WHERE’S THE BEST LOCATION FOR
YOUR NEW WAREHOUSE?
By Stephen T. Hopper, PE
nce you’ve decided it makes sense for your operation to move to a new warehouse, how do you decide where it should be located so it will provide the best service levels for the lowest operating costs? This follow-up article to my July/ August piece outlines an objective, emotion-free process for you to follow as you go about determining the best location for your new warehouse. Define Your Business Requirements Over Your Planning Horizon Start by identifying your planning horizon for your study — three to five years from now is typical — and forecast the requirements of your warehouse over that time. For example, define the following: Sales volumes – What will your projected shipping volumes be, in units (not dollars), during the average week, as well as during the week when you experience your seasonal peak volume? SKUs – What SKUs will you be receiv-
ing, storing, picking, and shipping? What are their attributes? Customer orders – What types of orders will you be fulfilling? What are their attributes, and how will you ship them? On-hand inventory – What will your projected maximum on-hand inventories be, in units (not dollars), during the average week, as well as during the week when you experience your seasonal inventory peak? Suppliers – Who will your suppliers be? How will your warehouse need to accommodate inbound shipments from them? Customers – More importantly, who will your customers be? How will your warehouse need to accommodate outbound orders and meet their expectations?
Develop an Objective Scorecard Since you will be evaluating several alternative warehouse locations, your next step is to decide how you will measure and evaluate your alternatives
32 PARCELindustry.com SEPTEMBER-OCTOBER 2021
objectively. Make a list of all the data points and attributes that you’ll want to compare, such as: Annual transportation costs (inbound and outbound freight costs) Annual facility costs Annual equipment and technology costs Loaded annual full-time, part-time, and temporary labor costs, including benefits and overtime Initial warehouse relocation costs Service levels o Average supplier (inbound) delivery time per order, in days o Average customer (outbound) delivery time per order, in days Any intangible and qualitative factors that are important to your business Keep in mind that the more data points and attributes you document on your scorecard for comparison, the more comprehensive your comparison will be. On the other hand, more points of comparison will require more time and effort during your evaluation, so don’t create unnecessary work. Select the Right (Optimization) Tool for the Job Accurate optimization of a warehouse location also requires an effective modeling and optimization tool to analyze your supply chain data, so your next step is to select a good one for your business requirements. The right tool for this purpose will help you identify the best location for your warehouse over your planning horizon. Notice that I said the “right” tool, not the “best” tool. A variety of modeling and optimization tools are available to you. They range from ubiquitous spreadsheet applications that you probably already use to highly sophisticated software programs that can be leased by subscription for upwards of $10,000 per month. How good is good enough? The right modeling and optimization tool for you depends on your desired level of comprehensiveness and accuracy and the size and complexity of your warehousing operations. There’s no need to cut butter with a chainsaw. Often the “best” optimization tool is overkill for the needs of a business, and it will almost always add more cost, time, and complexity to the process.
PARCEL September/October 2021