According to the latest report by IMARC Group, titled “Warehousing and Storage Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2019-2024”, the global warehousing and storage market size reached US$ 397 Billion in 2018. Warehousing business growth is due to the improvement in the macroeconomic fundamentals like improved trade relations among various countries, increased retail penetration in developing economies etc.
Warehousing is when raw material or manufactured goods are stored temporarily before shipping to different location to fulfill customer orders. Warehouse operations is an integral part of supply chain to ensure customer orders are fulfilled in cost effective way within stipulated time. With advent of technology, real time tracking of inventory enables timely and accurate fulfillment of customer orders.
Warehousing is required across industry sectors to ensure goods reach the end customer. warehousing needs of different industries are different from each other. Following are the major warehousing s industries along with typical ask.
- Automotive & Engineering – The requirement from automotive and engineering industry is reliability. Failing to pick pack single item (as small as washer) can stop entire production line. Therefore reliability is utmost important in automotive and engineering warehousing.
- Life science and health care – The requirement from life science and health care industry is hygienic and cold storage warehouse. The typical ask of temperature controlled storage may increase the warehousing cost. But this is required considering nature of the products industry standard.
- Technology – The requirement from technology industry is safety of the products. Typically technology products are high value items. Therefore theft or damage of products may cause great losses to the industry, if warehouse is not properly designed.
- Retail & FMCG – The requirement of retail and FMCG industry is cost effectiveness. As profit margins are very thin, warehouse or entire supply chain should ensure that product reaches the customer with minimum cost. Warehouse are located at centralized location to optimize cost.
- E-Commerce – The requirement of E-commerce industry is speed to reduce order fulfillment time. E-commerce warehouse should be capable of picking, packing and shipping products on same day or next day of receiving orders. Warehouse location is decentralized to improve speed. In E-commerce industry, warehousing is often termed as Fulfillment center or distribution center
In today’s world of globalization, need of having bigger and better warehouses has become paramount. Objectively, following are the three major reasons of why we need warehouses.
Warehousing to take care of supply side fluctuations.
It is very important to ensure that supply of products is always in full to cater to demand. Any short supply, miss supply or non fulfillment of orders to end customer will be called as opportunity loss. Frequent instances of opportunity losses might affect business adversely. Supply side fluctuations in a supply chain network may occur due to following major reasons. Therefore, safety stock is required to mitigate the risk of supply side fluctuations.
- Lead time – Certain time is required to manufacture products and then transport the same to warehouse. This time requirement is called lead time. To ensure orders are fulfilled and demand is met during lead time, safety stock is maintained in warehouses.
- Breakdown in manufacturing facility – Due to improper maintenance or accidents may cause breakdown of manufacturing facility. This might disrupt product supplies. Therefore safety stock is required, till the manufacturing facility is back in production or another manufacturing facility is contracted.
- Strike – Product supplies may be disrupted due to operators strike. Therefore safety stock is required, till the time union issues are resolved and manufacturing facility is back in production
- Adverse Environmental conditions – Product supplies may be disrupted due to adverse environmental conditions such as flood, earth quack etc. Therefore safety stock is required, till the time manufacturing facility is back in production
Warehousing to take care of demand side fluctuations
Even though supply side fluctuations are taken care of, it does not guarantee that sales will be constant. Sales are subjected to fluctuation in demand due to following major reasons. Therefore additional inventory is required to take care of peak load. Following are the major reasons of fluctuations in demand.
- Bullwhip effect – Bullwhip effect is caused due to fluctuations in demand. Increased swing in inventory holding is caused due to response to customer demand, as one moves up the supply chain.
- Competition – If competition starts offering better product or less cost or combination of both, then customers will shift to the competition and you will experience reduced demand, until you come up with counter strategy.
- Non loyal customers – Some customers for the sake of variety try out different brands causing demand side fluctuations.
- Seasonal effect – Certain products are in high demand in certain seasons, example cold drinks.
Warehousing to consolidate transportation load to various drop points to reduce transportation cost.
Consider Supply chain network without warehouse as depicted in below diagram. With only combination of two factories and three customers, you can see complexity in transportation network. It will also come at cost of under-utilization of vehicles. In real life scenario with numerous combinations of factory and end user, situation gets very difficult.
Consider Supply Chain network with warehouse as depicted in below diagram. The same combination of two factories and three customers but with warehouse, reduces transportation network complexity to manageable extent. Besides, consolidation of load in supply side reduces transportation cost.
Understanding Warehouse solution design
Now, as we understand importance of warehousing in supply chain network, let us start focusing on warehouse design. Warehouse should be designed considering long term view. Following are steps to be followed for efficient warehouse design.
- Understanding customer business requirement
- Data analysis & interpretation
- Deciding storage structure
- Designing warehouse process considering data interpretation and storage structure
- Resource modelling
- Space modelling to find storage space requirement
- Layout building to determine storage location, processing area loading dock etc
- Cost modelling
But even before, we start digging warehouse design, we need to understand other important factors. For better understanding, following topics are explained in detail in different sections of this website.