4  Warehouse Functionality

The wise adapt themselves to circumstances, as water molds itself to the pitcher. —Chinese Proverb

4.1 🧠 Learning Objectives

  • Understand warehouse functions in supply chains.
  • Recognize main warehouse types.

4.2 Supply Chain Network

flowchart LR
 subgraph T0["Raw Material<br>Supplier"]
    direction TB
        S1["S1"]
        S2["S2"]
        S3["S3"]
  end
 subgraph T1["Manufacturing<br>Plant"]
    direction TB
        P1["P1"]
        P2["P2"]
        P3["P3"]
  end
 subgraph T2["Manufacturing<br>Warehouse"]
    direction TB
        MW1["MW 1"]
        MW2["MW 2"]
        MW3["MW 3"]
        MW4["MW 4"]
  end
 subgraph T3["Wholesaler<br>Warehouse<br>"]
    direction TB
        WW1["WW 1"]
        WW2["WW 2"]
        WW3["WW 3"]
  end
 subgraph T4["Retailer<br>Warehouse"]
    direction TB
        RW1["RW 1"]
        RW2["RW 2"]
        RW3["RW 3"]
        RW4["RW 4"]
  end
 subgraph T5["Retail Store"]
    direction TB
        RS1(("A"))
        RS2(("B"))
        RS3(("C"))
        RS4(("D"))
  end
    S1 --> P1 & P2 & P3
    S2 --> P1 & P2 & P3
    S3 --> P1 & P3
    P1 --> MW1 & MW2
    P2 --> MW2 & MW3
    P3 --> MW3 & MW4
    MW1 --> WW1
    MW2 --> WW1 & WW2
    MW3 --> WW2 & WW3
    MW4 --> WW3
    WW1 --> RW1 & RW2 & RW4
    WW2 --> RW2 & RW3 & RW4
    WW3 --> RW1 & RW3 & RW4
    RW1 --> RS1 & RS2
    RW2 --> RS2 & RS3
    RW3 --> RS1 & RS4
    RW4 --> RS3 & RS4
    ```@{ label: "```" }
    S1@{ shape: rect}
     S1:::supplier
     S2:::supplier
     S3:::supplier
     P1:::plant
     P2:::plant
     P3:::plant
     MW1:::mwh
     MW2:::mwh
     MW3:::mwh
     MW4:::mwh
     WW1:::wwh
     WW2:::wwh
     WW3:::wwh
     RW1:::rwh
     RW2:::rwh
     RW3:::rwh
     RW4:::rwh
     RS1:::store
     RS2:::store
     RS3:::store
     RS4:::store
    classDef supplier fill:#eff6ff,stroke:#1d4ed8,stroke-width:1px
    classDef plant    fill:#e0f2fe,stroke:#0ea5e9,stroke-width:1px
    classDef mwh      fill:#dcfce7,stroke:#10b981,stroke-width:1px
    classDef wwh      fill:#fef3c7,stroke:#f59e0b,stroke-width:1px
    classDef rwh      fill:#fde68a,stroke:#d97706,stroke-width:1px
    classDef store    fill:#fee2e2,stroke:#ef4444,stroke-width:1px
    linkStyle 29 stroke:#757575,fill:none
    linkStyle 30 stroke:#757575,fill:none
    linkStyle 31 stroke:#D50000,fill:none
    linkStyle 32 stroke:#D50000,fill:none
    linkStyle 33 stroke:#2962FF,fill:none
    linkStyle 34 stroke:#2962FF,fill:none
    linkStyle 35 stroke:#00C853,fill:none
    linkStyle 36 stroke:#00C853,fill:none
Figure 4.1: Real-world supply chain networks are non-linear and have many participants (Coyle et al. 2020). Raw materials flow from suppliers to manufacturing plants, where they are processed into finished goods. These goods are then transferred to manufacturing warehouses for storage, followed by distribution to wholesaler and retailer warehouses. Finally, products are delivered to retail stores for customer purchase.

4.3 Warehouse Mission

The traditional mission of a warehouse is to effectively ship products in any configuration to the next step in the supply chain without damaging or altering the product’s basic form.

4.4 Warehouse Functionality

Distribution facilities perform several key functions to support supply chain operations (Coyle et al. 2020):

  1. Accumulation
  2. Sortation
  3. Allocation
  4. Assortment
  5. Value-Adding

4.4.1 Accumulation

DC serves as a collection point:

  • Transfer, storage, and processing services.
  • Consolidate orders and shipments.
  • Cost-efficient deliveries.
Figure 4.2: Larger and cost-efficient deliveries to a central DC (Coyle et al. 2020)

4.4.2 Sortation

Assembly of like products together for:

  • storage in the distribution facility,
  • processing, or
  • transfer to customers.

Upon receiving, goods are:

  1. Segmented according to their key characteristics, for example:

    • production lot number
    • stock-keeping unit (SKU) number
    • case pack size
    • expiration date

  2. Prepared for safe storage in the facility or immediate distribution.

4.4.3 Allocation

Focuses on matching available inventory to customers orders for a SKU.

  • Order is compared to inventory levels, and available units are retrieved from storage based on customer order quantities.

  • Break-bulk capacity promotes product availability for multiple customers.

    • Customers can purchase only needed quantities.
    • Example: Instead of distributing beer pallets (70 cases \(\times\) 24 selling units = 1,680 beers), a DC can allocate a product on a case.

4.4.4 Assortment

Assembly of customer orders for multiple SKUs held in the DC.

  • Different product mixes delivered from a single location.
  • Larger and cost-efficient deliveries to a central DC.
Figure 4.3: Assortment/product mixing allows shipping orders from a single location (Coyle et al. 2020)

4.4.5 Value-Adding

Value-added activities help organizations handle special customer requirements, create supply chain efficiencies, and differentiate themselves from the competition.

  • Assembly
  • Inventory management and visibility
  • Product kitting, bundling, and unbundling
  • Product postponement
  • Production sequencing
  • Quality control
  • Recycling, repair, and returns management

4.5 Main Warehouse Types in a Supply Chain

Figure 4.4: Main warehouse types (Frazelle 2016)

4.5.1 Raw Material Warehouse

Store raw materials (e.g., plastics, sand, precious metals, etc.) near to:

  • Extraction point
  • Manufacturing point

before they enter production, prioritizing protection from the elements, quick identification, and safe heavy handling.

Raw materials are held to ensure continuous production.

4.5.2 Work-In-Process (WIP) Warehouse

Holds inventory in or near factories and buffers semi-finished items between steps, keeping flow stable when cycle times vary.

4.5.3 Plant Warehouse

Feeds production with inbound parts, kitted materials, and container management, often with cross-dock lanes and close coupling to the shop floor.

4.5.4 Finished-Goods/Plant Warehouses

Holds products prepared for sale, awaiting transfer to distribution centers, for manufacturers, wholesalers, and retailers. Acts as a buffer stock for companies, enabling them to prepare for:

  • Launching new products.
  • Anticipated demand surges.
  • Seasonal fluctuations.
Figure 4.5: Samsung products moving through the supply chain via several finished good warehouses (Richards 2014).

4.5.5 Overflow Warehouse

Usually situated close to plant warehouses, provides additional capacity during peak periods (seasonal inventory), special promotions, or unexpected disruptions, ensuring the main facility remains efficient and uncongested. Overflow warehouses are commonly operated under short-term agreements by third-party logistics providers or on-demand services.

4.5.6 Distribution Center (DC) Warehouses

DCs are located much closer to the customer base than are plant warehouses. They typically receive product from many plant warehouses and serve customers with same- or next-day delivery. Differently from warehouses, DCs typically store goods for shorter periods of time as orders are fulfilled.

The delivery point for the DC determines its name:

  • Home delivery DCs deliver to homes.
  • Retail DCs deliver to retail stores.
  • Omni-channel DCs deliver to a mix of homes and retail stores.
  • Cross-dock DCs do not hold product but simply mix and sort.
Figure 4.6: The role of distribution centers. (source: transportgeography.org).

4.5.7 Cross-dock Centers

Cross-dock centers are facilities designed to quickly identify and consolidate items with other deliveries, preparing them for dispatch. Their primary objective is to ensure same-day receipt and dispatch, minimizing the time items remain in the warehouse. To achieve this, items must be pre-labeled and ready for immediate onward delivery. Typical products handled in cross-dock centers include perishable goods such as fruits, vegetables, meat, and fish, which require rapid movement through the supply chain.

Implementing cross-docking effectively requires overcoming several barriers:

  • Warehouse Management Systems: Insufficient integration and lack of real-time data sharing can hinder operations.
  • Quality Control: Maintaining product quality during rapid handling is critical.
  • Supplier and Carrier Reliability: Strong partnerships and effective communication are essential.
  • Warehouse Design: Layouts must facilitate efficient movement and sorting of goods.
  • Demand Uncertainty: Fluctuations in demand can disrupt planned operations and inventory levels.

4.5.8 Bonded/Customs Warehouse

Typically sitting outside the customs territory, bonded warehouses allow storage and manipulation of imported goods with duties deferred until release for free circulation, which improves cash flow and simplifies re-export.

4.5.9 Fulfillment Center (FC) Warehouses

Fulfillment centers are the critical supply chain link between manufacturing and the end consumer. These warehouses are designed and equipped specifically to manage large volumes of small orders (typically from e-retailing).

An FC aims at shipping orders quickly in and out, not long-term storage. It can also function as a returns processing center (e-commerce has a larger percentage of returns than normal retail activities). Figure 4.7 shows the fulfillment process at bol.com, a large Dutch e-commerce company owned by Ahold Delhaize.

Figure 4.7: A teddy bear’s journey from the receiving area to the warehouse, where it is picked, packed and shipped in the robotic mobile fulfilment system.

4.5.10 Amazon Fulfillment Centers

Amazon’s Fulfillment by Amazon (FBA) service provides comprehensive logistics solutions, including storage, customer service, and returns. Sellers using FBA benefit from Amazon’s extensive fulfillment network, allowing them to reach a larger customer base. Products are picked, packed, and shipped directly to end customers. Due to the large assortment of products, Amazon operates several types of fulfillment centers to optimize its operations, including:

  • Sortable FCs: Handle smaller, easily sortable items such as books, toys, and housewares.
  • Non-sortable FCs: Manage larger, bulky items like washing machines, pianos, patio furniture, and rugs.
  • Sortation Centers: Sort customer orders by their final destination and consolidate them onto trucks for faster delivery.
  • Receive Centers: Accept large quantities of fast-moving goods and distribute them across the fulfillment center network.
  • Delivery Stations: Prepare orders for last-mile delivery, ensuring fast and efficient everyday delivery.
  • Specialty Centers: Focus on specific categories of items or support peak season operations, such as during holidays.
Figure 4.8: Fulfillment by Amazon (FBA): From receiving orders to picking, packing, and shipping items.

4.5.11 Public or Shared-User Warehouses

Public or shared-user warehouses are facilities operated by third-party logistics providers (3PLs), offering flexible storage solutions for multiple clients under one roof. These warehouses are open to the public and typically cater to short-term, flexible storage agreements, enabling businesses to leverage shared resources (e.g., space, equipment, labor) for cost efficiency (economies of scale).

Sharing may benefit companies with:

  • Common customers and different products (e.g., retailers, automotive manufacturers);
  • Same/similar products (e.g., tire and bicycle manufacturers, pharmaceutical companies).
  • Requiring similar types of service (e.g., fulfillment or returns processing).
  • Requiring the same environmental conditions (e.g., hazardous goods, explosives or temperature controlled).
NoteOwnership and Management of Warehouse Operations

All warehouse operations can be owned, leased, or managed by third-party logistics providers. These facilities may either be dedicated to a single client or shared among multiple clients as public or shared-user warehouses.

4.5.12 Contract Warehouse

Contract warehouses are managed by third-party logistics providers and are typically dedicated to serving a single client for an extended period. These facilities offer customized solutions tailored to the specific needs of the client, ensuring efficient and reliable operations.

4.5.13 Public Sector Warehouse

Warehouses that support public sector operations, military logistics, and third-sector organizations. Examples include:

  • Humanitarian aid warehouses: Strategically located facilities established by third-sector organizations to enable rapid response to natural disasters such as earthquakes, droughts, and tsunamis.
  • Local government storage: Warehouses used to store supplies for schools, offices, and other municipal facilities, including items like stationery, uniforms, furniture, and IT equipment.
Figure 4.9: Determining warehouse locations for humanitarian relief distribution in Nepal under various coverage distance scenarios (Maharjan and Hanaoka 2017)

4.5.14 Intermediate, Postponement, Customization, or Sub-assembly Warehouse

Facilities designed to temporarily store products at various stages of production and perform customization tasks prior to final delivery to customers.

Examples of postponement and sub-assembly activities include:

  • modifying or adding packaging or labeling (e.g., language-specific labeling);
  • assembling computers with customized hardware components (e.g., graphics cards, memory modules);
  • incorporating country-specific features (e.g., electrical adapters);
  • creating promotional product bundles.

4.5.15 Consolidation Centers and Transit Warehouses

Consolidation centers streamline supply chains by 1) receiving products from multiple sources and 2) combining them for efficient delivery to customers or production lines. They are often managed by third-party logistics providers.

Key types include:

  • Just-in-Time (JIT) centers: Deliver and sequence automotive parts for precise production line delivery.
  • Retail stock consolidation warehouses: Aggregate products from various suppliers for streamlined retail store delivery. ### Transshipment or Break-bulk Warehouses

Facilities that receive large shipments and break them down into smaller, more manageable quantities for distribution to various locations. These warehouses are essential in supply chains where products are transported in bulk but need to be delivered in smaller quantities to multiple destinations. Figure 4.10 shows an example of a transshipment warehouse.

Figure 4.10: Transshipment warehouse for agricultural products in the port of Rotterdam (source: Port of Rotterdam)

4.5.16 Sortation Center (Hub)

Sortation centers play a critical role in the logistics network by:

  • Sorting goods based on zip/postcode;
  • Consolidating shipments for efficient distribution;
  • Dispatching items overnight to their respective delivery areas.

These facilities are primarily utilized by letter, parcel, and pallet distribution companies. Figure 4.11 illustrates a robotic sorting system in a Chinese warehouse, showcasing the efficiency of modern automation in handling high volumes of packages.

Figure 4.11: Robots sorting system helps Chinese company finish at least 200,000 packages a day in the warehouse.

4.5.17 Perishables Warehouse

Handle short-shelf-life products (e.g., food, fresh flowers, vaccines).

  • Serve as a critical link in the cold chain, ensuring perishable products are delivered to consumers quickly.
  • Products typically dwell for very short periods, often just hours.
  • Optimize space management due to high refrigeration costs.
  • Ship products using FIFO (First-In-First-Out) or FEFO (First-Expired-First-Out) principles.
  • Adhere to strict handling requirements:
    • Maintain different temperature zones for various products (e.g., chilled and frozen areas).
    • Follow stacking rules to prevent damage and ensure safety.
Figure 4.12: Picnic’s national refrigerated distribution center in Utrecht (source: Warehouse Totaal)

4.5.18 Reverse Logistics (Returns) Centers

Warehouses dealing with returned items, such as:

  1. Unwanted or defective items. They are returned to the stores by customers, consolidated by third-party contractors, and sent to returns centers. After being checked, items can be repackaged, repaired, recycled, or disposed of (in an environmentally friendly manner, e.g., used as fuel).
  2. Reusable transit packaging (e.g., roll cages, barrels, kegs, pallets, tote boxes, trays). When used in the food industry, added services include washing and sanitizing the items before they re-enter the supply chain (e.g., kegs, “empties” returned to Heineken’s warehouses).

4.6 Warehouse Size Typology (XXS To XXL)

Onstein et al. (2021) propose a typology for logistics facilities based on footprint size. The typology aims to support policymakers, planners, and researchers in characterizing logistics real estate and understanding its role in urban and regional freight systems. It is based on a review of existing literature, industry reports, and expert interviews, with a focus on the Netherlands but applicable more broadly. Table 4.1 shows an overview of the typology. For each size class, it includes:

  • Building Size: The floor-area band in square meters that corresponds to the class and the distribution of surface area across size bands surveyed in the paper.
  • Function: The activity type(s) the facility performs: S = Storage, C = Consolidation, W = Warehousing (receive, putaway, pick), D = Distribution (reduce transit time), CD = Cross-dock, VAL = Value-Added Logistics (e.g., relabel, kit).
  • Product Type: The goods the site handles, distinguishing between generic flows (parcels, pallets, bulk) and specific categories with handling or temperature constraints (e.g., fresh food, industrial equipment).
  • Product Range And Speed: Two linked descriptors on one axis: range (small to large assortment) and speed (slow movers and fast movers). A broad, fast assortment tends to push size and mechanization up; a narrow, slow range can be served from smaller footprints.
  • Market Service Area: The geographic scope the facility serves: neighbourhood, town/city, regional, national, international.
  • Service Days: The promised delivery time from the facility to the customer, expressed in days, e.g., same day, next day, multi-day.
  • Number Of Facilities In The Netherlands: A count field drawn from the Dutch database the authors use.
  • Types Represented In Each Size Range: Which of the facility types are observed in that band. Facility types included:
    • Parcel lockers & pick-up points
    • City hubs (incl. UCCs)
    • Parcel & postal sorting facilities
    • Regional food wholesale/retail DCs
    • National retail & e-commerce DCs
    • Manufacturer DCs
    • Bulk facilities
    • Global agricultural auctions
WarningBands are for Reference

The size bands are for reference and analysis purposes. If local policy or a dataset uses slightly different breakpoints, document the mapping in text next to Table 4.1. For example, Acocella et al. (2024) focuses on large sites only, and defines L = 10,000–20,000 m², XL = 20,000–40,000 m², XXL > 40,000 m².

Table 4.1: Cross section of facility types into size ranges (Onstein et al. 2021). Functions: Storage (S), consolidation (C), warehousing (W), distribution (D), cross-docking (CD), Value Added Logistics (VAL).
Name Building size Function Product type Product range and speed Market service area Service days Number of facilities in the Netherlands Types represented in each size range
XXS < 200 m2 S / D / (and C only for online goods returns) Parcels Broad range
High speed		 Local: Neighbourhood Same day
Next day		 > 8.680 pick up points and parcel lockers Parcel locker
Pick up points
XS 200 - < 2,000 m2 S / C / W / D Parcels
Fresh food delivery		 Broad range
High speed		 Local: Town / City Same day
Next day		 Unknown City hub
S 2,000 - < 8,000 m2 S / C / W / D Parcels Small / broad range
Fast-movers / slow-movers		 Regional Next day 995 Parcel and postal sorting facility
M 8,000 - < 15,000 m2 S / C / W / D / CD / VAL Parcels
Pallets
Bulk		 Small / broad range
Fast-movers / slow-movers		 Regional
National		 Next day
Multiple days		 1024 Parcel and postal sorting facility
Regional food wholesale and retail
National retail or e-commerce facility
Bulk facility
L 15,000 – < 20,000 m2 S / C / W / D / CD / VAL Parcels
Pallets
Bulk		 Small / broad range
Fast-movers / slow-movers		 Mostly National and International (although there are large regional Post and Food retail DCs) Next day
Multiple days		 319 Parcel and postal sorting facility
Regional food wholesale and retail
National retail or e-commerce facility
Manufacturer DC facility
Bulk facility
XL 20,000 - < 40,000 m2 S / C / W / D / CD / VAL Parcels
Pallets
Bulk		 Small / broad range
Fast-movers / slow-movers		 Mostly National and International (although there are very large regional Post and Food retail DCs) Next day
Multiple days		 411 Parcel and postal sorting facility
Regional food wholesale and retail
National retail or e-commerce facility
Manufacturer DC facility
Bulk facility
Global agricultural auction
XXL > 40,000 m2 S / C / W / D / CD / VAL Parcels
Pallets		 Small / broad range
Fast-movers / slow-movers		 National
International (although there are very large regional Post and Food retail DCs)		 Multiple days (online possibly faster) 146 Parcel and postal sorting facility
Regional food wholesale and retail
National retail or e-commerce facility
Manufacturer DC facility
Global agricultural auction

Figure 4.13 visualizes the size bands. For reference, the last band was set to 1,000,000 m², the reported floor area of Royal FloraHolland in Aalsmeer, the world’s largest flower auction complex near Schiphol (see Figure 4.14).

Figure 4.13: Bands follow Onstein et al. (2021) (XXS ≤200, XS <2,000, S <8,000, M <15,000, L <20,000, XL <40,000, XXL >40,000 m²). XXL bar capped at 100,000 m² for display; actual facilities can be much larger (e.g., Royal FloraHolland has 999,000 m²).
Figure 4.14: Royal FloraHolland Aalsmeer, the world’s largest flower auction complex near Schiphol. Reported floor area ~999,000 m², with daily high-velocity crossdocking of cut flowers and plants through auction clocks, then immediate dispatch via regional hubs and air cargo.

4.7 References

Acocella, Angela, A J Acocella, Frans Cruijssen, and Jan Fransoo. 2024. “Warehousification: Recommendations for the Future of Big Box Warehouses in the Netherlands.” Tilburg University.
Coyle, John Joseph, C. John Langley, Robert A. Novack, and Brian J. Gibson. 2020. Supply Chain Management: A Logistics Perspective. 11th edition. Boston: Cengage.
Frazelle, Edward. 2016. World-Class Warehousing and Material Handling. Second Edition. New York: McGraw-Hill Education.
Maharjan, Rajali, and Shinya Hanaoka. 2017. “Warehouse Location Determination for Humanitarian Relief Distribution in Nepal.” Transportation Research Procedia 25: 1151–63. https://doi.org/10.1016/j.trpro.2017.05.128.
Onstein, Alexander T. C., Ishani Bharadwaj, Lóránt A. Tavasszy, Dick A. van Damme, and Abdel el Makhloufi. 2021. “From XXS to XXL: Towards a Typology of Distribution Centre Facilities.” Journal of Transport Geography 94 (June): 103128. https://doi.org/10.1016/j.jtrangeo.2021.103128.
Richards, Gwynne. 2014. Warehouse Management: A Complete Guide to Improving Efficiency and Minimizing Costs in the Modern Warehouse. Second edition. London: Kogan Page Limited.