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Choosing a Warehouse Location: 7 Critical Criteria to Consider

Choosing a Warehouse Location: 7 Critical Criteria to Consider
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Choosing the right warehouse location can make all the difference in how effective, efficient, and profitable a company is. Leasing or purchasing a warehouse is a major decision and choosing the right location of a warehouse can make all the difference in the company's ability to compete and effectively serve customers.

When it comes to selecting a location it’s important to take the time and consider all of the following criteria, document them, and then compare against all the available options. Only after all the data has been compiled and analyzed can the final decision be made. 

Let’s review the 7 criteria to consider when selecting the best possible warehouse location.

Rent Rates & Taxes

Cost remains a key criterion when selecting the right location of a warehouse, but it must not be the only one. Other hidden costs could derail the savings on rent if they are not 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.  Average prices in the US can range from as low as $2.64 SF/Year and as high as $11.16 SF/Year. See table below for top 6 low & high cost markets.

For more real-time warehouse costs you can use www.loopnet.com.

warehouse-location-rent-per-sq-ft.png

Data Source: Greater Houston Partnership 2016 Industrial Space Cost Comparison

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 why not consider this as well. 

 

Workforce Availability, Labor Skills & Costs

Workforce availability, skills, and labor costs are directly associated to local demographics. Not every geographical location offers a workforce with the right skills at the right price. Pay attention to the local demographics of the state/city being considered.

When evaluating workforce availability consider supply and demand: Low workforce availability and high demand will drive salaries up (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 low levels of customer service, a reduction in competitiveness and productivity.

The following chart demonstrates the impact of a qualified/trained workforce in the logistics industry.

 

Improvements Noticed as a Result of Undertaking Training or Qualifications

improvements from workforce training - logistics industry-021300-edited.png

Image Source: Logistics Hub UK

So when choosing a warehouse location, research the demographics and focus on educational attainment, population characteristics & income Levels. A quick Google search on “city or state” demographics will provide the needed information. For the most part, city and state government websites also provide this information.   

Roads, Highways & Traffic Flow

Accessibility to roads, highways and traffic 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:    

Accessibility to highways & exit ramps

Highway interconnectivity

Public transportation penetration

Average traffic speed

Average traffic volume

Traffic peak hours

Road safety & conditions

Proper roads signs & signals

Factors such as congested highways, roads and poor signaling will increase fuel consumption, accident rates, and time wasted.

Proximity to Airport, Railway Stations & Ports

In this case, the main mode(s) of transportation used to receive or ship goods to and from the warehouse must be prioritized. For example, if most of the cargo is imported/exported via air, then you will want to be as close as possible to the airport. 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 – maximum number of containers per month.

The following infographic contains data from the department of transportation displaying shipments weights by transportation mode for 2013, and the expected volume for 2040.

 

warehouse-location-info-by-shipment-weights-3001.png
Data Source: Bureau of Transportation Statistics

 

Markets & Local Environment Factors

Proximity to suppliers, producers and the market(s) being served as well as local environmental factors must be also considered.

The new warehouse should be as close as possible to major suppliers, producers, and/or customers. This will help reduce lead times, decrease transportation costs, and increase responsiveness.

The factor to consider here is who is/are the major supply chain partner(s) and how you could make the supply chain more efficient by strategically selecting the warehouse location.    

Also, local environmental factors such as weather conditions and exposure to natural disasters should also be considered.

Would the warehouse be exposed to hurricanes, tornados, earthquakes, is it in a flood zone? For any of this, the warehouse must meet specific building requirements.

Other local environmental factors that should also be considered include, proximity to neighbors (warehouses can be noisy – avoid disputes), traffic congestions, and peak traffic hours. Consider how these variables could affect regular operations.

 

Building Availability & Utility Costs

If the business grows or shrinks you will need to adjust accordingly. If this is the case, you will want to minimize your need to re-evaluate all these factors if moving to a new warehouse is your only option. By moving within the same area you will be able to keep all your workforce, utilities, etc. and minimize the frustrations of carriers/truckers and customers trying to find the new location. 

One last aspect: utilities. You will want double check the availability and cost of utilities. Some warehouses are more demanding/dependent on one utility than another. For example, refrigerated warehouses are more dependent on electricity and water.

But there is one utility that almost everyone ignores: internet and communication services. Remember not only to check the availability of internet services, but also the speed and link type (Cable, T1, Fiber, etc.) available as well as all associated cost. Also, remember that on occasion, the installation of internet services can take up to 3 months – or more.

 

Please, take the time to properly plan and understand the most strategic warehouse location for you and your customers. The outcome of this decision is much larger than just opening a warehouse somewhere. The location of your warehouse will have long lasting effects on financial, operational, and competitiveness aspects of the company.

 

Was this post helpful? Feel free to post comments, questions, or topics that you would like us to discuss in the comments section below. Or send them to us on Twitter and Facebook.



Hector Sunol

Hector is a Co-Founder at Cyzerg and the Anser Induicus Foundation with over 12 years of experience leading IT operations for large and small businesses. He holds an MBA in Management and Bachelor's degree in Information Technology. Hector has a passion for books and creating opportunities for others to grow. You can follow him @TiconSunol.

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