Term storage may refer to storage building (warehouse) and premises or the goods in the stock (stock, inventory). Storage, in turn, means storage operation (warehousing, stock keeping), and storage operations (warehouse operations). Logistics service companies operate in this business providing warehousing services to their customers. Other companies in the supply chain store products for different reasons and decisions associated with storage and storage strategy are linked to the company’s other decisions and strategies, most clearly in the production and transport strategies.
Introduction: Introductory presentation of this section (Google Slides).
Often, storage is seen only as a cause to additional costs not as a function producing value-added operations. Additional value is something what customer is willing to pay for. However, in many cases, storage is necessary and if properly designed, it will also provide added value. A key principle in storage is that in all stages of supply chain stocks are kept to a minimum. This is due to the fact that the capital is tied up in stocks (capital or money flow), which would be more productive to release it to other need. In this sense, the role of storage has become more cost-effective operation of business.
Nowadays, the aim is to guarantee the availability of products by well-planned and effective demand supply chain and stocks are kept to a minimum.
Some stock must be kept in order to guarantee availability of the products. The standby phase, in which products are stored, depends on the production strategy. The more finished product is stored the more capital tied up in the stock, so companies plan even more their production as far as possible by customer orders.
Reasons for storage
Although storage is being avoided, there are number of reasons why we will never completely get rid of storage. Causes for storage include:
- customer service, ensuring availability of products
- unreliable supplier
- minimization of order and supply costs; The total costs can be lower with a large order
- availability of raw materials for only some part of the year
- economic production batches
- production’s intermediate storage
- postponing payment for import duties on imported goods by stocking goods in intermediate stocks in the customs warehouse
- raw materials increase pressure in the price