Functions of the warehouse

When considering the functions of a warehouse, the primary focus is on the purpose of the storage. The definition is composed of the sub-items security and provisioning function, the balancing function, the production function and the speculation function. In addition, special functions such as the environmental function have developed over time.

Important: The functions of the warehouse should not be confused with the warehouse functions or the individual warehouse processes (goods receipt, goods issue, packing) of a warehouse management system.

The designation of the associated warehouse is derived from the respective warehouse function; for example, production warehouse, distribution warehouse (center), procurement warehouse (raw material).

Since the functions of the warehouse describe similar processes for the different types of warehouse, the types of warehouse production and distribution will be discussed below. However, the individual functions listed here can often also be applied to other types of storage warehouses.

The roughly defined functions of the warehouse generally answer two crucial questions of warehousing:

  • How is a good stored?
  • Why is a good being stored?

Both questions aim to compensate for the high capital commitment with the help of the respective function and to be able to plan a company’s inventory (storage) well in advance. The challenge here is that, as described above, the inventory is the critical factor in inventory costs (capital, storage space). Since the operator of a warehouse aims for the lowest possible stock levels for economic reasons, the individual functions often conflict with each other (1). This is due to the demands for:

The following functions of the warehouse are distinguished:

Overview graphic describing the functions of the warehouse

The functions of the warehouse are subdivided into many individual segments. An overview graphic.

Provisioning function

In production: The provision function guarantees the supply of materials for ongoing production. It balances out the time between the delivery of materials and the actual demand in production. For example, the material for the next order is only provided when the designated space is available or the material can be processed directly. The Kanban system, for example, can be used to ensure a smooth process. The provision of material, for example for welding work, takes place directly at the production line. In times of just-in-time, this is also referred to as the balancing function.

Safety function

In production: The security function ensures the ability to deliver material to the various production stages. Here, production accesses an intermediate storage area that is available in the event of disruptions (supply bottlenecks, strikes at the supplier). However, the material is available in larger quantities and is not stored directly in small quantities on the production line.

In distribution: the security function ensures the ability to deliver to the customer and to the dealer and generally ensures sufficient stock of certain goods. Fast movers and seasonal items are usually stocked in large numbers to meet a high volume of orders. On the other hand, the hedging function also takes into account and absorbs unpredictable fluctuations in demand (bullwhip effect) and other disruptive factors (strikes).

Speculative function

In distribution, production: This is in demand when, for example, costs of goods are expected to rise in the long term. Goods are then usually purchased in large quantities, also to take advantage of quantity discounts or special prices.

In distribution: goods or materials can also be purchased cheaply and sold at a high price. These products can be sought-after electronic devices or materials for production (metal, paper).

The speculation function is also important in the oil sector. Companies purchase crude oil at favorable conditions and speculate that they will be able to sell it at a profit.

Refinement function

In production: The refinement function refers to the development of the quality of goods through extended storage directly after the manufacturing process. This is used for example with wine or cheese. Another example is the production of whisky. Only after being stored in certain casks does the whisky get the desired and perfect taste after years of maturation.

The finishing function also includes drying processes, which are used, for example, in the storage of wood.

In distribution: It is common in distribution centers to offer additional finishing services. This includes the further processing of stored products without making significant changes to them. So-called finishing in distribution is therefore about value-adding or technical further processing. This could be special labeling (technical) or special packaging.

Special case of refinement: The so-called transformation function takes on a production-related task. Materials that are not yet in a usable state are transformed or assembled into a usable state.

Presentation function

In distribution: The presentation function is used primarily in retail. The goods are presented and offered to the customer directly in the sales warehouse. The withdrawal posting is then made at the checkout. In addition to its showrooms, Ikea, for example, only offers sales through a sales warehouse.

Disposal function/environmental function

In the context of take-back obligations (e.g. deposit packaging), the warehouse takes on what is known as an environmental protection function. For example, responsibility for the disposal of waste, empties and possible production residues is transferred from the respective municipalities to the economy or companies. The same also applies to the return of used batteries. The individual regulations for disposal are set out in the Packaging Act of 2019.

Background: Since July 24, all large department stores and online retailers, such as Amazon, have been obliged to take back old electrical appliances with an edge length of up to 25 centimeters and even larger ones if a comparable product is purchased at the same time, free of charge and without a receipt. The regulation applies to retailers with more than 400 square meters of retail space. Affected retailers usually cooperate with municipalities (recycling center) or directly with the brands.

Reason: According to “The Verge”, 46 billion kilograms of electronic waste were recorded worldwide in 2014. This corresponds to the weight of 126 Empire State Buildings. In the United States alone, 25 kilograms of e-waste per capita were recorded in the same year. (Link The Verge)

The environmental function also includes the storage and disposal of hazardous materials (ammunition, fuels).

In summary

The functions of the warehouse should not be confused with the individual processes of a WMS. They are more of a rough overview, an imprecise specification for the economic orientation of a warehouse.

(1) Heinrich Martin, Transport and Warehouse LogisticsWarehousing, Inventory, page 331

 

For more information on this topic, read the articles Inventory Management and Reverse Logistics.