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.

Site selection

Location analysis techniques are available to assist in selecting a general area for warehouse location. Once location analysis is completed, a specific building site must be selected. Three areas in a community may be considered for location,

• Commercial zones
• Outlying areas served by motor truck only
• Central or downtown areas

The primary factors in site selection are the availability of services and cost. The cost of procurement is the most important factor governing site selection. A warehouse need not be located in a major industrial area. In many cities, one observes warehouses among industrial plants and in areas zoned for light or heavy industry. This is not a legal necessity because most warehouses can operate under the restrictions placed on commercial property. Beyond procurement cost, setup and operating expenses such as rail sidings, utility expenses, taxes, insurance rates, and highway access require evaluation. The location must offer adequate room for expansion. Necessary utilities must be available. The soil must be capable of supporting the structure, and the site must be sufficiently high to afford proper drainage

Product mix consideration

The design and operation of a warehouse are related directly to the character of the product mix. Each product should be analyzed in terms of annual sales, stability of demand, weight, and packaging. Also, determine the total size and weight of the average order processed through the warehouse. These data provide necessary information for determining requirements in warehouse space, design and layout, material-handling equipment operating procedures, and controls.

Expansion

Well-managed organizations often establish five- to ten-year expansion plans. Such expansion considerations may require purchase or option of a site three to five times the size of the initial structure. Special construction is often considered to ease expansion without seriously affecting normal operations. Some walls may be constructed of semi-permanent materials to allow easy removal. Floor areas, designed to support heavy movements, are extended to these walls in a manner that facilitates expansion.

Selection of material handling system

The warehouse is viewed as a structure designed to facilitate maximum product flow. It is important to stress that
the material-handling system should be selected early in the warehouse design stage.