So you’re thinking about adding a fulfillment warehouse to your distribution network.
While there are plenty of good reasons to do so, locating inventory closer to your customers probably tops the list. You’ll not only be able to get products into their hands faster, you’ll also reduce your delivery costs.
Those are both critical considerations now that buyers have come to view free two-day shipping as their birthright. (Thank you, Amazon.)
Adding a warehouse also makes sense from the standpoint of business security.
If your inventory is centralized in one location, what happens if that facility goes up in flames? Or a pandemic (do we have those?) results in a prolonged business interruption?
Your insurance company may reimburse you for any physical losses. But will you be able to recoup your loss of customer loyalty, market share and brand reputation?
Okay, so it’s settled. You’ve decided you definitely want to expand your distribution network. In which case, your next question is probably…
The short answer is, it depends. There are lots of variables to take into account, including the location you choose, how much space you need and whether you want to build, buy or rent a facility.
Construction and real estate costs can vary widely by region (see charts below). You’ll need to analyze which locations position you to reach the largest percentage of your buyers in one or two days, while also being affordable.
As part of that analysis, you need to take into account not just the price of the building itself, but associated costs like interest, depreciation, maintenance, repairs, property and liability insurance, and property and sales taxes.
Next, you have to buy or lease all the stuff that goes inside the building to turn it into a working order fulfillment center. You know, stuff like:
Then there’s staffing – usually the largest portion of costs within a warehouse fulfillment center. Personnel costs include recruiting, hiring and training; wages and overtime; vacation and sick pay; life and health insurance, and pensions.
Finally, don’t forget about inventory. Stocking your new warehouse isn’t just a simple case of splitting what you currently have between two locations. You’ll need buffer stock at each location, as well.
Like building costs, annual operational expenses will differ by region. The chart below shows how widely costs for a 500,000-square-foot, 250-worker distribution warehouse can vary just within the Northeastern US. Costs in the Southeast, Midwest and some far Western states may be lower, while major West Coast locations – especially California – will be higher.
If this discussion is making you rethink your decision to add a warehouse fulfillment center, let us offer you another option. Instead of doing it yourself, partner with a nationwide third-party logistics (3PL) company that has already invested in the physical and systems infrastructure.
There are numerous advantages to working with a 3PL. Among the most compelling are:
If you’re looking for a 3PL partner with the knowledge, systems and national fulfillment network to help your company grow profitably, contact Staci Americas. We offer omni-channel fulfillment services. And, with 11 warehouse fulfillment centers in six strategic markets, we can provide 1–2 day delivery to 98% of the US.