What’s it: Warehousing is a set of activities involved in receiving and storing goods in a warehouse, then preparing them for sending back. Warehousing is highly essential for the smooth running of a business. If effective, it makes goods available quickly when needed.
Why warehousing is important
Warehousing or storage is an important part of logistics management in addition to transportation and distribution. The two are closely related, and sometimes logistics companies offer both services at once.
Warehousing facilitates the storage of goods, including packing and shipping orders. Efficient warehousing provides economic benefits for both businesses and customers. Also, choosing the right type of warehousing has implications for logistics costs and delivery services.
Warehousing is useful for improving inventory control and tracking. If managed properly, companies can meet demand promptly. They can also update accurate stock information. By storing in warehouses, they also avoid damage to goods before they are sent back.
Types of warehousing
Businesses need to decide how best to store their inventory. Three important criteria for choosing a warehouse are cost-effective, easily accessible, and well maintained.
The two types of warehousing are:
- Centralized warehousing
- Decentralized warehousing
Centralized warehousing is when a company selects and manages one central warehouse to store all of its stock. From the warehouse, the company then distributes the goods to the destination.
Because it handles many goods, a central warehouse usually requires a reliable inventory system and a high automation level.
Advantages of centralized warehousing
Centralized warehouses are often located near good infrastructure, so they are easily accessible. Because it is centralized, suppliers ship to one location. Thus, it reduces shipping costs. Of course, the warehouse location must be close to them.
Also, companies can obtain economies of scale from large orders. They also benefit from a high degree of automation for handling goods.
More organized is another advantage. Companies can recruit specialized staff, equipment, and inventory systems to manage goods in the warehouse. That makes tracking and maintenance more manageable and improves efficiency. They can also implement standard procedures, thus saving more handling time.
Companies also do not need to spend a lot of time coordinating several warehouses as in decentralized warehousing. That way, they can more actively focus on the needs of their customers.
Centralized warehousing also reduces duplication of stock and administrative costs.
Disadvantages of centralized warehousing
High costs arise from the need for special equipment and extensive storage facilities. Due to their large and complex size, it may increase waiting and delivery times, causing delays in receipt of goods.
Wage costs also increase because companies need specialist staff to manage stock storage and distribution. A further disadvantage is low supply flexibility because companies find it challenging to meet special requirements or needs.
Lastly, keeping a large amount of stock can increase the likelihood of waste. If the company serves multiple destinations with different locations, centralized storage makes transportation routes longer and more expensive.
Decentralized warehousing is when a company operates several warehouses in several different locations. Each warehouse is responsible for ordering and keeping their own stock.
Factors to consider in choosing decentralized storage are destination locations and coordination between warehouses. The company chooses this type of warehousing if it serves several different locations, thereby shortening shipping routes.
Advantages of decentralized warehousing
Decentralized inventory can be accessed more quickly, reducing delivery delays. The company places several warehouses near the destination, thus making delivery times shorter.
Decentralized storage allows for high shipping flexibility. The company can hold several stocks in anticipation of increased demand at each location.
Since they are close to the destination, companies can be more responsive to local needs and changing markets. Delivery time and transportation costs are also lower because it is close to the destination.
Disadvantages of centralized warehousing
Decentralized warehouses create lower economies of scale because they handle a smaller amount of inventory than centralized warehouses.
Companies must place several stocks in each warehouse to anticipate fluctuations in demand. So, overall, the minimum stock will be higher.
Also, the level of automation is low when compared to centralized warehousing. Companies have to pay more expenses to control inventory in each warehouse.
Further disadvantages are disorganization and delays as the company does not have specialist staff handling stock. The company has to coordinate several warehouses at once. That increases the risk of misallocation, where the items ordered are not in the correct warehouse location.