7 Key Considerations for Warehouse Network Design

When it comes to warehouse network design, there was a time when the top question for the people managing warehouse location searches was “Would I like to visit this location?” But those days are long gone says Jeff Haushalter of leading supply chain design and engineering firm, Chicago Consulting.

These days warehouse network design decisions are data-driven and carefully and continuously analyzed.

And for good reason.

Where you locate your fulfillment center affects your order-to-delivery speed, your parcel shipping costs, your capacity to handle growth – in short, your ability to compete.

We dove into the critical issue of warehouse network design with Jeff Haushalter on a recent edition of Staci Americas' Unboxing Fulfillment podcast.

Check out 7 top considerations below.

1 – Know When It’s Time to Warehouse Hunt

All companies should have some benchmarks that allow them to understand whether or not their network is working, Haushalter advises. Important KPIs include zones or miles traveled, and number of shipments. “Those types of output measures really help you understand what that cost to serve a customer is,” he says.

Haushalter adds that these and other statistics should be reviewed every 3–6 months to see what’s changing and what’s being impacted. Ideally, there should also be an annual strategy meeting to assess how the network could help the company compete better.

2 – You Can’t Always Plan for Growth

Haushalter confides that the driver to move or expand is usually precipitated by some sort of problem and not the result of a strategic initiative brought on by periodic evaluations of the warehouse network. It’s normal for a warehouse network design change to be triggered suddenly.

The catalysts can vary, Haushalter says. It could be that the company is growing and is out of space. It could be that a competitor opened a warehouse in a different region of the country and the company feels it is at a competitive disadvantage.”

3 – Do Warehouse Network Design Analysis

When deciding to move warehouse locations or expand, Haushalter suggests performing a network analysis to model costs. There are two forms of warehouse network analyses. The first is what he calls a service-based exercise which takes into account just the outbound costs from the warehouse. A more involved method is a cost-based exercise that takes into account all the costs – from where the product is made to a company’s warehouse and then back out to another warehouse or alternatively to the customer. Cost-based models take longer than service-based ones but deliver better, more comprehensive results.

4 – Pick a Geography

Lowering shipping rates and speeding delivery are the top goals when assessing warehouse locations. Modeling to determine the optimal warehouse network design is a complex exercise.

To provide companies with a starting point, Chicago Consulting compiles a list of the Ten Best Territories in USA every year. The list answers the question, “If you were to only have one warehouse or two warehouses – all the way up to ten warehouses – where should you put them so you can ship to anyone in the country most efficiently?”

Shippers can use the list as a starting point to help inspire a discussion of where to locate a warehouse or warehouses. The next step in the process is asking “where are your sales?” A company’s customers might not track with U.S. population centers. An example would be an agricultural products distributor with customers who are located mostly in the Midwest. In this case, a bi-coastal warehouse network with 2 facilities on each coast would prove hugely expensive because of the distance between the warehouse and the prime customer base.

5 – Select a Site

The common progression, per Haushalter, is that once a company has picked a general region of the country, they start the process of looking at specific cities and sites. At this stage, it’s important to look beyond just shipping efficiency. Companies must take a hard look at labor availability – particular for labor-intensive eCommerce fulfillment services.

After analyzing the labor availability issue, companies should consider whether to build/lease a new facility or work with a third-party logistics provider (3PL) that is already in the market. Working with a fulfillment 3PL allows companies to move quickly and it also relieves them of the burden of hiring and managing a workforce. A 3PL with a national fulfillment network can give you the ability to scale quickly throughout your growth journey.

6 – Determine Your Timeframe

How long does a typical warehouse network design project take? Chicago Consulting does some projects in as little as 4 weeks. These are typically emergency jobs, like for companies who undergo a merger and need to rationalize networks quickly.

Typical projects take up to 2 months, but others extend further. Haushalter says “multi echelon” networks are harder and take considerably longer. These types of projects may have a hub and spoke network with one larger facility or multiple larger facilities that feed smaller facilities. Or it could be a network that has different B2B and B2C channels involved.

7 – Look before You Leap

Standing up a new warehouse is an expensive and time-consuming process that diverts company resources. Before warehouse-hunting, Haushalter says companies should do everything they can to make do with what they’ve got by improving efficiency and cutting costs that are driving the need to expand facilities.

He points to many opportunities within every fulfillment operation where costs can be restructured – from the initial click of the order all the way to the point when the parcel makes it onto the carrier’s truck.

Consulting groups like Chicago Consulting and fulfillment warehouse operators like Staci Americas are good resources to advise on warehouse network design changes. They can assist with modeling studies or they can assess your operation and suggest improvements in warehouse layout and process flow that could buy you some time before a major expansion.

Remember, Growing Is a Good Thing

If you’ve reached the point where your current warehouse network can’t handle your growing volumes or your parcel costs are out of control because of shipping inefficiency, it may be time to examine your warehouse network design.

These top considerations can help guide your company in deciding where, when, or whether to expand. If you still have questions about the ins and outs of warehouse network design, connect with a fulfillment expert at Staci Americas.