Warehouses functions are changing as we speak. It used to be that warehouses are cost centers for companies, warehouses are changing to become profit centers with the advent of e-commerce.
There are 3 reasons for more warehouses in Malaysia:
Cheaper prices fo Consumers
Consumers tend to be able to purchase directly from manufacturers, in a Manufacturer To Consumer market ,M2C . Price of goods become significantly lower in a M2C business and manufacturers gain higher margins compared to going through distributors traditionally.
Improvements in Infrastructure and Logistics
Roads network in Malaysia are relatively better than some of our neighbours due to geographical reasons, mainly Peninsular Malaysia and East Malaysia (Sabah & Sarawak). This allows logistics company being able to reach many more places at cheaper costs by land. Logistic companies like J&T are swarming and expanding their Sortation Centers (also a type of warehouse) in high traffic areas to achieve get closer to the gold standards of 1-Day-Delivery-Everywhere.
Better profit margins for Manufacturers
By reaching our directly to consumers, manufacturers are able to improve their profit margins, versus going through distribution companies traditionally. By gaining information of their customers, they are able to continuously re-sell, up-sell or cross-sell to their customers.
What is a Warehouse and How Warehouses have changed in 2020s
Warehouses are transhipment points where goods and products are stored and ready to be despatched as quickly as possible. Changes that has been observed over time:
- Shift of Value - Warehouses used to be Cost Center but it has changed to be a Value Center by contributing directly to the consumer purchases, the revenue of the company.
- Accessibility of stock information to personnel in company - Stock level visibility used to be low but the change of internet technology, Warehouse Management Systems (WMS) and tools available has allowed different people from the company to access all the stock levels even in far-off warehouses immediately
- New Concepts and Tools - Concepts like Just in Time (JIT) and Scrum (daily meetups) have brought shifts to the way the operations of warehouses to improve on. Together with tools ranging from forklifts to barcode scanners and RFID have improved the speed and accuracy of the Receiving, Storage and Despatch of items in the warehouse.
What are causing changes in Warehouses?
- E-Commerce - One of the biggest change that has happened and more importantly adopted by consumers by large in Malaysia , is E-Commerce. We have all seen the emergence of e-commerce since the days of lelong.com.my, to lazada.com and now more prominently shopee.com in large. The adoption of purchases made over internet overnight since 18 March 2020 with the enforcement of PKP Perintah Kawalan Pergerakan (PKP) 18 March 2020. Citizens of Malaysia bought online immediately. This habit has continued even post MCO till today, although sales online have dipped since then, but nevertheless as of 2023 the sales is still growing strong. In 2023, Shopee Malaysia through its platform shopee.com.my generated a revenue of approximately 67.3 million U.S. dollars , at approximately RM270 millions= (Published by Statista Research Department, Aug 15, 2024)
- M2C relationship - Manufacturer to Consumer relationship has strengthened since Movement Control Order (MCO) where manufacturers are able to directly talk to the end customer. The profit margins for the manufacturers have increased and consumers have benefited from the lower purchase price, a win-win situation.
- Environmental, Social and Governance ESG compliance is also pushing for more environmental aspects of handling products, produce, perishables and disposals of products (especially Electronics) with Returns process. Malaysian small and medium-sized enterprises (SMEs) risk losing RM292 billion in revenue due to non-ESG compliance, according to report findings by the Sustainable Finance Institute Asia 2022.
- The shift of Manufacturing to the Far East , countries including China, Vietnam, Indonesia where factories are more optimitized to production created a need for storage facilities that are efficient in Malaysia. Warehouses are used as transits points, cross docking, distribution and fulfillment purposes.
- Natural disasters, plagues or viruses (like Covid) has increased the demand for Public Warehouses and also created huge changes to e-commerce. Luckily things have toned down and we are now in the post-Covid era.
The e-commerce and M2C have changed the landscape entirely of how some warehouses have assumed a dual identity of not only selling to distributors but also catering to online orders direct to the end-consumers. What has used to go in large deliveries per distributor, has now changed to small orders in large quantities per end-consumer, this affects the Packaging process of Warehouses.
What is the difference between a Warehouse and an Inventory?
Typically warehouses are larger , Warehouse range from a size of 20,000 sqft to 1,000,000 sqft storing over 10 tonnes of products whereas an Inventory can start from store room measuring 100 sqft for a retail store. As a reference GDEX or GD Express boasted a combined capacity of 555,000 square feet.
The terminology is interchangable when it comes to systems, in most systems the term Inventory is still used for a Warehouse, whereas Warehouse in Warehouse Management Systems includes features of tracking stock movement, from Receiving, to Despatch and even Returns.
6 Different types of Warehouse, sorted by most common warehouse in Malaysia
In Malaysia, most warehouses will operate as a hybrid of one or more of the warehouses mentioned below. As an example , a hybrid of Intermediate and Finised goods Storage for some companies are utilisation of warehouses.
Intermediate Warehouses
Intermediate warehouses , also known as postponement and customization warehouses, provide mainly three types of services
- storage of near-final products
- assembly centers to finished goods
- packaging or re-packaging of goods and produce (most commonly food like seafood and fruits). Products or produce may also be bundled before they are Despatched to retailers. Some international manufaturers may pack the products like electrical plugs for local usages in respective countries
Consolidation Warehouses
Consolidation Warehouses or Transit Warehouses sources from different suppliers into one warehouse before picking and packing deliverables to retailers and clients. These are common in large conglomerates like P&G, Reckit Beckinser and Mandom
Sortation Centers
These are distribution type of warehouses used by logistics company to sort orders before despatching by riders and drivers for last-mile delivery. These are typically categorized by the large volumes of small orders. Automation are typically used as much as possible like crossdocking, sorted by zip codes and despatched almost on the same day. We have heard unofficial records of sorting centers sorting 10,000 packages per hour using barcode scanners. Last-mile deliveriers like J&T may set various Sortation or Distribution centers at certain states of Malaysia due to demand of logistics and the goal to achieve one-day delivery.
Fulfillment Centers
Popularized by all-in-one ecommerce like Amazon that tries to have everything under one roof, various items of various sizes are stored in a warehouse and ready to be despatched as soon as the orders arrive. In Malaysia Fulfilled by Lazada (FBL) and Fulfilled by Shopee (FBS) are continuously expanding their fulfillment centers to reach the widest audience, in the shortest time by careful and strategic locations of the fulfillment centers.
Finished Goods Storage
The Finished Goods Warehouse mainly acts as a buffer storage for large companies like Samsung. These products are ready for sale and act as a safety stock for manufacturers in preparations of a product launch or seasonal surges of demands. Malaysia is known for its various public holidays, celebrations and launches throughout the year.
Some companies may also implement crossdocking in some Receivables so that they can be Despatched immediately or as short as possible. Goods that arrived are almost never enter the Storage and was immediately Despatched to the next delivery. This is one of the most optimum warehouse operations that every warehouse tries to achieve, less storage means more business.
Raw Material Storage Warehouses
Raw Material Storage Warehouses stores raw materials of mainly manufacturers, and constructions. Materials that are stored includes, sand, cement, aggregates and even plastic pellets before they are Despatched to the next stages.
9 Processes of a Warehouse
While no two warehouses may operate the same, even within the same company, the underlying processes are typically the same.
- Receiving Process
- Storage & Location
- Picking
- Packing
- Despatch / Delivery
- Returns
- Inventory Control
- Warehouse Design & Layout Optimization
- Reporting