Home > Articles > Business & Management

This chapter is from the book

Quantitative Data: Why Have Warehouses?

In this book, a warehouse represents a facility where firms store product or a location where product simply passes through from one vehicle to another. It can be called a distribution center, a mixing center, a cross dock, a plant-attached warehouse, a forward warehouse, a hub or central warehouse, a spoke or regional warehouse, or a host of other terms.

To understand how to optimally locate warehouses, it is important to discuss why warehouses exist. Wouldn’t it be much cheaper for companies to load the product only once, at the manufacturing location, and ship it directly to the customer? Stopping at a warehouse adds loading, unloading, and storage costs, not to mention the cost for two legs to transportation (one leg from the plant to the warehouse and one leg from the warehouse to the customer). In cases where you can ship directly from the plant, it is usually good to do so. Therefore, it is important to ask questions to see whether you can avoid warehouses altogether. But in most cases warehouses are needed in a supply chain for the following reasons:

  • Consolidation of Products—Often, you will need to deliver a mix of different products to your customers and these products may come from various sources. A warehouse serves the useful function of bringing these products together so that you can then make a single shipment to a customer. This will be cheaper than having the products ship to the customers directly from each individual source of supply.
  • Buffer Lead Time—In many cases, you will need to ship to your customers with lead time that is shorter than that which can be offered by shipping directly from the plant or supplier location. For example, you may promise to ship products to your customers the next day but your plants or suppliers may have a lead time of several weeks before they are able to make the product available to the customer. In this case, the warehouse holds product at a location closer to the customers in order to provide the next day transport promised each time an order is placed.
  • Service Levels—Where you store the product and its proximity to the market where it will be consumed is also a measure of the service level the company can provide. The need to be close to customers can create the need for multiple warehouses. Overall cost versus service level is one of the most classic trade-offs in supply chain network design.
  • Production Lot Sizes—Setting up and starting the production of a single product or group of similar products on a line can have a significant fixed cost associated with it. Therefore, production plans attempt to maximize the number of units of product made during each run. (This production amount is called a lot size.) Understandably, these lot sizes normally do not match the exact demand from the market at the time. This requires the extra units to be “stored” in warehouses until future demand requires them. Production lot sizes versus inventory storage costs is also a common supply chain design trade-off.
  • Inventory Pre-Build—Some industries see huge spikes in the supply of raw materials (seasonal food harvests) or in the demand of finished goods (holiday retail shopping). In the case of raw material supply spikes, some firms must store these abundant raw materials until the time they will be needed for steady monthly production cycles. Other firms must immediately use these raw materials to produce finished goods that are not yet demanded. These additional finished goods must then be stored until demand in future time periods requires them. In the case of demand spikes, companies find themselves with insufficient production capacity to fulfill all orders during peak periods of demand. As a result, they must use their additional capacity during off-peak time periods to make finished-good units to be stored awaiting their use to fulfill the upcoming spikes in demand. The use of costly overtime production versus inventory storage costs is another common supply chain design trade-off.
  • Transportation Mode Trade-offs—Having warehouses often allows you to take advantage of economies of scale in transportation. A warehouse can help reduce costs by allowing the shipment of products a long distance with an efficient (and lower cost) mode of transportation and then facilitating the changeover to a less efficient (and usually more expensive) mode of transportation for a shorter trip to the final destination (as opposed to shipping the entire distance on the less efficient mode).

It is also important to match up the preceding list of reasons for warehouses with the types of warehouses in the supply chain. A supply chain may have many types of warehouses to meet many different needs. Here are some common types of warehouses:

  • Distribution Center—Typically refers to a warehouse where product is stored and from which customer orders are fulfilled. This is the most common and traditional definition of a warehouse. When a customer places an order, the distribution center will pick the items from their inventory and ship them to the customers. These types of facilities are also called mixing centers because they “mix” products from many locations so that your customers can place and receive an order from a single location. If a manufacturing company does not have this type of warehouse in the supply chain, customers may have to place several orders or receive several shipments from different locations depending on where each product they want is made.
  • Cross-Dock—Usually refers to a warehouse that is simply a meeting place for products to move from inbound trucks to outbound trucks. The term simply means that products pass (or cross) from one loading dock (for inbound trucks) to another loading dock (for the outbound trucks). For example, in the case of a produce retailer with 50 stores, they may have a full truck of fresh peaches arriving at the inbound docks from a single supplier. The peaches are then removed from the truck and some are placed in each of the 50 waiting trucks on the outbound side, according to the relevant store demand. This happens for peaches as well as a host of other produce items. Basically full trucks arrive from a single supplier on the inbound side of the facility, and then transferred to multiple trucks on the outbound side of the facility resulting in fully loaded truckloads with a mix of product from each of the suppliers quickly sent on their way. The best-run cross-dock systems have all the inbound trucks arriving at approximately the same time so that product stays at the cross-dock for only a short period of time.
  • Plant-Attached Warehouse—Refers to a warehouse that is attached to a manufacturing plant. Almost all plants have some sort of product storage as part of their operations. For some, it may simply be a small space at the end of the line where product is staged prior to being loaded onto a truck for shipment. In other cases, the warehouse can act as a storage point for product made at the plant or for products made at other plants. In this case, this warehouse acts like a distribution center co-located with the manufacturing facility. A major benefit of a plant-attached warehouse is the reduction of transportation costs because a product does not have to be shipped to another location immediately after it comes off the end of the line. When you have plant-attached warehouses, sometimes the standalone warehouses are called forward warehouses, meaning they are placed “forward” or out closer to customers.
  • Hub Warehouse or Central Warehouse—Refers to a warehouse that consolidates products to be shipped to other warehouses in the system before moving on to customers. Different from cross-docks, the products are normally stored in these locations for longer periods of time before being used to fulfill demand. The other warehouses in the network are then typically called spokes or regional warehouses.

In practice, you will find many different names for warehouses. These names are most likely just different terms for what is described in the preceding list. In addition to the types of facilities, there are also needs for different temperature classes (frozen, refrigerated, or ambient), different levels of safety (hazardous or nonhazardous), and different levels of ownership (company owned, company leased, or the company uses a third-party facility).

As an interesting side note and to further illustrate the wide range of warehouse types we have experienced, we have even seen caves used as warehouses. Caves have the nice advantage of maintaining the same (relatively low) temperature and have prebuilt roofs. If you can get trucks into and out of them and have room to store products, caves also make great warehouses. Kansas City is probably the best-known location with cave warehouses.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020