What is the basic service benefits are achieved through warehousing?

1) spot stock2) assortment3) mixing4) production support5) market presence

All of these service benefits can be achieved through warehousing

Advantages of warehousing is mostly cost:

1)  Company only pays for the space utilised, so overall overheads are kept at a minimum.

2)  Staff cost of warehouse expertise is charged on a pro-rated basis on spaced used only of the warehouse, therefore company fixed costs (overheads) reduced. 

3)  Staff salaries is a long term committed and sunk cost, warehousing really gives flexibility to the company.

4)  If the company has seasonal volume fluctuations, warehousing gives this adaptability.

5)  If product is of high value, or bonded store requirement, or specialised refrigeration a necessity, warehousing can offer this at a fraction of the price of investing in such specialisation by shareholders.

Warehouse service can provide benefits through enhanced revenue generation. When awarehouse is primarily justified on service, the supporting rationale is that sales can be increased, inpart, by such logistical performance

.i)Spot Stocking

Spot stocking is typically used to support market distribution. Manufacturers of highly seasonalproducts often spot stock. Rather than maintaining inventory in a warehouse year-round, or shippingto customers direct from manufacturing plants, responsiveness in peak selling periods can beenhanced through temporary inventory positioning in strategic markets.

ii)Full Line Stocking 

The full line stocking warehouse is more often restricted to a few strategic locations andoperates year-round. Full line stocking warehouses improve service by reducing the number ofsuppliers that a customer must deal with. The combined assortments also make economical largershipments possible.

iii)Product Support

Production support warehouses stock inventory to support manufacturing operations. Safetystocks on items purchased from outside vendors may be justified because of long lead times,potential supply discontinuity,and significant variations in usage rates.In production supportwarehousing, average inventory is higher and turnover is lower.

iv) Market Presence

While the market presence factor is a frequently discussed strategy, little solid research existsto confirm or refute its existence. In addition, more reliable transportation and technology-basedorder processing are closing the response time gap regardless of distance. Unless a warehouse iseconomically or service justified it is unlikely that local market presence will favorably influenceoperational results.

2. Key concepts and pointsStrategic Warehousing, Warehouse Functionality, Economic Benefits, Consolidation andBreak-Bulk, Assortment, Postponement, Stockpiling, Reverse Logistics, Service Benefits, SpotStocking, Full Line Stocking, Product Support, Market Presence

3. Issues of applicationWhile effective logistics system should not be designed to hold inventory for extended times,there are occasions when inventory is justified on the basis of cost and service. Students shallunderstand that an important change in warehousing is maximum flexibility, andknow how such

flexibility can be achieved through information technology

At least there are five basic service benefits that could be achieved through warehousing, i.e.: <!--[if !supportLists]-->1)      <!--[endif]-->spot stock,

<!--[if !supportLists]-->2)      <!--[endif]-->assortment,

<!--[if !supportLists]-->3)      <!--[endif]-->mixing,

<!--[if !supportLists]-->4)      <!--[endif]-->production support,

and <!--[if !supportLists]-->5)      <!--[endif]-->market presence.  

<!--[if !supportLists]-->1.      

<!--[endif]-->Spot StockUnder spot stocking, a selected amount of a firm's product line is placed or "spot stocked" in a warehouse to fill customer orders during a critical marketing period. In particular, manufacturers with limited or highly seasonal product lines are partial to this service. Rather than placing inventories in warehouse facilities on a year-round basis or shipping directly from manufacturing plants, delivery time can be substantially reduced by advanced inventory commitment to strategic markets.  Utilizing warehouse facilities for stock spotting allows inventories to be placed in a variety of markets adjacent to key customers just prior to a maximum period of seasonal sales.Suppliers of agricultural products to farmers often use spot stocking to position their products closer to a service-sensitive market during the growing season. Following the sales season, the remaining inventory is withdrawn to a central warehouse. 

<!--[if !supportLists]-->2.      

<!--[endif]-->AssortmentAn assortment warehouse stocks product combinations in anticipation of customer orders. The assortments may represent multiple products from different manufacturers or special assortments as specified by customers.In the first case, for example, an athletic wholesaler would stock products from a number of clothing suppliers so that customers can be offered assortments. In the second case, the wholesaler would create a specific team uniform including shirt, pants, and shoes. The differential between stock spotting and complete line assortment is the degree and duration of warehouse utilization. A firm following a stock spotting would typically warehouse a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets for a limited time period.  Distribution assortment warehouse usually has a broad product line, is limited to a few strategic locations, and is functional year-round. The combined assortments also allow larger shipment quantities, which in turn reduce transportation cost. 

<!--[if !supportLists]-->3.      

<!--[endif]-->MixingIn a typical mixing situation, truckloads of products are shipped from manufacturing plants to warehouses.Each large shipment enjoys the lowest possible transportation rate. Upon arrival at the mixing warehouse, factory shipments are unloaded and the desired combination of each product for each customer or market is selected. When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing.  

<!--[if !supportLists]-->4.      

<!--[endif]-->Production SupportProduction support warehousing provides a steady supply of components and materials to assembly plants. Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage. The operation of a production support warehouse is to supply or "feed" processed materials, components, and subassemblies into the assembly plant in an economic and timely manner. <!--

[if !supportLists]-->5.      

<!--[endif]-->Market Presence

 While a market presence benefit may not be so obvious, it is often cited by marketing managers as a major advantage of local warehouses. The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses. As a result, it is also thought that a local warehouse will enhance market share and potentially increase profitability. 

Well answer given by Mr. Emad

Another function of a warehouse is processing or postponement. Warehouses can also be used to postpone or delay production by performing processing and light manufacturing activity. Although a warehouse is not designed to add any manufacturing process value. It is possible for a warehouse to do certain acitivities like repacking or labelling and deliver shipment to the customers. A warehouse with packaging or labelling capability allows postponement of a final production until the actual demand is known. For example, vegetables can be processed and canned at the manufacturers site. These are called __(1:36) so these brights are not labelled and the final order from the customer arrives. So the use of brights for a private labelled product means that the item does not have to be committed to a specific customer when it is sent to a warehouse. That means the warehouse will store lot of packages without labelling for end customer. So when the customer order arrives, the warehouse takes the responsibility of labelling these particular pre-canned packages and sending it to the respective customers based on an order. So this also helps in processing and postponement of a particular delivery until the customer order arrives. Otherwise this activity has to be done at the manufacturers finished goods stores which again is time consuming takes away a lot of space, effort and manpower. Once the specefic customer order is received, the warehouse will complete the final processing by adding the label and finalising the packaging. The packaging and postponement activity of a warehouse provides two economical benefits. One the risk is minimised because the final packaging is not completed until an order for a specific label and package has been received. For that there is no product which is lying unutilised or unshipped because of either lack of order or wrong labelling. Second the required level of total inventory can be reduced by using the base product without a label for a variety of labelling and packaging configurations. That means the same product can be repackaged or re-labelled into multiple customer orders at the warehouse itself not at the manufacturing facility. So these two are the key benefits of processing and postponement by a warehouse.One more function of a warehouse is in stock piling. The economic benefit of stockpiling comes from the need of seasonal storage. For example, agricultural products are harvested at specific times of a year. Critically two times in a year. But the consumption of agricultural products could occur throughout the year so when the agricultural produce happens they are immediately stored so that they can be released for demand or released for customers or consumption throughout the year,so stockpiling happens. For example food grains are stock piled throughout the year for release in a country. Both situations, whether it is round the year production and released only during the demand or only during certain times during the year production but released throughout the year for demand in both cases warehouses need to do stock piling to support the demand fluctuality. Stockpiling provides an inventory buffer, which allows production efficiencies within the contstraints imposed by material sources and the customer.In addition to some of these functions of a warehouse, there are plenty of service benefits that a warehouse can deliver. There are five basic service benefits that are achieved through warehousing. These are spot stock, assortment, mixing, production support and market presence. So what is spot stock. Under spot stocking, a selected amount of company’s product line is placed or “spot stocked” in a warehouse to fill customer orders during a critical marketing period. In particular, manufacturers with limited or highly seasonal product lines are (6:24) to the service. Rather than placing inventories in warehouse facilities on a year long basis or shipping directly from a manufacturing plant, delivery can now happen from spot stock of a warehouse. And that can be substantially reduced by advancing inventory commitment to strategic markets. So this helps in managing the inventory of an organisation, at the same time meeting the customer demand.Assortment-An assortment warehouse stocks product combinations and anticipation of customer orders. The assortments may represent multiple products from different manufacturers or special assortments as specified by customers. For example, an athletic wholesaler would stock products from a number of clothing suppliers, so that customer can be offered an assortment of supplies.So what is the difference between assortment and spot stock? The difference between spot stocking and complete line assortment is the degree and duration of warehouse utilisation. A firm following a spot stocking would typically warehouse a narrow product assortment and place stocks in a large number of small warehouses dedicated to specific markets for a limited period of time. Distribution assortment warehouse usually has a broad product line, is limited to a few strategic locations and is functional year around. The combined assortments also allow larger shipment quantities which in turn reduces the transportation cost. Another service benefit of a warehouse is mixing. A typical mixing situation, truckloads of products are shipped from a manufacturing plant to warehouses. Each large shipment enjoys the lowest possible transportationa rate. Upon arrival at the mixing warehouse, factory shipments are unloaded and desired combination of each product for each customer or destination market is selected. When plants are geographically separated, overall transportation charges and warehouse requirements can be reduced by mixing.Production Support-Production support is a key benefit of a warehouse which is attached to a manufacturing facility and serves as its stores. Production support warehousing provides a steady supply of components and materials to manufacturing facilities. Safety stocks on items purchased from outside vendors may be justified because of long lead times or significant variations in usage. The operation of a production support warehouse is to supply or feed processed materials, raw materials, components, sub assemblies, etc into the assembly plant in an economic and timely manner. One of the last service benefits of a warehouse is the market presence. While a market presence benefits may not be so obvious. It is often cited by marketing managers as a major advanatage of local warehouses. The market presence factor is based on the perception or belief that local warehouses can be more responsive to customer needs and offer quicker delivery than more distant warehouses. This can be very easily seen in the automotive industry. If you look at any automotive manufacturer who is located in say southern part of India, then we see more and more of that particular model of the vehicle playing in the southern part of India. For example you will find more of TVS motor products in South India than in North India. Similarly any manufacturing facility located in India in a particular zone enjoys certain perception of having a bigger market presence. As a result it is also thought that a local warehouse will enhance the market share and potentially increase profitability.In summary warehousing functions like consolidation, break bulk, cross docking, etc deliver economies of scale in storage and transportation domain resulting in improved delivery performance in the value chain.In addition to these functions warehouses also deliver a lot of service advantages which directly results in the bottom line increase for the organisation.

• Five basic benefits are achieved through warehousing:

  • spot stock,

  •  assortment,

  • mixing,

  • production support,

•  market presence

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