What Is Warehousing? The Process of Warehousing Explained
What is warehousing? This guide has all the info you need to know, from order fulfillment to the pros and cons of warehousing, and everything in between.
According to eMarketer, the e-commerce sector for retail sales in the United States is projected to reach nearly $800 billion by the end of the year. By 2024 that number will exceed $1 trillion.
This boom in e-commerce, while great for retail giants, is challenging for the start-up to mid-size retailers. Why? Because the supply chain logistics of e-commerce require space to store, sell, and ship those goods to customers. In a nutshell, you need warehousing, but exactly what is warehousing, and how does warehousing work?
What Is a Warehouse?
First, you have to understand what a warehouse is. It is a place to store your product while waiting to sell it, either directly to consumers, retail outlets, or suppliers. The concept of a warehouse hasn’t changed all that much over the years, but the process of managing them has changed quite a bit.
Beyond it being a place to store your goods, warehouses are now more than ever a vital link in your supply chain. Technology is used in today’s warehouses to help control inventory, process sales, shipping, and returns. In broad terms, a warehouse can serve as simple storage for the product until needed, or as a fulfillment center for customer orders.
What Is Warehousing?
There are different types of warehouses in use today. Private warehouses are owned by companies to store and manage only their own inventory. Public warehouses are owned by state or local government and rented out to private companies in need of storage solutions. Co-operative warehouses are owned by a co-operative group and rent space to private companies. Distribution centers receive products and move them out, usually very quickly.
What type of warehousing you use is largely dependent on the type of product you need to store, as well as, how you intend to sell it.
If you sell lots of widgets, but they only have three sizes, you would need the space to store them, but not much else. No frills here, just a good low-cost solution.
Climate Controlled Warehousing
Many companies need climate-controlled warehouses because their products are sensitive to temperature, humidity, and other climate factors. Climate controlled facilities are more expensive, but worth it if you don’t want to lose product.
Selling food and other perishable items will require you to keep your product refrigerated while stored. You pay more for this, but again, it’s a necessary evil in your business.
Small or new businesses often start out storing products in the garage or renting storage units. As companies grow, so too does the need for more space to store products. Scaling up can be challenging, so finding a third-party logistics firm (3PL) to handle fulfillment warehousing is often the best solution.
A 3PL will receive your product, store it, and ship it where and when you need it. Some 3PLs will offer solutions for the returned products too. There are many ways a 3PL can benefit your company when it comes to warehousing. First, you don’t have to manage the storage personally. That means lower payroll costs, insurance, etc.
You can store your product in multiple locations with the right 3PL and realize two distinct benefits. If you sell nationwide, but your product all originates in the northeast, your shipping costs will be higher than if you stored your product in a central location. Having west coast, midwest, and east coast warehouses will lower shipping costs simply because your product will be closer to the buyer.
Your product will arrive quickly to the buyer, and in today’s gotta have it now world being able to get something in two days versus a week is often the deciding factor when purchasing online. This ability to quickly fulfill your customers’ needs will increase customer satisfaction, and a happy customer is a returning customer.
How Does Warehousing Work?
The basics of how warehousing works begin with inventory storage. You will need an SKU number for every item in your inventory. Every item will have its own spot in your warehouse, in either a bin, shelf, or pallet.
The SKU will help you track your inventory as it moves through your supply chain. You’ll know the exact location for every item and be able to count your on-hand quantity and compare it with what you believe you should have.
SKUs will help you manage product recalls and account for damaged and expired goods. They also help you turn older inventory first.
Shipping and receiving are key elements to efficient warehousing operations. You must have a system in place for receiving the inventory on the dock, and then putting it in its proper location.
You also need a shipping department. This could be as simple as one person picking items, packing them, printing labels,, and choosing a carrier. Larger operations often have several people doing the individual picking, and several doing the packing and labelling.
Returned products may be a concern for e-commerce retailers. Usually, these duties are handled by your shipping department, but you need a system to handle these, especially if you don’t have an in-store return option for your customers.
Another possible need might be an assembly line. If your product comes from multiple manufacturers and you need to assemble it before shipping to customers you’ll need the space and perhaps equipment and tools to make this happen.
Pros of Warehousing
The decision to outsource your warehousing operations is a big one, especially for small to medium-sized companies. Whether you’re expanding to new geographic areas or have simply outgrown your existing space, finding a 3PL to go with may be the best solution. Yet, as with anything, there are pros and cons to warehousing. Some of the pros are:
Your warehouse offers a safe place to store your goods, protecting them from the elements, and securing them from theft.
Knowledge is power and knowing what you have on hand and where it is will allow you to respond quickly to customer demand and seasonal fluctuations.
Warehousing in areas where you have a high concentration of customers will allow for lower shipping costs and faster distribution.
A well-organized warehouse allows for smooth and efficient movement of products when designed properly. The ease with which inventory moves in and out affects your customer.
A well-oiled warehousing operation will offer lower costs in payroll, as well as, the need for on-hand product. Inventory tracking systems allow for quicker replenishment and help you keep adequate levels without over-stocking.
Cons of Warehousing
There are some drawbacks to consider when contracting warehousing services. Some of the cons are:
This is a common concern for those companies new to contracting a warehousing service. Your product is in someone else’s hands. They receive it, store it, pack it, and ship it, all without you ever seeing it happen. This can be difficult for some people to handle, so be sure you find a quality 3PL you can trust.
Businesses can actually achieve greater control by clearly outlining their needs and expectations, and finding a 3PL with the specific services they are looking for.
Finding the Right 3PL
The process to find a warehousing solution can seem daunting, and shouldn’t be taken lightly. Not all warehousing operations are the same, and your specific needs must be met. Never rush into a relationship for a short-term fix when a long-term solution is better.
Warehouse Versus Distribution Center: Which Is Better?
This answer depends on your particular needs. Are you moving lots of product quickly? Or are you holding a product for long stretches? We know warehousing is an important element of your supply chain. How you move your inventory will dictate which is better for you.
In e-commerce, the fulfillment center style of warehousing offers the most benefits, especially if you have a large inventory. For instance, if you’re a small or medium-sized business selling clothing online, you will need inventory control not just for a style of shirt, but for each individual size and every color option. That one shirt might necessitate forty separate SKUs for eight different sizes and five colors.
How much space you need is dependent on how much you’re selling. Individual sales to customers will affect on-hand inventory in small increments. Now, if you’re supplying your line of clothing to retail outlets across the country you’re inventory changes in larger increments.
The real benefit of fulfillment center warehousing is in moving large quantities. If you’re relatively new and aren’t selling a lot of units, the cost of a fulfillment center service might be higher than a stand-alone warehouse solution. Be sure you take a close look at the cost of services provided and factor that into your pricing models to see the impact.
Fulfillment center warehousing operations will have advanced inventory systems designed to monitor product levels, initiate re-supply, and offer sales metrics to help you plan for the future, whether that’s organic growth or seasonal fluctuations.
What if you’re doing both? Fulfillment center warehousing is the solution, in either case, only the amount of storage space is different. This is beneficial for small and new companies because inventory management is easily scaled up.
Big box stores benefit the most from a distribution center style of warehousing. That’s because they bring in a lot of product and move it out again fast. Distribution centers are centrally located to provide quick movement of inventory to the stores they supply and work best when the storage solution is short-term.
Modern warehousing is more than the simple storage of goods. There are many elements to the process that you need to consider before deciding on a solution.
You need to know how much you’ll pay for storing your product. You can do this beforehand by creating SKUs for your inventory. This will help you estimate the amount of storage space you’ll need and allow a 3PL to give you accurate pricing.
What you’re storing and selling will dictate the type of storage you’ll need. Refrigeration and climate control are two of the features you’ll need to consider when choosing a warehousing solution.
The location of your warehouse or warehouses is important. You want your warehouse to be near your customers. This will lower your shipping costs and increase your delivery speed, both of which are important in e-commerce. However, if you have a lot of inventory you need to hold for longer periods of time then a rural location might be a less expensive solution.
Seasonal fluctuations in sales can be difficult to manage when it comes to warehousing. Leasing sufficient space to handle your seasonal highs can become costly when you enter your low season. Conversely, if you don’t have enough space to handle sharp increases in demand then your customers and your business suffer. A good 3PL will have scalable solutions to address these.
Warehouse management technology exists to help bring together the ordering, inventory, selling, and shipping of your product in a single source. The ability to automate these processes can help streamline operations.
Field sales reps can send orders in, as can customers, with this technology. All the tracking data from picking to shipping, even where your product is on a map can be sent to customers and salespeople alike.
The cost of specialized services are an element of warehousing that need consideration. Things like kitting, cross-docking and B2B services are something you might need now, or in the future.
Finding a Quality Fulfillment Warehousing Service
It doesn’t matter if you’re an e-commerce retailer with over 5,000 sales per month, a manufacturer trying to break into the e-commerce sector, or selling out of your garage, you need to be able to answer the question, what is warehousing?
At Fulfilltopia we offer e-commerce, retail, and subscription services for companies of all sizes. Our reach is global and our team of professionals is here to help you get started. Our technology offers seamless integration with eCart platforms like Shopify, Amazon, eBay, and more. You can contact us today with any questions you might have, or to get a free quote.