Supply Chain Management

Topics: Logistics, Transport, Manufacturing Pages: 4 (1154 words) Published: June 5, 2013
Discuss And Illustrate The Economic Justification For Establishing A Warehouse

Storage has always been an important aspect of economic development. For manufacturers, strategic warehousing offered a way to reduce holding or dwell time of materials and parts. On the outbound side of manufacturing, warehouses can be used to create product assortments for customer shipment. An important charge in warehousing is maximum flexibility. Ideally a warehouse will simultaneously provide economic and service benefits.

Warehouses offer many economic benefits for companies. One economic benefit of a warehouse is derived from the ability to consolidate products from a number of production plants into large, consolidated shipments delivered to customers. Also, big shipments from production plants are often broken into smaller shipments and arranged for local delivery.

Break bulk shipments significantly reduce freight costs. In addition, warehouses allow production to be postponed or delayed until actual demand is certain. Once demand is determined in terms of product type and quantity, minor processing can quickly make final products available, reducing inventory requirements.

Warehouses also provide buffers for seasonality, improve production efficiency, and support marketing efforts that often send logistics managers scrambling to meet surges in demand.
Economic benefits of warehousing occur when overall logistics costs are reduced. For example, if adding a warehouse in a logistical system reduces overall transportation cost by an amount greater than required investment and operational cost, then total cost will be reduced. When total cost reductions are achievable, the warehouse is economically justified. Four basic economic benefits are: Consolidation and Break-bulk, Sorting, Seasonal storage, and Reverse logistics. The economic benefits of consolidation and...
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