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NIOS Class 12 Business Studies Chapter 2 Business Support Services
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Business Support Services
Chapter: 2
Module – 1: BUSINESS AROUND US
INTEXT QUESTIONS 2.1
Q. 1. State the meaning of ‘Business Support Services’.
Ans: Business support service refer to those business activities that act as auxiliaries to trade and facilitate smooth flow of goods from producers to consumers.
Q. 2. Name the support service required in the following business activities:
(a) Movement of goods and services.
Ans: Transportation.
(b) Providing finance and payment facilities.
Ans: Banking.
(c) Coverage of business risks.
Ans: Insurance.
(d) Storage of goods and making them available on demand.
Ans: Warehousing.
(e) Exchange of information and ideas.
Ans: Communication.
INTEXT QUESTIONS 2.2
Q. 1. Name the bank which is termed as bankers’ bank.
Ans: Central bank/Reserve Bank of India.
Q. 2. Categorise the following under agency and general utility services of commercial banks.
(a) Purchase and sale of securities.
(b) Issue of letter of credit.
(c) Issue of bank drafts.
(d) Internet Banking.
(e) Collection of dividends.
Ans: Agency services – (a), (e)
General utility service – (b), (c), (d)
Q. 3. Complete the flow chart:
Ans: (a) Secondary functions.
(b) Accepting deposits.
(c) Lending money.
(d) General utility services.
Q. 4. Choose the best alternate answer out of given four alternatives in the following questions:
(i) Overdraft facility is allowed to which type of account holder?
(a) Saving Account.
(b) Current Account.
(c) Recurring Account.
(d) Fixed Deposit Account.
Ans: (b) Current Account.
(ii) Anil transferred funds electronically from his account in SBI, Delhi to Deepak who has account in Punjab National Bank, Bangalore. Which type of banking service was used by Anil?
(a) Pay order.
(b) Bank overdraft.
(c) National Electronic Fund Transfer.
(d) Issue of bank draft.
Ans: (c) National Electronic Fund Transfer.
(iii) Sandeep inserts his ATM card in Machine and by using his PIN, he received his transaction statement. Which type of banking service Sandeep used?
(a) Traditional banking.
(b) E- banking.
(c) Both (a) and (b).
(d) None of the above.
Ans: (b) E- banking.
(iv) Which deposit account requires deposit of money at regular periodical intervals?
(a) Savings deposit account.
(b) Recurring deposit account.
(c) Current deposit account.
(d) None of the above.
Ans: (b) Recurring deposit account.
INTEXT QUESTIONS 2.3
Q. 1. Mention the different categories of marine insurance.
Ans: (a) Cargo insurance.
(b) Ship or Hull insurance.
(c) Freight insurance.
Q. 2. Identify the insurance policies in the following cases:
(a) Policy taken up by husband and wife jointly.
Ans: Joint life policy.
(b) Periodic payment to the policyholder before the maturity of the policy.
Ans: Money back policy.
(c) Protection from loss due to crop failure.
Ans: Crop Insurance.
(d) Policy that takes care of the expenditure on education of the dependent children of the policy holder.
Ans: Amartya Siksha Yojana insurance policy.
(e) Protection against misappropriation of goods by employees.
Ans: Fidelity guarantee insurance.
INTEXT QUESTIONS 2.4
Q. 1. What is meant by ‘Insurable interest’?
Ans: Insurable interest means financial or pecuniary interest on the subject matter of insurance.
Q. 2. Name the principle of insurance violated in the following cases:
(a) ‘A’ does not own the building but is trying to get it insured as a party to the insurance policy.
Ans: Principle of insurable interest.
(b) ‘A’ enters into life insurance contract with LIC of India. ‘A’ was ailing with heart decease but he did not reveal this at the time of entering the contract.
Ans: Principle of utmost good faith.
(c) ‘B’ enters into insurance contract with two companies ‘C’ and ‘D’. The subject matter is a building worth Rs 5 lakh. The building caught fire and properties worth Rs 3 lakhs were damaged. ‘C’ paid the entire claim and asked ‘D’ to share the claim. ‘D’ denies.
Ans: Principle of contribution.
(d) Goods worth Rs 50,000 are damaged and the insurance company pays the claim to ‘Z’ for the loss. ‘Z’ not only took the compensation for loss but also claims the damaged goods.
Ans: Principle of subrogation.
(e) ‘P’ takes an insurance policy for Rs 1 lakh with ‘Q’ company. The goods of ‘P’ are damaged due to fire the loss incurred is Rs 25,000. ‘Q’ shall restore the actual loss but ‘P’ claims full amount of the policy.
Ans: Principle of Indemnity.
INTEXT QUESTIONS 2.5
Q. 1. Define the term ‘transportation’.
Ans: The process of carrying goods and passengers from one place to another is termed as ‘transportation and the mode used there for are roadways, railways, airways and/or water ways.
Q.2. Suggest suitable mode of transportation in the following cases:
(a) Transport of perishable goods within the country.
Ans: Road transport.
(b) Transport of goods of high value and low volume.
Ans: Air transport.
(c) Quickest mode for carrying passengers.
Ans: Air transport.
(d) Convenient mode for short distance travel.
Ans: Road transport.
(e) Economical mode of transport for long distance within the country.
Ans: Rail transport.
INTEXT QUESTIONS 2.6
Q. 1. Give one word substitute of the following communication:
(a) Conversation with the help of telephone.
Ans: Oral Communication,
(b) Communication through symbols and diagram.
Ans: Visual Communication.
(c) Traffic signal showing red light.
Ans: Visual Communication.
(d) Sending SMS to friends through mobile phone.
Ans: Written Communication.
(e) Saluting our nation flag in different occasion.
Ans: Gestural Communication.
Q. 2. Match the following:
| Column A | Column B |
| (a) Retail post | (i) Collection of letters from the customer’s doorstep |
| (b) Media post | (ii) Compensation for lossor damage of the parcels |
| (c) Direct post | (iii) advertisement on post card |
| (d) Business post | (iv) Collection of telephone bill |
| (e) Insured post | (v) Sending pamphlets toprospective customers. |
Ans:
| Column A | Column B |
| (a) Retail post | (iv) Collection of telephone bill |
| (b) Media post | (iii) advertisement on post card |
| (c) Direct post | (v) Sending pamphlets toprospective customers. |
| (d) Business post | (i) Collection of letters from the customer’s doorstep |
| (e) Insured post | (ii) Compensation for lossor damage of the parcels |
INTEXT QUESTIONS 2.7
Q. 1. Mention any two problems we may face in the absence of telecommunication services.
Ans. 1. Problem in mobility of labour.
2. Problem in socialisation.
Q. 2. Complete the following incomplete words by taking clues from the statement given for each, Every blank represents one letter only. First one has been done for you.
(a) T ________ L ______ X (TELEX)
(b) V ________ C _______ MAIL
(c) ______________ __________ X
(d) T_______ L _______R_______ M
(e) E _________ M _______________.
Clues:
(a) Communication using tele-printer
(b) Computer based system for receiving and responding the incoming telephone calls.
Ans: (b) VOICE MAIL.
(c) Machine that transmits hand written massage instantly.
Ans: FAX.
(d) A form of written communication.
Ans: TELEGRAM.
(e) Communication of written message through internet.
Ans: E-MAIL.
INTEXT QUESTIONS 2.8
Q. 1. Give the meaning of warehousing.
Ans: Activities that involve storage of goods on large scale and making them available when demanded.
Q. 2. Identify the type of warehouse in the following cases:
(a) Warehouse to store the goods of public.
Ans: Public warehouse.
(b) Warehouses owned and managed by government.
Ans: Government warehouse.
(c) Warehouses for storage of imported goods on which import duty is yet to be paid.
Ans: Bonded warehouse.
(d) Warehouses set up for the benefit of its members.
Ans: Cooperative warehouse.
(e) Warehouses owned and managed by private traders for stocking their goods.
Ans: Private warehouse.
TERMINAL EXERCISE
Short Answer Type Questions:
Q. 1. What is meant by the term ‘Banking’?
Ans: Banking refers to the provision of services by banks like acceptance of deposits,grant of loans and advances and other agency as well as general utilities services.
Q. 2. Define the term ‘Insurance’.
Ans: Insurance is a contract between the insurer and insured whereby the insurer undertakes to pay a fixed amount of money to compensate the insured against risks of loss or damage caused by happening of certain events, in exchange for a fixed sum of a money.
Q. 3. Name the hindrance that is removed by p transportation.
Ans: Problem of distance.
Q. 4. State the benefits of insured post.
Ans: If the sender wants that the mail should definitely be delivered to the addressee otherwise it must return to him, then post office offers ‘registered post’ facility. For this service, the post office charges additional amount and issues a receipt for the registered post.
Q. 5. What is bonded warehouse?
Ans: Bonded Warehouses: Bonded warehouses to store imported goods for which import duty is yet to be paid. These warehouses are generally owned by dock authorities and found near the ports.
Q. 6. Give an example of e-banking.
Ans: ATM Services is an example of e-banking.
Q. 7. Name any two savings schemes of post office.
Ans. 1. Recurring deposite.
2. Public provident fund.
Q. 8. Give the full form of PPF and MIS.
Ans: PPF — Public provident fund.
MIS — Monthly Income Scheme.
Short Answer Type Questions:
Q. 9. Mention any two general utility services rendered by commercial banks.
Ans: General Utility Services: General utility services are those services which are rendered by commercial banks not only to the customers but also to the general public. These are available to the public on payment of a fee or charge.
These include:
1. Issue of bank drafts, pay order (banker’s cheque), travellers’ cheques.
2. Issue of letters of credit.
3. Safe-keeping of valuables in safe deposit locker.
4. ATM card, debit card and credit card facility.
5. Internet banking and phone banking.
Q. 10. Distinguish between whole-life policy of and endowment policy.
Ans: (a) Whole-life policy: In case of whole life policy the premium is payable regularly throughout the life of the insured or for a fixed period. The sum assured becomes payable to the heirs of the insured after his death. Such a policy is taken up by a person who wishes to provide financial support to his/her dependents after the death.
(b) Endowment Policy: An endowment policy, runs for a limited period or upto a certain age of the insured, and the sum assured becomes due for payment at the end of the specified period or on the death of the insured if it occurs earlier. This is the most common form of life insurance policy taken up by the people.
Q. 11. State any two points of importance of transportation for the business.
Ans: (a) Transport plays a very important role in distribution of goods both within a country and across the borders.
(b) Transport helps in bringing about stable and uniform prices in different markets as traders are able to adjust the supply of goods at different places according to the changing demand.
(c) Consumers have the benefit of getting goods at their door step and have a wider choice of goods at competitive prices.
(d) It ensures continuous supply of raw materials to the industry.
(e) It contributes to growth of large scale industries by facilitating the inflow of materials and outflow of finished goods.
(f) International competition is encouraged with the improved transport system. This makes global markets accessible to sellers and buyers of different countries.
Q. 12. What is meant by post restante letter?
Ans: Post Restante letter means which can be sent to the postmaster of the locality where the receiver resides. The receiver can collect the letter from the post office on showing his identity. This facility is suitable for tourists and travelling salesmen who are not sure about their address in a particular place, or for any other person looking for a fixed address at a new place.
Q. 13. Explain any two functions of warehousing.
Ans: The warehouses preserve goods on a large-scale in a systematic and orderly manner. They provide protection to goods against heat, wind, storm, moisture, etc, and also minimize losses due to spoilage, wastage etc. In addition to this, warehouses now a days also perform a variety of other functions a stated below:
(a) Storage of Goods: The basic functions of warehouses is to store goods properly till they are required for use, consumption or sale.
(b) Protection of Goods: A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature.
Q. 14. What is meant by cash credit?
Ans: Cash Credit: Under cash credit system, person, firm or company can borrow money from the bank. Money can be borrowed up to a specified limit. The borrower withdraws money as and when required. Interest is charged on the amount withdrawn by the borrower. Cash credit limit is decided by the bank on the basis of the borrower’s assets and personal reputation.
Q. 15. What is meant by a Bank overdraft?
Ans: Bank Over draft: Current account holder is allowed to draw by cheque more than the amount to his credit up to a specified limit. This facility is provided against the security of some assets. A higher rate of interest is charged on bank overdrafts. Extra amount withdrawn from the current account must be deposited in the account with in the prescribed period
Q. 16. Give the full form of NSC.
Ans: National Services Certificates.
Q. 17. What is meant by courier service?
Ans. Courier services are offered by private sector enterprises. Letters, products in small quantity etc. are sent from one place to another by availing courier service.
Long Answer Type Questions:
Q. 18. Explain the primary functions of a commercial bank.
Ans: Primary Functions: The primary functions of a commercial bank include:
(i) Accepting deposits. and
(ii) Lending money.
(i) Accepting Deposits: The most important activity of a commercial bank is to accept deposits from the public. People who have surplus income and savings find it convenient to deposit it with banks. For the convenience of the customers, banks provide different types of deposit accounts like Fixed Deposit Account, Recurring Deposit account, Current Account, Savings Bank Account, etc. with varying rates of interest. Public is also assured of the safety of funds deposited with the bank.
(ii) Lending Money: The second important function of a commercial bank is lending of money to the public as well as to the business houses. It takes the form of loans and advances to the customers at the prescribed rates of interest. Loans are granted for a specific period. The borrower may be given the entire amount in lump sum or in instalments. Loans and advances are generally granted against the security of certain assets. The credit facility granted by the banks is usually for a shorter period of time which takes the form of cash credit, overdraft or discounting of bills. As stated earlier, banks also provide loans for a medium term or a long period.
Q. 19. Describe any two principles of a valid insurance contract.
Ans. The validity of an insurance contract rests upon certain well established principles that apply to various types of insurance.
These are:
(a) Principle of Utmost Good Faith: Insurance contracts are the contracts of mutual trust and confidence. Both parties to the contract ie, the insurer and the insured, must disclose all relevant information relating to the subject matter of insurance. Incase of life insurance, for example, the proposer must honestly disclose all information relating to his/her health, habits, personal history, family history etc. In case of any concealment about the material facts, the contract will not be valid. It is so because the risk can be evaluated only on the basis of these facts relating to subject matter of insurance.
(b) Principle of Insurable Interest: According to this principle, the insured must have insurable interest in the subject matter of the insurance. Insurable interest means financial or pecuniary interest in the subject matter of insurance. A person has insurable interest in the property or life insured if he stands to gain from its existence or loose from its damage or destruction. For example, a man has insurable interest in his own life and that of his wife, and similarly the wife has insurable interest in her husband’s life. As for the property, normally it is the owner who has insurable interest in his/her property. But, when he/she (the owner) has taken loan from a housing finance company to build his/her house, the housing finance company also has insurable interest in the house and it can seek its insurance. It may be noted that in case of life insurance, the insurable interest must be present at the time of taking the policy, in case of marine insurance insurable interest must exist at the time of loss or damage to the property, and in case of fire insurance, it must exist both at the time of taking the policy as well as at the time of loss or damage to the property.
Q. 20. What is meant by transportation? State any two different modes of transport.
Ans: Transportation is the process of carrying goods and passengers from one place to another is termed as ‘transportation and the mode used there for are roadways, railways, airways and/or water ways. Infact, transportation facilitates trading activities to create place utility to goods by removing the barriers of distance (hindrance of place) between production and consumption.
Two mode of transport are:
(a) Road Transport: Transport by road is undertaken through animals (horses, camels, donkeys), vehicles drawn by animals (bullock-carts), and by Motor Vehicles (Vans, trucks, etc.). Use of animals and vehicles drawn by animals have limited use only in rural areas. Vans are limited to local transports within the city. Most goods traffic moves through trucks which are considered convenient, economical and safe.
(b) Rail Transport: Rail transport refers to movement of passengers and goods by trains which are on railway tracks laid for the purpose. In terms of carrying capacity over long distances rails transport is to economical and safe. In India, railways are owned by government of India and most commonly used mode of goods transport.
Q. 21. Describe any four special services
rendered by the post office for the benefit of to business.
Ans: Business Development Services: Post office offers some special services to the business firms.
Which are the following:
(i) Business Post: In this service, post office undertakes all the pre-mailing activities of the bulk senders. Pre-mailing activities include collection from sender’s doorstep, insertion of goods in packet, pasting and addressing as well as franking of mails, etc.
(ii) Media Post: The postal department offers a unique media to help the corporate and government organisations to reach the potential customers through media post. Under this facility.
(a) advertisements are allowed on post cards, inland letter cards and in other postal stationeries, and
(b) space sponsorship options on letter boxes.
(iii) Express Parcel Post: Post office offers a reliable, speedy and economical parcel service to the corporate and business customers through its express post. It provides a time bound door-to-door delivery of parcels upto 35kgs. in weight and VPP services upto Rs 50,000.
(iv) Direct Post: It allows the business houses to send the pamphlets, brochures and other advertising materials like CDs, floppies, cassettes, samples, etc. to the prospective customers at very low rates.
Q. 22. Explain any four points of importance of warehousing.
Ans: Importance of Warehousing As stated earlier, warehousing bridges the time gap between production of goods and their consumption, and thus, serves useful purpose particularly for large-scale business operations.
Based on its uses, its importance can be briefly described as follows:
(a) Storage of Raw Materials: To maintain continuity in production, a good quantity of raw materials is to be kept in stock. Not only that, some raw materials are only available in specific period of the year (cotton, oilseeds etc.) while these are used for production throughout the year. So, these have to be kept in stock for use as and when required.
(b) Storage in Anticipation of Rise in Price: In case the manufacturer anticipates a rise in prices of raw materials in future he/she likes to purchase it in advance and stock it. It equally applies to traders of goods if they expect price rise.
(c) Storage of Finished Goods: Since goods are generally produced in anticipation of demand, these need to be stored till sales take place. Not only that some goods are produced round the year but purchased/used during a specified part of the year e.g. electric fans, woollen clothes. Similarly, some goods may be produced during a part of the year but used throughout the year like sugar.
(d) Storage of Goods by the Wholesalers: Wholesalers buy goods in bulk and maintain stock of goods in warehouses for sale in small quantities to retailers from time to time.
(e) Packaging and Grading: Goods in warehouses are divided into grades according to size or quality and packaging is done for convenient handling and sales.
Q. 23. “Post office provides the various services in addition to mail service.” In the light of this statement explain the different services provided by the Post office.
Ans: Apart from mail service. Post office provides following services:
(1) Financial Services: Various financial services are provided by the post office through Saving Schemes, Remittance Services, and Distribution of Mutual Funds and Securities.
(i) Saving Schemes: There are eight different schemes offered by the post offices to mobilise the savings from the public.
These are:
(a) Post Office Savings Bank Account.
(b) 5-Year Post Office Recurring Deposit Scheme.
(c) Post Office Time Deposit Account.
(d) Post Office Monthly Income Scheme.
(e) 6-Year National Savings Certificates (VIII Issue) Scheme.
(f) 15-Year Public Provident Fund Account (PPF Account)
(g) Kissan Vikas Patra Scheme.
(h) Senior Citizens Saving Scheme 2004.
(ii) Remittance Service: Money can be conveniently transferred from one place to other through the remittance service offered by post office. It is in the form of Money Order and Postal Order facility with the help of which people can transfer money from one place to another within as well as outside the country. Money order is an order issued by one post office to another post office to pay a certain sum of money only to the person named therein. The sender hands over the money to the post office and on payment of the requisite fee, post office takes the responsibility of giving the money to the receiver. In a single money order form, we can send a maximum amount of Rs 5,000. For the convenience of customers, post office offers different types of money order services like Ordinary Money Order, Telegraphic Money Order, Satellite Money Order, Speed-post Money Order, Instant Money Order (INO), International Money Transfer Services, etc. For the convenience of businessmen it also offers Corporate Money Order service. Like Money Order, we can also send money through postal order i.e.. Indian Postal Order (IPO). It is a convenient method of sending money from one place to another and is mainly used for remitting examination fees or while applying for any job.
(iii) Distribution of Mutual Funds and Securities: This facility enables the investors to purchase mutual funds and government securities through the designated post offices. The mutual funds of State Bank of India, prudential ICICI, RBI/Govt. Relief Bonds and ICICI Safety Bonds are available from 42 post offices at Bangalore, Chennai, Chandigarh, Delhi and Mumbai.
(2) Insurance Services: In addition to dealing with mail and remittance of money, post offices also provide life insurance coverage to individuals. There are two different schemes of insurance offered by post office. These are:
(i) Postal Life Insurance (PLI). and
(ii) Rural Postal Life Insurance (RPLI).
The Postal Life Insurance was introduced in 1884 as a welfare measures for the employees of Posts and Telegraphs Department. Later on it was extended to the employees of Central and State governments, public sector undertakings, universities, government aided institutions, nationalised banks and financial institutions, localbodies like Municipalities and Zilla Parisads. The employees of these organisations who are below 50 years of age, can insure their life on payment of a fixed premium for a particular period. The PLI offers five insurance schemes viz.
(i) Suraksha (whole life insurance),
(ii) Suvidha (Convertible whole life assurance),
(iii) Santosh (endowment assurances),
(iv) Sumangal (Anticipated endowment assurance),
(v) Yugal Suraksha (joint life endowment assurance for couples).
Just like PLI, the post office also provides life insurance coverage to the people living in rural areas at low premiums under the scheme of Rural Postal Life Insurance (RPLI). This was introduced on 24 March, 1995. All the above mentioned plans are available under RPLI also.
(3) Business Development Services: Besides carrying mail through various means as discussed earlier, post office offers some special services to the business firms.
(i) Business Post: In this service, post office undertakes all the pre-mailing activities of the bulk senders. Pre-mailing activities include collection from sender’s doorstep, insertion of goods in packet, pasting and addressing as well as franking of mails. etc.
(ii) Media Post: The postal department offers a unique media to help the corporate and government organisations to reach the potential customers through media post. Under this facility.
(a) advertisements are allowed on post cards, inland letter cards and in other postal stationeries. and
(b) space sponsorship options on letter boxes.
(iii) Express Parcel Post: Post office offers a reliable, speedy and economical parcel service to the corporate and business customers through its express post. It provides a time bound door-to-door delivery of parcels upto 35kgs. in weight and VPP services upto Rs 50,000.
(iv) Direct Post: It allows the business houses to send the pamphlets, brochures and other advertising materials like CDs, floppies, cassettes, samples, etc. to the prospective customers at very low rates.
(v) Retail Post: The post office offers the facility to collect public utility bills like telephone, electricity, and water bills, sale of application forms for government and other private organisations, survey through postmen, address verification through postmen are some of the activities undertaken under retail post.
(vi) Business Reply Post: Under this facility post offices allow the customers to send their reply through business reply post, which does not require any postage from the sender. The post office recovers the postage from the addressee later on.
(vii) Post Shoppe: Post shoppes are the small retail shops established for sale of postal stationery items, greeting cards and small gift items to the customers. These shops are found within the premises of some post offices.
(viii) Value Payable Post (VPP): This facility is offered to meet the requirement of the traders who wish to sell their articles and collect the price of articles supplied by them through the post offices. Under this service, post office receives the properly packed goods from the seller and carries those to the customers. After receiving the total amount (the price of the goods plus the VPP charges) from the customer, it delivers the goods to him/her. Later on, the post office sends the amount due to the seller.
(ix) Corporate Money Order: Like individuals, business organisations can also transfer money through money order. For them, the post office offers Corporate Money Order Service. It enables business organisation to transfer upto Rs 1 crore to any part of the country.
(x) Post-box and Post-bag Facility: Under this facility, a particular number and a box or a bag is allotted to the receiver at the post office to receive all unregistered mails. Post office keeps all mails addressed to that number in those boxes or bags. The addressee makes necessary arrangement to collect the mails as per his convenience. This facility is mostly suitable for business firms which want to receive their mail promptly. Those who do not have any fixed address or those who do not want to disclose their goods if names and address can avail of this facility on payment of the specified rent.
(xi) Bill Mail Service: It provides cost effective solution for mailing of periodic communication with nature of annual report, bills, monthly account bills or other items of similar nature.
(xii) E-post: E-post service launched on 30th January, 2004 this has enabled people to send and receive messages through e-mail in all post offices of the country. To make it more useful for business, a corporate version of e-mail was also launched on 18th October 2005, which allows simultaneous sending of e-post to a maximum of 9999 addresses.
Q. 24. Your friend Nitesh feels that warehousing is of no importance. Explain him about the importance of warehousing.
Ans: The words “warehouse’ and ‘godown’ are synonymous and so warehouse refers to a place used for storing goods, and warehousing refers to the activities involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed. In other words, warehousing means holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale. Thus, it creates time utility by bridging the time gap between production and consumption of goods.
Importance of Warehousing: As stated earlier, warehousing bridges the time gap between production of goods and their consumption, and thus, serves useful purpose particularly for large-scale business operations.
Based on its uses, its importance can be briefly described as follows:
(a) Storage of Raw Materials: To maintain continuity in production, a good quantity of raw materials is to be kept in stock. Not only that, some raw materials are only available in specific period of the year (cotton, oilseeds etc.) while these are used for production throughout the year. So, these have to be kept in stock for use as and when required.
(b) Storage in Anticipation of Rise in Price: In case the manufacturer anticipates a rise in prices of raw materials in future he/she likes to purchase it in advance and stock it. It equally applies to traders of goods if they expect price rise.
(c) Storage of Finished Goods: Since goods are generally produced in anticipation of demand, these need to be stored till sales take place. Not only that, some goods are produced round the year but purchased/used during a specified part of the year e.g. electric fans, woollen clothes. Similarly, some goods may be produced during a part of the year but used throughout the year like sugar.
(d) Storage of Goods by the Wholesalers: Wholesalers buy goods in bulk and maintain stock of goods in warehouses for sale in small quantities to retailers from time to time.
(e) Packaging and Grading Goods: Good in warehouses are divided into grades according to size or quality and packaging is done for convenient handling and sales.
(f) Use for Importers: Warehouses (known as bonded warehouse) are used for storage of imported goods till the importer is able to pay the customs duty and take delivery. Based on the above uses of warehousing, it can be concluded that it is an important link in the chain of marketing and adds to the time and place value of goods. It alsos moothens out fluctuations in their supply and demand. So, wherever there is trade and commerce, there is need for warehousing.
