Warehouse Location

While deciding the location of the warehouse, following should be kept in mind.

• Presence synergies: This refers to the marketing benefits of having inventory located nearby in a building that is clearly affiliated with the enterprise (e.g., the building has the firm’s name on the door). It is widely thought that customers are more comfortable when suppliers maintain inventory in nearby locations.
• Industry synergies: This refers to the operating benefits of presence with other firms serving the same industry. For example, firms in the grocery business often receive substantial benefits when they share public warehouse facilities with other suppliers serving the same industry. Reduced transportation cost is the major benefit since joint use of the same public warehouse allows frequent delivery of consolidated loads from multiple suppliers.
• Operating flexibility: This refers to the ability to adjust internal policies and procedures to meet product and customer needs. Since private warehouses operate under the complete control of the enterprise, they are usually perceived to demonstrate more operating flexibility. While, due to the set policies, public warehouse minimizes operating confusion
• Location flexibility: This refers to the ability to quickly adjust warehouse location and number in accordance with seasonal or permanent demand changes. For example, in-season demand for agricultural chemicals requires that warehouses be located near markets that allow customer pickup. When not in season, local warehouses are unnecessary. Thus, the desirable strategy is to be able to open and close local facilities seasonally.
• Scale economies: This refers to the ability to reduce material-handling and storage through application of advanced technologies. High-volume warehouses generally have greater opportunity to achieve these benefits because they can spread technology’s fixed cost over larger volumes. In addition, capital investment in automated equipment can reduce direct variable cost.