The role of the warehouse

Warehouses have, in the past, been constantly referred to as cost centres and rarely adding value. The movement of production to the Far East, the growth of e-commerce and increasing demands from consumers has seen a step change in warehouse operations. Warehouses are now seen as a vital link within today’s supply chains. In fact, as stated in a recent survey by Motorola (2013):

                fewer organizations continue to view warehouses and DCs simply as commoditized

                links between endpoints of the supply chain. Warehouses are no longer necessary

                evils that are fundamentally cost centers. The movement from linear to complex,

                multi-node supply chains recognizes this shift in perception, and is being driven

                by greater volatility, constrained capacity, evolving regulations, major shifts in

                customer demographics and buying patterns, and increasingly demanding customer

                and supplier requirements. Warehouses today can drive competitive differentiation

                and, by doing so, increase profitable growth.

The pressure remains on managers to increase productivity and accuracy, reduce cost and inventory whilst improving customer service.As an introduction to the main aspects of the book we set the context by examining the role of the warehouse in today’s economy and its likely place within future supply chains. We will also look at the factors involved in choosing a suitable location for a warehouse and how many warehouses might be required. We have also taken three examples of specialist warehousing and expanded on these. We realize there are other areas such as hazardous goods storage and maintenance stores, but the need to cover all the fundamental areas precludes us from going into these areas in detail.


We believe, however, that the same underlying principles apply, albeit with greater emphasis on both legal and safety aspects. The role of a supply chain is to deliver the right products, in the correct quantity, to the right customer,at the right place, at the right time, in the right condition, at the right price. The warehouse plays a significant part in this. Delivering the right product in the right quantity relies on the warehouse picking and despatching products accurately. Delivering to the right customer at the right place, on time, requires the product to be labelled correctly and loaded onto the right vehicle with sufficient time to meet the delivery deadline. The warehouse also has to ensure the product leaves the warehouse clean and damage free. Finally, at the right price requires a cost efficient operation that delivers value for money.The warehouse is therefore crucial in delivering the perfect order. This can be done in many ways.

In the past, warehouses were seen mainly as stockholding points, attempting to match supply to demand and acting as a buffer between raw material and component suppliers and the manufacturers and between the manufacturers and the wholesalers and retailers and/or consumers. Stock visibility along the supply chain was limited and information flow was very slow, resulting in companies holding more stock than necessary.
Warehouses also fulfilled a major role in storing raw materials. As land and buildings were relatively cheap, the cost of holding significant quantities of raw materials and finished stock was seen as the norm and totally acceptable. Production runs in those days were very long as it was an expensive process to change models, colours, styles, etc. The economy was also seen as supply driven with manufacturers producing products in the hope that retailers would stock them and consumers would buy them. As a result there was a large proliferation of warehouses and stockholding increased appreciably.
In today’s market with expensive land, buildings, labour and energy costs, together with the introduction of concepts such as just in time (JIT), efficient consumer response (ECR) and quick response (QR), companies are continually looking to minimize the amount of stock held and speed up throughput. The use of tools such as postponement – where products are completed in the warehouse, not at the manufacturing location – are becoming common place. We have gone from a ‘push’ to a ‘pull’ supply chain over recent years. In fact, the phrase ‘supply chain’ can be a bit of a misnomer and rather it should be called a demand chain, with consumers holding sway.
In the past, manufacturers produced goods and passed them on to the retailers, expecting them to sell as many of their products as possible. The manufacturers operated a large number of local warehouses and delivered product direct to store. This situation changed in the 1980s when retailers took partial control of their supply chains and began to build national and regional distribution centres. This  changed the face of warehousing with a move towards larger, multi-temperature sites owned by the retailers and in many situations operated by third-party logistics companies.
These sites continue to grow, with Tesco recently building a 1.2 million square foot warehouse at Teesport in the United Kingdom, and Marks & Spencer have commissioned a 900,000 square foot distribution centre at London Gateway, the UK’s new super port. The location of these warehouses are also part of a movement towards port-centric logistics. The trend towards outsourcing Western production to India and Asia has resulted in companies having to hold higher levels of finished goods stock than previously. This is to cover the extended lead time between production and final delivery.
Containers from Shanghai to the United Kingdom, for example, can take upwards of 31 days, not including clearance at the port of entry. As can be seen in Figure 1.1, there is a requirement for some form of warehouse operation throughout the supply chain.