Warehouses are important links in a supply chain network at local or globalized market levels. The warehouse location in the supply chain network determines the efficiency and speed of supply chains. In the present context, supply chains are competing with each other, mainly in terms of delivery lead time and overall product cost. Warehousing processes contribute to the increased speed of material flows in supply chains. This is what you need to keep in mind while selecting a warehouse.
A warehouse is a large building where raw materials or manufactured goods may be stored before its distribution for sale. In general practice, goods from the manufacturing unit are sent to a warehouse from where they are issued to different sellers in accordance with the demand in the market. To succeed in certain demand areas, firms must have a warehouse presence. Supply chain management, besides being about the flow of goods, what to produce, how much to produce and to share information at different levels, is also about how much to store at each stage of the process, and most importantly, to select the location for warehouse, be it local or global.
Every firm tries to make its supply chain more efficient to achieve certain objectives. In order to achieve supply chain objectives such as market expansion, market penetration, and customer support, factors related to warehouse play a major role. Thus, it becomes important for a firm to make various decisions about the layout, location, and design before selecting a warehouse. Supply chain management is highly influenced by site selection and product quality. Capital investment, operating expenses, and customer service are all affected by decisions regarding warehouse location selection.
Essentials of a Warehouse
Warehousing, in the present day, has become one of the most important enablers for effective global supply chain network. Today, various dimensions of the supply chain, such as flexibility, shorter lead times, and at the same time, corporate profitability are easily achieved through warehousing, has observed that business is an economic enterprise and hence the main goal of its shareholders is to maximize profit.
The optimal location of the warehouse ensures the success of supply chains in terms of low cost and more profit. It becomes inevitable for the firm to lay stress on deciding the perfect location among various alternatives present for setting up and selecting a warehouse.
Thus, the amount of investment done in setting up and developing a warehouse should always follow a close analysis directed towards finding out the most optimal locations amongst the various location alternatives present. Adequate space, customer service, favorable traffic connections with suppliers and key markets, easy freeway access, proximity to trains and airports, and a qualified workforce are some of the factors that a warehousing location study must consider.
Warehouse location selection is a very challenging job because location selection, once implemented, is irreversible, and hence any wrong decision can lead to high losses for the firm. A firm, before setting up a warehouse, faces the challenge of finding the most optimal location for the warehouse.
A warehouse should be situated in such location from where it increases the overall efficiency of the supply chain of the firm, and in no way causes a delay in the shipment process, or increases the cost of production. For example, in an automotive organization, a break in the production line causes huge losses to the organization. Thus, the warehouse should be situated in such a place where the production parts are delivered to the manufacturing plant without any delay.
If a company’s warehouse stores finished products, then it becomes necessary that the market is proximally situated so that there is never a shortage of the product in the market during the high demand situation, and the product is always delivered at the correct time in the market. A few have suggested a decision-support system (DSS) for selecting a warehouse for the design, management, and control of warehousing systems, but in the early stage, proper site selection of warehouse is crucial to improve the performance of the entire supply chain.
Specifically, in the present situation of a globalized market and e-commerce, warehouse site selection has become the most important strategic decision for organizations across all manufacturing sectors.
Site Selection Criteria For Warehouse
A dynamic market scenario in terms of reducing product lifecycle, shorter delivery lead time, increasing stock-keeping units (SKUs), and increasing customer expectations in terms of service quality have created key challenges for manufacturing organizations to survive. In order to meet these challenges, organizations need to optimize their supply chain networks.
While optimizing the supply chain network, efficient product delivery from the manufacturing plant to the warehouse and then to retailers is very important. Therefore, the optimal location of a warehouse in a supply chain network has become a strategic decision for top management. The location of the warehouse also influences decisions related to lot sizing and scheduling issues in supply chains.
The selection of a warehouse can be an overwhelming and confusing experience. All companies are likely to have very specific warehousing needs and are difficult to understand all the complicated lingo and sales pitches to decide which warehouse locations are a good fit for the business. Below outlined are the most important considerations that should be thought about while choosing or selecting a warehouse.
10 factors to consider while selecting a warehouse location
Considering the current shipping locations of the companies suppliers, as well as the delivery locations that are to be arranged for customers, is crucial for selecting a warehouse. Where are most of these deliveries being made? Are the warehouses located in the optimal zones to reduce and optimize the costs for both the company and the client?
Any public warehouse that is looking for contracting or is ready to convert as a major distribution center will need to be easily accessible from major highway networks. Additionally, if the company has a majority of importing or exporting operations for a great deal of material, Warehouses should also be nearer to major port locations with strengths aligned to the product type that is being stored or manufactured.
Transportation costs of the materials can be largely affected by different kinds of variables, which can have an impact on how a business is. While choosing a warehouse, consider the following points in concern with the transportation of products, be it to or from the warehouse.
- Accessibility to highways and exit ramps
- Public transportation access
- Highway interconnectivity
- Average traffic speed and volume
- Traffic peak hours
- Proper road signs and signals
- Road safety and conditions
Congested roads, highways, and bad signaling can skyrocket the fuel consumption and accident rates and is time-consuming as the situation is tried to get under control for the products to be delivered to the customers. This time wasted can increase shipping costs, and negatively affect the synergies with the customers.
Does the company recognize any of the existing warehouse clients? On average, what is the square area each of those clients occupies? If 50 customers who only occupy a small amount of the warehouse space exist, that is considered a warning sign that the warehouse doesn’t have the experience to attract larger companies with much more sophisticated requirements to command and maintain larger square footage utilization.
If the company has strict storage and firefighting requirements for materials that are hazardous or flammable, or even in case of food items, it needs to make sure that the location chosen for the warehouse properly suits and handles the company’s needs. Being an e-commerce order fulfillment, or logistics tech company, one needs to understand the approaches to handle products that require a chemical system, versus a water-based system. These companies should also be considering the environment and should know if there are any streams or water bodies in close proximity.
A great deal of unwanted disaster is avoided by being proactive and checking the storage requirements of the warehouse location. It’s important to not only ask owners of the warehouse storage area but more specifically, what is presently available is also important. Do the owners of the warehouse anticipate any opening available for more storage area in the future to accommodate the projected growth?
Are there any active members of well-known associations who can lend extra credibility options to the warehousing operations? If the companies demonstrate their commitment to being a member of the IWLA (International Warehouse Logistics Association), for example, it shows that they are interested in presenting themselves among similar flocks for learning, gaining resources for improvement, and demonstrating enriched value over time.
Check established date of the existing warehouse to ensure a good balance of age, displaying their weathered qualities and the test of time, combined with the newness of the facility with modern technology and additions to make things flow efficiently. Aged setups can mean antiquated processes, but too new can mean that kinks need to be still worked out, so to speak.
Additionally, if they do have the experience, in which branch or industry did the warehouse area or structure was used for? It’s a simplistic example, but for food manufacturers and distributors crossing their FSMA, “T’s” would definitely want a warehouse with loads of experience meeting strict food grade standards.
Another essential aspect to consider while making decisions about warehouse location is to find out if they have a reliable and experienced workforce. Do the workers have the necessary skills to handle the products? Do the services and setup come at a reasonable price for the company? It should also consider the local demographics of the area. Aside from the cost and availability of the workforce, manufacturers should find out about the skills of the workforce.
A gap will result in low levels of customer service and reduced competitiveness and productivity. Compare the size of the facility to the number of employees to determine if it’s a good fit for the kind of service the company requires. Are the employees of the warehouse knowledgeable about the types of services that need to be provided? Will you have a “go-to” account representative whose primary responsibility it is to help make specific needs (and the other clients’ requirements) are addressed?
How many points of entries do the warehouses have, and what is the system to manage the inbound vs. outbound traffic in the facility? Do these structures have a standard staging procedure? What are the standard services, included in the price vs. special assistance provided for an extra fee? Can these warehouses handle the inspection, storage, dispatch, stocking, reverse logistics, packaging, organization, or reporting duties?
While using an outsourced vendor for warehousing, it can remove a large part of the risks associated with logistics. The company partners will shoulder most of this burden as they provide assistance to resolve potential issues and work proactively to decrease the traditional problems associated with moving products with heavy machinery.
Nevertheless, the company’s role must be active, while mitigating that risk, by asking warehouse owners about the incident rates, safety plans, insurance coverage, and damage plans. Always ask to see copies of the insurance coverage, and make specific plans and reported incidents to marry with the company’s expectations. It is crucial to find out how they handle issues when the problems arise to practice due diligence in protecting the company from weak vendor choices.
What kind of Warehouse Management System do the warehouse owners use? Can the company’s system for processing orders and managing supply chain integrate with theirs? Which kind of equipment are they utilizing for handling?
If the product lines are multiple with assorted SKUs, the company may need to search for warehouses that have integration with much-advanced robotics or sorting technologies like conveyor belt systems to decrease human error while loading the trucks.
In any case, the sophistication of the product lines, at a minimum, needs to seek a partner that can provide regular reporting regarding the company’s product moving into and out of their facility—preferably on a web-based platform that can be accessed at any time, from any location. As more advanced technology is integrated for the warehouse management and logistics sectors, much is up to warehouse managers and logistics firms to stay up-to-date on the latest innovations.
Many upcoming technologies, such as Pick-by-Vision, Electronic Data Exchange, and the utilization of drones, are soon to become mainstream in the industry. The implementation of adept technologies will be critical to the smooth operations of warehouses and supply chain processes.
What Needs to Be Done Next?
There are no doubt retailers are going to need to expand warehouse space and think differently to meet evolving consumer expectations. Selecting the ideal warehousing and distribution center is not without its challenges. Still, by considering the factors above, companies can ensure they choose the space that best fits their needs and operations.
It is concluded that, whenever a warehouse location is considered, the factors of flow, accessibility, and space must be keenly crosschecked, balanced so that the demand for throughput, that is, the volume of products being handled and the time parameters to be fulfilled. Similarly, the most optimal flow of goods through the inbound and outbound supply chain should be first considered while deciding the necessary number and locations of warehouses.
Most importantly, concerns in the structural and capacity requirements of an individual for selecting a warehouse need special attention as it depends on some of the most critical service offerings, the characteristics of the products handled, and types of activity that are expected to be conducted within the facility.