Definition: Warehousing can be defined as the systematic process of storing and preserving goods on a large scale in a warehouse, godown and facility from the moment goods are produced, and making them available when they are demanded, i.e. for sale, distribution and consumption.
Warehousing encompasses making proper arrangements so as to keep the goods safe, i.e. in an appropriate condition and ready to sale. This service is used by a number of people such as manufacturers, distributors, suppliers, transporters, importers and exporters.
Need for Warehousing
- The production of goods is undertaken in anticipation of demand, which makes it necessary to keep a stock of goods until it fetches demand. In this way, warehousing assists in providing proper storage to the surplus stock.
- We all know that there are various vegetables, fruits, and grains which are produced in a particular season, however, they are demanded throughout the year. For that also storage and preservation of commodities become significant, which makes it available, throughout the year.
- For some goods, there is a seasonal demand, such as raincoat, woollen clothes, umbrellas, coolers, etc. but they are produced continuously throughout the year. Hence, in the offseason, these items require storage.
- Storage of goods is also necessary to stabilize the price of the goods in the market. Surplus stock of goods should be stored in order to prevent fall in prices. Further, whenever the goods are demanded or there is a shortage, then they are released from the warehouse, so as to control the rise in prices. This ensures equilibrium in supply and demand.
- To ensure ongoing and uninterrupted production, stock of goods needs to be maintained, for which warehousing is a must.
- Traders like wholesalers and retailers also maintain stock with them so as to avoid shortage and also to ensure a continuous supply of goods to their customers.
- There are certain commodities which require storage for curing and processing. As well as, there are some goods which are sold at higher prices when they are preserved for a longer duration.
Think of a case when production and distribution of goods occur simultaneously, then there comes a situation when there is a time gap between the production and distribution. In this way, warehousing service comes into the picture, which facilitates time and place utility, by supplying the goods at the right place, in the right time and in the right quantity.
Functions of Warehousing
- Storage: Warehouses are meant to facilitate storage of goods, so as to maintain proper supply be it raw materials or finished goods on a large scale. This means that storage of raw materials facilitates ongoing production of goods around the year whereas storage of finished goods assists in a smooth and continuous distribution of goods. The goods are stored in the warehouses right from the time the goods are produced or purchased, till they are consumed.
- Risk Bearing: From the moment goods enter the warehouses, the risk of loss or damage is transferred from the owner to the warehouse keeper, along with the transfer of the goods for storage in the warehouse. Meaning that all the risks incidental to the storage of the goods are taken over by the warehouses and so it is the warehouse keeper who is responsible for any loss, tampering or damage caused to the goods.
- Protection: Not just storage, warehouses also provide an appropriate environment which preserves goods from getting spoiled due to heat, dust, wind, moisture, insects etc. For this purpose, special arrangements are made in the warehouse as per the nature of the goods, for various products. Hence, it reduces the loss caused to the goods because of spoilage and wastage.
- Consolidation: It is one of the major functions performed by the warehouses, in which the goods received from different plants are consolidated and dispatched to a specific customer.
- Break the bulk: As opposed to the consolidation function, warehouses also undertake the function of dividing the goods received from one plant in bulk quantity, into smaller ones, so as to ship them as per the requirements of the customers.
- Stock Piling: Finished goods or raw materials, whose requirement is not immediate for the purpose of sale or manufacturing are often stored in warehouses, and are supplied to the business houses when they are demanded by the customers.
- Value-Added Services: Apart from the basic services, warehouses are also known for providing value-added services like packaging and labelling, transit mixing, etc. Moreover, when the goods are inspected by the prospective buyers or custom authorities, then they are opened, repackaged and labelled.
- Price stabilization: As we said earlier, warehouses adjust the supply of the goods according to the consumer demand, which helps in stabilizing the prices of the goods to a great extent. Hence, it controls the prices of goods.
- Financing: On the deposit of the goods in the warehouse, the depositor of the goods gets a receipt for the deposit of the goods. Also, the warehouses can issue a document, i.e. warehouse keeper’s warrant, in favour of the owner. This document can be used by the businessmen to raise loans from banks or any other financial institution, keeping this warrant as a guarantee.
- Processing: Not all the commodities are consumed in the same form in which they are produced. Meaning that there are some commodities which are consumed after they pass-through processing. So, the processing is required to transform them into the consumable item. Many warehouses provide the facility for processing commodities.
- Grading and Branding: One more function undertaken by the warehouses is sorting, grading and branding, when requested by the manufacturer, wholesaler or importer, etc.
- Transportation: Transport arrangements to bulk depositors are also provided by the warehouses. They collect goods from one place and dispatch them to another, on request of the depositor.
- Re-export Trade: Re-export trade facility is also provided by the warehouses, by allowing the importer to store the goods in the warehouses until they are re-exported to other countries.
Grains like Wheat, Rice, Pulses, etc. and Fruits like Apple, Oranges, Mangoes, etc. are produced in a specific season, but their demand is not season-specific, i.e. they are required throughout the year. So, warehousing helps in preserving and maintaining the stock of goods and releasing them according to the demand in the market.
This means that warehousing service facilitates businesspersons to produce goods round the year, and sell them when they are demanded.