What is a warehouse?
A warehouse is a commercial space where goods and materials are systematically stored to enhance the supply chain. A warehouse is no longer just a place to store goods. Some businesses provide value-added services to help you maximize your entire supply chain system. This promotes the creation of time utility since products are only released when they are required.
The act of re-positioning of materials is known as warehousing. Efficient warehousing helps us to monitor the variations between demand and supply. In general, these flows are not organized, which is one reason why warehouses are essential.
Do you have doubts about the accuracy of your inventory? Do you have to deal with market fluctuations in supply and demand? If so, warehousing is most likely the best solution for your business. Warehousing is the process of efficiently storing and handling materials in warehouses for later distribution or sale. This process is crucial in implementing the continuous flow of materials and avoiding shortages.
Bureau of Labor Statistics has stated that the number of operating warehouses surged 10.4 per cent between 2013 and 2017 – an increase of more than 1,600 new warehouses in the United States alone. This surge can be attributed to a warehouse’s benefits, such as reducing shipping costs while also eliminating potential taxes, tariffs, and expenses related to international shipping. Customers receive their orders faster, retailers save money, and more jobs emerge in the United States. By bridging the time gap between production and consumption, the warehousing process creates time utility.
In 2020, the global warehousing and storage industry will be worth USD 428 billion. In the forecast period of 2021-2026, the market is expanding at a CAGR of 4.5 per cent, reaching USD 557 billion by 2026. Due to an increase in e-commerce, the global warehousing and storage industry has seen rapid growth in recent years. The demand for refrigerant warehousing is also increasing.
Elements of a Warehouse
Warehouses use specific elements to help manufacturers, distributors, and retailers track inventory and store it safely, whether the objective is purely storage or storage with order fulfillment. An overview of fundamental elements includes:
- Shelving and rack systems that provide maximum storage capacity while allowing for easy product access.
- Temperature-controlled warehouses for perishables.
- Inventory management software that informs the product owner – who is not always the building owner – of the location of all individual units in the system at all times.
- Forklifts, pallet jacks, order bins, and conveyor belts etc. that can move goods from point A to point B.
- Order fulfillment requires shipping supplies.
- Warehouse staffs
- Security to keep stored goods safe.
- Access to low-cost transportation for bringing goods in or moving them out as orders are filled. This often entails quick access to interstate highways, rail lines, or airports.
Types of Warehouses
Public Warehouse – They are maintained by the government and made accessible to private businesses. Both business and individuals use public warehouses.
With the current trend toward inventory reduction, there is growing pressure for variable space, workforce, and equipment to sustain the company during peak season or significant growth phases. Given enough lead time, public warehouses will provide manufacturers with complete flexibility in space, equipment, and human resources requirements.
- Private Warehouse – A private warehouse is owned privately by wholesalers, dealers, or suppliers.
Large retail firms or businesses that store products privately usually own private warehouses. Such facilities, also known as proprietary warehousing, necessitate a significant initial capital cost to construct and maintain. A private warehouse may be built on-site or off-site, depending on the needs of the company. This choice is ideal for well-established businesses that can invest in their inventory storage.
- Bonded Warehouse – A bonded warehouse is a warehouse that can store imported goods before paying customs duties on them. When businesses rent space, the authorities provide them with bonds to ensure that they will not lose money when their goods releases.
Furthermore, companies that store products in them are exempt from paying duties before their goods are issued.
A bonded warehouse also has the capability of storing products for long periods. Importers benefit from such warehouses because they can keep their goods duty-free before they find buyers. They also have a reputation for providing stable and safe storage for goods, as well as cross-border training.
- Smart Warehouse – A smart warehouse is one in which AI is used to automate the storage, fulfilment, and management processes. Automation can range from management software to robots and drones that perform packaging, measuring, transporting, and storing items.
Amazon and Alibaba, for example, use massive smart warehouses to expedite order delivery and reduce the risk of human error. According to Robotics Business Review, “automated and smart warehouses in the survey were 76 per cent more likely to increase inventory accuracy to 99 per cent or higher, 36 per cent more likely to minimize labour costs by an average of 3% per year, and 40 per cent more likely to ship within a day of an order’s placement.” The culmination of warehouse automation is a smart warehouse. These innovations work together to improve warehouse productivity and performance while reducing errors and reducing human employees’ number.
- Consolidated Warehouse – Another form of the warehouse is a consolidated warehouse, which collects small shipments from various suppliers and consolidates them into larger shipments before delivering them to customers. The only problem is that all of the shipments are going to the exact location. On the other hand, consolidated warehouses are a very cost-effective method of order fulfilment, especially for small businesses and new startups. Consolidation Warehousing has many benefits, including lower shipping costs for participants, no capital expenditure (which eliminates risk), and lower inventory levels.
- Cooperative Warehouse – A cooperative warehouse is owned and controlled by a cooperative association, such as a farmer’s or winery’s cooperative. These facilities are open to both co-op members and non-co-op members, but co-op members get discounted rates. Members of the Cooperative Warehouse may rent space to store their products, which is far less expensive than private warehouses. Non-members may also profit from storing their goods in the cooperative warehouse by paying enforced rent.
- Government Warehouse – These warehouses, such as seaport storage facilities, are directly owned and operated by the government. Government warehouses, on the whole, have reasonable prices. However, if a company fails to pay the rent on time, the government has the right to recover the money by selling the company’s assets. Since the government is directly involved, government warehouses have better protection and safety for goods. They are the cheapest, but they necessitate a lot of paperwork.
- Distribution Centers – A distribution centre for a group of products is a warehouse or other specialized facility stocked with products to be redistributed to manufacturers, wholesalers, or directly to customers. The storage is only utilized for short-term needs, and goods are moved across the supply chain rapidly. In a short period, a significant amount of inventory is received and sold to resellers and retailers. Some food and perishable goods get delivered on the same day from distribution centres. In general, distribution centres are inexpensive to rent and can vary significantly depending on the stored items.
- Climate-Controlled Warehouse – Perishable goods are often processed and transported in climate-controlled warehouses. Climate-controlled warehouses can include anything from humidified environments for storing fresh flowers to freezers for storing frozen foods. In warehouses and storage facilities that house sensitive medical equipment, pharmaceuticals, vaccinations, temperature and relative humidity control is critical. Climate-controlled warehouses can maintain airflow, temperature range, and humidity levels to preserve susceptible goods. These sites are outfitted with high-quality HVAC systems (heating, ventilation, and climate control), dehumidifiers, customizable thermostats, and heavy-duty insulation to attain greater environmental quality.
Importance of a Warehouse
- Leverages seasonal growth – Holiday and shopping seasons, such as Christmas and Black Friday, are well-known for their high sales figures. You don’t need Amazon-like facilities to meet your sales goals as a small enterprise. It will suffice to have a warehouse space. In this situation, when the shopping seasons arrive, you must scale your operations. You should keep an eye on consumer trends and stock up on supplies for peak seasons. This would not result in a substantial increase in expenses. Essentially, a warehouse allows you to scale up your operations as required without incurring additional costs. You should take advantage of new market opportunities and sales cycles.
- Large-scale production – In consumer goods, production is now conducted on a large scale to satisfy current and potential demand. Manufacturers often manufacture vast amounts of products to reap the economic advantages of large-scale manufacturing. As a result, finished goods manufactured on a large scale must be appropriately stored before sales clear them.
- Continuous supply – The continuous manufacturing of products in factories necessitates a sufficient supply of raw materials. As a result, ample raw material stock must be kept in the warehouse to ensure continuous production. Both industrial and agricultural products are manufactured in a few locations but consumed worldwide. And so it’s essential to keep these products close to the available point of consumption when they need them.
- Improved production quality – It’s correct to conclude that warehousing inventory control systems track quantities. It is, therefore, possible to monitor your quality performance with better storage facilities. It’s used to keep track of your raw materials and finished goods. These figures will assist you in determining the number of materials that pass through your manufacturing process. As a result, when defects or quality issues are discovered during the manufacturing process, it is much easier to isolate faulty materials or finished goods. A good warehouse tracking platform enables you to collaborate with your vendors and suppliers to detect and reduce the use of defective raw materials.
- Goods protection and preservation – A warehouse provides business owners with the requisite facilities for storing their goods while they are not in use for sale. It safeguards the stocks, ensures their security, and prevents wastage. It reduces losses due to breakage, degradation of efficiency, spoilage, and other factors. Warehouses typically use the most up-to-date equipment to minimize losses as much as possible.
Advantages of a Warehouse
- Centralized location – A centralized location for most of your storage requirements supports reducing the production gap. This means you can save time and resources by receiving, storing, distributing, and shipping products with ease. A warehouse near to a loading dock, for example, is ideal for receiving and storing goods from manufacturers. A warehouse in the centralized area would help a company quickly distribute and mail items to their customers. When selecting a warehouse, you should look for a location that works best with your operations. This would be a location that your vendors can easily access or in your target market.
- Effective handling – The handling of materials is much more than inventory handling. It consists of the movement, protection, storage and control of goods and materials during their entire lifetime, including manufacturing, warehousing, distribution and consumption. Material handling includes a variety of components to maintain the supply chain. Structuring material handling efficiency is the key to success. When responding to the customer and warehouse requirements, efficient logistics are a necessity. The handling of materials increases productivity by promptly and efficiently allowing the logistics system to meet plant and customer needs.
- Enhanced purchasing decisions – It might be the most challenging part of your business to calculate the right time to replenish stock and raw materials. With an effective inventory management system, a warehouse can assist in all purchasing decisions. It will provide accurate information to decide when to buy raw materials and inventory. Depending on your order history, you can easily distinguish between fast and slow-moving goods. Identifying seasonal products is also easier. The data allows you to prevent over-or insufficient purchases of certain materials. Some inventory systems have signals to alert you for the replenishment of stock. This keeps your inventory updated.
- Reduces the risk of loss –The last thing you want as a business owner is violent price fluctuations. This typically occurs when the supply of a particular product exceeds demand on the market. You can easily suffer losses if you chose to sell at this time. You should instead store your goods in a warehouse. If demand exceeds supply and production suddenly, you can then release it on the market. A warehouse also safeguards perishable goods. Cold storage is used to prevent spoilage of products. Companies can also reduce the losses from fire, robbery and damage with the use of a warehouse. Furthermore, your items are insured so that you can receive total compensation in case of damage or loss.
- Receiving – Receiving is the first and one of the most crucial warehouse processes. The warehouse should be able to check, in the correct quantity, in the proper condition, and at the right time, if the receiving process is correctly carried out. If this is not done, all further operations will be affected. Receiving also means that accountability for the goods must be transferred to the warehouse. Now the warehouse is accountable for the condition of goods until they are delivered. If you receive the goods properly, you can filter them out and avoid any liability for them.
- Put-Away – Put-away is the second storage process, which moves goods to the optimum storage location from the receiving dock. The accuracy with which goods are placed will hinder the efficiency of warehouse operations. Advantages of correctly putting away the materials include:
- Faster and efficient cargo storage.
- Reduced travel time.
- Guaranteed safety of goods and staff.
- Optimized warehouse space utilization.
- Easy tracking and cargo collection.
- Storage – Storage is the warehouse process of placing goods in the most appropriate storage space. When done correctly, the storage process ultimately optimizes available warehouse space and increases labour efficiency. Optimizing your storage process is only possible if the appropriate KPIs are monitored. Some software assist in automatically calculating warehouse storage utilization, and tracking the proper storage KPIs allows you to determine how effective each component of your storage process is. Slotting optimization systems can also assist you in selecting the best storage location for a given cargo. Finally, choosing the right warehouse storage system for your facility’s size and product mix allows you to optimize horizontal and vertical space while increasing warehouse efficiency.
- Picking – Picking is the warehouse process of collecting goods in a warehouse to fill customer orders. Because it is the most expensive process in the warehouse, accounting for up to 55% of total operating expenses, optimizing it will allow you to reduce costs while increasing warehouse efficiency dramatically. Streamlining this process should also prioritize accuracy, as errors can have a direct effect on customer satisfaction.
- Packing – Packing is the warehouse process of combining selected items in a sales order and preparing them for shipping to the customer. One of the most important aspects of packing is ensuring that damage is reduced from the time items exit the warehouse. Furthermore, packaging should be light enough to increase the products’ weight while remaining minimal enough to manage packaging costs.
- Shipping – The final warehouse process and the beginning of the product’s journey from the warehouse to the customer is shipping. Shipping is considered good only when the correct order is sorted and loaded, dispatched to the valid customer, travels through the suitable mode of transport, and is delivered safely and at the right time. Previous procedures, such as ordering, putaway, picking, and packing, are also critical to shipping success because they significantly impact whether the order is fulfilled correctly and safely.
Criteria to choose the Right Warehouse
- Capacity expenses and number of SKUs – SKUs help you monitor your stock yet additionally assist you with ascertaining potential stockpiling charges and how much space you will require in a distribution centre. Determine your specifications like – Will you need to store your items in bulk or on shelves? How much storage space do you need? Check product compatibility between warehouse goods etc.
SKUs are used in warehouses to track inventory, calculate storage fees, and estimate the amount of space needed to store the products. For each shelf, container, or pallet you use to store goods, the charge is on a per-SKU or per-foot storage cost. On the other hand, Warehouses impose minimum monthly order caps on significant corporations with thousands of SKUs. This method is an excellent option for businesses that can quickly turn over their inventory and stop paying higher storage fees. So, if you sell goods with low turnover rates and many SKUs, a standalone warehousing solution might save you money.
- Your business’s seasonality – Seasonal changes in demand and supply chain management will make warehousing logistics extremely difficult. If your sales fluctuate seasonally or month-to-month, renting a dedicated room or warehouse for your company could be expensive during the low seasons or result in a space shortage when you receive a new batch of inventory during peak season and the holidays.
- Location of the warehouse – Your requirements will determine the best place for a warehouse. Finding a facility near a transportation centre will save you money if you aim to store a large amount of product in bulk for an extended period. If you want to get orders to customers as efficiently as possible, you’ll need a delivery warehouse close to their shipping addresses.
Warehouses in metropolitan centres or major cities will efficiently distribute your orders to large groups of people. By reducing the distance travelled and transit time helps fulfil consumer standards such as expedited shipping. If your customers don’t all live in the same place, a warehouse in the middle of the country will help you hit more regions more quickly than a warehouse on one coast.
- Number of warehouses you store inventory in – Logistics can become more complicated as the company expands, possibly requiring expansions. You’ll need to choose the most suitable locations in terms of size and geography to maximize the supply chain and lower shipping costs. Ensuring you have enough room for current needs and potential development will help you quickly outgrow your warehouse. You can also keep track of market patterns over time and see the delivery locations of orders.
- Warehouse management technology – Technology is a vital piece of warehouse management and operations, whether you intend to run your warehouse or outsource third-party. Order fulfilment software automates the process by putting orders, shipments, inventory levels, fulfilment centres, and customers together in one location. The same technology that connects your distribution networks will automatically send orders to the warehouse for associates on the floor to start choosing. Each phase of the process gets recorded, and the customer receives tracking information.
According to Statista, 25 % more retailers and manufacturers invested in improved warehouse management technology between 2016 and 2017. This data indicates that half of the companies polled are reinvesting in technology to improve distribution centre technology.
This makes so much sense when you consider another PeopleVox statistic: human error is the number one problem in 46% of warehouses.
- Value-added services – If you want additional services outside conventional warehousing, select, pack, and ship functions, make sure to find a company that can manage kitting and assembly, cross-docking, B2B orders, refrigeration services, and whatever else your company needs. Since each organization has its range of services and goods, their needs vary, so different types of value-added services will help them develop.
Between 2010 and 2019, this figure depicts the scale of the value-added warehousing and distribution (VAWD) industry in the United States. The VAWD market in the United States generated over 47 billion dollars in revenue in 2019.
- Type of product – Some warehouses do not allow businesses to store such items, such as flammable goods or alcohol, since they do not have special facilities (such as cold storage). As a result, the types of goods you market affect the warehousing solution you select. You may also look for warehouses that specialize in storing particular types of goods. Some warehouses, for example, have temperature-controlled storage areas, which are suitable for businesses selling food items such as dairy products. It’s better to choose a warehousing solution with appropriate risk-reduction mechanisms if the goods you sell have stringent safety standards for storage and handling.
Warehouse technology is evolving at a breakneck pace, with warehouse automation on the rise. Through leveraging technology for better, data-driven capacity planning, the warehouse of the future will benefit from automated capacity management. As a result, there are more minor power planning mistakes, resulting in missed sales and better space usage, resulting in a healthier bottom line.