Warehousing: Functions, Importance, and Benefits

Bradley Johnson
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Warehousing is fundamental to the success of any physical goods business. It allows you to stock inventory, repackage, and use eCommerce shipping solutions at scale. 

Understanding the components of successful warehouse operations may feel daunting, but it doesn’t need to be. 

This blog post breaks down warehousing's core functions, importance, benefits, and even what is warehouse.

Functions of Warehousing

The functions of warehousing include stocking, maintaining, and controlling your work in process inventory. Developing a dependable warehouse process for your products is crucial for business growth. 

Warehousing actions include: 

  • Setting your warehouse up properly and with relevant equipment
  • Receiving raw materials inventory and storing it appropriately
  • Ensuring temperature-controlled products are maintained 
  • Picking, packing, and shipping products efficiently
  • Monitoring warehouse operations to address errors and inconsistencies 

Let’s examine each of these activities in greater detail. 

  1. Setting Up Your Warehouse and Equipment

Whether your warehouse is large or small, using your space optimally is what matters. You’ll need at least one area each for receiving, unpacking, shelving, long-term storage (if applicable), shipping and handling, and office work. 

When arranging your warehouse floor(s), aim to separate areas by activity. This keeps your daily operations organized and minimizes the chance supplies or tools end up in an irrelevant space. 

As for the equipment your warehouse will use, this depends on your business’ needs. That being said, all warehouses benefit from basic supplies and tools. Below is a list of equipment to include in your warehouse: 

  • Shelving units 
  • Labeled bins (for large items or order parts)
  • Labeled totes or containers (for order packing)
  • Picking cart(s)
  • Packing table(s)
  • Packing materials (tape, scissors, eCommerce packaging, bubble wrap)
  • Computer and printer
  • Scale (especially for weight-sensitive items)
  1. Receiving and Storing Stock

Having a robust warehouse organization plan is important to receiving and storing all your new stock. If you don’t have enough room, it’s easy for supply to pile up and prevent timely outbound work. Keep this area of your warehouse clear and organized at all times. 

  1. Maintaining Temperature-Controlled Products 

This is extremely important if you sell perishable goods or food that needs to be maintained at a specific temperature. As your business’s sales grow, ensure your warehouse has equipment that meets or exceeds regulations for your industry.

  1. Picking, Packing, and Shipping Products Flawlessly

Getting your orders picked, packed, and shipped out is one of the most important stages of eCommerce. Set up your packing desk and shipping dock to be as organized and clearly labeled as possible. During periods of high order volume, this will help you complete each order in as little time as possible.

You should also train your staff on how to measure a box for shipping and how to use a shipping cost calculator. Having this knowledge saves minutes on each package every day, which translates to hours saved each year. If any employees are asking, "How much does it cost to ship a package?" You can have a more experienced employee educate them on your processes, thus freeing up your time.

If you don't have a shipping label printer or packing slip template yet, make sure to acquire them. Also buy some high quality warehouse labels so you know where any item is at a glance.

  1. Addressing Errors and Inconsistencies in a Timely Fashion 

It may sound obvious, but no warehouse operations are perfect. You may end up with a lot of unused stock, run out of packing materials early on, or experience order volatility with a particular product. 

Use a paper or electronic inventory tracking system to timestamp received stock, when it’s prepared for unpacking, when it’s shelved, etc. Then, calculate the average time spent between each stage across one month, which will give you your receiving accuracy rate. Similar calculations can be used to measure efficiency throughout the rest of your warehouse, like for time spent on picking and packing. 

Principles of Warehousing

There are multiple principles of warehousing that allow warehouses to run smoothly and deliver great results for clients. Identifying the target market, capacity, floor plan, and objectives of your warehouse are necessary actions. 

Use the following principles from our warehouse management guide

  1. Clear Objectives

Clarifying the objectives you have in building or contracting with a warehouse is crucial for success. Firming up the warehouse’s purpose, location, type of goods held, lifespan, physical design, and applicable partnerships is a great place to start. 

What you need your warehouse to accomplish may change over time, and this is natural. Communicate your business’s most important needs to third parties or employees upfront so you can ensure operational relevance right away. If you sell rare, sensitive, or otherwise high demand products, this should be included in your decisions, too. 

  1. Accuracy

Storing thousands of products while ensuring the right ones are shipped at the right time is challenging. Picking and packing accuracy as it relates to order processing is paramount to customer happiness. 

Providing quality training for employees empowers them to pick accurately from the start. Depending on the needs of your business, it may also be useful to develop quick reference sheets and post clear signage. Warehouse inventory management software or an ERP from this list of ERP systems makes it even easier to track how much is stored and where.

Achieving a low product touch frequency is also integral to accuracy. Low touch frequency means the goods entering your warehouse are handled as minimally as possible.

There’s a strong correlation between low touch frequency and higher profits. Here are three ways to sustain low touch frequency: 

  • Ensure shelving, bins, and containers are quickly and easily readable. 
  • Allow enough physical space for item retrieval. This is important in large warehouses. Never condense space solely to stock more inventory. 
  • Proactively refresh shelving and bins. If your staff needs to reach at awkward angles to get a product, your shelving needs to be adjusted.
  1. Operational Efficiency

Operational efficiency is one of the most important principles of warehousing because daily success depends on it. Establishing a one-way warehouse flow is always smart. A one-way flow means all product that’s brought into the warehouse is only processed in one direction, including returns. This method reduces bottlenecks, allows staff to move around comfortably, and ensures each RMA number and returns don't get mixed with new stock. 

If you haven't yet created a one-way flow for your warehouse, skilled warehouse managers can help. Putting together a great warehouse manager job description is useful in attracting someone with relevant experience. It's also wise to include a realistic warehouse manager salary in your job posting.

Also, schedule time at least two to three times per year to conduct an ABC analysis. This is a systematic review of all the products you stock, based on their profitability for your business. A products generate most of your profit and are customer favorites; B products are loss leaders that are occasionally purchased; C products are actively creating losses and should be phased out of inventory as soon as possible. You can find out which products to eliminate through a SKU rationalization.

  1. Speed

More than half of consumers ages 18-34 expect same-day delivery. More than 60% of consumers are willing to pay more for same-day delivery. These statistics show fast shipping is a modern-day benchmark.

Your business should offer it wherever possible. You can also improve your shipping speed with the help of a warehouse management system.

  1. End-to-End Customer Satisfaction

Warehouses have a lot going on each day. This includes receiving, stocking, picking and packing, administrative work, and eCommerce shipping. Not to mention, cleaning and maintenance. As a result, communication between delivery drivers, warehouse staff, and 3PL companies should be clear and concise. This supports prompt deliveries and a positive working environment.

  1. Tracking and Reporting

Setting up tracking and reporting for each stage of warehouse operations is necessary for improvement. Reports reveal missing products, shipping delays, and return issues that often go unnoticed day-to-day. By tracking and reviewing all phases of your warehouse activities, you can spot problem areas and implement relevant solutions. 

Warehousing in Logistics and Supply Chain Management

Warehouses are only one element of supply chain management, but they play a major part in the entire supply chain’s success. The warehouse is a middle phase in supply chains, and it’s crucial to get right. While a perfect warehouse doesn’t exist, being mindful of key factors simplifies your decision-making.

Raw goods are first received at ports and later delivered to warehouses. From the warehouse, sold products either go to a manufacturer or a distributor. The distributor supplies finished goods inventory to a retailer or carrier, where customers pick up the product.

It’s important to choose a warehouse that complements these other touchpoints in your supply chain. Choosing a warehouse with the greatest location advantages allows you to decrease resources used between each point.

Importance of Warehousing in Business

All of the types of eCommerce businesses selling physical goods must rely on a comprehensive warehousing strategy to satisfy customers. The goal in business is to be profitable at scale. This means you’re able to increase your profits without excessive cost increases. This can be difficult with physical product businesses, as there’s always a cost tied to goods. If you sell any kind of physical item, you need a location to store increasing numbers of units. 

This is where warehouses come in. Product businesses need enough room to store, package, and ship their products. A warehouse makes this possible, so you don’t need to work out of your office or home. 

Explain the Importance of Warehousing

Moving your product business to a warehouse may seem overwhelming at first. Thankfully, it’s easy to explain the importance of warehousing in three core concepts.

Keeping Goods Safe

First and foremost, warehouses are necessary for keeping goods safe from damage, loss, or theft. It allows you to separate your inventory from office space and institute a daily product workflow. 

Streamlining Purchase Decisions

Second, warehousing your products streamlines your purchasing decisions. Instead of merely guessing what your reorder point is (by not using the reorder point formula), you can find out by reviewing your purchase and shipping reports.

This information shows what’s popular and what’s not in hard numbers. You can then prioritize incoming stock based on the trends seen in your reports.

If you're having trouble finding the data you need, consider investing in an ERP implementation. The consolidation of business data like purchasing and financial reports is just one of several benefits of an ERP system.

Develop Optimal Processes

Third, over time, you can develop a better warehouse management process flow for your operations. If you’re not using a particular raw good as often as expected, talk with your supplier to arrange an alternative. If your current shipping provider isn’t delivering your products on time, you may want to consider changing providers.

There are dozens of reasons for warehousing, but you may only need a few to make a difference for your business. Depending on the type of product(s) you sell, your reasons for warehousing can include the following: 

  • Storing inventory long-term
  • Outsourcing picking and packing
  • Adhering to specific legal requirements
  • Protecting high-value products
  • Keeping temperature-controlled goods safe
  • Decreasing time spent on low-impact decisions

Advantages of Warehousing

There are numerous advantages of warehousing for an eCommerce business, online marketplace, or small business. Understanding how each advantage fits into your business model can clarify the warehouse approach that suits you best. 

Control Over Products

Keeping all of your product stock in a warehouse allows you to maintain control over it. You can leverage inventory control, remove irrelevant products, and pack orders in a centralized location. 

Improved Workflow

Using a warehouse to manage orders improves the workflow of your entire facility. By monitoring your warehouse operations over a specific period of time, you can quickly uncover inconsistencies. This enables you to dedicate time and attention to resolving any such issues. 

Faster Shipping and Delivery

Packing your products up in the same warehouse they were received in allows shipping to effortlessly handle their part. Customers expect fast turnarounds, and by eliminating lag time, you’re likely to win repeat business. 

Close to Target Market

Many companies place their warehouses in locations close to their target markets. This supports fast shipping and easy returns--two factors that customers have high standards for. The faster each order is shipped and delivered to customers, the more time you have to focus on growing your business. 

Long-Term Storage

Another benefit of warehousing is safely storing goods with a long shelf life. Instead of placing small orders frequently, you can place bulk orders and ship products out as they’re sold. This reduces time spent on receiving and allows both you and your staff to focus on fulfillment and customer service. 

Risk Minimization

It’s easy to watch a handful of products when your business is small. As you grow, preventing losses becomes more challenging. The benefits of warehousing include appropriate equipment for minimizing risk, especially for cold items and perishable foods. 

Task Delegation

Maintaining your product inventory by yourself, all while handling sales and marketing, is time-consuming and costly. By warehousing your products, you delegate the former responsibilities to staff members.

Difference Between Warehouse and Warehousing

Warehouse and warehousing share the same root word, but they aren’t necessarily the same. A warehouse can be any physical building that is designed to keep items secure. 

Warehousing is the process surrounding the goods kept in a warehouse, including storage, maintenance, and handling. Warehouses are almost always used for such purposes, but warehousing may take place at other locations. Fabrication and manufacturing facilities, office spaces, and training buildings may be used for warehousing, although this isn’t common. 

Risks Involved in Warehousing

For as many advantages as warehouses provide, there are some risks involved in warehouse use that you should be aware of. 

Theft and Impropriety

As a business that sells physical products, there is always the possibility of theft. When conducting interviews for your team, be sure to include a robust background check for each candidate. It’s also good to watch for any unexplained gaps or termination of employment. 

When forming partnerships with third parties, online reviews and word-of-mouth feedback are great tools for evaluating them. Remember, it’s better to take your time in forming a working relationship than it is to cut ties quickly. 

Indoor and Outdoor Security

By their very nature, warehouses are filled with tens of thousands, if not millions of dollars worth of products. All it takes is a few unsavory individuals hatching a plan, sneaking in, and helping themselves to the five-finger discount.

If you don’t have access control systems and security cameras in place, your warehouse carries immense risk. Invest in a few WiFi cameras that allow you to access footage at the touch of a button, and you’ll be all set. 

Natural Disasters: Fires, Floods, Earthquakes, and More

While natural disasters can happen at any moment, there are plenty of steps you can take to mitigate damage risk. Choosing a warehouse location that isn’t excessively dry, hot, or close to large bodies of water is wise. It’s also important to check the natural disaster history in your preferred area, as this can highlight other risks to defend against, like earthquakes or hurricanes.

Workplace Equipment

Warehouse staff rely on specialized and potentially dangerous equipment to get work done. Employees should be well accustomed to the tools they use daily (for more info, see what is a warehouse associate).

First, you should always provide thorough training to each employee for every piece of equipment they operate. Accidents often happen in a fraction of a second, especially with large and heavy equipment. Second, you should have damage control plans in place, so that even if an accident occurs, employees know how to handle it. 

Warehousing Is Wonderful

It’s easier to take the next step in your eCommerce business now that you have a firm understanding of warehousing. Being able to identify the right warehouse fit and relevant partnerships can take some time; don’t rush yourself. Remember that no two businesses are exactly alike, so make your warehouse decisions based on your personal needs.