Order on Demand vs Warehousing with Asif Ali Gohar

When bringing in new supplies and maintaining the levels of materials needed, there are two approaches. One is to keep a full warehouse so that supplies are always available as needed and supporting the cost of the warehouse. The other option is to order on demand, then make the final product and ship it. Each has benefits and disadvantages, and today Asif Ali Gohar explains the differences.

What does it mean to keep a full warehouse of supplies?

This is a common way for a business who makes a lot of products quickly to ensure they have the supplies that they need. A large quantity of raw materials and basic supplies is ordered, often at a discount due to ordering a large quantity, and they are stored in a warehouse. The savings on buying a larger quantity and shipping less frequently may be offset by the cost of operating the warehouse. These costs are the space itself, utilities, staffing, and equipment needed to operate the facility. The fast accessibility of the additional supplies to keep production constant is definitely a benefit.

What is ordering on demand?

To order on demand means that when someone orders finished products you then order the supplies and materials that you need to fill that order. It increases the amount of time that it takes to get the final product shipped out to the customer, but it can save money by not having a full warehouse and staff to operate it. When raw materials are ordered they are unloaded and used immediately.

How do you choose which is best for your business?

Cost comparison and the benefits of fast shipping versus less storage is the only way to determine which is best. Small businesses will often begin with on demand ordering, as the customer orders first and that money can be used to purchase the supplies. It also removes the need to operate a full and separate warehouse, which saves both money and the stress of operating another facility. Larger businesses can get greater savings through ordering larger quantities, and as the number of orders they receive grows those supplies will be used faster as well, keeping storage costs down even as they warehouse larger quantities.

These two systems also work for the final product that is being made. A small business may need to fulfil each order individually and then ship it out, while a larger business with more orders will be able to make the product in advance and store it, shipping out when it is ordered. It is key to not only consider these options with supplies but also with the final product, where fast shipping may have more benefits than making things on demand. 

Any final thoughts?

There is no one piece of advice or one solution that will work for every business. Sometimes the solution that works best will change as a business grows, and the only way to know for sure is to try both and see which has the best results.