Warehousing Strategies

Warehousing network plays a major role in the success of the physical distribution of products. However, with the proliferation of a number of warehouses, the cost of logistics operation goes up. Hence, it is a tight-rope walk for the logistics manager to meet the expectations for cost and custom­er service. Under these circumstances, to strike a balance between the two and to remain competi­tive, it is observed that the leading firms adopt and implement the following warehousing strategies.

1. Capacity Switching

For a given market there will be a monthly demand pattern for a product. This demand may be greatly fluctuating in certain months due to seasonality in consumption of a product. Under such circumstances the capacity of a warehouse may be planned on the basis of average demand per month over the year and for additional space requirement (to take care of the seasonal requirement), a public or contract warehouse may be used for a short period during the season. This may reduce the quantum of investment in a private warehouse if planned on the basis of the peak demand.

2. Hub Networking

To reduce the level of inventory and exercise better control on the distribution, warehousing hubs are planned at a few strategic locations to serve the entire market spread over a vast geographical area. This is practiced more in FMCG, pharmaceutical and white goods industries, wherein the distribution network consists of a large number of dealers, stockiest and retailers. In the context of India most of the leading firms have their warehousing hubs located near or around the four metros (Mumbai, Kolkata, Chennai and Delhi) catering to the demand of four regions (West, East, South and North) in the country. The hubs are responsible for secondary distribution to dealers, stockiest or wholesalers in the specified region. A regional hub will cater to the needs of several states covered under respective regions. These hubs will eliminate the need of having distribution centres located in each state which is the practice followed by many firms. The advantages of hub strategy are:

• Reduction in operating costs
• Minimization of transportation cost
• Better control on inventory
• Improved customer service

3. Cobbling

This strategy works well with players who are not competitors but cater to the needs of similar groups of users or customers and have a similar distribution channel. For example, FMCG products manufactured by the companies such as HUL, J&J and Nestle can be cobbled together to reduce wasteful practices in storage and transportation. The operating cost will considerably be reduced benefiting all the cobbling partners. Some 3 PL operators in India are offering these services to leading companies in the FMCG sector. Here the benefits are the cost reduction thorough scale economy and speedy customer services because of synergy between users.

4. Outsourcing

Most of the firms (manufacturing and marketing) do not have expertise in warehousing opera­tions. Moreover, it is not a core activity in their business process. Hence, this area of operation remains neglected for investment decisions and as result it becomes a bottleneck in overall system productivity, efficiency and effectiveness. For gaining logistical competitiveness, leading firms are outsourcing entire warehousing operations to 3 PL providers who bridge these gaps through their expertise, technology and infrastructure.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.