10 Types of Warehouse Operation – Reverse Logistics Centres, Fulfilment Centres, Cross-dock Centres, Transhipment Centres

warehouse operation

There are many different roles for a warehouse in today’s supply chain.
Warehouses can be operated by raw materials suppliers, component and finished goods manufacturers, wholesalers, retailers and companies involved in reverse logistics. The warehouses can be owner operated or subcontracted to third-party logistics providers.

 

These warehouses fulfil the following roles:

1. Raw materials storage

These warehouses store raw materials and components either close to the point of extraction or close to the manufacturing point. Raw materials must be held in order to ensure continuous production. These materials include plastics, precious metals, sand, aggregates, etc.

2. Intermediate, postponement, customization or sub-assembly facilities

These warehouses are used to store products temporarily at different stages in production. These centres are also used to customize products before final delivery to the customer.

Postponement and sub-assembly activities can include the following:

  • specific packaging or labelling being changed or added, eg for store-ready items or printing in different languages;
  • computer assembly to include different graphics cards, memory chips, software, etc;
  • product bundling for promotional activity;
  • country-specific items being added such as electrical plugs; and
  • special messages being added, eg stencilling of greetings messages on mobile phones.

3. Finished goods storage

These warehouses store products ready for sale, on behalf of manufacturers, wholesalers and retailers. They provide a buffer or safety stock for companies, enabling them to build up stock in preparation for new product launches, expected increases in demand and to deal with seasonality.

4. Consolidation centres and transit warehouses

Consolidation centres receive products from different sources and amalgamate them for onward delivery to the customer or onto a production line. This can include just-in-time centres where automotive parts are delivered to a warehouse where they are brought together and sequenced for delivery onto the production line.

They can also be retail stock consolidation warehouses where products from different suppliers are consolidated for onward delivery to the stores. Rather than deliver part-loads to the Retail Distribution Centres (RDC), manufacturers deliver to these facilities where their stock is consolidated with other suppliers for onward delivery to the RDC. These differ from cross-dock centres in that product can remain in the centre for a period of time awaiting call-off from the final destination. Many of these consolidation centres are operated by third parties.

5. Transhipment or break-bulk centres

Transhipment centres receive products in large quantities from suppliers and break them down into manageable quantities for onward delivery to various locations.

6. Cross-dock centres

Cross-dock centres are seen as being the future for warehousing. Efficient consumer response and quick response within retail require operations to be able to move goods quickly through the supply chain. Cross docking requires deliveries into these centres to be already labelled and ready for onward delivery. Here the items are identified and consolidated with other deliveries, ready for despatch. Items should remain in the warehouse for as short a time as possible. Same-day receipt and despatch is the target.

Although companies are beginning to realize the efficiency of cross docking, there are a number of barriers to a successful introduction. These can include warehouse management systems support, quality control systems, reliability and cooperation of suppliers and carriers, warehouse design and uncertain demand. Cross-dock warehouses or transhipment centres are also utilized in outlying geographic areas to transfer products onto local, radial distribution vehicles. This transhipment process can take place either inside or outside the warehouse. Typical cross-dock products are perishable items such as fruit and vegetables, meat and fish, which need to be moved quickly through the supply chain. Motorola’s recent study (2013) showed that 31 per cent of companies practised cross docking and this was expected to increase to 45 per cent by 2018.

7. Sortation centres

Sortation centres are used in the main by letter, parcel and pallet distribution companies. Goods are collected from all parts of the country, delivered into hubs or sortation centres, sorted by zip or post code, consolidated and delivered overnight to their respective distribution areas for onward delivery.

Today’s retailers are also moving towards automated sortation centres with pallets being de-layered on entry, the use of mini-load systems for temporary storage and retrieval and finally automated pallet build on exit.

8. Fulfilment centres

The growth of e-retailing has seen an increase in the number of customer fulfilment centres. These warehouses have been designed and equipped specifically to manage large volumes of small orders. The video shows the fulfilment operation of an internet retailer called i-herb.com.

These centres can also double up as returns processing centres as e-commerce has a larger percentage of returns than normal retail activities.

9. Reverse logistics centres

The growth of e-retailing and specific environmental legislation such as the European Union’s Waste Electrical and Electronic Equipment (WEEE) Directive (2007) has compelled companies to focus time and energy on reverse logistics. Today, companies recognize that returning product to stock or disposing of it quickly can positively affect cash flow.

As a result, a number of warehouses have been set up specifically to deal with returned items. Third-party contractors are providing a service to retailers where customers return unwanted or defective items to the stores; the items are then consolidated and sent to the returns centre, where they are checked and either repackaged, repaired, recycled or disposed of.

Waste legislation has also resulted in large quantities of returned packaging having to be disposed of in an environmentally friendly manner. This includes sortation by type and use as fuel or recycled material. There are case studies in the environmental section that go into more detail on this subject.

Other reverse logistics processes include the return of reusable transit packaging equipment such as roll cages, barrels, kegs, pallets, tote boxes and trays. When used in the food industry added services include washing and sanitizing the items before they re-enter the supply chain.

For example, Norbert Dentressangle, a 3PL, service and maintain more than a million roll cages, as well as 230 million trays and flower buckets and dollies for Tesco.

10. Public sector warehousing

Outside the commercial world there are also warehouse operations which support the public sector, armed forces and the third sector.

The increasing number of natural disasters such as earthquakes, droughts and tsunamis is resulting in third-sector organizations opening up warehouses in strategic locations across the globe. This ensures that they are closer to the disaster areas and thus able to react quicker.

Other public sector warehouses will store supplies for local government facilities such as schools and offices. Products will include stationery, uniforms, furniture, computer hardware and software, etc.

All the warehouse operations mentioned above can be owned, leased or operated by third-party companies on behalf of a principal.

Warehouses operated by third-party logistics providers are either dedicated operations on behalf of a single customer or can be shared-user or public warehouses where a number of different customers share resources and are accommodated under one roof.

These include:

  • companies with different products but with common customers such as retailers or automotive manufacturers;
  • companies with the same or similar products delivering to common customers, eg tyre manufacturers; bicycle manufacturers, pharmaceutical companies and multimedia companies (a typical example is where Sony, Universal and Warner share a warehouse in the United Kingdom);
  • companies needing similar types of service, eg fulfilment or returns processing; and
  • companies requiring the same environmental conditions, eg hazardous goods, explosives or temperature controlled.

Users of shared-user warehouses are, in the main, companies looking for economies of scale through sharing facilities, equipment and labour costs.