What is a Warehouse? Types, Functions, Advantages and Disadvantages

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What Is a Warehouse?

A warehouse is a planned space for the storage and handling of goods and materials. That is, a warehouse is a place where goods are kept until they are demanded use. A warehouse is a commercial building for storage of goods. Warehousing is the process of storing goods which are either produced or purchased in a planned space until they are needed. Warehousing is a set of activities that are involved in receiving and storing goods and preparing them for reshipment. A warehouse is used by manufacturers, importers, exporters, wholesalers, transport business, customs etc.

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Functions of a Warehouse

The functions and use of a warehouse include:

  1. Warehousing of goods sometimes helps in breaking the bulk of goods into small quantity, if the owner of the inventory asks the warehouse keeper to do so.
  2. It serves as a means of protecting the goods from damage or loss that might be caused as a result of heat, wind, dust or moisture.
  3. Warehousing of goods absorbs the risk associated with the storage of goods. The warehouse keeper takes over the responsibility of handling goods in storage. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. It consists of the activity of unloading into or out of the warehouse. The unloading of goods brought to the warehouse is termed “inbound of goods” while the loading of goods for shipment is known as the “outbound of goods”.
  4. It performs on request the grading and branding on behalf of the manufacturer, wholesaler or the importer of goods. It also makes provision for facilities for mixing, blending and packaging of goods for the convenience of handling and sale.
  5. Warehousing help to ensure proper check of items in each shipment and prepares the record. All the record is maintained properly in order to avoid any problem at the time of delivery.
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Reasons for Warehouse

  1. To reduce transportation cost
  2. Quantity purchase discounts
  3. To maintain sources of supply
  4. To meet changing market conditions (e.g. seasonality, demand fluctuations, competition, etc.)
  5. To overcome time differentials between production and consumption
  6. To accomplish the least total cost physical distribution commensurate with the desired level of customer service

Types of Warehouse

  • Public Warehouse: This is a warehouse that is owned and operated by private individuals for renting purpose. Those who open a public warehouse use it as a hire to any interested persons and groups who paid rent fee to the owner of the warehouse.
  • Manufacturer Warehouse: This is a warehouse that is owned and controlled by producers or companies who are into the production of goods. The companies or producers established the warehouse in order to store their goods after production until they are needed.
  • Bonded Warehouse: The bonded warehouse is a warehouse that is used to store goods whose duty is are not yet paid. Once the owner of the goods settle the customs duty a release “warrant” will be issued by customs authorities. This document empowers its holder the goods named on it. This warehouse is normally located at the borders and operated by the customs authority.
  • Wholesale Warehouse: This form of the warehouse is owned and controlled by the wholesaler for storing goods after purchase from the producers until they are sold to retailers or directly to the final consumers. The wholesaler buys in bulk from the producers and sells in small units to the retailer, therefore, the wholesaler break the bulk of goods purchased and kept them in the warehouse until they bought.
  • State Warehouse: the state warehouse is created by the government to store contraband or smuggled goods seized by the customs authority.

Factors to Be Considered In Siting a Warehouse

Some of the factors to be considered in siting a warehouse at a particular location are:

  1. Nearness to the Market: A producer takes into consideration the market for his product before siting his warehouse. This is because siting a warehouse close to the market will reduce the cost of production in terms of transport to the market and enhance the level of sales and turnover.
  2. Proximity to the Factory: A warehouse should be located at a place close to the business firm and manufacturing industries producing goods. In other words, it should be located close to the place where goods are produced.
  3. Proximity to Good Road: A warehouse should be sited close to areas with an access road. That is there should be the good road that will make the movement of goods to the warehouse easy and accessible.
  4. Acquisition or Building Cost and Running Cost: before embarking on a warehouse there is the need to evaluate the cost of constructing or acquiring and running the warehouse by producer or middleman.
  5. Highly Secured Environment: the warehouse should be sited in a place that is free from chaos, civil unrest or theft.
  6. Close to the Distribution Centres: Some warehouses are not only used to store goods alone but also use in distributing the goods. Therefore, a producer must ensure that his sales outlets are not located very far from the distribution centres.

Activities of Warehouse

  • Receiving of Goods: warehouse allows the person operating the warehouse to receive goods against a purchase order.
  • Identification of Goods: The identification of goods is done through the use of code number or tag. This will make ease, the differentiation of the goods produced by different firms.
  • Holding of Goods: That is goods are kept in good condition until they are needed.
  • Operate an Information System: Warehouse keeper takes record of each item in the warehouse. That is the quantity at hand, quantity received, quantity issued and location of goods in the warehouse.
  • Marshall the Shipments: By ensuring that goods which make up single order are packaged together. it checks omission errors and updates order records.
  • Dispatch the Shipment: Warehouse allows the package of orders, preparation of shipping documents and loading of goods into the right vehicle for delivery.
  • Pick Goods: Warehouse helps in the selection of goods out of the storage areas.
  • Dispatch the Goods to Storage: warehouse carries out the activity of dispatching the goods to the storage after proper identification has been given to the goods.
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Advantages of Warehouse

Some of the advantages of the warehouse are;

  1. Conservation of capital.
  2. Reduced investment risk.
  3. The warehouse could serve as a sales office or purchase office resulting in lower costs for the combined facility.

Disadvantages of Warehouse

Some of the disadvantages of the warehouse are;

  1. Administrative problems.
  2. High initial costs.
  3. Warehouse cause high prices of goods due to rent charges by owners of the warehouse etc.


  • Onakoya, I. A. (2013). “Marketing Foundation for Senior Secondary Schools and Colleges”. Published by Mikhak Business and Education Services, Kaduna.
  • Michael, R. C. et., al. (1997). “Marketing Management Text and Cases”. 1st Edition. Blackwell Publishers. Inc. UK

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