We need different types of goods in our day-to-day life. We may buy some of these items in bulk and store them in our house. Similarly, businessmen also need a variety of goods for their use. Some of them may not be available all the time. But, they need those items throughout the year without any break. Take the example of a sugar factory. It needs sugarcane as raw material for the production of sugar. You know that sugarcane is produced during a particular period of the year. Since sugar production takes place throughout the year, there is a need to supply sugarcane continuously. But how is it possible? Here storage of sugarcane in sufficient quantity is required. Again, after the production of sugar it requires some time for sale or distribution. Thus, the need for storage arises both for raw material as well as finished products. Storage involves proper arrangement for preserving goods from the time of their production or purchase till the actual usage.
When this storage is done on a large scale and in a specified manner it is called ‘warehousing’. The place where goods are kept is called ‘warehouse’. The person incharge of warehouse is called ‘warehousekeeper’.
MEANING OF WAREHOUSING
Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed. In other words, warehousing means holding or preserving goods in huge quantities from the time of their purchase or production till their actual usage or sale.
Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the time gap between production and consumption of goods.
FUNCTIONS OF WAREHOUSING
Warehousing performs the following functions:
- Storage of goods.
- Protection of goods.
- Risk bearing.
- Grading and branding.
We shall now discuss each of these functions.
- Storage of goods: The basic function of warehousing is to store large stock of goods. These goods are stored from the time of their production or purchase till their consumption or usage.
- Protection of goods: A warehouse provides protection for goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature. It cuts down losses due to spoilage and wastage during storage.
- Risk bearing: Warehouses take over the risks incidental to storage of goods. Once goods are handed over to the warehouse-keeper for storage, the responsibility of these goods passes on to the warehouse-keeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage, etc. Thus, it takes all precautions to prevent any mishap.
- Financing: When goods are deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favour of the owner of the goods, which is called warehouse-keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. So while the goods are in custody of the warehouse-keeper, the businessmen can obtain loans from banks and other financial institutions keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period while keeping their goods as security.
- Processing: Certain commodities are not consumed in the form they are produced. Processing is required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened. Sometimes warehouses also undertake these activities on behalf of the owners.
- Grading and branding: On request warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale.
- Transportation: In some cases warehouses provide transport arrangement to the bulk depositors. It collects goods from the place of production and also sends goods to the place of delivery on request of the depositors.
ADVANTAGES OF WAREHOUSING
Warehousing offers many advantages to the business community. Whether it is industry or trade, it provides a number of benefits which are listed below:
- Protection and Preservation of goods: Warehouse provides necessary facilities to the businessmen for storing their goods when they are not required for sale. It provides protection to the stocks, ensures their safety and prevents wastage. It minimises losses from breakage, deterioration in quality, spoilage etc. Warehouses usually adopt latest technologies to avoid losses, as far as possible.
- Regular flow of goods: Many commodities like rice and wheat are produced during a particular season but are consumed throughout the year. Warehousing ensures regular supply of such seasonal commodities throughout the year.
- Continuity in production: Warehouse enables the manufacturers to carry on production continuously without bothering about the storage of raw materials. It helps to provide seasonal raw materials without any break in the production of finished goods.
- Convenient location: Warehouses are generally located at convenient places near the road, rail or waterways to facilitate movement of goods. Convenient location reduces the cost of transportation.
- Easy handling: Modern warehouses are generally fitted with mechanical appliances to handle the goods. Heavy and bulky goods can be loaded and unloaded by using modern machines, which reduces cost of handling such goods. Mechanical handling also minimizes wastage during loading and unloading.
- Useful for small businessmen: Construction of own warehouse requires heavy capital investment, which small businessmen cannot afford. In this situation, by paying a nominal amount as rent, they can preserve their raw materials as well as finished products in public warehouses.
- Creation of employment: Warehouses create employment opportunities both for skilled and unskilled workers in every part of the country. It is a source of income for the people, to improve their standard of living.
- Facilitates sale of goods: Various steps necessary for sale of goods such as inspection of goods by the prospective buyers, grading, branding, packaging and labelling can be carried on by the warehouses. Ownership of goods can be easily transferred to the buyer by transferring the warehouse keeper’s warrant.
- Availability of finance: Loans can easily be raised from banks and other financial institutions against the security of the warehouse-keeper’s warrant. In some cases warehouses also provide advance to the depositors of goods as he keeps the goods as security.
- Reduces risk of loss: Goods in warehouses are well guarded and preserved. The warehouses can economically employ security staff to avoid theft, use insecticides for preservation and provide cold storage facility for perishable items. They can install fire-fighting equipment to avoid fire. The goods stored can also be insured for compensation in case of loss.
TYPES OF WAREHOUSES
- Private warehouses: This type of warehouse belongs to the owner of goods, usually a wholesaler, who stored his goods in order to supply to retailers in future. Goods are produced in large quantities in anticipation of future demand and for the unknown customers. The ultimate wholesaler finds it necessary to purchase goods in advance in large bulk and to store them for future supply.
- Public Warehouses: The warehouses which are operated to store goods from numbers of the general public are known as public warehouses. Any one can store his goods in these warehouses on payment of rent. An individual, a partnership firm or a company may own these warehouses. To start such warehouses a licence from the government is required. The government also regulates the functions and operations of these ware-houses. Mostly, these warehouses are used by manufacturers,wholesalers, exporters, importers, government agencies, etc.
- Bonded Warehouses: They are types of warehouses in which owners are licensed to accept imported goods for storage before payment of customs duties. By storing his goods in a bonded warehouse the importer gains some control without paying the duty. The goods in bonded warehouses are under the strict supervision of customs officers and before the owner can interfere with them, previous permission is necessary.
- Government Warehouse: This type of warehouse is mainly located at the important sea ports and in most cases it is owned by the Dock Authorities. The general public can also use this group of warehouse on payment of fixed charges. If a customer cannot pay the rent within the specified period of time, then the authority can recover the rent by auctioning off the goods.
- Co-operative Warehouses: These warehouses are owned, managed and controlled by co-operative societies. They provide warehousing facilities at the most economical rates to the members of their society.
CHARACTERISTICS OF IDEAL WAREHOUSING
Any warehouse is said be an ideal warehouse if it possesses certain characteristics, which are given below:
- Warehouse should be located at a convenient place near highways, railway stations, airports and seaports where goods can be loaded and unloaded easily.
- Mechanical appliances should be there for loading and unloading the goods. This reduces the wastage in handling and also minimises handling costs.
- Adequate space should be available inside the building to keep the goods in proper order.
- Warehouses meant for the preservation of perishable items like fruits, vegetables, eggs and butter, should have cold storage facilities.
- Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture and pests.
- Sufficient parking space should be provided inside the premises to facilitate easy and quick loading and unloading of goods.
- Round the clock security arrangement should be there to avoid theft of goods.
- The building should be fitted with latest fire-fighting equipment to avoid loss of goods due to fire out break.
ACTIVITIES OF WAREHOUSE
- Service: Warehouse provides service to customers. The importance of customer service is obvious. Having goods available in a warehouse when a customer places an order, particularly if the warehouse is in reasonable proximity to the customer, usually leads to customers’ satisfaction and enhances future sales.
- Contingencies: Warehouses also protect against contingencies such as transportation delays, vendor stock outs, or strikes.
- Smoothing: Warehouse provides smooth operations or decouple successive stages in the manufacturing process. Seasonal demand and the need fora production run long enough to ensure reasonable cost and quality are examples of smoothing, that is, preventing operations under overtime conditions at low production levels.