Warehousing and Storage (2)

Supply levelling (production regulation)

The warehouse helps companies gear their supply and demand with improved parity. With a warehouse, the company can store sufficient inventory to buffer against demand spikes, so make stockouts and customer disappointment infrequent events. Also, sudden demands on suppliers will be less likely if buffer inventory is carried. Suppliers’ manufacturing systems maybe be volume rather than agility-oriented. Small volume, sudden orders might be fulfillable, but the cost of that fulfilment will likely be much higher than a steady-state, forecasted order completed at a more manageable pace with slack factored in the schedule. Seasonality can also be addressed through storage (warehousing). Some categories of goods are strongly seasonal so their demand patterns are calendrically knowable. Easter eggs, for example, sell most in early spring, but high quantity orders must be placed early and the product stored in anticipation of the sales window. Without a warehouse, the seller could not maximize the return on addressing such a seasonally confined demand. There would simply be too much stock required too soon and too infrequently. Other stock would have to be cleared to make way and, importantly, manufacturers would have to produce in a very short, very intense burst, which would reduce their ability to both manufacture and purchase steadily from their suppliers, and obtaining lower costs and improved efficiencies through economies of scale, preparedness, earliness/timeliness, and smooth manufacturing loads. The manufacturer’s inefficiencies would translate into higher prices paid by the buyer, and ultimately, the end consumer.