In case of salaried individuals majority of people do not spend their entire salary rather they keep saving small amount from salary for future use and contingencies, in the same way companies are not able to sell their entire produce as there is always a time lag between products produced by the company and products sold by the company and it is here warehouse comes handy. Warehouses refer to that place where companies keep their goods stored so as to sell those goods whenever there is demand for goods by the customers of the company. In order to understand more about warehouses, one should look at the advantages and disadvantages of warehouses –
Advantages of Warehouses
Products Available Everytime
The biggest advantage of warehouses is that products are available all the time and company doe not have to worry about the shortage of goods when the need for a good arises and hence it can concentrate on more important matters rather than worrying about the shortage in supply of company’s products. In simple words just like a salaried individual who saves money does not worry about liquidity during contingency in the same way companies having warehouses do not have to worry about the supply of goods as they have stored sufficient quantity of goods to meet any increase in demand of goods by the consumers.
No Lost Sales
If the company do not has warehouse and suppose company unexpectedly receive large order from customer then it has no option but to say no to the customer as there is limit beyond which company cannot produce goods in short period of time which in turn will lead to lost sales and that lost sales will go to the company’s competitors which will result in company losing market share to competitors.
Less Wastage
Warehouses have all the facilities where even perishable goods can be safely stored for a long period of time which leads to less wastage because if goods are not stored in a warehouse than chances of them getting damaged are more. In simple words due to warehouses, a company does not have to worry about wastage in case company’s sales are less than anticipated sales.
Disadvantages of Warehouses
High Setup Costs
The biggest disadvantage of having a warehouse is that the initial setup cost for setting a warehouse is huge and companies that are small are not able to afford the initial set up expenses of warehouse resulting in them depending on the public warehouse or rented warehouse for storing their goods. In simple words, high setup costs are one of the biggest hurdles in the company having its own warehouse for storage of products produced by the company.
Additional Administrative Costs
Another limitation of warehouses is that apart from initial setup costs the company also has to pay recurring expenses like salary to warehouse employees, electricity bills and other administrative expenses which in turn reduce the company’s profits. In simple words, the benefits of having a warehouse should outweigh the recurring administrative expense in order to be warehouse being profitable for the company.
Not Helpful in increasing Sales
Warehouses can only help in maintaining the constant supply of goods for meeting demand from the consumers but if the company is thinking that setting up warehouses will help in increasing the sales than the company is wrong as sales can only increase when a company has a good product as well as a good marketing strategy. In simple words, warehouses can play a good supporting role in ensuring that the company never runs out of the product but if the company’s product is not good than having a warehouse is of no use and will lead to wastage of the company’s resources.
As one can see from the above that there are positives as well as negatives of a company having warehouses and that is the reason why a company should consider above points and then take the decision whether to have a company’s own warehouse or not.