Warehousing is the systematic process dealing with the storage and timely delivery of goods. Storage and warehousing is an integral part of the logistics and supply chain, dealing with storage, packaging, and delivery. Warehouses store finished products when they are in excess and slowly release them when required, keeping the whole process very smooth and fluent. If you are looking for all the information on why warehousing is so crucial, you are at the right place. In the write-up, we will be discussing the advantages and importance of warehouses in the supply chain
So, let’s get started!
What is a supply chain?
The supply chain hints at all the steps a company takes in converting raw materials to finished products, from storing raw materials sent by suppliers to sending them to manufacturers and sending the end products to retailers or end-users. The management of this whole process is called Supply Chain Management (SCM). The main objective of SCM is to ensure max efficiency and profit with minimum risk. This objective is achieved via systematic management of production and delivery of goods
Models of Supply chain:
There are various supply chain models, and a company may select the one that suits them best. This choice is made by keeping the company’s structure and goals in mind.
The three main models of the supply chain are:
- Continuous model
- Flexible model
- Fast chain model
1- Continuous model:
This supply model is ideal for companies that produce the same kind of products throughout the year, and the products don’t have a lot of varieties. In this supply chain model, the products are high in demand and repeatedly require no changes in design. And the only goal of this model is to ensure the smooth flow of raw materials continues and finished products flow out.
2- Flexible model:
This model requires the most intelligent management since these companies sell very high products in demand during the ON season and go out of demand in the OFF season. Thus, they need to start the production and promptly stop it; otherwise, they will face additional expenses, such as raw material, labor, and storage.
3- Fast chain model:
This type of model is used by companies that focus on changing market trends and target them. This model requires a very fast pace from start to end. The goal is to get products to market as soon as possible. For example, if something is trending on the TV, like a TV show, this supply chain model will target the fan base for that particular show. A keen eye is needed to succeed in this type of business.
Importance of warehouses in the supply chain:
Warehouses serve many important purposes within the supply chain. Here, we will discuss a few of them.
Seasonal production:
Some things are only made for a single season, but they are still used after the season. These non-seasonal items are made available by warehouses. For example, wheat is harvested in summer but used throughout the year.
Specific food and clothes are more in demand during a specific season, and these warehouses are the perfect place to store them until they are in need again. Discarding out-of-season items can be very costly and not very environmentally friendly. Due to modern warehouses and technological advances, seasonal products can outlast their season.
Production size:
One of the things that can affect the production of goods is the storage capacity. Due to ample storage space in warehouses, businesses don’t need to cap their production capacity. They can easily store surplus goods in the warehouse and deliver them to the customers when their demand arises.
Strategic location:
The location of a warehouse can make or break your business. If your company’s products are potentially hazardous, you must keep your warehouse away from the city. But this can increase the time taken to deliver your goods. If your customers have spread in the town, then a warehouse in the city’s center can be ideal for fast logistics and delivery service. And if you have international-based customers, then a warehouse near the seaport or airport will be the best option.
The location of a warehouse needs to be selected with great care, keeping in mind the nature of products and customers’ location.
Continuous supply of raw materials:
Almost every industry needs raw materials which they use and create finished products ready to be used. Due to a shortage of raw materials, your production can stop, thus giving you a loss of billions of dollars. Warehouses can be used to store final products and their raw materials, which provides companies with a quick backup in case they ever face a shortage of raw materials. Storing goods in warehouses allows the company to produce more goods and increase its production without fear.
Packaging:
Warehouses are used not only to store goods but also to pack goods produced by the factory into their boxes. Sometimes, the production companies can’t pack everything at their location due to limited space availability. The excessive products are sent to warehouses where they are packaged with reasonable care and a record for future needs.
Advantages of warehousing:
Provides more storage space:
More storage means more business opportunities, which leads to more revenue. Although the companies can’t extend their space, it can be done for the warehouse. They can invest some extra money from the profits, thanks to good warehouse storage services, and buy additional warehouses. Thus, they have the option to increase their production as much as they desire.
Better inventory management:
A business can’t function properly without a proper inventory management system. Warehouses help companies keep tabs on their stock, every item is registered into their system on arrival and discharge, and thus, they always know when they are running out of stock.
Knowledge is power, and if you know which products are low in the stock, you can take countermeasures such as adding a substitute and saving your company from potential losses. Customers’ trust is crucial, and it is hard for the public to trust a company that can’t even manage its product availability.
More secure goods:
Most of the warehouses work so that they are required to keep the goods safe, and any harm to them is their mistake. In such cases, they must pay the amount of damage done to goods. Warehouse management keeps a record of every item present inside the warehouse, reducing the chances of theft.
Safety doesn’t just include security cameras or guards. It also includes other elements such as the location of the warehouse and the heating or cooling system. If your product is hazardous, then you need to keep it very safe. If your products are temperature sensitive, storing them outside their optimum temperature is harmful to your wealth and customers’ health.
Better customer service:
Due to delegation in the roles, a faster and more efficient delivery system is possible. Division of work and responsibilities ensures that end-users or customers are always satisfied and never face a delivery delay.
One company can’t manage the production and storage at the same time. Hiring a third-party warehouse to take care of the products is a better way to tackle any minor issue that may come along the way. The warehouse company may charge some money for their service, but this is the cost of doing business. You can either compromise on quality or pay a small amount for this excellent service.
Opportunity to expand business:
Production space for every company is limited, and if they start storing the raw materials at the same site they produce goods, they would soon run out of room. Warehousing allows business expansion by moving final products out and using that space to increase the production lineup.
Effective risk management:
The demand for items is not always constant, and sometimes, when the market for a product is down, companies store surplus finished products in warehouses and use them only when they are again in demand.
Warehouse storage helps keep the prices in check, and most of the warehouses are also insured, so you don’t have to worry about any possible mishap.
Better quality management:
Quality is the king in every business. If you have a well-monitored inventory system, you can quickly identify which batch of raw materials or products is defective and therefore improve the quality of products that leave your company. Recalling defective products is much better than getting your reputation stained.
Increase in the net profit:
Warehousing creates more profit for your business by keeping the prices stable and cutting down non fruitful expenses. You no longer have to waste money on extra space, employees, and modern tech. You and your business have the opportunity to expand and reach more customers across the border at a much faster pace.
Ways to increase profit:
The profit obtained can be increased by using the following strategies in warehousing:
- Cross-docking- It is the transfer of goods directly from supplier to customer
- Inventory visibility- In the case of online stores, Inventory visibility can prove to be a very fruitful strategy
- Theft identification- The sooner you catch a thief, the lesser you loose
- Storage optimization- Making the most of your available storage is vital.
- Modern technology- Technology is advancing, and so must you!
Disadvantages of warehousing:
Although warehousing has numerous advantages over other ways of storing, some minor disadvantages that need to be checked before making the massive choice of warehousing are:
Theft protection
Warehouses deal with millions of dollars’ worth of items, and if this is fallen into the wrong hands, you can say goodbye to your hard-earned money. To save yourself from theft you must choose your staff very carefully. It is better to take lots of time before hiring them than to fire them and rehire someone else.
Asking for testimonials and checking previous track records is an efficient way to avoid this problem. Invest in good quality Wi-Fi cameras that allow you to keep tabs on your business even if you are thousands of miles away from the site, and this is the best way to ensure your business is always up and running.
Natural disasters:
Nature is both a healer and destroyer. It can be ruthless at times. To save your business from natural calamities such as fire, flood, lightning, or tornado, you must conduct thorough research on the area where you wish to start your warehouse.
Check the previous records and then conclude whether it is worth the risk. Don’t compromise your long-term safety on short-term financial gains. Always look at the bigger picture.
Dangerous equipment:
Trained staff is a necessity for almost every business. Still, a warehouse staff needs to be extra careful as they handle bulk quantities of products, and one wrong move can cost the company millions and their job.
Workers in warehouses handle equipment worth a lot of money, but the goods in storage are worth far more. Therefore, companies should hire only skilled workers or provide them with enough training before handling any sensitive equipment. Poor management of employees and goods is very dangerous.
The Future of warehousing:
According to a recent report, the global warehousing and storage market stood at a whopping $451.9 billion value in the year 2021. And this is estimated to grow further in the coming years. Its growth is expected to reach 605 billion dollars by the year 2027 at a growth rate of 5 %. The market will only get better as the world moves out of the COVID pandemic and all restrictions come to an end.
Conclusion:
In the supply chain management system, warehousing plays a significant role. It helps keep the raw materials until they are required, and stores finished products before being dispatched to end-users or retailers.
Although warehousing has some disadvantages, they can be avoided if the warehouse is chosen with proper research. A perfectly streamlined process of storage and warehousing service can make or break your business.