3 mins

Warehousing in logistics: what is it and how does it work?

Learn about what warehousing is and how logistics warehousing can help your e-commerce business grow.

Truck waiting to pick up e-commerce orders at a warehouse
August 3, 2022

The importance of a smooth-running supply chain has become increasingly clear over the last two years or so. Empty supermarket shelves, delivery delays, and rising freight costs have shown how essential supply chains are to e-commerce, manufacturing, pharmaceuticals, and many other sectors. 

As more companies have come to realize the importance of both inbound and outbound logistics, warehousing has become an increasingly competitive space, so much so that a wide variety of warehouse types, including on-demand warehousing facilities, have emerged. 

What is warehousing?

For any organization dealing with supply chain management or logistics, it’s vital that the meaning of warehousing is fully understood. Warehousing describes the storage of physical goods prior to fulfillment. 

The area required for warehousing will depend on the size of the retail business in question and the type of products being sold. For smaller companies, a storeroom may be large enough to fulfill all their warehousing requirements. Larger firms are likely to require a bespoke warehouse facility. 

In looking to set up the warehousing solution that is right for their needs, businesses could explore several possibilities. They could:

  • Choose to construct or purchase a new warehouse
  • Rent storage space
  • Take out a lease on an existing facility 
  • Seek warehousing inventory management support from a third-party provider

For e-commerce firms, warehousing usually covers a specific part of the supply chain. Warehouses are used to store products until they are purchased by a customer online. At this point, goods are shipped from the warehouse to the customer. Alternatively, brick-and-mortar retailers may use a warehouse to store surplus products until they have space for them in store. 

Why is warehousing important?

Warehouses provide a secure space to store goods prior to purchase, allowing retailers to maintain some control over the standard and quality of their inventory. For businesses that sell perishable goods, such as those requiring refrigeration, this is essential.

A specific warehousing facility can also provide staffing and productivity benefits. By providing a central location for product storage, retailers can more easily track and manage orders, as well as their staffing needs. The efficiency advantages of warehousing can also improve productivity among logistics personnel, boosting profits. 

At the same time, the efficiency benefits of storing your goods in a warehouse can help reduce delivery times and lower shipping costs. Warehousing provides a focal point around which businesses can optimize their fulfillment process. 

One way of improving your warehousing processes is through the use of digital tools. Warehousing technology, like warehouse management systems and fulfillment software, can monitor inventory levels, automate order processing, and track relevant data to ensure streamlined supply chains and allow businesses access to real-time insights into their logistics process.

With e-commerce demand surging, it is estimated that almost 300 million square feet of additional warehouse space will be needed across Europe in the next five years, causing retailers to become more aware of the important role that these facilities play within their overall supply chains. Affecting delivery times, customer satisfaction levels, and, ultimately, brand reputation, organizations are starting to treat warehouses as much more than simply somewhere to store products.

A warehouse storing goods

Storage and warehousing

Although storage and warehousing may sometimes be used interchangeably, the two terms are different. While it is true that warehouses are used to store products, storage can also be carried out at other locations. E-commerce firms may have space for storage internally, while consumers will store goods after they have been purchased at a place of their choosing. 

Warehouses are a specific type of facility, where storage is undertaken alongside other functions. To highlight why storage space is so important for e-commerce firms, it is important to recognize the scale of goods within the supply chain. For example, Amazon alone is responsible for 4.2 billion shipments annually. Between purchase and delivery, these goods need to be stored somewhere.  

However, a key difference between warehousing and storage is the fact that the former encompasses other functions. As well as storage, warehousing plays a role in capacity planning, shelving, inventory control, fulfillment, and more. 

What are the functions of warehousing?

As mentioned, storage is a primary function of warehousing but others also play a vital role within the supply chain. For example, warehouses can help with price stability by allowing retailers to purchase commodities during periods when prices are low. Using warehouses to stockpile inventory can be an effective safeguard against inflation. 

In addition to protection from inflation, warehouses also offer physical protection. Warehousing enables the safe and secure storage of products, guarding them against risks from theft or degradation. As well as security protocols applied to the warehouse itself, sensors monitoring the environment surrounding certain goods can also be employed to provide added peace of mind. 

There are financial benefits to warehousing too. Product owners can leverage the value of their goods or warehouse revenue to secure additional funding from financial institutions. If  businesses need additional financing, some banks will offer loans with a warehouse facility or its stock serving as collateral. Warehouse revenue can also be generated by renting out the real estate for other functions. Try to think of the warehouse as an asset, not a cost center.  

It’s also worth keeping in mind the revenue boost that can be derived from a well-functioning warehouse facility. In terms of reorganizing, packing, and grading inventory, the many functions of warehouses can elevate the logistics process to new heights.

What are the benefits of warehousing?

The advantages of warehousing for a company’s logistics process are many. One of the primary benefits is improved inventory accuracy. By centralizing a company’s goods in a single place, it becomes easier to evaluate stock levels and plan for the future. 

In terms of staffing levels, organizations also gain a clearer picture of how many employees they need to manage their stock. Whether they are experiencing peak sales or a slow period, a warehouse makes it easier to see how many products are currently in storage and how many employees are needed to manage them.

The added visibility that warehouses provide also empowers businesses to invest appropriately to lower their overhead costs. Inefficiencies within the supply chain can lead to unnecessarily high costs. With a warehouse, it becomes easier to identify bottlenecks and spiraling costs before eliminating them. These could involve low levels of productivity, increases in product costs, employee wages, or other challenges.

Warehouses also represent a secure location for the safe storage of goods. For organizations that manage perishable goods, including frozen foods or pharmaceuticals, it is essential that products are kept in a controlled environment. In addition, security can be prioritized more easily using a mix of technology like CCTV cameras and alarm systems, as well as in-person guards, to protect your goods. 

And finally, warehouses provide a central location around which companies can optimize the transit of their goods. By selecting the right location for your warehouse, you can reduce the time it takes to ship products from manufacturers or to customers. This improves your flow of goods, enhances inventory processing, and delivers a supply chain that works for you. 

Two warehouse associates carry SKUs through the picking shelves

Types of warehousing

Although securing a warehouse may sound like a simple process, e-commerce firms first need to decide which type of warehouse they require. There are several different types of warehouses, including:

  • Private warehouses
  • Public warehouses
  • Cooperative warehouses
  • On-demand warehousing
  • Bonded warehouses
  • Distribution centers

Private warehouses

Private warehouses are those used by private businesses to store items produced solely by that organization. Since the costs of constructing or purchasing a warehouse are entirely funded by private enterprises, this type of warehouse can be prohibitively expensive. As such, this is usually only viewed as a viable option for the largest businesses in need of substantial warehouse space. 

Public warehouses

Public warehouses, also known as “duty-paid warehouses” are owned by governments or public bodies and made available for use by private entities in exchange for a fee. 

These warehouses normally come equipped with several warehouse services, such as security personnel, for companies to use. They are often located along key transport links to ensure they are in the best location for the majority of retailers. 

Co-operative warehouses

Co-operative warehousing is where facilities are owned by multiple private firms sharing storage space. For businesses that have similar inventory needs - like different wineries, for example - this can provide an effective way of sharing costs while still enjoying a warehouse that will ensure the quality of goods is maintained. 

On-demand warehousing

If companies do not require warehousing on an ongoing basis, they may determine that on-demand warehousing is the best fit for their needs. 

On-demand warehousing is when businesses lease warehouse space on a short-term basis, for example, to help manage a surge in demand. The on-demand warehousing market is set to hit $25 billion by 2023, driven by rapid growth in the e-commerce market and fierce competition between warehouse owners and operators. 

Bonded warehouses

A bonded warehouse is a facility for storing imported goods while customs duties are awaiting payment. These warehouses can be operated by governments or private companies (where licenses are granted), with customs officials maintaining tight regulatory oversight for all products. Once the relevant taxes have been paid, goods stored in a bonded warehouse can be transported to their next destination. 

Distribution center

While the various kinds of warehouses have storage as their main purpose, a distribution center is slightly different. These facilities are designed to rapidly move products to other businesses or consumers. 

Unlike a warehouse, where goods may be stored for long periods of time, distribution centers generally hold products for short-term storage before they are picked, packed, and shipped somewhere else.

Warehousing for e-commerce

E-commerce sales are predicted to reach $7.4 trillion by 2025, with online purchases experiencing a continuous upward trajectory. For e-commerce firms, this poses a conundrum. How can they store the vast quantities of goods required to meet demand, while also being able to fulfill shipping requirements, process returns, and generally meet customer expectations? The answer lies in e-commerce warehousing. 

The right warehouse can support retailers with inventory storage, shipping and receiving, and overall e-commerce operations. The versatility of warehouses, coming in various types and with a multitude of functions, means there is likely to be a facility that suits your budget, needs, and customer base. A warehouse is much more than a storage space; the right warehouse management tools can ensure your warehouse sits at the heart of a smooth-running supply chain.

At Hive, we offer an all-in-one warehousing solution that integrates with your stock management, packing processes and last-mile carriers. Leverage the security, productivity, and financial benefits of warehousing. Get in touch with us today.