INTRODUCTION TO STORAGE AND WAREHOUSING

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INTRODUCTION

Storage and warehousing operations are a critical part of maintaining a profitable business. With over 300,000 large warehouses and 2.5 million employees in the United States, the cost of American warehousing is over 5% of the gross national product. In the past few years, the field of warehousing has begun to receive the attention it deserves. However, the warehouse management has been asked to increase customer service, reduce inventories, increase productivity, handle a large number of stock- keeping units, and improve space utilization. Warehouse management has realized that these conflict- ing objectives require a much more professional approach than previously adopted. It is critical that today’s warehouse management follow this approach to achieve the results expected by today’s upper management.

1.1. Warehousing Defined

The functions performed by a warehouse are:

1. Receiving the goods from a source

2. Storing the goods

3. Picking the goods when they are required

4. Shipping the goods to the appropriate customer

Oftentimes, a distinction is made between a finished-goods warehouse and a raw-materials storeroom. The fact is, however, that the functions performed in a finished-goods warehouse—receive, store, pick, and ship—are identical to the functions performed in a raw-materials storeroom. Consequently, both are warehouses. The only true distinctions between the two are the source from which the goods are received and the user to whom the goods are shipped. A raw-materials storeroom receives goods from an outside source, stores the goods, picks the goods, and ships the goods to an inside user. A finished-goods warehouse receives goods from an inside source, stores the goods, picks the goods, and ships the goods to an outside user. Likewise, an in-process inventory warehouse receives goods from an inside source, stores the goods, picks the goods, and ships the goods to an inside user, while a distribution warehouse receives goods from an outside source, stores the goods, picks the goods, and ships to an outside user. The differences among these various warehouses are restricted to the perspectives of the sources, management, and users of the warehouses. If the primary functions of an activity are receive, store, pick, and ship, the activity is a warehouse, regardless of its position in a company’s logistics. The tools and techniques presented in this chapter can be successfully used to plan and manage that activity.

1.2. The Value of Warehousing in Today’s Economy

It is important to ponder the question ‘‘Does warehousing add value to a product?’’ The traditional school of thought has concluded that no, warehousing does not add value to a product; warehousing is strictly a cost-adding activity that is a necessary evil. In firms that follow this school of thought, warehousing costs are typically classified as indirect costs. Often these cost categories are spread over the direct costs of the firm in such a way that the cost of warehousing is not distinguishable.

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