The nature of warehousing involves several interrelated factors:
- Buffer. The supply and demand for raw materials, parts, and finished goods can experience substantial fluctuations and cannot be reconciled in real time. The rate of production can be different from the rate of consumption. Therefore, a buffer is required to ensure that they are synchronized in volume, time (weekly, monthly deliveries), and space (several locations). There is also seasonability in the production and demand patterns in several sectors, such as agriculture, which requires storage.
- Consolidation. Production usually takes place in large batches that need to be stored before being distributed, as orders do not involve single but multiple units. Further, transporting goods requires consolidated loads. This commonly occurs in the earlier phases of supply chains when the inventory is massified to be shipped in large quantities.
- Deconsolidation. Consumption usually requires smaller batches that are provided through deconsolidation at a distribution center where they are released. This commonly occurs in the later phases of supply chains, where goods are prepared for final distribution in smaller units such as less-than-truckload.
- Transloading. On occasion, load units (boxes, pallets, truckloads, less-than-truckloads containers) need to be changed due to changes in transport modes (e.g. from container loads to truckloads). Further, the inventory may need to be mixed due to locational fluctuations in the demand composition of the inventory.
- Postponement. Inventory can be held in reserve because timeliness can be a demand factor. Occasionally, the time horizon when an inventory will be needed is not well known (e.g. spare parts, strategic reserves), so it is stored until the occasion arises. This involves stocking in case of emergency or unforeseen surges in market demand (e.g. a weather event). Postponement can also occur as a strategy to wait for demand and market price changes to ensure a higher margin.
The function of warehousing involves a combination of several of the following:
- Storage. The ability to hold inventory without compromising the integrity of the goods through storage techniques and conditions (e.g. temperature, humidity, contamination).
- Receiving and shipping. The ability to receive raw materials, parts, or final goods into the warehouse through an inbound unloading system. The same applies to the ability to ship outbound inventory.
- Inventory management. Maintaining an adequate level of inventory that anticipates the expected demand during a time period over a market area.
- Order fulfillment. The ability to prepare orders according to the specifications of the customers, including picking and packaging.
- Quality control. The ability to ensure that the inventory meets regulatory and commercial expectations.
- Added-value services. The ability to provide light transformation and manufacturing to the inventory, such as customization and labeling.