When you hear the word "Warehouse" or “Warehousing” what other words or images immediately come to mind? Storage? Inventory? You guessed it, you got it right!
Warehouses and warehousing play a critical role in logistics and supply chain management. An interesting thing about warehouse operations is that they often go unnoticed, and that’s because they function behind the scenes. However, warehouses play a critical role in ensuring product availability (right place) and on-time delivery (right time). Warehousing creates a balanced and consistent flow of goods and materials through the supply chain.
This blog looks at the main functions of a warehouse and warehousing, some advantages and disadvantages, and different types of warehouses you can choose from. Whether you’re a truck driver or freight broker looking for new customers with freight that needs to be shipped or looking for a place to temporarily store freight that you plan to move a month or two from now, warehouses are worth a look. It’s important to understand the various facets of warehousing and the opportunities they hold for your business. Let's get started and see how things stack up so you can pick a warehouse that is right for you.
What’s a Warehouse?
While it’s obvious that warehouse and warehousing share the same root word, there is a difference here. A warehouse is a building of any given size that is used for storing goods. A warehouse has been traditionally viewed as a place where inventory is not in motion. Seems simple enough! But an interesting thing to note is that warehouses are used by all sorts of businesses, including manufacturers, wholesalers, retailers, importers, exporters, and more. Warehouses are obviously used for warehousing.
What is Warehousing?
Warehousing is the process of storing items in a secure location commonly referred to as a warehouse. Warehousing is the process of temporarily storing products and goods in different quantities and assortments before the items are sent off to other strategic locations in the supply chain or channel of distribution (B2B), before the items are shipped to end consumers directly (B2C), or when consumers return items (C2B). To put it another way, warehousing is the process of storing physical items or inventory in a dedicated and secure facility location for eventual sale or distribution to customers, be it businesses or consumers.
Why is there a need for warehouses and warehousing? Why is warehousing important?
There are many reasons why businesses need warehousing. A business may choose to use warehousing when production does not equal consumption. When supply and demand are not in sync or balanced, this creates a need for warehouses and warehousing.
Warehousing can promote economies of scale and allow seasonal products, such as beach toys, lawn furniture, and snow shovels, to be produced all year. These items are usually marketed and sold intensively at certain times of the year.
Warehousing also allows a business to work off forecasts to speculate and buy supplies in large quantities. A business might buy certain raw materials or commodities, like plastics, aluminum, or steel, in advance if prices are expected to increase dramatically.
Warehouses can add value by providing special services such as light assembly, product testing, inspection, and labeling, and even facilitate expedited shipments. Distribution centers and fulfillment centers specialize in quicker turnover and throughput of goods. If speed is what you’re looking for, then a traditional warehouse is probably not the best choice.
Fast Fact: Service demands for things like same-day delivery create a need for warehouses and warehousing because it requires locating goods closer to the customer. More than half (55%) of Millennials and GenXers prefer the online shopping experience over in-store. Practically the same number of shoppers (56%) from these segments expect same-day delivery and many (61%) are willing to pay more for the service. These statistics suggest the necessity of balancing production and distribution, supply and demand, in today’s dynamic business climate. An important goal in modern warehousing is to maximize flexibility while responding to ever-changing customer demands.
Warehouses were traditionally viewed as places to hold or store inventory. Warehouses nowadays perform multiple value-adding functions on a daily basis. Needless to say, warehousing is critical to the success of practically any company that sells, stores, and ships things.
What are some of the major activities and functions found in a warehouse operation?
Warehouses create value in a variety of ways. They can strategically hold items until the exact moment needed. They allow businesses to position their products where needed. This reduces last-mile transit time and variability and enhances the level of service in local and regional markets. Warehouses can receive and mix items from multiple origins and ship out to multiple destinations. They can facilitate both forward and reverse (return) flow of goods and materials.
Warehouses perform a variety of essential functions and value-adding activities on a daily basis:
Receiving and unloading
Storing and managing inventory (incl. slotting, putting away, optimizing space, measuring, monitoring, and tracking)
Sorting and staging
Inspecting and auditing
Assembly and modifying
Picking and packing orders
Loading and shipping
Other major functions and value-adding activities associated with warehousing include:
Breaking bulk (one to many)
Consolidating items (many to one)
Providing kitting and de-kitting services
Applying special packaging and labeling
Controlling temperature in refrigerated and frozen storage areas
Handling customer returns for clients
Reworking and refurbishing items
Sequencing and facilitating just-in-time delivery
Finding ways to reduce costs from carrying inventory (e.g., insurance, damage), shipping, and transportation
Collecting and analyzing data
Generating business reports
What are some advantages of warehousing?
Warehousing is a strategic decision as it offers economic benefits in production, purchasing, and transportation. Benefits and "value" come from reducing logistics costs through services such as consolidation, breaking bulk, and sorting. Warehousing also enhances service by facilitating postponement strategies (time and/or location), spot stocking, kitting, light assembly, sequencing, and fulfillment, to name a few.
There are several advantages of warehousing for small businesses (including trucking):
Provide safe, short or long-term storage
Place products and goods close to target market
Enable faster shipping and delivery
Accommodate high production levels to achieve economies of scale
Buffer for when production does not equal consumption (imbalance between supply and demand)
Reduce risk of stock outs, delayed replenishment, and poor service that can result in customer dissatisfaction
There are many advantages to warehousing. For starters, warehousing can provide a safe and secure place to store freight and goods. It allows products (freight) to be positioned closer to the customer. Location can be a game-changer! Warehouses can allow your business to grow by virtue of having access to more space to hold freight. Warehousing can allow a trucking business to grow by adding services, such as consolidation and LTL transportation or temperature-controlled space. Then there's the flexibility and potential for offering distribution services. Warehousing can provide flexible, scalable growth, by adding square footage or other services beyond trucking, like custom packaging, assembly, or distribution.
There are some disadvantages of warehousing:
Items are in someone else’s possession
Risk of having things damaged or stolen
Not as responsive as you might need
Questionable warehouse equipment that might be antiquated or in disrepair
Threats from natural disasters. Some regions have higher risk of fires, floods, freezing, tornados, earthquakes, etc.
Some disadvantages and downsides of warehousing include no longer having direct possession of your freight or goods. Warehousing is a process that takes time and effort. It involves contracts and working with another business. Bad business relationships can impact your reputation and your bottom line.
If you’re looking to have your own warehouse and offer services, it can be costly to get started. Finding good talent isn't just an issue in trucking. It's a challenge in many industries.
What are the different types of warehouses?
Choosing the right warehouse is no easy task. Why? Because not every warehouse is the same. So, the more you know the better off you will be. First, you need to understand that a warehouse will serve a specific market and a specific industry. Warehouses have different cost structures, capabilities, and objectives. Each warehouse type will attract different types of businesses. Companies need to understand their own needs and make sure they align with what the warehouse has to offer.
Some of the most common types of warehouses are listed below:
Climate-controlled warehouses (cold storage)
Consolidation warehouses (consolidation centers)
Smart warehouses (high use of automation and artificial intelligence)
Returns warehouses and special services warehouses (special commodity, special focus)
Cross-docks and sortation centers (sortation is becoming more automated)
There are two primary warehousing alternatives: Private and Public. Private warehouses are operated by the company that owns the product. The building, however, may be owned or leased. Large companies with high production volumes typically invest in private warehouses. Public warehouses are available through service companies that own the warehouse and hire out space and services.
Contract warehousing is an option that offers the benefits of private and public operations. In this instance, long-term relationships between a warehousing operator and a business, such as a manufacturer or a trucking company, can result in cost savings, higher service levels, and more.
What is a distribution center and how is it different from a warehouse?
A distribution center is a type of warehouse that stores finished goods in a space that is optimized for efficient picking, packing, and shipping of customer orders. Distribution centers are commonly referred to as fulfillment centers because they are strategically located and designed with order fulfillment in mind.
Even though most modern warehouses provide order fulfillment services, there’s still some clear differences between traditional warehouses and distribution centers. Both can store products, and both can fulfill orders. However, warehouses emphasize storage and maximizing available space. Distribution Centers emphasize movement of products through the facility onto the customer or end consumer. Distribution centers are more focused on throughput and fulfillment. Picking, packing, and shipping are top priorities inside of distribution centers. Warehouses are typically not designed for fast turns and quick flow of goods because storage is the main objective of a warehouse. In fact, many warehouses do not provide shipping and order fulfillment services. Distribution centers normally ship goods directly to retail locations and consumer addresses, while warehouses typically coordinate pick up or delivery with business customers, such as manufacturers, final assembly operations, wholesalers, or retailers. In short, distribution centers store products on a short-term basis. Traditional warehouses store items for longer periods.
Where are warehouses located?
You may have heard the real estate expression, "location, location, location." Well, it still holds true today.
Warehouses are often located in industrial parks on the outskirts of cities. Distribution centers, which emphasize throughput, are often best positioned close to customers. Warehouses, which focus more on storage, are normally found near, but not necessarily directly in, densely populated areas. They’re often strategically located near major highway interchanges. Location is important, but not always. If time is important to you and your business, then know that the location of a warehouse or distribution center can greatly influence lead time.
How to “Pick” the Right Warehouse?
If you know what warehouses are about, advantages and disadvantages, and the different types of warehouses, then you’re in a good position to pick a warehouse that is right for you and your business needs. There are several things you want to keep in mind when picking the right warehouse. Questions to ask include:
What does the warehouse specialize in?
How much capacity or space is available for your current and future needs?
Where is the warehouse relative to your target market? Customers? Suppliers?
Is the warehouse accessible by road, rail, or water? How close is the warehouse to different modes of transportation?
What design features does the facility have that fit well with your needs? What’s missing or lacking?
Is the building and equipment in good condition? Is it up to date?
What technology (WMS, automation) does the warehouse have? Is it adequate? Is it up to date?
Does the facility have a logical layout? Are aisles, pick paths, and put away paths clear? How’s the housekeeping?
Does the facility have a loading dock?
Does it have the proper temperature controls for your product?
What kind of safety and security measures are in place in and around the warehouse?
To what extent have they had issues with theft, damage, or accidents? What measures will they share with you?
What sort of safety and quality control protocols do they have in place?
What additional services, if any, do they offer that perhaps you weren’t aware of?
What are their hours of operation? Is it FCFS or by appointment?
Does the warehouse appear busy, frantic, or chaotic? Are trucks backed up and waiting to pick up or deliver?
Is the warehouse adequately staffed? Is the staff skilled and competent?
What training and development opportunities do they offer their employees?
Have they had any issues with maintaining compliance with major rules or regulations?
Is the cost for warehousing within your budget?
Does the service provide the value you need for your business?
Does the warehouse and its staff have a positive reputation? Do they have a positive customer service track record?
As the demand for faster delivery continues to mount, the value of warehousing will continue to grow in step. Some important goals of warehousing are to maximize flexibility and contribute to production and distribution efficiency. Warehouses must efficiently receive inventory, store it as required, assemble it into complete orders, and make customer shipments. Warehousing benefits and value-added services include consolidation, sorting, seasonal storage, picking and packing, and reverse logistics. There are different types of warehouses that tailor their services to different needs for various markets and industries. Understanding the different types of warehouses and the advantages and disadvantages of warehousing is essential for businesses that aim at providing the best service possible and are looking to grow. “Picking” the right warehouse can help accelerate your business!
If you or someone you know would like to learn more, share this blog with them! We cover a variety of topics related to starting, operating, and growing a trucking business as well as free resources, digital products, and comprehensive courses.
Ready to START, DRIVE, & ACCELERATE your trucking business? Check out our course here!
Interested in being notified when more free resources are available? Subscribe down below and you'll be the first to know!
Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC does not assume responsibility for any omissions, errors, or ambiguity contained herein. Contents may not be relied upon as a substitute for the FMCSA's published regulations. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.