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  • #16
    Re: Choosing Warehouse Location

    I wrote this Blog post a while ago..........

    We are constantly told by Real Estate companies that the three most important elements of any real estate purchase are location, location, location. But does this really hold true for industrial real estate and in particular distribution centres (DCs) and warehouses? I would like to argue… not quite!

    If we look objectively at a company’s needs for DCs, we should start with the premise that we don’t need any.

    In an ideal World, where demand is consistent and supply reliable, then by adopting a Just In Time (JIT) approach, products can flow directly from supply to customer. Sadly that ideal World does not exist, due to fluctuations in customer demand, inconsistent supply and all manner of glitches that can occur in a Supply Chain.

    For these reasons, we need to hold product at DCs within our Supply Chains to act as a buffer so that we can ride out these variations in supply and demand and meet our customer service requirements.

    I am often approached by businesses seeking assistance in designing or selecting the location for a new DC. Frequently this is due to existing facilities reaching capacity. It should be said at this point, that there are a whole range of measures and changes that can be adopted within the Supply Chain to reduce the DC capacity requirement, or indeed to better utilise the existing DC capacity, before embarking on adding more facilities to the network.

    But assuming that a new facility is required; is the location really that important and what drives location decisions? Given the rise in popularity of distribution parks, hubs and even logistics cities (such as in Dubai) then perhaps the location decisions have already been made?

    It is worthwhile to take a step back and examine, objectively, some of the key cost relationships in a network of Distribution Centres.

    Network Cost Relationships
    As the number of Inventory Points in a network increases, so the costs are impacted as follows:
    The cost of storage rises, due to the increase in facility numbers and fixed costs.
    The inventory holding cost (cost of capital) increases as more inventory is required. (Due to increased safety stock requirements with more locations)
    The primary transport, or linehaul cost increases, as more tonne/kms are being travelled.
    The customer delivery cost (secondary transport) reduces, as with more facilities, the distance to the customer reduces.
    DC systems costs increase, as more licences, interfaces and hardware may be required.

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    So the objective within any distribution network is to find the optimum number of facilities that will reduce the total cost curve, whilst still maintaining appropriate levels of customer service.

    So what about the location of these facilities? What drives the optimum location? Well it is certainly not location, location, location as in the residential or retail property market. Again, taking an objective view of DC locations, we need to understand what drives, or should drive businesses to select certain locations over others. In fact the cost driver that frequently has the least impact on the total cost of selecting a given location, is land and building cost. This is due to the fact that inbound and outbound transport, as well as labour costs are a far higher proportion of the total costs of a distribution network.

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    So the location decision process might go something like this. We have established a need for 6 DCs in the network. We have established that one of these of a certain size, is required to be located in city X.

    Given the choice of a number of locations in city X that all meet the required location characteristics, the specific choice of one location over another is often not that important. This is because land and building cost will often have a much lower impact on the overall cost than those costs driven by the supply and demand profile.

    As an example, I was recently involved in the DC location decision for a large company that operates a fleet of some 400 delivery vehicles from one site alone. They needed to move to a new purpose built larger facility. The choice of a range of potential facility locations had a massive impact on delivery transport costs. Imagine moving to a location that was 30 minutes further away from the centre of gravity of demand? A fleet of 400 trucks would now be driving an extra hour per day. That could actually increase fleet costs by at least $3.6 m pa.

    So when selecting the location of Logistics facilities, are the three most important elements location, location and location? No. Well not in terms of a specific location.
    But given a range of locations that all meet the needs of the business, such as access to customers and resupply, access to highways, ports and the like, then the costs of land and building of one location compared to another can start to be important.

    Perhaps the three key elements should not read location, location, location, but lowest overall cost, best overall service and access to the right infrastructure?
    Rob O'Byrne
    Site Owner & Sponsor

    | Supply Chain Consultants | Supply Chain Conference | Supply Chain Education |

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    • #17
      Re: Choosing Warehouse Location

      On a personal level, I look into a few things

      -Distance from my office to warehouse
      -Logistic Facilities available

      Once I am clear about these, I additionally check the history of the warehouse and I am good to go.

      I intentionally don't choose them inside the city, since often-times there are varies delays plagued by traffic at each and every step and therefore, I only go with the ones outside the city.

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      • #18
        Re: Choosing Warehouse Location

        In the USA, companies normally locate their warehouses in newer buildings with very close highway access. One problem is that this typically puts them in relatively expensive and less dense suburban areas, which may be far from where the majority of their potential labor pool lives. You can probably fill any job even if the location is inconvenient, but this could cause higher employee turnover.

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        • #19
          Re: Choosing Warehouse Location

          So I don't know if anyone is still struggling with this, but I found a blog post on a site I've ordered from a few times that might prove helpful: http://blog.shelving.com/wire-shelvi...use-locations/

          They make a few good recommendations, but the one that stuck with me was about the availability of labor. You do really need to strike a good balance between a convenient location for business and making sure it's somewhere that will provide a steady labor pool. Just because a warehouse is close to a freeway doesn't mean its in an area that can attract the sort of talent you're going to need.

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          • #20
            Re: Choosing Warehouse Location

            This greatest problem in this situation may be the event of finding a suitable site for the location. When establishing a warehouse, the considerations may be accessibility to customers the security of legitimate visitors to the complex, if weather the location is vulnerable to disasters, if the location is easily accessible to the emergency services, and if its within zoning laws approval. With all these considerations it's sometimes very difficult to find suitable locations to establish warehouses.
            Synchronzed Supply Systems Ltd

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            • #21
              Re: Choosing Warehouse Location

              I think the basic things that you need to know while choosing warehouse location is to identify where are most of the deliveries being made? Are your warehouses located in the optimal zones to minimize the costs for both your company and your client?

              Storage Area: Will their storage area provide the capacity you require? It’s important to not only ask about their storage area, but more specifically, what is presently available to you. Do they anticipate any storage becoming available in the future in order to accommodate your growth? Is the location you’ve chosen properly suited to handle your unique needs? And how will they handle the different requirements for products that require a chemical/foam system versus a water based system? Always be sure to also take any environmental concerns into consideration, are there any streams, ponds, etc. in close proximity? Asking these questions now will help you avoid disaster later.

              Labor Force Availability: Knowing your labor needs and seeing how they stack up against the facility’s is essential to ensure on-time delivery and future growth. Will the warehouse facility operate 2nd and 3rd shift (24 hour operation)? Are there competing businesses in proximity that will become a barrier to growth by limiting available labor capacity?

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              • #22
                Re: Choosing Warehouse Location

                A warehouse’s location should in a place where it is easily accessible to transport. It should, in my opinion, include the maximum number of option possible for you to connect to transportation.

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                • #23
                  Re: Choosing Warehouse Location

                  While choosing a warehouse location it is important thing that need to keep in mind. First thing is that what you will actually need the warehouse for, Second Size and capacity of Warehouse, 3rd one is warehouse in a location that is convenient for shipping products to your customers. Accessibility is another factor that you’ll need to consider when looking for a warehouse location and last one is the cost of business which will affect your business. so these are the important things to keep in mind while choosing a warehouse.

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                  • #24
                    Re: Choosing Warehouse Location

                    Originally posted by AlvinWilliams View Post
                    A warehouse’s location should in a place where it is easily accessible to transport. It should, in my opinion, include the maximum number of option possible for you to connect to transportation.
                    That's indeed very important.
                    Not to be taken lightly.
                    ______________________________
                    Dumitru
                    Also see new forklifts

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                    • #25
                      Hello dear community.

                      Hope everybody is okay.

                      Sorry to came to you with so much urgence, but I really need your help. I have the following case and I already evaluate every single option htat I know without sucess to solve it and I was hoping if can help me with it. It is really urgent.


                      The owner of a grocery store is reconsidering its business and reviewing future strategies about how to expand and meet a changing customer demand. Sales have been good for some years and there are signals that they could increase even further. The owner of the store has three options:
                       Enlarge its current store.
                       Locate to a new site.
                       Wait and do nothing.
                      The process for moving and expanding would take little time and therefore the store would lose revenue. If nothing were done, the first year and strong growth occurred then the decision to expand could be reconsidered. Waiting longer than 1 year would allow competition to move in and would make expansion no more feasible.
                      You have the following data:
                       Strong growth has a probability of 55%.
                       Strong growth with a new site would give annual returns of $195,000 per year. Weak growth with a new site would mean annual returns of $115,000.
                       Strong growth with an expansion would give annual returns of $190,000 per year. Weak growth with expansion would give annual returns of $100,000.
                       Staying at the existing store with no changes but strong growth, there would be returns of $170,000. In case of weak growth, the annual returns would be of $105,000.
                       Expansion at the current site would cost $87,000.
                       The move to the new site would cost $210,000.
                       In case of strong growth and the existing site is enlarged during the second year, the cost would still be $87,000.
                       Operating costs for all options are equal.


                      Which would be the proper methodology to solve this problem and which option will be the best.


                      Is all the information that I have. Have no more data.


                      I really thanks you in advance

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                      • #26
                        In one seminar that I had attended, I remember one factor that you should not forget when choosing a location of a warehouse is the proximity to the main road. I have seen a warehouse located in the rural area where it takes more than a mile to reach the main road. Worse, the access road to the warehouse is a dirt road that becomes muddy during the rainy season. But compared to the cost of a warehouse in a strategic location, it is just 10% which makes it attractive but inconvenient.

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                        • #27
                          I'm of the opinion that a lot of things should be taken seriously into consideration before changing the location of one's warehouse. Some of these important factors are as follows ;

                          Proximity of the warehouse to the market.
                          Cost of renting or buying or building the warehouse.
                          Nature of the road from the warehouse to the market.
                          Availability of human labor at the warehouse location.

                          If all these factors aren't favorable, then the location of the warehouse is not suitable.

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                          • #28
                            Several things need to be considered and these range from location and build, to storage requirements and labour force availability; choices which could make a major difference to your company in terms of warehousing and distribution methods. But I'd say the main factors are
                            • Physical Location - The first question to ask yourself at this stage is – Which region are you looking to serve? Having your product stored in a location that is close to your customers is crucial as it will mean prompt deliveries. This is also linked to cost because of calculating landed transportation expenses from manufacturing to costs, and expected transportation costs from facility to end customer. These assist in figuring out where you can afford to store your product.
                            • Lease considerations - Does the warehouse provide rail siding or transloading? Will racked or bulk storage be offered? And which of these options will be appropriate for you?
                              What should be considered too is what type of rental contract will be offered by your warehouse. It would make sense to find a location that offers seasonal warehousing if your product is seasonal; the same way it would make sense to choose a location that offers an amount of space that depends on the time of the year if your product’s demand ebbs and flows.
                            • Storage requirements - Will the location you have chosen be able to handle your unique needs? How will they also handle the different requirements for products that need a chemical/foam system as opposed to a water based system? Don’t forget to consider environmental concerns.
                            • Labour force availability - Being aware of your labour’s needs in relation to the facility’s needs is important as it means on-time delivery and future growth are certain. Will the warehouse facility operate 2nd and 3rd shift (24 hour operation)? Are there competitors nearby that will hinder your growth by limiting labour capacity?
                            • Layout & flow of building - The optimal layout of any warehouse is determined by the type of operations that are going to be conducted inside of it. It does happen at times that other buildings are not equipped to handle and carry out the modem material flow. Factors such as ceiling height and column spacing can restrict the type of equipment that can be accommodated in the given space. This can also disrupt the flow of raw materials in and finished products out.

                            I think that covers pretty much all elements I'd say should be considered. Hope this helped.

                            Comment


                            • #29
                              Originally posted by Dovetail Outreach View Post
                              Several things need to be considered and these range from location and build, to storage requirements and labour force availability; choices which could make a major difference to your company in terms of warehousing and distribution methods. But I'd say the main factors are
                              • Physical Location - The first question to ask yourself at this stage is – Which region are you looking to serve? Having your product stored in a location that is close to your customers is crucial as it will mean prompt deliveries. This is also linked to cost because of calculating landed transportation expenses from manufacturing to costs, and expected transportation costs from facility to end customer. These assist in figuring out where you can afford to store your product.
                              • Lease considerations - Does the warehouse provide rail siding or transloading? Will racked or bulk storage be offered? And which of these options will be appropriate for you?
                                What should be considered too is what type of rental contract will be offered by your warehouse. It would make sense to find a location that offers seasonal warehousing if your product is seasonal; the same way it would make sense to choose a location that offers an amount of space that depends on the time of the year if your product’s demand ebbs and flows.
                              • Storage requirements - Will the location you have chosen be able to handle your unique needs? How will they also handle the different requirements for products that need a chemical/foam system as opposed to a water based system? Don’t forget to consider environmental concerns.
                              • Labour force availability - Being aware of your labour’s needs in relation to the facility’s needs is important as it means on-time delivery and future growth are certain. Will the warehouse facility operate 2nd and 3rd shift (24 hour operation)? Are there competitors nearby that will hinder your growth by limiting labour capacity?
                              • Layout & flow of building - The optimal layout of any warehouse is determined by the type of operations that are going to be conducted inside of it. It does happen at times that other buildings are not equipped to handle and carry out the modem material flow. Factors such as ceiling height and column spacing can restrict the type of equipment that can be accommodated in the given space. This can also disrupt the flow of raw materials in and finished products out.

                              I think that covers pretty much all elements I'd say should be considered. Hope this helped.
                              I completely agree with on the points discussed on physical location of the warehouse, storage requirements, labor force availability and lease requirements as the prime details to be taken into consideration and agreed upon before making any decisions on choosing any specific warehouse to operate from. I also deem if fit to add availability of constant electricity in the warehouse in order to enhance free flow of work on ground especially at night.

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                              • #30
                                Dovetail Outreach, the lease consideration is one important factor that can be overlooked when the owner of the warehouse is pushing with the deal. The fine print is the rate of increase that should be studied very well particularly if the warehouse is in a a good location that is near the city. The standard formula that we use is the 10-year plan to compute for the cost of rent or lease. You can arrive with a figure that can serve as the factor in evaluating the actual cost of the lease for the entire period. Take note that there are lease contracts that stipulate a 10% up to 20% increase in a period that can be one year to 5 years.

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