Warehousing
Warehouse: A building or part of a building where goods are received and stored until needed.
Other terms for a warehouse include depot, godown, or silo.
Warehousing: The process of receiving goods into a warehouse, protecting them against all types of hazards, and releasing them to users when needed.
There are three distinct stages in the warehousing process:
- Receiving goods into a warehouse
- Storing them
- Releasing them to users
Importance of Warehousing to Business
- Steady/continuous flow of goods: Producers can produce and store goods awaiting demand through warehousing. For example, agricultural products produced seasonally are made available throughout the year.
- Stability in prices: Warehousing prevents surplus or shortage by storing goods when plentiful and releasing them as needed, helping to keep prices fairly stable.
- Security: Warehousing protects goods against physical damage, adverse weather, pilferage, and theft, maintaining quality until demanded.
- Bridging the time lag between production and consumption: Goods produced in anticipation of demand, such as gumboots, umbrellas, and sports equipment, are stored until needed.
- Continuous production schedules: Manufacturers can buy raw materials in bulk and store them, preventing production interruptions due to lack of materials.
- Preparation of goods for sale: Goods can be blended, packed, graded, or sorted while in the warehouse.
- Sale of goods: Goods may be sold while still in the warehouse; if sold in a bonded warehouse, duty passes to the buyer.
- Specialisation: Warehousing encourages specialization, allowing producers to focus on production while distributors handle storage and sales.
- Meeting unexpected demand: Governments collect agricultural goods as buffer stocks to use during disasters or shortages.
- Clearance of goods: Warehousing facilitates customs inspection of goods entering the country.
- Warehousing helps improve the quality of goods, such as tobacco and wine, which mature over time.
- Warehousing allows buyers to inspect goods before purchase.
- Wholesale warehouses may also serve as showrooms for traders.
Essentials of a Warehouse
Features and resources a warehouse should have to function effectively include:
- Ideal location: A warehouse should be conveniently located to facilitate receipt and issue of goods, e.g., near a manufacturer’s factory.
- Proper building: Suitable structures for different types of goods.
- Equipment: Facilities for handling goods such as forklifts and conveyor belts, and storage facilities like refrigerated or cold storage for perishables.
- Accessibility: Linked with good transport systems for easy movement of goods.
- Safety and security: Equipment to protect goods and personnel from damage by water, fire, or sunshine.
- Communication: A good communication system for contact with clients and suppliers.
- Qualified personnel: Well-trained staff for proper management and efficient operation.
- Recording system: Proper records to monitor all movement of goods.
- Spacious enough to allow easy movement and accumulation of goods and personnel.
Types of Warehouses
Warehouses can be broadly classified into three types:
- Private warehouses
- Public warehouses
- Bonded warehouses
Private Warehouses
Owned by private individuals or organizations for storing their own goods only. They include:
- Wholesalers’ warehouses
- Producers’ warehouses
- Retailers’ warehouses
Wholesalers’ Warehouses
Used to store goods bought in bulk from producers until needed by retailers. They also act as showrooms where goods are displayed.
Wholesalers prepare goods for sale in these warehouses through branding, blending, packing, and sorting.
Producers’ Warehouses
Owned by producers, including manufacturers and farmers, for storing goods prior to demand.
Located near manufacturers’ factories or farmers’ production points. Exporters may locate warehouses near ports, e.g., Mumias sugar warehouse, Bamburi Portland cement warehouse.
Retailers’ Warehouses
Large retailers such as chain stores and supermarkets own warehouses to store large stocks, distributing goods to retail outlets or branches.
Advantages of Private Warehouses
- Full control over operations and decision-making.
- Designed to suit specific organizational needs.
- Enables special handling, storage, and protection of goods with specialized facilities.
- Not bound by public warehouse procedures for receiving and issuing goods.
- No cost of hiring space, unlike public warehouses.
- Operations can be easily automated due to known goods and processes.
Disadvantages of Private Warehouses
- High initial construction cost.
- Possible under-utilization of personnel and facilities during low volumes.
- May lack qualified management personnel, leading to management challenges.
- Risks such as fire, pests, theft, or damage are not spread.
Public Warehouses
Owned by individuals or companies who rent space to traders needing temporary storage. Characteristics include:
- Owned and operated by entities not storing their own goods.
- Open to any member of the public wishing to rent storage space.
- Customers pay based on space rented and storage duration.
- Often located near airports, seaports, railway stations, and industrial areas for easy goods movement.
- Rent includes insurance and other services; goods are insured against fire or theft while stored.
- Provide additional services such as grading, packaging, preparing export samples, market reports, and clerical documents.
- Imported goods can be sold while still in the warehouse using a warehouse warrant, a negotiable instrument issued after the transaction.
Advantages of Public Warehouses
- Serve multiple customers dealing with the same product, enabling economies of scale in buying and delivery.
- Goods may be sold without physical movement from the warehouse.
- Traders can rent storage space without constructing their own warehouses.
- Traders avoid tying up capital in storage buildings and handling equipment.
- Goods are insured against risks such as fire and theft.
- Traders may obtain short-term loans using stored goods as collateral.
- Additional services like bottling, bagging, and repairs are offered.
- Sharing equipment reduces handling costs.
- Inspection, repackaging, and labeling services provide expertise users may lack.
Disadvantages of Public Warehouses
- Hirers cannot physically handle goods and must compete for attention with others.
- Hirers may lose contact with customers since goods are stored away from their premises.
- Possible poor service or lack of space during peak seasons due to competition.
- Documentation for receipt and release of goods can be lengthy and complicated.
- Long-term renting may be more expensive than owning a warehouse.
- Public warehouses may be located far from hirers’ premises.
- Operations are difficult to automate due to diverse goods requiring different handling methods.
Bonded Warehouses
Public warehouses for storing imported goods until customs duties are paid, usually located at entry points to a country.
Goods stored without paid customs duties are called “goods under bond” or “goods in bond.”
Owners give a ‘bond’ to customs authorities as a guarantee that goods will not be released until duties are paid.
Importers may withdraw goods partially or fully after paying duties.
If goods are sold while still in a bonded warehouse, the new owner pays the duty before removal.
Goods re-exported while in bonded warehouses are exempt from customs duties. For example, goods can be imported, prepared for sale inside the warehouse, and re-exported without paying duties.
Upon duty payment, a “release warrant” is issued to release goods from the warehouse.
Resident customs officials monitor goods movement in and out of bonded warehouses.
Features of a Bonded Warehouse
- Goods remain bonded until customs duty is paid.
- Goods can be re-exported while in storage.
- Storage charges apply to all goods stored.
- Goods can be sold while still under bond.
- Goods can be inspected and prepared for sale (e.g., repacked, branded, blended) while stored.
- Goods are released only upon production of a release warrant.
Advantages of Bonded Warehouses to the Importer
- Goods can be prepared for sale while in bond.
- The owner can seek a market before paying duty.
- Some goods lose weight in storage, reducing duty if based on weight.
- If sold in the warehouse, duty passes to the buyer.
- More time to arrange customs duty payment.
- Security is provided, relieving the importer of this responsibility.
- Some goods improve in quality while stored, e.g., wine and tobacco.
Advantages of Bonded Warehouses to the Government
- Revenue collection through customs duties.
- Control over entry of harmful goods.
- Verification of documents for goods in transit.
- Inspection of quantity, quality, and type of imported goods.
- Prevention of illegal goods entering the country.
Disadvantages of Bonded Warehouses
- Importers may fail to pay duties, forcing customs to auction goods to recover revenue.
- Importers may pay higher duty when withdrawing goods in parts than if paid at once.
- Costs incurred in hiring bonded warehouses compared to owning private warehouses.
Free Warehouses
Warehouses where tax-free goods are stored awaiting sale or collection by owners.
Goods stored may be locally produced (not taxed) or imported goods for which customs duties have already been paid.
Note:
- All warehouses except bonded warehouses are free warehouses, as goods stored are not subject to customs control. This includes private and public warehouses.
- Locally produced goods are stored in free warehouses since no customs duties apply.
Advantages of Free Warehouses
- Owners do not pay taxes on stored goods; goods cannot be auctioned for unpaid customs duties.
- Cheaper storage compared to bonded warehouses due to no customs duties.
- Clearance is simple, requiring only a “release warrant” proving duty payment.
- Convenient locations for users.
Disadvantages of Free Warehouses
- No customs revenue for the government.
- Potential misuse by unscrupulous traders to evade tax by storing durable goods.
- Relaxed checking and security increase the risk of storing illegal goods.
Current Trends and Emerging Issues in Warehousing
Warehousing technology is evolving in building design and handling/storage equipment, including:
- Warehousing design: Increasing use of high-ceiling warehouses to store more goods and allow movement of forklifts and stacker cranes.
- Handling of goods: Use of modern machines such as conveyor belts, tracks, forklifts, and automated stacker cranes controlled remotely on fixed guide rails.
- Storage of goods: Use of storage racks that allow retrieval or replacement without disturbing neighboring goods.
- Environmental pollution: Improper disposal of expired or spoiled goods can cause pollution, e.g., chemicals dumped into rivers or burned releasing toxic gases.
Computerization aids in monitoring stock movement, easing handling during loading and unloading.
Warehouse owners should adopt environmentally friendly disposal methods such as recycling and take social responsibility for waste.
