Benefits from warehousing / warehousing functionality / operations
Benefits from warehousing are classified on the basis of economics (cost) and service.
Economic Benefits
Warehousing helps to reduce the overall logistical cost. This can be done in four ways
Consolidation of materials: The warehouse can be used to receive material from many plants. This material received can then be consolidated to supply to a single customer or a single destination. This helps to supply many small shipments to a single, destination as a single large shipment. This helps in reducing the overall cost of transportation, Example, if a courier company wants to send a lot of packages from different sources in Mumbai to London, it brings all the packages to a single warehouse where all the packages, (in a given time period) are consolidated and sent as a single large package.
Breaking of bulk materials : The warehouse receives materials from the manufacturing plant to supply to a number of customers. The warehouse thus breaks the bulk material into smaller packages and supplies it to individual customers. Thus instead of the manufacturer sending the material to individual customers, it sends to a central warehouse close to the market area which then forwards the materials to the customers. This helps in saving on the transportation cost. McDonalds in Mumbai gets its raw materials from various parts of India to a central warehouse. Here it breaks the bulk material and supplies it to individual outlets in Mumbai.
Processing: Warehouse could help in final processing such as labeling, finishing touches, etc. This helps to postpone shipment of final products. Example, if the manufacturer has many customers demanding for the same product, but the finishing for each customer is different, then the manufacturer can produce the goods and keep it in the warehouse and do the final finishing touches in the warehouse as and when the customer demands for the product. In this way the manufacturer does not have to keep a separate inventory for each and every customer. This helps to reduce inventory and thus saves on cost.
Storing: Storing is essential for all the goods, especially seasonal goods. If the demand is in a particular time of the year, the goods can still be produced throughout the year and stored. This helps in uniform production throughout the year thus saving on production cost. Example, in the paints industry in India, the demand is very high during Diwali time. But the companies produce throughout the year and store the goods in the warehouse.
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