Concept of Warehouse in Supply Chain Management

Concept of warehouse

So, what’s your concept of warehouse?

Warehouses or distribution centres are places where raw materials, semi-finished or finished goods are stored. They represent an interruption in the flow of material and thus add cost to the system. Items should be warehoused only if there is an offsetting benefit gained from storing them.

Read also: Distribution Channel

Warehouses include plant warehouses, regional warehouses, and local warehouses. They may be owned and operated by the supplier or intermediaries such as wholesalers, or they may be public warehouses. The latter offer a general service to their public that includes providing storage space and warehouse services. Some warehouses specialize in the kinds of services they offer and the goods they store.

The service function that warehouses perform can be classified into two kinds:

The general warehouse where goods are stored for long periods and where the prime purpose is to protect goods until they are needed. There is minimal handling, movement, and relationship to transportation. Furniture storage or a depository for documents is examples of this type of storage. It is also the type used for inventories accumulated in anticipation of seasonal sales.

The distribution warehouse has a dynamic purpose of movement and mixing. Goods are received in large-volume uniform lots, stored briefly, and then broken down into small individual orders of different items required by the customer in the marketplace. The emphasis is on movement and handling rather than on storage. This type of warehouse is widely used in distribution systems. The size of the warehouse is not so much its physical size as it is the throughput or volume of traffic handled.

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Role of warehouses

Warehouses serve three important roles:

Transportation consolidation

As discussed before, transportation costs can be reduced by using that concept of warehouse. This is accomplished by consolidating small (LTL) shipments into large (TL) shipments.

Consolidation can occur in both the supply and distribution systems. In physical supply, LTL shipments from several suppliers can be consolidated at a warehouse before being shipped as TL to the factory. In physical distribution, TL shipments can be made to a distant warehouse and LTL shipments made to local users.

Read also: Basic cost elements in Transportation

Product mixing

Although transportation consolidation is concerned with the reduction of transportation costs, product mixing deals with the grouping of different items into an order and the economics that warehouse can provide in doing this. When customers place orders, they often want a mix of products that are produced in different locations.

Without a distribution centre, customers would have to order from each source and pay for LTL transport from each source. Using a distribution centre, orders can be placed and delivered from a central location.

Read also:Physical distribution system


Distribution centres improve customer service by providing place utility. Goods are positioned close to markets so the markets can be served more quickly.

Read also: Global Distribution

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