Chapter 36

You should be able to:

describe warehousing functions

evaluate the importance of warehousing to businesses and trade, including links with seasonal production, demand, protecting supply and price stability

Warehousing is required in every stage of production.

1. What is a warehouse?

It is a shed-like building with minimal fixtures and fittings used to store goods.

2. What does warehousing mean?

It means the provision of a place for the handling and storage of goods and materials until they are released for distribution in the local market or are shipped overseas.

3. State the functions of a warehouse.

Raw materials are stored in the warehouse before production starts; semi-processed products are stored until they are needed for further production, and the finished products are sent to the warehouse to await distribution to the final consumers.

Warehouse protects goods from theft, deterioration, weather and damage.

Warehouse acts as reservoirs for production ahead of demand. It helps to prevent goods from flooding the market as well as shortages of goods.

Warehouse even out the supply so that prices are kept reasonably stable.

To meet unexpected demand. For example, if rainy season is unexpectedly long, the demand for umbrellas and raincoats may increase. Unless there is a surplus of stock in the warehouse, they will miss valuable sales.

To provide a place for any packaging, grading, sorting, and labelling to take place before goods are offered for sale.

To break bulk quantities into smaller quantities.

To provide a place for some goods, like wine, spirits and cheese, to mature or improve in quality with time.

To offer special facilities, for example, cold storage for storing perishables.

Goods that are seasonally produced are stored in large quantities in the warehouse so that the supplies can be spread out throughout the year to meet the regular demand for the goods.

Goods that are seasonal in demand can be stored in the warehouse during the off-peak season and are released only whenever they are needed, like festive cards, Christmas decorations, winter clothing, etc.

4. What is seasonal demand?

They are goods produced all year round for which there is demand only at certain times of the year, e.g. Christmas decorations for Christmas season.

5. What is seasonal production?

It is the goods produced at certain times of the year. e.g. avocado during spring season.

6. State the importance of warehousing to businesses and trade.

Warehousing provides temporary storage and enables production, marketing and sales to get on with their important roles.

In case of seasonal products, the supply of products remains unchanged due to storage facilities provided through warehousing. Now the seasonal products are available throughout the year.

As many goods are produced in very large quantities ahead of demand, warehousing bridges the time-gap between when goods are available and when they are actually required.

Prices of goods in the market are stabilised because supply is regulated to meet demand.

Warehouse is generally strategically located near the markets so that the goods can be delivered promptly and at low transport cost thus saving on transportation costs.

As consumer usually prefer to receive their ordered goods as soon as possible, retailers with their warehouses located near to the city can provide shorter delivery times, thus attracting more customers to buy from them.

Some wholesalers have turned warehouses into retail outlets where their customers can purchase goods directly from them. The savings in costs by the wholesalers, like lower overheads, no transport costs, bulk purchases and cash sales, are passed onto the consumers in the form of lower-priced goods, like the cash-and-carry warehouses.

Exporters have their goods ready in warehouses near ports or points of shipments. Similarly, imported items are stored as soon as they arrive on ports to avoid any port fee and duties. Imported goods that are to be re-exported have to be stored in bonded warehouse.

7. What is JIT? Define the term.

It means Just In Time. The JIT system promotes delivery straight from the manufacturer to the consumer without the use of warehouses as intermediaries. Retailers wishing to economise on storage space may prefer the use of JIT system.

8. Why would a manufacturer operate JIT deliveries of raw materials?

It is to economise on storage and to avoid tying up working capital in unused materials.

9. What would happen if warehousing does not exist?

Without warehousing, there would be shortages of some goods, an over-supply of other kinds of goods and prices would vary considerably throughout the year.

10. Where should warehouse be located?

Somewhere with good transport facilities such as road and rail networks.

In general, 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 large vehicles, like trucks, to move around.

Warehouses belonging to manufacturers will usually be sited on the factory site.

Warehouses operated by wholesalers should be located somewhere within convenient proximity of its customers.

Warehouses of large-scale retailers, like RDCs, will be located central to the branches they supply with good road connections close to main highways.

Some warehouses are located near railways, airports or seaports so that goods can be unloaded directly after arrival, like the bonded warehouse.