Page 418 - Foundations of Marketing

Marketing Channels and Supply-Chain Management | Chapter 13 385

In many cases, a combination of private and public facilities provides the most fl exible
warehousing approach.
Companies operate private warehouses for shipping and storing their own products.
A firm usually leases or purchases a private warehouse when its warehousing needs in a given
geographic market are substantial and stable enough to warrant a long-term commitment to a
fixed facility. Private warehouses are also appropriate for firms that require special handling
and storage and that want control of warehouse design and operation. Retailers like Sears find
it economical to integrate private warehousing with purchasing and distribution for their retail
outlets. When sales volumes are fairly stable, ownership and control of a private warehouse
may be most convenient and offer cost benefits. Private warehouses, however, face fixed costs,
such as insurance, taxes, maintenance, and debt expense. They limit a firm’s flexibility if they
wish to move inventories to different locations. Many private warehouses are being eliminated
by direct links between producers and customers, reduced cycle times, and outsourcing to
public warehouses.
Public warehouses lease storage space and related physical distribution facilities to other
companies. They sometimes provide distribution services, such as receiving, unloading, inspect-
ing, fi lling orders, providing fi nancing, displaying products, and coordinating shipments. Dis-
tribution Unlimited Inc., for example, offers a wide range of such services through its facilities
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in New York, which contain more than 8 million total square feet of warehouse space.
Public warehouses are especially useful to fi rms that have highly seasonal production or
demand, low-volume storage needs, inventories that must be maintained in many locations,
are testing or entering new markets, or require additional storage space. Public warehouses
also serve as collection points during product-recall programs. Whereas private warehouses
have fi xed costs, public warehouses offer variable (and possibly lower) costs because users
rent space and purchase warehousing services only as needed.
Many public warehouses furnish security for products that are used as collateral for loans,
a service provided at either the warehouse or the site of the owner’s inventory. Field public
warehouses are established by public warehouses at the owner’s inventory location. The ware-
houser becomes custodian of the products and issues a receipt that can be used as collateral for
a loan. Public warehouses also provide bonded storage, a warehousing arrangement in which
imported or taxable products are not released until the products’ owners pay U.S. customs
duties, taxes, or other fees. Bonded warehouses enable firms to defer tax payments on such
items until they are delivered to customers.
Distribution centers are large facilities used for receiving, warehousing, and redistributing
products to stores or customers. They are specially designed for rapid flow of products. They
are usually one-story buildings with access to transportation networks, such as major high-
ways and/or railway lines. Many distribution centers are automated, with computer-directed
robots, forklifts, and hoists that collect and move products to loading docks. Distribution
over large geographic areas can be complicated, and having strategically located distribution
centers can help a company meet consumer demand. Although some public warehouses offer
such specialized services, most distribution centers are privately owned. They serve custom-
private warehouses Company-
ers in regional markets and, in some cases, function as consolidation points for a company’s
operated facilities for storing
branch warehouses.
and shipping products
public warehouses Storage
Transportation space and related physical
distribution facilities that can be
Transportation , the movement of products from where they are made to intermediaries and leased by companies
end users, is the most expensive physical distribution function. Freight costs can vary widely
distribution centers Large,
among countries, or even regions within the same country, depending on the level of infra- centralized warehouses that
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structure and the prevalence of different modes of transportation in an area. Because product focus on moving rather than
availability and timely deliveries depend on transportation functions, transportation decisions storing goods
directly affect customer service. In some cases, a firm may choose to build its distribution and transportation The movement
marketing strategy around a unique transportation system, if that system can ensure on-time of products from where they
deliveries and give the firm a competitive edge. Companies may build their own transportation are made to intermediaries and
fleets (private carriers) or outsource the transportation function to a common or contract carrier. end users

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