Page 217 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes 9.3 Ownership Arrangements

It is not necessary for the firm to own and operate its warehousing requirements. The different
options include owner operated, private, and public warehousing.

An owner operated warehouse is owned or/and managed by the same enterprise that owns the
merchandise handled and stored at the facility.
A private warehouse facility is warehousing on a contractual basis by Third Party Logistics Providers
(3PL), who provide unique and specially tailored warehousing and logistics services to clients.
A public warehouse, in India, is a warehouse operated by the Central Warehousing Corporation
of India or by State Warehousing Corporations.
These definitions are often confusing; especially as terminology of ‘private’ and ‘public’ in
many US learned papers are differently used. Therefore, this clarity is important.

Task Find out the relationship between the size and shape of a distribution warehouse
and the materials handling system. Why do some warehouses have square design while
others are rectangular?

9.3.1 Owner-operated Warehouses

An owner-operated warehouse is operated by the firm owning the product. The actual facility,
however, may be owned or leased. The decision to own or lease the facility is essentially a
financial decision. The major benefits of owner operated warehousing are that there is better
control and flexibility. Control, especially, facilitates the ability to integrate warehouse operations
with the rest of the firm’s internal logistics processes. Where there is need for flexibility, owner-
operated facilities provide the freedom to adjust operating policies and procedures to meet
unique requirements of the firm. In many cases, owner operated warehouse could be less costly
than private warehousing because the profit markup is eliminated. This benefit may be misleading
since private warehouses often are more efficient as they utilize their resources more effectively.
There could also be a number of other intangible benefits particularly with respect to market
presence. A private warehouse with a firm’s name on it may produce customer perceptions of
responsiveness and stability. This perception can provide a marketing advantage over other
enterprises.

Notes It is not uncommon now for private investors and property owners to build
distribution warehouses to a firm’s specifications or provide land on a leased basis. This
reduces the capital investment for the firm in such transactions.

9.3.2 Private Warehouses

Private warehouses charge clients a basic fee for handling and storage. The handli ng charge is
based on the number of cases or weight handled. For storage, the charge is assessed on the
number of cases or weight in storage during the month. When economies of scale are not
possible in a private facility, public warehousing is a low-cost alternative.

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