Warehousing: Function, Benefits and Types of Warehousing

16 November 2019

Warehousing is commonly known as the group of activities carried out when storing sizeable amounts of merchandise on a large scale in an organized and controlled manner. A warehouse, on the other hand, refers only to the physical location where this is done.

In finance, as you may have already heard, warehousing refers to an entirely different thing. It describes the practice of buying a company’s shares over a long period of time with the intention of eventually becoming a controlling party in that organization. The practice is usually meant to give capital owners a bit of time to decide what they want to do, as well as some leverage when the time to act finally comes.

In this article, however, we’ll focus on the benefits, functions, and types of warehousing that pertain to the logistics industry.

Warehousing Objectives and Benefits

These are the main goals of businesses and companies who perform warehousing on a large scale:

  1. Risk hedging

    When goods are stored in one place, they become vulnerable to a series of risks, whether in the form of deterioration (for perishable items), theft, (for very expensive items), or other factors. While stored, the goods are technically under a contract of bailment through which their physical possession is transferred from the company to the person or people responsible for the warehouse.

    In this manner, the company can use insurance to recover some (or, perhaps, all) of their losses in case their merchandise falls prey to either type of risks. Excluded are, of course, circumstances wherein the bailee fails to take reasonable care of the stock.

  2. Price Control

    Keeping enough stock of a certain product gives retailers the possibility to control the availability of said merchandise on the market, regardless of the latter’s availability at the supplier. When this is possible and performed in an appropriate manner, managers can effectively make something last longer, even all through slack season.

    Companies can also keep too much of an item from going on the market if its price has fallen too abruptly and there is no risk of perishability. Alternatively, they can flood buyers with too much of an item if they want to undercut competitors or increase sales volume for a specific timeframe.

  3. Financing leverage

    In a world where capital reigns, the ones who control the most are usually also the ones who call the shots. If an enterprise plans on extending their operations and they want a bit of extra help, they can use warehouse inventory as leverage to obtain significant loans from financial institutions. It may not seem like a desirable course of action, but maintaining a competitive edge in saturated and mature industries, such as food retail, often demands such measures.

  4. Storage

    Obviously, the most fundamental function of warehousing is that of storage. Ideally, the warehouse can retain any excess inventory until it’s needed or, in the case of distribution centres, until it’s picked up by the next stage of transportation. Proper and compliant conditions also have to be guaranteed, some of which may vary across industries.

  5. Packing and Inventory

    With the help of SKUs (storage keeping units), warehouses help businesses have a perspective on their entire inventory as the merchandise is received, labelled, scanned, and stored. This makes it possible to create a digital map of the storage facility that can greatly aid employees when it is necessary to locate a specific item in a short amount of time.

    A great deal of warehousing also involves the packing of goods. Consequently, many of these facilities will have designated areas where workers package goods before they are delivered to various clients worldwide.

Warehousing Types

Depending on which of these warehousing functions are emphasized over others, the process itself tends to evolve and change. For instance, packing and inventory warehousing has evolved to such an extent that a great deal of merchandise handling is given over to automated systems and robots, as is the case with Amazon’s warehouses.

Other companies, most notably big buyers, use warehousing with the express purpose of storage and price control. This type of warehousing gives them the benefit of being the one who controls the supply of a particular item to the market. To do this, they have to have enough capital to buy a great deal of the item, as well as enough space to store it. When these conditions are met, a single party can decide what price a particular product goes for, which can be a source of immense competitive edge, as well as profit.