A Small Business Guide to Warehousing

Your marketing campaign is going great, and all of a sudden your hand-carved sets of decorative bowls are selling like hotcakes. So far, so good.

But then you start running into problems. You've sold 10 sets of one type of bowl when you only made five. And you're starting to lose track of who ordered what and where you put all of your products. Chaos ensues.

Yes, even really small businesses can suffer from warehousing problems. No matter your company’s size, if you fill orders for customers, you need a solid warehousing system.

But what is warehousing, and how do you create a system that works for your business? This guide breaks down the term and provides some best practices you should utilize right away.

Overview: What is warehousing?

Warehousing refers to the process of storing goods for sale or distribution later. Warehouses can differ in terms of appearance and general capabilities, and they can range from a large standard warehouse facility to the business owner’s basement. Warehousing is a necessary part of the supply chain because without it a business cannot properly fill orders when customers place them.

A strong warehouse and inventory control system is necessary for any business that fulfills product orders. After all, if a product has not been properly warehoused, it will not be available for a worker to ship to the client or customer.

Warehouse vs. distribution center: What's the difference?

Warehouses and distribution centers have some overlap in that they both store goods, but they play two different roles. A warehouse is used to store products prior to their distribution to the customer, whereas a distribution center is fully outfitted to not only store products but also to package them and then ship them off to customers. The distribution center is a bridge between the warehouse and the customer.

3 ways warehousing helps with inventory management

Warehousing and inventory management are often used interchangeably, but they have two distinct purposes. Inventory management is the broader system through which you make sure you have enough stock and that orders are flowing to customers, while warehousing focuses on managing the people working in your warehouse and ensuring efficient storage and tracking of your products.

Warehousing helps with inventory management in three important ways.

1. More efficient inventory processes

With proper warehousing, you will be able to ensure adequate stock and more efficiently track product location and delivery status. This guarantees the more timely delivery of goods, and it also makes sure that you have the products you need on hand when you need them.

Good warehousing will make it easier to predict future demand, and it will reduce the risk of product oversupply and clutter -- as well as limit extra warehouse costs from the overhead required to store unnecessary products.

2. Lower costs

Warehousing leads to lower costs across the board. A business will spend less capital on labor to manage the inventory, and less time will need to be spent on inventory management. That labor can be focused on higher-value work such as making sure products find their way to happy customers.

Businesses will also experience savings in terms of reduced costs from transportation of goods because you will be able to spot opportunities to group product deliveries more efficiently.

3. Improved logistics and workflow

The overall workflow of an inventory management operation will improve with good warehousing because there will be fewer costly mistakes and greater accountability for your workforce and management.

With new technologies such as artificial intelligence and robotics, businesses can further introduce efficiencies to warehouse logistics. The business that uses these strategies will also spend less time and money on returned goods.

3 important components of warehousing

Warehousing gets complicated the larger it is and the more products which must be managed, but generally all warehousing operations need three things to operate properly.

1. Facility

The most basic need for warehousing is to have a facility. As stated above, that can mean a massive warehouse on the scale of a large retailer, or, if you’re just a sole proprietorship selling handmade products out of your house, it could just be a small room. Either way, it needs to be of an adequate size to house enough goods to keep orders flowing.

The facility also must be outfitted with HVAC systems to preserve goods, and some security measures should be in place to prevent theft. A business must have a staff to manage operations in the warehouse, and an inventory management system must be in place to ensure the smooth flow of orders to customers.

2. Equipment to move and deliver goods

It does not help a business to store goods if there is no way to deliver them to the customer. As a result, a business must-have vehicles that can transport the goods or hire a third-party service -- like FedEx -- to deliver the goods for them.

The types of transportation options have been expanding in recent years. For example, Amazon has been looking into using drones to do small, local deliveries. Some larger warehouse operations also need vehicles such as forklifts and cranes to move goods around.

3. Inventory management system

A well-thought-out inventory management system is an absolute must in warehousing. Without it, orders will get lost or products won’t be prioritized correctly, leading to unhappy customers and lost sales.

Businesses must use software applications to maximize their inventory management system effectiveness. They must track goods and deliveries, optimize the supply chain, identify inefficiencies, and train their staff to run the system.

Businesses must track warehousing metrics to improve efficiency

If you don’t have inventory management software capable of tracking metrics and generating analytics on your warehousing operation, you must choose a platform capable of doing so as soon as possible. These reports will break down vital metrics such as carrying cost, gross contribution margin, deadstock, and order cycle time.

Using this information, you can figure out where you’re losing money and what fixes you must make to your inventory management system to correct the problem.