Inventory Holding Costs, otherwise known as the Cost of Capital increase when inventory is held in multiple locations. This is re-enforced by landmark study by D. Maister, published in the International Journal of Physical Distribution in This study quantified the reduction of inventory holding applicable when the number of distribution centres in a network is decreased.
Known as the square root law, Maister determined that the total inventory in a network is proportional to the square root of the number of locations at which product is held. So the key learning point here is that reducing warehouses decreases stock holding and the associated working capital to finance it. Primary line haul costs for transport between facilities are much higher for multiple facilities as more ton kilometres are travelled to replenish distant warehouses.
The converse supplies. Customer delivery costs from multiple regional warehouses, otherwise known as secondary transport, tend to be lower because with more facilities that any distance between the warehouse and customer is reduced.
So for your network design purposes and your assessment with the most appropriate delivery service times for your customers, you may like to note this roles of thumb for operations within Australia. If a warehouse is 12 hours or less drive from your customer, for example from Melbourne to Sydney or Sydney to Brisbane, delivery into store can be made the very next business day after dispatch. Now these rules are useful in balancing warehouse cost with transport delivery charges.
Hidden costs could offset any savings on cheap rental rates and therefore must be considered. The rental rate of a warehouse in the US is normally based on square feet SF per year or month depending on the landlord. In addition to rates, attention must also be given to local governmental regulations, tax structure, and tax incentives.
You could also benefit from special local government programs intended to promote your industry segment, so it pays to consider this as well. Workforce availability, skills, and labor costs are directly associated with local demographics. Not every geographical location offers a workforce with the right skills at the right price.
When evaluating workforce availability, consider supply and demand: Low workforce availability and high demand will drive salaries up meaning operating cost will be higher. The opposite is also true. High levels of workforce availability and low demand will drive salaries down.
Besides workforce availability and costs, skills are also critical. A workforce skill gap will result in a low quality of customer service and a reduction in both competitiveness and productivity. City and state government websites are also likely to provide this information. Accessibility to roads and highways as well a local traffic density must also be considered, especially if trucking is the main mode of transportation. Transportation costs are affected by some or all of these variables and can impact the competitiveness of the company or the attractiveness of the warehousing facility to customers.
Consider the following points:. Factors such as congested highways and surface roads as well as poor signaling systems will increase fuel consumption, accident rates, and time wasted. In this case, the main mode s of transportation used to receive or ship goods to and from the warehouse must be prioritized. If this is not possible, you should at least explore facilities with easy access to highways and roads that offer a direct connection to the airport.
You want to be as close as possible to the point of the most predominant transportation mode in order to control drayage costs and have the highest possible velocity level — the maximum number of containers per month. The following info-graphic contains data from the Department of Transportation displaying shipments weights by transportation mode for and the expected volume for Proximity to suppliers, producers, and the market s being served as well as local environmental factors must be also considered.
This will help reduce lead times, decrease transportation costs, and enhance responsiveness. Also, local environmental factors such as weather conditions and risk of exposure to natural disasters should also be considered.
Would the warehouse be exposed to hurricanes, tornadoes, or earthquakes? Another important aspect when selecting your warehouse s location is determining where your customer base lives. If your warehouse is located near carrier facilities, it will streamline the process of shipping your product s to your customer. The key is to find a good balance of a location that offers both convenience and close proximity to your target customers, as well as a carrier service. Additionally, selecting a location that is a reasonable distance between the manufacturing location, warehouse storage, and customer will make the shipping process easier and more cost-effective.
Take account of any special accommodations that you may have to make for your products. Are your products hazardous? In need of refrigeration? Make sure that the proper accommodations are able to be made at your desired warehouse location. Plan ahead. Save time, money and effort by estimating projected growth, and find a partner accordingly.
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