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LEARNER GUIDE
WAREHOUSE AND DISTRIBUTION THEORY, NQF
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Learner Guide Introduction

About the Learner This Learner Guide provides a comprehensive overview of the Warehouse and
Guide… Distribution Theory, and forms part of a series of Learner Guides that have been
developed for Warehouse and Distribution Theory The series of Learner Guides are
conceptualized in modular’s format and developed for Warehouse and Distribution
Theory They are designed to improve the skills and knowledge of learners, and thus
enabling them to effectively and efficiently complete specific tasks. Learners are
required to attend training workshops as a group or as specified by their organization.
These workshops are presented in modules, and conducted by a qualified facilitator.

Purpose Warehouse and Distribution Theory

Outcomes  Warehouse and Distribution Theory
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specific outcomes is through an assessment process. Assessment involves collecting
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Warehouse and Distribution Theory

Warehouse

A warehouse is a commercial building for storage of goods. Warehouses are used

by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually
large plain buildings in industrial areas of cities, towns and villages.

They usually have loading docks to load and unload goods from trucks. Sometimes warehouses are
designed for the loading and unloading of goods directly from railways, airports, or seaports. They often
have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets loaded
into pallet racks. Stored goods can include any raw materials, packing materials, spare parts, components,
or finished goods associated with agriculture, manufacturing and production. In Indian English a
warehouse may be referred to as a godown.

Automatic storage warehouse for small parts

The origins of the warehouse are difficult to pinpoint. Early civilizations relied on storage pits rather than
large structures to protect seeds and surplus food. Sociologists like Alain Testart have argued that these
early storage techniques were essential to the evolution of societies.

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Some of the earliest examples of warehouses that resemble the buildings of today are Roman horrea.
These were rectangular buildings, built of stone, with a raised ground floor and overhanging roof to keep
the walls cool and dry. Roman horrea were typically used to store grain, but other consumables such as
olive oil, wine, clothing and even marble were also stored inside.

Though horrea were built throughout the Roman empire, some of the most studied examples are found in
or around Rome, particularly at Ostia, a harbor city that served ancient Rome. The Horrea Galbae, a
warehouse complex in the southern part of ancient Rome, demonstrates that these buildings could be
substantial, even by modern standards. The horrea complex contained 140 rooms on the ground floor
alone, covering an area of some 225,000 square feet (21,000 m²).As a point of reference, less than half of
U.S. warehouses today are larger than 100,000 square feet (9290 m²).

As attested by legislation concerning the levy of duties, medieval merchants across Europe commonly
kept goods in household storerooms, often on the ground floor or one or more storeys below the
ground. However, dedicated warehouses could be found around ports and other commercial hubs to
facilitate overseas trade. Examples of these buildings include the Venetian fondaci, which combined a
palace, warehouse, market and living quarters for lodging travellers. A number of representative medieval
warehouses can also be seen in King's Lynn, U.K., where a complex of buildings, including dwelling-
houses, shops, countinghouses and warehouses, once served the Hanseatic League.

During the industrial revolution the function of warehouses evolved and became more specialised. Some
warehouses from the period are even considered architecturally significant, such as Manchester's cotton
warehouses. Always a building of function, in the past few decades they have adapted to mechanisation,
technological innovation and changes in supply chain methods.

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19th century warehouses in Gloucester docks in the United Kingdom, originally used to store imported
corn

A Sust, a Middle Ages type of warehouse, in Horgen, Switzerland

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Historic Atlantic Dock warehouse in Brooklyn in the 1800s

Seventeenth
century
warehouses
in Amsterda
m, Netherlan
ds

Ruined
warehouses
in Ostia; an ancient Roman city

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Aisle with pallets on storage racks

Warehouse function

Historically, warehouses were a dominant part of the urban landscape from the start of the Industrial
Revolution through the 19th century and into the twentieth century. The buildings remained when their
original usage had changed. There are four identifiable types of warehouses. The cotton industry rose
with the development of the warehouse, and all five types were represented in Manchester in the United
Kingdom. Warehouses of that period in Manchester were often lavishly decorated, but modern
warehouses are more functional.

Warehouses allow transport optimization along the supply chain, and allow companies to work with an
optimal inventory (economic order quantity) regarding service quality. For example, at the terminal point
of a transport system it is necessary to stockpile produce until a full load can be transported. Warehouses
can also be used to store the unloaded goods from the vessel.

In industries whose goods require a period of maturation between production and retail, such
as viniculture and cheesemaking, warehouses can be used to store the goods in large quantities.

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India House, Manchester.

Display of goods for sale

These displayed goods for the home trade. This would be finished goods- such as the latest cotton blouses
or fashion items. Their street frontage was impressive, so they took the styles of Italianate Palazzos.

Richard Cobden's construction in Manchester's Mosley Street was the first palazzo warehouse. There

were already seven warehouses on Portland Street when they commenced building the elaborate Watts
Warehouse of 1855, but four more were opened before it was finished. It was this type of warehouse that
inspired the Germans in Düsseldorf and Munich to name their prestigious department stores Warenhäuser

Overseas warehouses

These catered for the overseas trade. They became the meeting places for overseas wholesale buyers
where printed and plain could be discussed and ordered. Trade in cloth in Manchester was conducted by
many nationalities.

Behrens Warehouse is on the corner of Oxford Street and Portland Street. It was built for Louis Behrens
& Son by P Nunn in 1860. It is a four storey predominantly red brick build with 23 bays along Portland

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Street and 9 along Oxford Street.The Behrens family were prominent in banking and in the social life of
the German Community in Manchester.

Packing warehouses

The main purpose of packing warehouses was the picking, checking, labelling and packing of goods for
export. The packing warehouses: Asia House, India House and Velvet House along Whitworth
Street were some of the tallest buildings of their time.

Railway warehouses

Warehouses were built close to the major stations in railway hubs. The first railway warehouse to be built
was opposite the passenger platform at the terminus of the Liverpool and Manchester Railway. There was
an important group of warehouses around London Road station (now Piccadilly station).In the 1890s
the Great Northern Railway Company’s warehouse was completed on Deansgate: this was the last major
railway warehouse to be built.

The London Warehouse Picadilly was one of four warehouses built by the Manchester, Sheffield and
Lincolnshire Railway in about 1865 to service the new London Road Station. It had its own branch to
the Ashton Canal. This warehouse was built of brick with stone detailing. It had cast iron columns with
wrought iron beams.

Canal warehouses

All these warehouse types can trace their origins back to the canal warehouses which were used for trans-
shipment and storage. Castlefield warehouses are of this type- and important as they were built at the
terminus of the Bridgewater Canal in 1761.

Storage and shipping systems

Some of the most common warehouse storage systems are:

 Pallet racking including selective, drive-in, drive-thru, double-deep, pushback, and gravity flow

 Mezzanine adds a semi-permanent storey of storage within a warehouse

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  Vertical Lift Modules are packed systems with vertically arranged trays stored on both sides of
the unit.

 Horizontal Carousels consist of a frame and a rotating carriage of bins.

 Vertical Carousels consisting of a series of carriers mounted on a vertical closed-loop track,

inside a metal enclosure.

A "piece pick" is a type of order selection process where product is picked and handled in individual units
and placed in an outer carton, tote or other container before shipping. Catalog companies and internet
retailers are examples of predominantly piece-pick operations. Their customers rarely order in pallet or
case quantities; instead, they typically order just one or two pieces of one or two items. Several elements
make up the piece-pick system. They include the order, the picker, the pick module, the pick area,
handling equipment, the container, the pick method used and the information technology used. Every
movement inside a warehouse must be accompanied by a work order. Warehouse operation can fail when
workers move goods without work orders, or when a storage position is left unregistered in the system.

Material direction and tracking in a warehouse can be coordinated by a Warehouse Management

System (WMS), a database driven computer program. Logistics personnel use the WMS to improve
warehouse efficiency by directing pathways and to maintain accurate inventory by recording warehouse
transactions.

Automation and optimization

Some warehouses are completely automated, and require only operators to work and handle all the task.
Pallets and product move on a system of automated conveyors, cranes and automated storage and
retrieval systems coordinated by programmable logic controllers and computers running logistics
automation software. These systems are often installed in refrigerated warehouses where temperatures are
kept very cold to keep product from spoiling, especially in electronics warehouse where they require
specific temperature to avoid damaging the parts, and also where land is expensive, as automated storage
systems can use vertical space efficiently. These high-bay storage areas are often more than 10 meters
(33 feet) high, with some over 20 meters (65 feet) high. Automated storage systems can be built up to
40m high.

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For a warehouse to function efficiently, the facility must be properly slotted. Slotting addresses which
storage medium a product is picked from (pallet rack or carton flow), and how they are picked (pick-to-
light, pick-to-voice, or pick-to-paper). With a proper slotting plan, a warehouse can improve its inventory
rotation requirements—such as first in, first out (FIFO) and last in, first out (LIFO)—control labor costs
and increase productivity.

Pallet racks are commonly used to organize a warehouse. It is important to know the dimensions of
racking and the number of bays needed as well as the dimensions of the product to be stored. Clearance
should be accounted for if using a forklift or pallet mover to move inventory.

Modern trends

Modern warehouses commonly use a system of wide aisle pallet racking to store goods which can be
loaded and unloaded using forklift trucks.

Traditional warehousing has declined since the last decades of the 20th century, with the gradual
introduction of Just In Time techniques. The JIT system promotes product delivery directly from
suppliers to consumer without the use of warehouses. However, with the gradual implementation
of offshore outsourcing and offshoring in about the same time period, the distance between the
manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew considerably in
many domains, necessitating at least one warehouse per country or per region in any typical supply
chain for a given range of products.

Recent retailing trends have led to the development of warehouse-style retail stores. These high-ceiling
buildings display retail goods on tall, heavy duty industrial racks rather than conventional retail shelving.
Typically, items ready for sale are on the bottom of the racks, and crated or palletized inventory is in the
upper rack. Essentially, the same building serves as both warehouse and retail store.

Another trend relates to Vendor-managed inventory (VMI). This gives the vendor the control to maintain
the level of stock in the store. This method has its own issue that the vendor gains access to the
warehouse.

Large exporters and manufacturers use warehouses as distribution points for developing retail outlets in a
particular region or country. This concept reduces end cost to the consumer and enhances the production
sale ratio.

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Cross docking is a specialised type of distribution center (DC) in that little or no inventory is stored and
product is received, processed (if needed) and shipped within a short timeframe. As in warehousing, there
are different types of cross docks.

Reverse logistics is another type of warehousing that has become popular for environmental reasons. The
term refers to items that are going from the end user back to the distributor or manufacturer.

Cool warehouses and cold storage

Cold storage preserves agricultural products. Refrigerated storage helps in

eliminating sprouting, rotting and insect damage. Edible products are generally not stored for more than
one year. Several perishable products require a storage temperature as low as −25 °C.

Cold storage helps stabilize market prices and evenly distribute goods both on demand basis and time
basis. The farmers get the opportunity of producing cash crops to get remunerative prices. The consumers
get the supply of perishable commodities with lower fluctuation of prices.

Ammonia and Freon compressors are commonly used in cold storage warehouses to maintain the

temperature. Ammonia refrigerant is cheaper, easily available and has a high latent heat of
evaporation but it is also highly toxic and can form an explosive mixture when mixed with oil containing
high percentage of carbon. Insulation is also important, to reduce loss of cold and to keep different
sections of the warehouse at different temperatures.

There are two main types of refrigeration system used in cold storage warehouses, a Vapour absorption
system (VAS) and Vapour compression system (VCS). VAS, although comparatively costlier, is quite
economical in operation and adequately compensates the higher initial investment.

The temperature necessary for preservation depends on the storage time required and the type of product.
In general, there are three groups of products, foods that are alive (e.g. fruits and vegetables), foods that
are no longer alive and have been processed in some form (e.g. meat and fish products), and commodities
that benefit from storage at controlled temperature (e.g. beer, tobacco).

Location is a very critical aspect for the success of cold storage. It should be in close proximity of a
growing area as well as a market, be easily accessible for heavy vehicles, and have uninterrupted power
supply.

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Cold storage and the law

There are state and local laws that regulate the cold storage industry, requiring safe working conditions
for employees, and operational procedures must be in accordance with these laws. Companies that are
aware of and comply with applicable regulations are more likely to pass inspection, avoid notices of
violation, and will be able to continue operating at full capacity, ensuring greater customer service and
uninterrupted product flow.

Warehousing education

There are few non-profit organizations which are focused on imparting knowledge, education and
research in the field of warehouse management and its role in the supply chain industry. The
Warehousing Education and Research Council (WERC) and International Warehouse Logistics
Association (IWLA) in Illinois, United States. They provide professional certification and continuing
education programs for the industry in the country. The Australian College of Training have government
funded programs to provide personal development and continuation training in warehousing certs II – V
(Diploma), they operate in Western Australia online and face to face, or Australia wide for online only
courses.

The Importance of Warehousing

Warehouse management is essential to any logistics system, which is an essential part of supply chain
management. While some erroneously view a warehouse simply as a storage facility, some warehousing
process elements will play a substantial role in ensuring that the entire supply chain system functions
efficiently. In fact, there are a number of benefits that a warehouse offers.

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Central location

A warehouse is a central location that allows shippers to receive, store and distribute products. As
products arrive at the warehouse, the responsibility for the products will transfer to the personnel in the
warehouse. Safety measures should be established. In addition, the product’s organization influences
shipping times. For this reason, opt for wooden pallets which make your products easy to move.  Storage
isn’t a static “thing” but rather a process that includes security measures and maintaining an environment
that preserves the integrity and usefulness of the items. Once it’s time to move items, each order is
retrieved, grouped, packaged and checked for completeness before being dispatched to their new
destination.

Value-adding

The primary objective of a logistics system is to increase efficiency and clientele service by reducing
cycle times and lowering overall costs. Storage offers added value to the logistics system allowing
businesses to keep an inventory so that products ordered are shipped on time. The objective of a logistics
system is to reduce cycle times and overall inventories, lower costs and most importantly, improve
customer service. Warehousing increases the utility value of goods by providing a means to have the right
products available at the right place in the right time. Operations such as order consolidation, order

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assembly, product mixing and cross-docking that take place within the warehouse structure also add value
to the overall logistics system.

Economic benefits

Warehouses provide a economies of scale through efficient operations, storage capacity and a central
location. Economic benefits are realized, for example, through consolidation and accumulation
operations. Consolidation operations cut outbound delivery costs for both the business and its customers.
Instead of shipping items individually from multiple sources, items are delivered to a central warehouse,
packaged together and shipped back out as a complete order. Accumulation operations allow a warehouse
to act as a buffer, balancing supply and demand for seasonal and long-term storage. This can be vital to
business profitability when demand for a product is year-round but the product may only be available at
certain times of the year.

Storage reduces delivery costs not only for business but also for customers since the products are shipped
from a central location and not from multiple locations. In a similar light, storage can effectively manage
supply and demand. Since businesses need to remain competitive, the economic benefits produced by a
warehouse that is running efficiently will positively impact the profitability of the entire process.

In short, storage is an essential and beneficial practice for many businesses. With the increase in online
orders, will there be storage increasingly sought? 

Service Benefits

Warehouses can serve as part of a contingency plan to ensure outbound orders are filled in full and on
time. A practice called safety stocking allows businesses to maintain a predetermined number of
inventory items at its warehouse. On the inbound side, safety stocking means that an emergency such as a
transportation delay or a shipment containing defective or damaged goods won’t delay filling and
shipping customers order. On the outbound side, safety stocking is insurance against out-of-stock items.

Warehousing: Function, Benefits and Types of Warehousing

Functions of Warehousing:

1. Storage:

This is the basic function of warehousing. Surplus commodities which are not needed immediately can be
stored in warehouses. They can be supplied as and when needed by the customers.

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2. Price Stabilization:

Warehouses play an important role in the process of price stabilization. It is achieved by the creation of
time utility by warehousing. Fall in the prices of goods when their supply is in abundance and rise in their
prices during the slack season are avoided.

3. Risk bearing:

When the goods are stored in warehouses they are exposed to many risks in the form of theft,
deterioration, exploration, fire etc. Warehouses are constructed in such a way as to minimise these risks.
Contract of bailment operates when the goods are stored in wave-houses.

The person keeping the goods in warehouses acts as boiler and warehouse keeper acts as boiler. A
warehouse keeper has to take the reasonable care of the goods and safeguard them against various risks.
For any loss or damage sustained by goods, warehouse keeper shall be liable to the owner of the goods.

4. Financing:

Loans can be raised from the warehouse keeper against the goods stored by the owner. Goods act as
security for the warehouse keeper. Similarly, banks and other financial institutions also advance loans
against warehouse receipts. In this manner, warehousing acts as a source of finance for the businessmen
for meeting business operations.

5. Grading and Packing:

Warehouses nowadays provide the facilities of packing, processing and grading of goods. Goods can be
packed in convenient sizes as per the instructions of the owner.

Importance of Warehousing In the Development of Trade and Commerce:

Warehousing or storage refers to the holding and preservation of goods until they are dispatched to the
consumers. Generally, there is a time gap between the production and consumption of products. By
bridging this gap, storage creates time utility.

There is need for storing the goods so as to make them available to buyers as and when required. Some
amount of goods is stored at every stage in the marketing process. Proper and adequate arrangements to
retail the goods in perfect condition are essential for success in marketing. Storage enables a firm to carry
on production in anticipation of demand in future.

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A warehouse is a place used for the storage or accumulation of goods. It may also be defined as an
establishment that assumes responsibility for the safe custody of goods. Warehouses enable the
businessmen to carry on production throughout the year and to sell their products, whenever there is
adequate demand.

Need for warehouse arises also because some goods are produced only in a particular season but are
demanded throughout the year. Similarly certain products are produced throughout the year but demanded
only during a particular season. Warehousing facilitates production and distribution on a large scale.

Benefits from Warehouses:

1. Regular production:

Raw materials need to be stored to enable mass production to be carried on continuously. Sometimes,
goods are stored in anticipation of a rise in prices. Warehouses enable manufacturers to produce goods in
anticipation of demand in future.

2. Time utility:

A warehouse creates time utility by bringing the time gap between the production and consumption of
goods. It helps in making available the goods whenever required or demanded by the customers.

Some goods are produced throughout the year but demanded only during particular seasons, e.g., wool,
raincoat, umbrella, heater, etc. on the other hand, some products are demanded throughout the year but
they are produced in certain region, e.g., wheat, rice, potatoes, etc. Goods like rice, tobacco, liquor and
jaggery become more valuable with the passage of time.

3. Store of surplus goods:

Basically, a warehouse acts as a store of surplus goods which are not needed immediately. Goods are
often produced in anticipation of demand and need to be preserved properly until they are demanded by
the customers. Goods which are not required immediately can be stored in a warehouse to meet the
demand in future.

4. Price stabilization:

Warehouses reduce violent fluctuations in prices by storing goods when their supply exceeds demand and
by releasing them when the demand is more than immediate productions. Warehouses ensure a regular
supply of goods in the market. This matching of supply with demand helps to stabilise prices.

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5. Minimisation of risk:

Warehouses provide for the safe custody of goods. Perishable products can be preserved in cold storage.
By keeping their goods in warehouses, businessmen can minimise the loss from damage, fire, theft etc.
The goods kept in the warehouse are generally insured. In case of loss or damage to the goods, the owner
of goods can get full compensation from the insurance company.

6. Packing and grading:

Certain products have to be conditioned or processed to make them fit for human use, e.g., coffee,
tobacco, etc. A modern warehouse provides facilities for processing, packing, blending, grading etc., of
the goods for the purpose of sale. The prospective buyers can inspect the goods kept in a warehouse.

7. Financing:

Warehouses provide a receipt to the owner of goods for the goods kept in the warehouse. The owner can
borrow money against the security of goods by making an endorsement on the warehouse receipt. In some
countries, warehouse authorities advance money against the goods deposited in the warehouse. By
keeping the imported goods in a bonded warehouse, a businessman can pay customs duty in installments.

Type of Warehouses:

There are three types of warehouses as described below:

Private Warehouses:

The private warehouses are owned and operated by big manufacturers and merchants to fulfill their own
storage needs. The goods manufactured or purchased by the owner of the warehouses have a limited value
or utility as businessmen in general cannot make use of them because of the heavy investment required in
the construction of a warehouse, some big business firms which need large storage capacity on a regular
basis and who can afford money, construct and maintain their private warehouses. A big manufacturer or
wholesaler may have a network of his own warehouses in different parts of the country.

Public Warehouses:

A public warehouse is a specialised business establishment that provides storage facilities to the general
public for a certain charge. It may be owned and operated by an individual or a cooperative society. It has
to work under a license from the government in accordance with the prescribed rules and regulations.

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Public warehouses are very important in the marketing of agricultural products and therefore the
government is encouraging the establishment of public warehouses in the cooperative sector. A public
warehouse is also known as duty-paid warehouse.

Public warehouses are very useful to the business community. Most of the business enterprises cannot
afford to maintain their own warehouses due to huge capital Investment. In many cases the storage
facilities required by a business enterprise do not warrant the maintenance of a private warehouse. Such
enterprises can meet their storage needs easily and economically by making use of the public warehouses,
without heavy investment.

Public warehouses provide storage facilities to small manufacturers and traders at low cost. These
warehouses are well constructed and guarded round the clock to ensure safe custody of goods. Public
warehouses are generally located near the junctions of railways, highways and waterways.

They provide, therefore, excellent facilities for the easy receipt, despatch, loading and unloading of
goods. They also use mechanical devices for the handling of heavy and bulky goods. A public warehouse
enables a businessman to serve his customers quickly and economically by carrying regional stocks near
the important trading centres or markets of two countries.

Public warehouses provide facilities for the inspection of goods by prospective buyers. They also permit
packaging, grading and grading of goods. The public warehouses receipts are good collateral securities
for borrowings.

Bonded Warehouses:

Bonded warehouses are licensed by the government to accept imported goods for storage until the
payment of custom duty. They are located near the ports. These warehouses are either operated by the
government or work under the control of custom authorities.

The warehouse is required to give an undertaking or ‘Bond’ that it will not allow the goods to be removed
without the consent of the custom authorities. The goods are held in bond and cannot be withdrawn
without paying the custom duty. The goods stored in bonded warehouses cannot be interfered by the
owner without the permission of customs authorities. Hence the name bonded warehouse.

Bonded warehouses are very helpful to importers and exporters. If an importer is unable or unwilling to
pay customs duty immediately after the arrival of goods he can store the goods in a bonded warehouse.
He can withdraw the goods in installments by paying the customs duty proportionately.

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In case he wishes to export the goods, he need not pay customs duty. Moreover, a bonded warehouse
provides all services which are provided by public warehouses. Goods lying in a bonded warehouse can
be packaged, graded and branded for the purpose of sale.

Importance of Warehousing & Inventory Control

Warehousing and inventory control systems help a business monitor and track the amount of raw
materials, finished goods and work in process the company has on hand at all times. Businesses rely on
the information in the inventory control system to make decisions on stock purchases, production
schedules and warehousing needs. Accurate inventory systems help small businesses keep costs low and
efficiently deliver products to meet customer demand.

Quality

Inventory control systems monitor quantities, but businesses can also use the system to track lot numbers
of raw materials and finished goods. Tracking lot numbers allows the business to track materials through
the production process. When a company detects quality problems or defects, the tracking system allows
the business to isolate materials and finished goods that may contain the defective material. Tracking
systems also allow businesses to work with vendors to identify defective materials. Inventory control can
also allow businesses to monitor the shelf life of materials. Businesses that use an inventory control
system can ensure the company uses materials on a rotating basis according to expiration dates. The
inventory control and warehousing system must provide an efficient method for workers to identify and
pull older stock before its expiration date.

Purchasing

An effective inventory control system is vital for purchasing activities in a business. Buyers rely on
accurate inventory data to determine when it is necessary to purchase stock and raw materials. When
inventory information is inaccurate, buyers may purchase an excessive or insufficient amount of
materials. Inventory control systems may use triggers that signal the buyer that it is time to replenish the
company’s stock. Inventory levels are one trigger buyers use to determine when to purchase additional
stock. The inventory level is the amount of stock the company keeps on hand at all times. The business
may use usage data and the amount of time it takes to receive replenishment stock to set the inventory
level. When the quantity on hand reaches the inventory level quantity, the buyer purchases additional
stock. Having an insufficient amount of stock to meet customer demand can result in late deliveries and

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lost business for a company. Purchasing excessive inventory wastes warehouse space and ties up a
business’s funds.

Shipping

The inventory control and warehousing system a business uses also tracks finished goods, which the
shipping department uses to track and store finished products. A quality warehousing and inventory
control system allows the shipping department to ship products to customers efficiently and in a timely
manner.

Cost

Storing raw materials and finished goods incurs a cost to a business. The inventory control and
warehousing system can help manage the cost by controlling the amount of materials the business must
keep on hand. Some businesses use a lean system, having a minimum amount of stock on hand to keep
the cost of inventory and warehousing low. A company with a lean inventory system only purchases
materials when there is a customer demand. Lean inventories minimize the cost of raw materials,
warehousing and material handling. However, delays in shipments from vendors or unforeseen increases
in customer demand can result in late deliveries or lost business for a company that uses a lean inventory
system.

Warehousing's Role in the Supply Chain

Warehousing’s role in the supply chain has become more critical and at an escalating rate during the past
two decades. Responsibilities of warehouse operators have evolved from maintaining long-term storage
of materials and products to supporting economies of purchasing, production, and transportation to
including light manufacturing and facilitating time-based supply chain strategies.

Warehouse operations contribute to the overall total cost of managing a supply chain, and as such, the
trade-offs between warehousing costs and services to that of other critical functions of the firm must be
evaluated. It is when warehousing contributes to reduced costs and improved service, flexibility, and
responsiveness that warehouses become more valued to the organization and supply chain as a whole.

Value is provided through

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  Storing product to fulfill customer demand and protect against uncertainties in demand and lead-
time

 Providing customers with product assortment

 Postponing or delaying inventory commitment to form or location until demand is better known

 Achieving low total cost and improved lead-time through consolidating multiple orders

 Reducing lead-time through cross-docking

 Sequencing materials and components from multiple third-party logistics (3PLs) providers for
time-based delivery to factory production lines

 Performing light manufacturing, assembly, and kitting

Most important, warehouses impact the receiving customer in many critical ways. Frontline warehouse
personnel may be the final customer service defense in ensuring product accuracy, quantity, timing of
shipment and delivery, accuracy of documentation, and overall product condition—all of which impact
total cost and customer perception of the brand.

Top 5 Reasons Why a Warehouse Management System Is Important

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Inventory Control and Management

A Warehouse Management System (WMS) enhances inventory management by decreasing inventory

levels, improving order fulfillment, and reducing order cycle time. Designed to control all of your
warehouse’s activities, WMS allows you to track every unit down to the lowest level of detail – for
improved order fulfillment and inventory accuracy.

A Warehouse Management solution makes inventory management a much faster, easier and efficient task.
With real-time information, Warehouse Management Systems provide quick, accurate feedback so
companies can respond faster to the demands of their customers. Distributors and wholesalers know
exactly what is in the warehouse, where it is located, and when it needs to be replenished at all times.

Customer Service and Tracking

Your warehouse is an important part of your customers’ buying experience. Making sure products
ordered are in stock and customers get what they purchased is crucial to providing good customer service.
WMS improves picking accuracy so orders are correct the first time.

Warehouse Management also makes organizing and tracking shipments easier through automation.
Worker assignments, shipment routes and putaways are all easily managed and tracked. This automation,
information and real-time tracking all leads to increased accuracy and reduced customer service calls.
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Company Productivity

Your warehouse plays a key part in ensuring that your company meets its productivity goals. Warehouse
Management adds efficiency, consistency, and quality control to the process by helping you move goods
through your warehouse at maximum speed, improving every stage of the fulfillment process. Workers
are able to generate more work in less time because they have exactly what they need at the right time.

Return on Investment

The right Warehouse Management System can improve your sales and increase profits not simply by
helping you sell more, but by selling faster and more accurately to happier customers. Furthermore, your
existing workforce is able to pick and receive more items in less time, with fewer errors. This precision
reduces customer inquiries and simplifies customer support.

Distribution (business)

Distribution (or place) is one of the four elements of the marketing mix. Distribution is the process of
making a product or service available for the consumer or business user that needs it. This can be done
directly by the producer or service provider, or using indirect channels with intermediaries.

The other three parts of the marketing mix are product, pricing, and promotion.

Distribution strategies

Prior to designing a distribution system, the planner needs to determine what the distribution channel is to
achieve in broad terms. The overall approach to distributing products or services depends on a number of
factors including the type of product, especially perishability; the market served; the geographic scope of
operations and the firm's overall mission and vision. The process of setting out a broad statement of the
aims and objectives of a distribution channel is a strategic level decision.

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In an intensive distribution approach, the marketer relies on chain stores to reach broad markets in a cost
efficient manner

Strategically, there are three approaches to distribution:

 Mass distribution

 Selective distribution

 Exclusive distribution

Intensive distribution: (also known as mass distribution) When products are destined for a mass market,
the marketer will seek out intermediaries that appeal to a broad market base. For example, snack foods
and drinks are sold via a wide variety of outlets including supermarkets, convenience stores, vending
machines, cafeterias and others. The choice of distribution outlet is skewed towards those than can deliver
mass markets in a cost efficient manner.

Selective distribution: A manufacturer may choose to restrict the number of outlets handling a product.
For example, a manufacturer of premium electrical goods may choose to deal with department stores and
independent outlets that can provide added value service level required to support the product. Dr Scholl
orthopedic sandals, for example, only sell their product through pharmacies because this type of
intermediary supports the desired therapeutic positioning of the product. Some of the prestige brands of
cosmetics and skincare, such as Estee Lauder, Jurlique and Clinique, insist that sales staff are trained to
use the product range. The manufacturer will only allow trained clinicians to sell their products.

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Exclusive distribution: In an exclusive distribution approach, a manufacturer chooses to deal with one
intermediary or one type of intermediary. The advantage of an exclusive approach is that the
manufacturer retains greater control over the distribution process. In exclusive arrangements, the
distributor is expected to work closely with the manufacturer and add value to the product through service
level, after sales care or client support services. The most common type of exclusive arrangement an
agreement between a supplier and a retailer granting the retailer exclusive rights within a specific
geographic area to carry the supplier's product. 

Type Definition

Intensive The producer's products are stocked in the majority of outlets. This strategy is common
distribution for basic supplies, snack foods, magazines and soft drink beverages.

Means that the producer relies on a few intermediaries to carry their product. This
Selective
strategy is commonly observed for more specialised goods that are carried through
distribution
specialist dealers, for example, brands of craft tools, or large appliances.

Means that the producer selects only very few intermediaries. Exclusive distribution
Exclusive occurs where the seller agrees to allow a single retailer the right to sell the
distribution manufacturer's products. This strategy is typical of luxury goods retailers such as
Gucci.

Channels and intermediaries

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A wholesale fish market at Haikou, New Port

Distribution of products takes place by means of channels to become available on markets, in stores or in
webshops. Channels are sets of interdependent organizer (called intermediaries) involved in making the
product available for consumption to end-user. This is mostly done by merchants or distributors, or in
international context by importers.

Typical intermediaries involved in distribution include:

Harrod's food hall - a major retailer in London

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Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial,
institutional, and commercial users mainly for resale or business use. Wholesalers typically sell in large
quantities. (Wholesalers, by definition, do not deal directly with the public). 

Retailer: A merchant intermediary who sells direct to the public. There are many different types of retail
outlet - from hypermarts and supermarkets to small, independent stores.

Agent: An intermediary who is authorised to act for a principal in order to facilitate exchange. Unlike
merchant wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers
together. Agents are typically paid via commissions by the principal. For example, travel agents are paid a
commission of around 15% for each booking made with an airline or hotel operator.

Jobber: A jobber is a special type of wholesaler, typically one who operates on a small scale and sells
only to retailers or institutions. For example, rack jobbers are small independent wholesalers who operate
from a truck, supplying convenience stores with snack foods and drinks on a regular basis.

Channel design

Different types of distribution systems

A firm can design any number of channels they require. Channels can be distinguished by the number of
intermediaries between producer and consumer. If there are no intermediaries then this is known as a
zero-level distribution system or direct marketing. A level one channel has a single intermediary. This
flow is typically from manufacturer to retailer to consumer, but may involve other types of intermediaries.

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In practice, distribution systems for perishable goods tend to be shorter - direct or single intermediary. In
other cases, distribution systems can become quite complex involving many levels and different types of
intermediaries.

Channel mix

In practice, many organizations use a mix of different channels; in particular, they may complement a
direct sales-force who typically call on larger customers with agents who cover the smaller customers and
prospects. In addition, online retailing or e-commerce is leading to disintermediation. Retailing via
smartphone or m-commerce is also a growing area.

Managing channels

The firm's marketing department needs to design the most suitable channels for the firm's products, then
select appropriate channel members or intermediaries. The firm needs to train staff of intermediaries and
motivate the intermediary to sell the firm's products. The firm should monitor the channel's performance
over time and modify the channel to enhance performance.

Channel motivation

To motivate intermediaries the firm can use positive actions, such as offering higher margins to the
intermediary, special deals, premiums and allowances for advertising or display. On the other hand,
negative actions may be necessary, such as threatening to cut back on margin, or hold back delivery of
product.

Channel conflict

Channel conflict can arise when one intermediary's actions prevent another intermediary from achieving
their objectives.Vertical channel conflict occurs between the levels within a channel and horizontal
channel conflict occurs between intermediaries at the same level within a channel.

Distribution theory

Distribution theory, in economics, the systematic attempt to account for the sharing of the national
income among the owners of the factors of production—land, labour, and capital. Traditionally,
economists have studied how the costs of these factors and the size of their return—rent, wages, and
profits—are fixed.

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The theory of distribution involves three distinguishable sets of questions. First, how is the
national income distributed among persons? How many persons earn less than $10,000, how many
between $10,000 and $20,000, how many between $20,000 and $30,000, and so on? Are there regularities
in these statistics? Is it possible to generalize about them?

Distribution Channels

Distribution channels in marketing are one of the classic “4 Ps” (product, promotion, price, placement
a.k.a. “distribution”). They’re a key element in your entire marketing strategy — they help you expand
your reach and grow revenue.

The path through which goods and services travel from the vendor to the consumer or payments for those
products travel from the consumer to the vendor. A distribution channel can be as short as a direct
transaction from the vendor to the consumer, or may include several interconnected intermediaries along
the way such as wholesalers, distributers, agents and retailers. Each intermediary receives the item at one
pricing point and movies it to the next higher pricing point until it reaches the final buyer. Coffee does not
reach the consumer before first going through a channel involving the farmer, exporter, importer,
distributor and the retailer.

B2B and B2C companies can sell through a single distribution channel or through multiple channels that
may include:

 Wholesaler/Distributor

 Direct/Internet

 Direct/Catalog

 Direct/Sales Team

 Value-Added Reseller (VAR)

 Consultant

 Dealer

 Retail

 Sales Agent/Manufacturer’s Rep

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Here are three examples of distribution channels in marketing:

DIRECT TO END USERS SELL THROUGH A DEALER SELL THROUGH A VAR

NETWORK (VALUE-ADDED RESELLER)

You have a sales team that You sell a product through a You sell a product to a
sells directly to Fortune 100 geographical network of company who bundles it with
companies. dealers who sell to end-users services or other products and
in their areas. The dealers may resells it.
You have a second product
service the product as well.
line for small businesses. That company is called a
Instead of using your sales Your dealers are essentially Value Added Reseller (VAR)
team, you sell this line directly your customers, and you have because it adds value to your
to end-users through your a strong program to train and product.
website and marketing support them with marketing
A VAR may work with an
campaigns. campaigns and materials.
end-user to determine the right
You have two markets and two products and configurations,
distribution channels. and then implement a system
that includes your product.

To create a good distribution program, focus on the needs of your end-users.

 If users need personalized service, you can utilize a local dealer network or reseller program to
provide that service.

 If your users prefer to buy online, you can create an e-commerce website and fulfillment system
and sell direct; you can also sell to another online retailer or distributor that can offer your
product on their own sites.

 You can build your own specialized sales team to prospect and close deals directly with
customers.
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Wholesalers, resellers, retailers, consultants and agents already have resources and relationships to
quickly bring your product to market. If you sell through these groups instead of (or in addition to) selling
direct, treat the entire channel as a group of customers – and they are, since they’re buying your product
and reselling it. Understand their needs and deliver strong marketing programs; you’ll maximize
everyone’s revenue in the process.

Best Case Neutral Case Worst Case

You’ve used one or more You’re using one or more You probably aren’t hitting
distribution channels to grow distribution channels with your revenue goals because
your revenue and market share average success. your distribution strategy is in
more quickly than you would trouble.
You may not have as many
have otherwise.
channel partners as you’d like, With your current system, you
Your end-users get the but your current system is may not be effectively
information and service they working moderately well. reaching your end-users; your
need before and after the sale. prospects probably aren’t
You devote resources to the
getting the information and
If you reach your end-user program, but you wonder
service they need to buy your
through wholesalers, VARs or whether you’d be better off
product.
other channel partners, you’ve building an alternative
created many successful distribution method — one that Your current system may also
marketing programs to drive could help you grow more be difficult to manage. For
revenue through your channel aggressively than you are example, channel members
and you’re committed to their growing now. may not sell at your suggested
success. price; they don’t follow up on
leads you deliver; they don’t
service the product very well
and you’re taking calls from
angry customers.

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Business-to-business (B2B) distribution occurs between a producer and industrial users of raw materials
needed for the manufacture of finished products. For example, a logging company needs a distribution
system to connect it with the lumber manufacturer who makes wood for buildings and furniture.

Business-to-customer (B2C) distribution occurs between the producer and the final user. For instance,
the lumber manufacturer sells lumber to the furniture maker, who then makes the furniture and sells it to
retail stores, who then sell it to the final customer.

Direct vs. Indirect

In marketing, goods can be distributed using two main types of channels: direct distribution channels and
indirect distribution channels.

Direct Distribution

A distribution system is said to be direct when the product or service leaves the producer and goes
directly to the customer with no middlemen involved. This occurs, more often than not, with the sale of
services. For example, both the car wash and the barber utilize direct distribution because the customer
receives the service directly from the producer. This can also occur with organizations that sell tangible
goods, such as the jewelry manufacturer who sells its products directly to the consumer.

Indirect Distribution

Indirect distribution occurs when there are middlemen or intermediaries within the distribution channel.
In the wood example, the intermediaries would be the lumber manufacturer, the furniture maker, and the
retailer. The larger the number of intermediaries within the channel, the higher the price is likely to be for
the final customer. This is because of the value adding that occurs at each step within the structure.

Marketing: Distribution Channels (GCSE)

A distribution channel can have several stages depending on how many organisations are involved in it:

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Looking at the diagram above:

Channel 1 contains two stages between producer and consumer - a wholesaler and a retailer. A
wholesaler typically buys and stores large quantities of several producers' goods and then breaks into
bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities,
the use of wholesalers makes economic sense. 

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer
electrical goods market in the UK is typical of this arrangement whereby producers such as Sony,
Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Tesco and Amazon which
then sell onto the final consumers.

Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the
manufacturer sells directly to customers. An example of a direct marketing channel would be a factory
outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail
intermediary - the travel agent.

What is the best distribution channel for a product?

What factors should be taken into account in choosing the best distribution channel? Here is a summary:
Nature of the product

 Technical/complex? Complex products are often sold by specialist distributors or agents

 Customised? A direct distribution approach often works best for a product that the end consumer
wants providing to a distinct specification
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  Type of product – e.g. convenience, shopping, speciality

 Desired image for the product – if intermediaries are to be used, then it is essential that those
chosen are suitable and relevant for the product.

The market

 Is it geographically spread?

 Does it involve selling overseas (see further below)

 The extent and nature of the competition – which distribution channels and intermediaries do
competitors use?

The business

 Its size and scope – e.g. can it afford an in-house sales force?

 Its marketing objectives – revenue or profit maximisation?

 Does it have established distribution network or does it need to extend its distribution option

 How much control does it want over distribution? The longer the channel, the less control is
available

How to Develop a Distribution Channel Strategy

A distribution channel strategy enables you to sell to customers in geographical areas or market sectors
that your direct sales team cannot reach. You can choose from a number of distribution channels,
including wholesalers, retailers, distributors and the Internet. Each channel gives you different options for
dealing with customers and prospects. However, to ensure that your distributors operate effectively on
your behalf, your strategy must incorporate the right level of control and support.

Reach

If your strategy is to grow your business regionally or nationally, highlight the geographical areas you
want to reach through a distribution channel and identify a network of distributors or retailers that provide
existing coverage of the territories. If you are planning to export products, focus on established
distributors with detailed local market knowledge. Consider marketing your products on the Internet so
that you can extend coverage to customers where there is no suitable physical distribution network.

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Cost

Although a distribution strategy gives you a ready-made platform for expansion, it’s important to
compare the cost of dealing through indirect distribution channels with the cost of setting up your own
network or direct sales operation. Without a distribution network, you will have to commit resources to
order processing, stockholding, delivery, invoicing and customer service. Compare that with the lower
margins you will make by giving distributors a discount for providing a similar level of service and
providing them with a program of marketing and training support.

Contribution

Your strategy should also take account of the potential contribution of each distribution channel.
Concentrate on working with distributors that give you access to an additional customer base, with no
additional direct sales and marketing costs. Distributors also provide you with local market knowledge,
enabling you to establish your business in new markets without incurring heavy market entry costs.

Support

Support and control are critical factors in your distribution strategy. Appointing a manager to work with
distributors enables you to monitor their performance and identify their support needs. Develop marketing
support programs to meet the needs of different channels. Options include funds for advertising or direct
marketing campaigns or templates that enable partners to develop their own campaigns. If channel sales
represent a significant proportion of your business, develop advertising and marketing campaigns to drive
business to your channel partners. Operating a training program will improve distributors’ product and
marketing knowledge and enable them to deliver a higher standard of service to customers.

Customer Service

It’s important to identify the types of customers you wish to serve directly. Typically, these would be
your largest customers or customers that demand levels of technical support beyond your partners’
capability. Use channel partners to deal with large numbers of smaller customers cost effectively so that
you can concentrate your resources on your key accounts

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