1. Stability of prices of goods
Prices of goods in
the market are stabilized because supply is regulated to meet demand. This is
possible because goods stored in the warehouse can be released whenever there
is a shortage of goods to meet the excess demand, and in times of glut, the
excess supply can be stored in the warehouse.
2. Aids in production
With the distribution
and warehousing functions taken over by specialists, the producer can
concentrate on the production of goods without having to worry whether his
goods would be sold or not. He can also engage in large-scale production of
goods so as to enjoy economies of scale. A good example of how warehousing aids
production is the car assembly industry. During periods of low demand for cars,
warehousing allows the manufacturer of car components to continue with
production in order to build up stocks that are required to meet the higher
level of production during periods of rising demand.
3. An opportunity for saving on transportation costs
Saving on
transportation costs can be made as there is bulk distribution of goods from
the factories to the warehouse which in turn distribute them in smaller
quantities to the various customers. The warehouse is conveniently located near
the markets so that the goods can be delivered promptly and at low transport
cost.
4. Cost savings passed on to the consumers
Some wholesalers have
turned warehouses into retail outlets where their customers can purchase goods
directly from them. The savings in costs by the wholesalers (e.g. lower
overheads, no transport costs, bulk purchases and cash sales) are passed onto
the consumers in the form of lower-priced goods, e.g. cash-and-carry
warehouses and hypermarkets.
5. Facilitation of foreign trade
Exporters have their
goods ready in the warehouse near the port to await the arrival of ships to
take them abroad. This is necessary because of the intermittent arrival of
ships. Meanwhile, large shipments of goods from abroad may await collection in
the warehouse by importers. For the above reasons, warehouses are usually
located near the harbour, airport or railway terminals. Where goods are
processed immediately upon arrival, warehousing facilities ensure a continuous
flow through the conveyors. Dutiable imported goods that are to be re-exported
have to be stored in bonded warehouses. No duty is required to be paid so long
as the goods are stored here. Bonded warehouses are important to the importers
who need to pay duty on their imports only when they are removed from the
warehouse. In the meantime, the importers can process and pack their goods
while they are in the bonded warehouse
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