What is storage? How will you determine the number, size and location of warehouses?

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What is storage? (What is Warehousing)

Warehousing is a process by which the owner of goods can keep the goods safe by keeping them in a warehouse on the condition of payment of duty or rent. In this, facility is provided to the owner of the goods or his representative to remove the goods from the warehouse as per the requirement. Along with the protection of goods in warehousing, services of grading, mixing, packing, bottling etc. are also provided.

Characteristics of Warehousing

The main characteristics of storage are as follows (1) Warehouses can be public or private. Usually only public warehouses are found.

(2) The services of warehouses are available to all manufacturers, wholesalers, distributors etc.

(3) The owner of the goods or his representative may remove the goods from storage as per the requirement.

(4) In warehousing, the facility of keeping the goods in the warehouse is provided in exchange for the fee. In this way, space is provided in the storage to keep the goods in a safe form.

(5) Along with the protection of goods in storage, facilities like packing, grading, providing finance, mixing etc. are also provided.

Functions of Warehousing

Following are the main functions of storage

(1) To take proper care and protection of the goods and to avoid theft, (2) To hand over the goods to the customers as per the direction of the depositor, (3) To open and re-close the goods for the inspection of the customs officers, (4) To store small items of goods. Parcel preparation, (5) Risk bearing, (6) Collection or storage, (7) Finance management (8) Price stability (9) Grading, quantification, packing: etc.

Purposes of Warehousing

(1) Due to the facilities of public warehouses, industrialists or manufacturers do not have to build their own warehouses. It is worth mentioning that it is very costly to prepare a storage system with modern facilities. Most of the manufacturers are not able to set up their own warehouse with their own means.

(2) The purpose of warehousing arrangement is to provide many business related services, such as grading, mixing, packing, bottling, credit facility etc. along with security.

(3) To provide facilities for storage of goods.

(4) Goods collected or stored are properly protected. Efforts are made to provide as much protection as possible against theft and fire, as well as against climate, insects, wastage, etc.

(5) The purpose of storage facilities is also to help in international trade.

Importance of Warehousing

The importance of storage can be briefly explained with the help of the following headings (1) Protection from loss – Good warehouses keep the products safe. Products can be saved from rain, climate, insects, rats etc.

(2) The market has got expansion due to the wide market-store facilities. A manufacturer can maintain a regular supply of products even in markets located far away from the construction site.

(3) Equilibrium in demand and supply Adequate storage of products is also helpful in maintaining equilibrium between demand and supply. This keeps the prices stable.

(4) Increase in demand – The availability of goods on time increases the demand for seasonal goods can be created in off-season also. Thus storage increases the demand.

(5) Form utility – In some cases, form utility is also created by storage. By grading, packing, mixing, etc., the form of goods is changed to make it suitable for the consumers.

(6) Necessary for seasonal goods – Although the manufacturer has to store almost all types of products in more or less quantity, but the storage of seasonal goods is essential. Seasonal goods or products are in demand in large quantities at a particular time. Therefore, it is necessary for the manufacturer to store sufficient quantity of the products in advance. Sometimes there is a need to store at many places so that the products can be supplied to the consumers quickly and on time.

(7) By making suitable arrangement of time and place utility storage, goods can be made available at that time and place where there is demand for it. Thus, storage is helpful in the creation of time and space utility in the object.

Determining the Number, Location and Size of Warehouses

Determination of the number, location and size of warehouses is the basic question of storage arrangement. On these depend customer service level, competitive advantage and material cost structure.

Determining the Number: Generally, the fewer warehouses there are in the marketing area, the less is the cost of storage. It is also true that with the increase in the number of warehouses, the volume of sales must also increase. Therefore, it is a managerial task to determine the optimum number of warehouses on the basis of cost-benefit analysis. This optimum number will depend on many factors, such as the nature of the product, the size and geographical extent of the market included in each warehouse area, the current and potential sales of the warehouse area, the extent of seasonal demand for the product in the area, the level of peak demand, Nature of business of the area, number of distribution centers served by each warehouse, orders approved, order disposal time and cost of operation of warehouse etc.

Choosing the LocationsDetermination of the location of warehouses is also very important like the determination of the number and size of warehouses. Warehouse locations should be examined with reference to demand factors, market factors and competitive factors. The availability of transport facilities should also be taken into account. The commercial importance of the place, the effects of sales tax and other local taxes should also be studied. Along with all these things, the most importance should be given to the suitable space available for storage.

Choosing the Size – The size of warehouses is determined by the total number of warehouses. Generally, when the number of warehouses is more, their size is kept smaller and when the number is less, the size of the warehouses is kept relatively large. A firm or company has to forecast sales on the basis of estimated market goods while evaluating the sales prospects of a particular area. The basic question to be decided in warehousing is that what should be the optimum limit of inventory so that the target of projected sales in the particular area can be achieved.

Warehouse size and cost are inversely related to each other. Generally small warehouses are more economical than large warehouses. In case of more warehouses of smaller size, the material has to be transported frequently, which increases the costs due to the cost of carrying the material, overheads and other expenses. A suitable number of medium/large sized warehouses are beneficial in this regard. On the other hand, in case of establishment of large number of small sized warehouses, better and quicker services can be provided to the customers. The size of warehouses should be decided keeping in mind the future requirements of consumption and competitors.

Type or Classification of Warehouses

On the basis of ownership, warehouses are of the following types (1) Public Warehouse – These warehouses can be used by everyone. The rules and fare rates for their operation are decided by the government. Despite government regulation, they work on a commercial basis. In these, storage facilities are provided on scientific basis. Due to being equipped with modern facilities, a lot of investment has to be made on their construction. Various types of losses and wastage in public warehouses can be reduced to a great extent.

Advantages of Public Warehouses (1) It is also suitable for storing seasonal goods.

(2) Public warehouses prove to be very economical when little space is required.

(3) Public warehouses also provide services of grading, measurement, mixing, packing etc.

(4) The businessman does not have to spend money on the construction of his own warehouses. This amount can be used for other business purposes.

(5) On the receipt issued by these warehouses, the facility of finance is obtained from the financial institutions.

(6) Public warehouse is suitable even if there is a sudden need for storage facility.

(7) Being free from facilities like cranes, rails, tracks, etc., there are facilities in the loading and unloading of goods.

(2) Private Warehouse- Private warehouses are owned by big producers and wholesalers. These are constructed for their own use and are operated by the owner. There are very few such warehouses in our country. The main reason for this is the excessive expenditure on their construction. Private warehouses can be built in or near the factory building or near the market place. At present the importance of these warehouses is continuously decreasing. Distribution centers are being established in place of private warehouses, whose main objective is to maintain the flow of distribution at the place of storage of goods.

(3) General Merchandise Warehouse – This is the most common type of warehouse. Most of the warehouses are included in this category. No special facilities are provided in these, because all types of items are stored in them. These warehouses are set up at the distribution centers. In these, manufactured, semi-finished and raw materials are stored and made available to the manufacturers, distributors, retailers, consumers etc.

(5) Cold Storage – This is a new development in the field of storage. Nowadays their popularity has increased. Cold storage is required for storing perishable items like fruits, vegetables, milk etc., so that these items can be kept edible for a long time and they can be made available whenever there is demand in the market. Advantages of Cold Storage The following are the advantages of cold storage

(i) The supply of a commodity can be maintained in the market according to the demand, (ii) By keeping control on the demand and supply, the prices of the goods can be kept stable, (ii) the abundance or excess of goods in the market can be prevented. (iv) The commodity can be made available in the market throughout the year, (v) Marketing cost is reduced. (vi) The original form of the commodity remains, (vii) Shortage occurs due to cold storage. (vi) The original nature of the commodity remains, (vii) The market for perishable goods has also expanded rapidly due to cold storage.

(6) Duty Paid Warehouse – These warehouses are also located in port cities and they are owned by the dock authority or the public authority. An importer has to first pay the customs duty and only then can the goods be kept in these warehouses.

(7) Bonded Warehouse – Such warehouses play an important role in international trade. These warehouses located on port cities are owned by the dock rights authority. In case of private ownership, a license is required. By storing the imported goods in these warehouses, the importer can pay the amount of custom duty in installments instead of paying them all at once. The importer has to furnish a bond that it will pay the import duty before removing the goods from the warehouse.

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