Functions of the warehouse

When considering the functions of a warehouse, the purpose of the warehouse arrangement is in the foreground. The definition is made up of the subitems security and staging function, clearing function, production function, and speculative function. In addition, special functions such as the environmental function have developed over time.

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

The description of the associated warehouse results from the respective warehouse function, for example, production warehouse, distribution warehouse (center), procurement warehouse (raw material).

Since the warehouse functions for the different storage types describe similar processes, the following section deals with the storage types Production and Distribution. However, the individual functions listed here are often also applicable to other types of victualling warehouse.

The roughly granulated functions of the warehouse answer generally two crucial questions of the stock-keeping:

  • How are goods stored?
  • Why are goods stored?

Both questions aim to compensate for the high capital commitment with the help of the respective function and to be able to plan the stockholding of a company (storage) well in advance. The challenge: The stock is, as described above, the critical size of the storage costs (capital, storage space). Since the operator of a warehouse strives for the lowest possible stock levels for economic reasons, the individual functions often conflict with each other (1). Causes are the demands after:

A distinction is made between the following warehouse functions:

Provisioning function

In production: The supply function guarantees the material supply for the current production. It balances the time between the delivery of materials and the actual demand in production. The material for the follow-up order is only staged when the space provided for it is available or when the material can be processed directly. The kanban system, for example, can be used to ensure smooth processing. The provision of material, for example for welding work, takes place directly at the production line. In times of just-in-time, one also speaks of the compensation function.

Security function

In production: The security function ensures that material can be delivered to the various production stages. Here, production accesses an interim storage facility that is available in the event of disruptions (delivery bottlenecks, strikes at the supplier). However, the material is available in larger quantities and is not stored directly in small quantities on the production line.

In distribution: The security function ensures the ability to deliver to the customer as well as to the retailer and provides for a sufficient stock of certain goods. Fast-moving and seasonal items are usually stored in large quantities as stocks in order to cope with a high volume of orders. On the other hand, the security function also takes into account and absorbs unforeseeable fluctuations in demand (bullwhip effect) and other disruptive factors (strike).

Speculative function

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

In distribution: In addition, goods or materials are purchased cheaply and resold at high prices. Products can be sought-after electronic devices or materials for production (metal, paper).

But the speculative function is also important in the mineral oil sector. Companies buy crude oil at favorable conditions and speculate on being able to sell it at a profit.

Refining function

In production: The refining function describes the development of the quality of goods through temporally extended storage – directly after the manufacturing process. It is used, for example, for wine or cheese. Another example is the production of whisky. Only stored in certain barrels does the whisky acquire the desired and perfect taste after years of maturing.

The refinement function also includes drying processes, such as the storage of wood.

In distribution: In distribution centers it is common practice to offer additional refining services. This includes the further processing of stored products without carrying out any major redesign on them. So-called refinement in distribution, therefore, involves value-adding or technical processing. Examples are special labeling (technical) or special packaging.

Special case of refining: The so-called transformation function assumes a production-economical task. Materials that are not yet in a usable condition are converted or assembled into a usable state.

Presentation function

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

Disposal function/environmental function

Within the framework of take-back obligations (e.g. deposit packaging), the warehouse assumes a so-called environmental protection function. For example, the responsibility for the disposal of waste, empties and possible production residues is transferred from the respective municipalities to the economy or companies. The same applies to the return of used batteries. The individual regulations for disposal are regulated in the Packaging Act of 2019.

Background: Since 24 July, all large department stores and online retailers, such as Amazon, have been obliged to accept old electrical appliances with an edge length of up to 25 centimeters and larger for disposal if a comparable product is purchased at the same time. This disposal must be free of charge and without a receipt. The regulation applies to retailers with more than 400 square meters of sales area. Dealers concerned usually cooperate with local authorities (recycling centers) or directly with the brands.

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

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

In a nutshell:

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

(1) Heinrich Martin, Transportation and Warehouse Logistics – Warehousing, Inventory, page 331

For further information on the topic, see the articles Inventory Management and Reverse logistics.

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