Your warehouse location is a lot more than a pin on a map. It’s pivotal in how efficient your logistics operation is, how cost-effective it is and ultimately how profitable your company can be. So, how do you choose the best location? Centre of Gravity is a commonly used algorithm, but one which misses out several key factors that modern supply chain networks require. Read on as we discuss the challenge of finding the best warehouse location.
Why is warehouse location so important? Now more than ever, companies are expected to deliver quickly, without passing extra cost onto the customer. At the same time, however, we’re seeing a shortage of warehouse space, particularly in built-up urban areas, where residential developments are favoured. Essentially, companies now need to be even smarter when it comes to finding a warehouse location that works for them and their customers.
Centre of gravity
The centre of gravity method seems to be the most commonly used technique, which aims to identify locations for potential new facilities that will minimise costs. It uses the volume of goods, the markets in surrounding areas and locations of surrounding distribution points to work out the optimal location for a distribution centre. It’s a useful starting point to identify a reasonable area as it considers existing facilities and is relatively easy to compute for those who know how. However, once the area has been considered the discussion should not just end there. In order to develop a truly effective logistics network, other factors must be considered. This is just the beginning.
Is the premium price worth it?
Not all locations are valued the same, and that is reflected in the cost. There are areas of the country that are able to attract much higher rents than others. If this is particularly advantageous to your business, it may be worth paying the extra footing the bill. This economic factor means that there are occasionally incentives to companies who decide to set up their new facility in a certain location, which can be in the form of tax degradations or low interest development loans. So, it’s worth doing your research and calculating just how much time you could save by being in a prime location.
Consider “who” as well as “where”
Purchasing or leasing a building in a remote location could save you a lot of money. But can you get the people? Employees are what make a business, and if your warehouse is in a hard-to-reach location, or has a shortfall in certain required skills, you’ll struggle to get the right people in to make your business work. It is important to understand the cultural factors involved in developments in certain locations, and ensure you are aware of how this may affect communication and business relationships. In many industries, it’s also a good idea to consider spikes in demand at peak and whether the local workforce can be increased for short periods of time to suit these needs.
That doesn’t mean you need a warehouse in the middle of a city – in fact, this could be something to avoid because of higher labour costs – but it’s important to look for somewhere with the right transport links or a healthy talent pool to recruit from.
Logistics transport links
It’s not just staff transport that needs to be considered. It’s also essential to look at the transport needs of the business, such as the distance from customers, parcel hubs or other parts of the network. With fuel prices and driver wages increasing, longer routes could be crippling in the long run. So, it’s essential to find somewhere that fits in with their locations too.
Congestion can also be a driving factor. If a location suffers from bad congestion at peak trunking times, it will add to both the overall time and cost of the operation. It may even be worth considering shipping by rail if this is an obstacle that can’t be overcome. This would mean finding a location that has easy railway access. And, of course, if you’re exporting products internationally, it’s crucial to have fast access to a shipping port or airport too.
Planning the operation
Your location may also be bound by how you’re going to use the warehouse. Noise levels can make some locations unsuitable, while you may require a location with outdoor storage. Then there’s the layout of the building. Businesses need to look at facilities practically and understanding the flow of material within your chosen site. Be sure to check whether the ceiling height and column spacing will accommodate the equipment you need.
Weighing it all up
Many companies try to bargain hunt when choosing a warehouse location, or fail to consider options outside their ‘centre of gravity’. But, given the risks connected with making a bad warehousing decision, such as capacity transport and environmental problems, if you source your site solely based on price you could get a whole lot less than you pay for.
To draw up a list of optimal and backup locations, businesses must assess all of the issues above in the context of their needs and the needs of their customers. Each element can be valued differently depending on the company and their long-term strategy. But they must always carefully consider what is most important – and what can be sacrificed if the ‘perfect’ location isn’t out there?
At Bis Henderson Consulting, we assist small and large organisations with network remodelling or expansion. We help them find a balance between warehouse numbers and locations, and transport costs to form the optimal logistics network. If you’re looking for advice and support, or are in need of logistics consulting or supply chain consulting, feel free to get in touch with our team.