Agriculture Reference
In-Depth Information
Warehousing
Manufacturing plants, warehouses, distribution centers, and retail outlets all fall into
this category of where goods are “warehoused” or stored before delivery.
Warehousing
can represent a huge cost in terms of the operating costs and capital investment in
buildings and facilities required to properly store a company's products. Consideration
must be given to the location, size, service levels, proposed new or additional
facilities, etc.
Effi cient and effective handling and storing of inventory can also provide huge savings
to a fi rm. Product movement may be affected by packaging. A change in either
product movement or in the packaging can impact the type of warehousing necessary—and
again, the bottom line. A new type of package for a meat product may mean easier shipment
as well as easier warehousing. The container which can be moved by rail, highway, or by
sea may provide managers with a delivery-ready, cost-effective means for warehousing
products.
In considering warehousing, there are two basic choices in determining where
fi nished goods are stored. Forward placement locates fi nished goods near customers at a
warehouse, wholesaler, or retailer. The advantages of forward placement are faster
delivery times after receipt of order and increased sales (demand is stimulated by product
availability). For example, a farm equipment manufacturer may allow inventories of selected
parts to be stocked directly on the farm in anticipation of a producer's future
needs. Periodically, the inventory will be checked and the producer will be invoiced for parts
he/she has used.
Backward placement of fi nished goods holds goods at the production facility. The pri-
mary advantage of holding goods at the manufacturer location is that a centralized ware-
housing system can reduce the total number of goods held in inventory. However, a key
disadvantage is a lower level of overall customer service.
Transportation
The mode of
transportation
must also be chosen. The fi ve basic modes of transporting
goods are highway, rail, water, pipeline, and air. The advantages and disadvantages of each
can be evaluated by considering their length of transit time, geographic and product fl exibil-
ity, cost, damages in transit, and the number of times goods are re-handled. For example,
Monsanto initially chose to deliver BST to dairy farmers via an overnight delivery system
because it allowed for fast delivery and a centralized warehousing system. On the other
hand, a bulk commodity like oil is transported via pipeline. Barge and rail are the transport
methods of choice for bulk commodities such as grain, where cost is a major factor.
Developing cost-effective transportation is essential for the physical distribution system
to be complete and successful. Managers must carefully weigh the issues surrounding phys-
ical distribution of products in terms of getting the product delivered successfully and in a
timely manner to the customer. Take, for example, a food processing equipment company,
which made changes in the shipping method of some components from air transport to sea
transport. This move saved over $15 million dollars in a single year in shipping costs.
However, the slower delivery meant product parts were not available when needed, which
meant dealers didn't have parts they needed when or where they needed them, which eventu-
ally cost the company lost sales. The bottom line is the change in shipping was ineffective
because it adversely affected sales.
