What is Warehousing?

Warehousing: 

Usually, there is a time gap between the production of goods and their ultimate consumption. It gives rise to the problem of storage of goods. so, storage involves holding of goods between their time of production and their final sale.

Storage, therefore, means ensuring the proper arrangement of space for keeping the goods in perfectly good condition without losing their value or properties and qualities in any manner until the goods are finally sold out to customers.

‘Warehousing’, on the other hand, means proper storage of the goods. According to Stephen, warehousing has been defined as “an establishment for the storage and accumulation of goods”.

In simple words, storage on a wide scale in a scientific, systematic and specialized manner may be regarded as warehousing.

Functions/Need for Warehousing:

The following are the functions or need for warehousing:

1. Storage: The basic function of warehousing for an industrial establishment is to preserve the stock of raw materials in good condition until the time they are needed for consumption. It ensures uninterrupted production. It is very essential for all industrial establishments.

2. To facilitate production in anticipation of demand: Goods are always produced in advance in anticipation of future demand and such produced goods are needed to be kept in good condition from the time of their production till the time of their sale. It makes warehousing an essential part of the modem business.

3. To maintain the stability of prices: Warehousing provides proper storage of goods, facilitates proper adjustment of demand with the supply of goods and thereby it helps in maintaining the stability of the prices. It is a very important economic function of modem warehousing.

4. Financing function: Another important function of warehousing is that the owner of the goods can arrange to raise finance on the security of the goods deposited in the warehouse.

5. It eliminates the risks: It is the warehouse owner who usually bears the risk of loss or damage to the goods kept in his warehouse.

So the risk of keeping the goods in the warehouse passes on from the owner of the goods to the warehouse owner as soon as goods are given to him for the purpose of storage.

6. Creation of form utility: There are certain commodities like rice, liquor, and tobacco, etc which need warehousing for improvement of their quality. Thus, warehousing helps in case of creation o form utility.

7. It serves as a distribution center: Usually, the warehouse gives delivery of goods to the customers according to the instruction of the owner of the goods. So, in this way, the warehouse becomes a center or a channel for the distribution of the goods.

8. It creates employment: Warehousing creates avenues of employment directly to some people within the warehouse and indirectly to the manufacturer by providing facilities for storage of goods.

9. Stocking of raw materials available in a particular season: Some agro-based raw materials like fruits and sugarcane etc are available only during a particular season of the year while these are needed for producing goods throughout the year.

Warehousing is very much essential for such raw materials to ensure uninterrupted production for the whole year.

10. Other functions: It helps in the expansion of the market and the growth of foreign trade.

Types of Warehouses:

There are different types of warehouses which may be classified as under different points of view:

A. On the basis of their structure, the following types of warehouses are available:

1. Classical warehouses: This type of warehouse is generally used for the storage of general merchandise. It is a single-story building divided into several compartments by raising concrete walls.

2. Silo: It is a vertical structure with mechanical devices for easy handling of the goods kept therein within the desired temperature level and is suitable for bulk storage of goods.

This type of warehouse is available in big cities where the cost of land and labor is very high.

3. Bins: These are specially designed structures operated either manually or mechanically for bulk storage of goods.

4. Elevator: Elevators are big vertical premises into which grain is discharged directly from the ship to the wagon or from the wagon to the ship.

5. Portable warehouse: It is one that can be set up in a very short time and similarly removed in no time. It is made in such a way that it is not affected even by high winds and heavy showers.

6. Automatic warehouse: It is a warehouse where the whole or a major part of receipts, storage, and dispatch operations can be performed automatically. The underlying idea is to reduce the cost of distribution of goods.

B. On the basis of ownership there may be the following types of warehouses:

1. Private warehouse: Private warehouses are owned and managed by large enterprises that store their own stock of goods in these warehouses.

In view of the heavy investment of money required for the construction of a warehouse, all businessmen cannot afford to construct and maintain a warehouse of this type.

It is a private warehouse, cannot serve the interest of others. Private warehouses are suitable where it is essential to make the goods available immediately.

To meet the needs of the business, the goods need warehousing facilities that are not available in other warehouses and where the owner is in a position to utilize the full capacity of the warehouse for stocking his own goods. 

2. Public warehouses: Public warehouses serve the needs of the public. These warehouses are usually available for use by the members of the business community on payment of storage charges.

It is essential for a public warehouse to have a license from the government and to abide by the instructions of the government.

These warehouses have to work under government regulation. Its advantages are as under:

I. Safety: Public warehouses ensure full safety of the goods against the risk of fire and pilferage etc as they are constructed with all safety devices and guarded round the clock.

II. Useful to small businessmen: These warehouses are useful to small businessmen who cannot afford to have a warehouse of their own for storage of their goods.

3. Finance: The receipts issued by the public warehouses can be used by the owner of the goods as collateral security for raising finance.

4. Marketing function: Public warehouses provide facilities for grading, packing, labeling and weighing, etc, and it helps in making the goods ready for marketing within the warehouse itself.

5. Facilitates the easy sale of the goods by transfer of document: A public warehouse facilitates the sale of the goods through a transfer of document.

The owner of the goods can sell the goods lying in the warehouse only through the transfer and endorsement of the warrant.

6. Low insurance premium: Insurance companies charge a low premium for the goods kept in the public warehouse because of the low-risk factors.

7. Transportation facility: Public warehouses are usually situated at central points having convenient facilities for easy transportation of the goods by rail or road.

3. Cooperative warehouses: These warehouses are built up by the cooperative marketing societies for the benefit of the members but even the non-members can also avail the services of such a warehouse by paying some additional charges.

4. Household warehouses: Such warehouses are not available in our country. These warehouses provide facilities for storing household goods for a temporary period.

5. Government warehouses: These warehouses are established by the Central Government, the State Government and the corporations with the object of keeping the goods belonging to the government.

6. Bonded warehouses: Bonded warehouses are those warehouses that are granted a license by the Government for accepting imported goods for storage and these warehouses are meant for imported goods on which duty has not been paid by the importer.

Such warehouses are used by the importer when he does not have a godown of his own for storage of the goods or when he is not in a position to clear the duty immediately. A nominal rent is charged for use of these warehouses.

These warehouses are situated near the dock area and may be owned either by the dock authorities or by private individuals. The functioning of such a warehouse is always subject to supervision and control of the customs authorities.

The owner of the warehouse has to give a declaration or an undertaking to the customs authorities that customs duties will be collected and paid before removal of the goods from his warehouse.

The importer of the goods is also required to sign a bond undertaking to pay the customs duty on the removal of the goods. As the goods kept in the warehouse are under a bond, therefore, this type of warehouse is called a bonded warehouse.

Advantages of Bonded Warehouse:

Bonded warehouses offer the following advantages:

(a) It is very useful to an importer who has no godown of his own for the storage of the imported goods.

(b) An importer is saved from the trouble of paying a heavy amount of import duty immediately on arrival of the imported goods.

(c) The importer is at liberty to remove from the warehouse in small quantities and arrange to pay the duty by installment.

(d) Bonded warehouses encourage the re-export of imported goods. The importer can re-export the imported goods in case he does not want to pay the customs duty.

C. On the basis of services rendered, there may be the following types of warehouses:

1. Special commodity warehouses: These warehouses are constructed and designed specially to suit the storage needs of some special type of commodities, like cotton, wool, and petroleum products, etc. Such warehouses also offer certain other facilities like grading and conditioning etc.

2. Cold storage: These are special types of warehouses used by the business community for the purpose of keeping those goods which are of a perishable nature requiring preservation under special temperature conditions.

3. Bank warehouses: Sometimes some banks also maintain warehouses in order to keep the goods belonging to their borrowers who offer them by way of security against loans advanced to them.

In this case, the bank recovers the warehouse charges from the borrower whose goods are kept in the warehouse as security.

4. General merchandise warehouse: These types of warehouses provide services of a general nature. There is nothing special.

Only those goods that do not require any special storage are kept in this type of warehouse. Characteristics of an Ideal Warehouse As stated above, a warehouse is an establishment for storage and accumulation of goods.

It offers a specialized type of service to the business community. Its role in modern business can hardly be undermined.

Features of Warehouses:

1. Safety and security: An ideal warehouse should always ensure safety and security for the goods stored therein and protect the same from all possible losses.

2. Convenient location: An ideal warehouse should always be situated at a central place and the place should be convenient for all parties concerned with the warehouse.

3. Adequacy of space: An ideal warehouse should have adequate space for the storage of goods.

4. Planning of layout should be scientific and systematic: The layout of an ideal warehouse should be scientific and systematic enough to provide for easy supervision and control.

5. The economy in operation: An ideal warehouse should provide maximum service at a minimally of cost. Moreover, the operating cost should also be economical.

6. Incidental services: An ideal warehouse besides providing storage facility should also  other incidental services, like packing, grading and weighing, etc, 

Leave a Comment