Shared Warehouse Services for Return on Cost

Not many people appreciate the time, energy, effort and expense companies invest in warehouse operations. The management of these operations has typically been a “back office” function with little or no notoriety unless a customer has not received a shipment they had been expecting from them. At that point, the first reaction from people is usually the “warehouse did it”. We wish it was that simple but it isn’t.

According to a number of industry experts, warehouse associated expenses typically account for 1 to 4% of their cost of goods sold numbers. Many of these expenses are called “fixed” costs such as buildings, taxes, insurance, material handling equipment, utilities and maintenance. These costs are incurred whether they ship very little or ship to the maximum capacity of the facility. In slower periods the facility and full staff are maintained. During peak periods additional temporary labor may be acquired, space becomes tight, and productivity is impacted. In either case, the operation is either underutilized (higher cost per unit shipped) or over capacity (diminishing return due to inefficiencies)

The solution is to control warehouse cost by sharing these fixed costs and resources with other companies in a variable cost environment of a shared warehouse facility. A shared facility already includes a full management staff. Facility management functions will not have to fall under dedicated company employees. Additional shared warehouse labor not assigned to your company will be cross-trained to become familiar with your operation to provide additional support as needed. These associates will be utilized during peak periods, eliminating negative impact to productivity.

The key is to provide the right amount of space and labor as determined by your actual activity. This can only be accomplished in an environment that shares these expenses with other companies to convert what was a fixed cost facility into a pay-as-you go model. In this case your cost are more closely aligned with your activity and your ability to predict your warehousing costs are more reliable. Note: Besides the obvious cost considerations of this model, service levels are usually pre-determined before the operation is running. These service level benchmarks are measured and tied to performance guarantees. So if your initial goal was cost reduction or containment in a shared model the outcome could be both cost and service enhancements. This warehouse operation now becomes a corporate necessity verses a “back office” function.

To learn more about contract warehousing, contact Chris Baumann at Transport Systems Inc at baumann@transportsystemsinc.com.

Chris Baumann
Executive Vice President & Partner
Transport Systems Inc
170 Mt. Airy Road
Basking Ridge, NJ 07920
(908) 766-1100

To learn more about Transport Systems Inc please click on the following link www.transportsystemsinc.com