage. This type of warehouse is widely used in distribution systems. The size of the warehouse is not so much its physical size as it is the throughput or volume of traffic handled.
Types of warehouses
· Private Warehouses
Owned or leased by the product owner. Ownership is not the criterion.
Control is fully with the product owner. Product owner exercises overall control on management.
Changes can be made to integrate the warehouse with rest of the logistical system
Provides market presence to the product owner
Considered to be cheaper as there is no profit to be added to the cost.
· Public Warehouses
Available to companies on hire.
Overheads get distributed over a large customer base. This makes the usage cheaper.
As warehousing is their core business public warehouses offer expertise in management.
Flexibility of location: if the product owner needs to change the location of warehouse, it is easier if the current warehouse is public. It is only a question of terminating the contract and starting a new one. But if the warehouse is owned, one has to dispose off the current facility and procure a new one. Significant scale economies, several users and resultant volume, benefits in transportation costs can be gained by utilizing these facilities.

· Contract warehouses
Contract warehouse operators take over logistics responsibility from manufacturing company. Warehouse owner offers long term relationship and customized service. Product owner gets the benefit of management expertise of the warehouse owner.
As the warehouse owner centrally controls several warehouses, product owners get the benefit of shared resources with several clients. This brings down the cost.

General classification of Public warehouses
1. General merchandise
2. Refrigerated
3. Special commodity
4. Bonded
5. Household goods & furniture

Economic and service benefits of Warehouses
Economic benefits:
Movement Consolidation:
Reduction in transportation cost by consolidating movement. Several plants supply their products for the same customer to a warehouse and from this warehouse the products are sent in bulk shipment to the customer.


Consolidation warehouse
Customer X

[Product A+
Product B+ Product C]
Plant C
[Product C for
Customer X]

Plant B
[Product B for
Customer X]


Goods from a plant for various customers are shipped to a warehouse obtaining the benefit of bulk shipment and then sent to the customers.

Customer X
Plant A
[Product A for
Customers X+Y+Z]

Customer Y

Customer Z

Cross-dock: Several plants send their goods to the warehouse and from the warehouse the goods are moved across the dock to various customers as per order. A chain of retailers would like items as per movement of their stocks.
Processing/Postponement: products uncommitted to a customer are sent to the warehouse and as per order labels are attached to the products. Process of committing the product is postponed until just in time.

Customer X
Plant A
[Product A]

Cross Dock warehouse
Customer Y
Plant B
[Product B]
Customer Z

Plant C
[Product C]

Fig. [3]

Customer W
A+B+ C

Stock piling:
Agricultural product which are produced during harvest are sold round the year. They need stocking. Woolen garments are sold during winter but produced earlier.

Service benefits:
Spot stocking: stocking of products in strategically located warehouses during demand sensitive period is called spot stocking. Agricultural implements are spot stocked during the growing season.

Assortment: a wholesaler would like to stock assortment of items from different manufacturers so that his customers [retailers] can choose what they want. Wholesaler can stock assortments as required by customers.

Mixing: In the warehouse, products from various plants are received and combinations are prepared as per the order and sent to customers.

Plant A
[Product A]
Customer X
A+ B+ C+D
Plant B
[Product B]
Customer Y
A+B+ C

Plant C
[Product C]
Customer Z
A+B+ D

Production support: Components and subassemblies required by several assembly lines are stocked economically in a common warehouse and supplied to lines

Vendor A
[part A]
Assembly Line X

Vendor B
[part B]

Assembly Line Y

Vendor C
[part C]

Assembly Line Z

Market presence: offers quick response to customer demand.

Warehouse Site Selection
Location considerations: While deciding the location following factors are to be considered keeping potential locations in mind.
1. Serviceability- Proximity to customers or ports
2. Availability of Transportation
3. Infrastructure- Roads, Power, Water, Other utilities
4. Availability of Skilled Manpower
5. Government Regulations
6. Strategic Factors –monitoring & control, pre-determined sites, future plans

Other considerations include:
1. Cost of distribution to market area.
2. Transport requirement and facilities.
3. Cost of transportation.
4. Presence of Competition.
5. Availability and cost of utilities [power, water, gas, sewerage disposal] and cost
6. Availability and cost of labour supply.
7. Any specific commitments made by the company to any ‘A’ category customer.
8. Local taxation levied by the local authority in the area.
9. Community attitude towards business from outside.
10. Restrictions associated with warehouses. In some areas some type of products are not permitted to be stored.
11. Future expansion. Whether the location is able to accommodate organizations plan to expand in future as per their strategy.
12. Cost of land.
13. Topography and soil condition: if the warehouse needs special and heavy equipment for material handling and if the incoming loads are heavy then firm soil and flat topography are ideal. If these conditions are not available, substantial amount of money is required to be invested.
14. Possibility of title change to the land: Are the title change formalities straight forward? In some situations this is complex, like title to MIDC land.

Ideal warehouse location
1. Protects of stock against moisture, insects, dust, fumes, pests, thieves, fire etc.
2. Provides facilities for ware housing activities like plenty of water for drinking and fire fighting.
3. Facilitates economics of operation.
4. Away from sources of detrimental conditions.
5. Easy access from highway, railhead and waterfront. No geographic barriers. There are no natural barriers like river or steep hills
6. Proximity to customers.

Principles of Warehouse design
Design criteria: following are the factors to be kept in mind while designing the warehouses.
Product flow: warehouse should be designed round material handling flow. Movement of material should be kept at a minimum.

No of storeys: one is ideal as against limitations of space. Cost of land prohibits having only one story as this would need large area.

Height utilization: principle of cubic space, principle of ‘go vertical’, e.g.-car parking in Japan. Limitation on this concept is posed by limitation of handling equipment, fire safety rules, insurance regulations and rules and regulations imposed by the state

Warehousing strategy
Of what type?
Contract or Public?

Presence synergy: a private warehouse provides strong market presence to a company. This has a psychological impact on the customers and also provides physical presence close to the customers for prompt response to customers. Industry synergy: if several firms serving the same industry collocate themselves benefits in transportation cost result. These firms can share several facilities specially products handled are same.

Operating flexibility: management control is full in a private warehouse.

Location flexibility: change in location and increase or decrease in number of warehouses is very simple if public warehouses are used. This is important for seasonal demands.

Scale economies: high volume handling results into benefits due to economies of scale. This can happen when highly capital intensive handling equipment is used. Public warehouses can invest in technology as they serve a large client base.

Private Contract Public


Presence synergy


Industry synergy


Operating flexibility


Location flexibility


Scale economies

Warehouse Costs
Cost of handling and holding the materials in warehouse and costs of Order Processing, Inventory, and Lot Quantity are components of warehouse costs. The costs of operating a warehouse can be broken down into capital and operating costs. Capital costs are basically those of space and materials handling equipment. The space needed depends on the peak quantities that must be stored, the methods of storage, and the need for ancillary space for aisles, docks, offices, and so on. The major operating cost is labor and the measure of labor productivity is the number of units (e.g. cases) that an operator can move in a day. This depends on the type of materials handling equipment used, the location and accessibility of stock, warehouse layout, stock location system, and order‐picking system used.