Choosing the Best Warehousing Style for Your Business

On the face of it, warehouses are a simple concept: it’s where you store the items you will sell.

But for manufacturers, distributors, and retailers, warehouse management and logistics are integral to their business. Warehouses are used for various purposes: storing raw materials and components for manufacturing, holding inventory before it is sold or distributed, and accepting and storing incoming items being returned, to name a few.

It turns out that warehousing can get quite complicated very quickly. With the rise of eCommerce, many businesses need to refine their warehouse and inventory management, shipping and receiving, and picking and packing operations to offer customers free shipping, free returns, and next-day or same-day delivery.

There are many options when choosing a warehouse style. This article offers an overview of some issues when selecting the right warehouse style for your business.   

What type of warehouse do you need?

It starts with determining what your requirements are for the warehouse. Some of the questions to ask are:

1. Does it have to be centrally located? Some companies like to have warehouses that are easily accessible to their customer outlets so they can ship inventory quickly to their local stores.
2. How much inventory turnover do you expect? Hopefully, your inventory will not sit in the warehouse for very long. That means you have to determine your expected sales volume to know the amount of inventory that needs to be stored at any given time.
3. How will you be distributing your product? Depending on whether you are exporting products overseas, sending them across the country, or just delivering to a local retail outlet, you can determine whether you require the warehouse to be accessible by trucks, rail, air, or other means.
4. How much will it cost? (or how much can you afford to pay?) Different warehouse styles have different amenities, restrictions, and costs. If the warehouse you want is not in your budget, there are some creative options, one of which is to partner with another company and share the cost AND the warehouse.
5. Does your product need special handling? There are specific options for companies with products that are perishable, contain hazardous materials, require lot and serial numbers, or are subject to government restrictions. Understanding your requirements will help determine the specific features needed before a warehouse choice can be considered viable.
6. What type and level of security do you need? Depending on the desirability or value of what you are selling (for example, controlled substances, firearms, jewelry and precious metals), your inventory might require elevated security measures.
7. Is demand for your product seasonal? Leasing a building for an entire year when you only need it several months out of the year can be costly. Options include hiring a third-party fulfillment center (for example, Fulfillment By Amazon or FBA) or sharing the costs with another company (for example, using public, on-demand, or cooperative warehousing).
8. How much do you expect to grow? You want a warehouse to meet your current needs and scale with you. A cooperative or public warehouse might be an option here.
9. Do you require multiple warehouses? The farther your warehouse is from your delivery area, the more you pay to ship your product. Large national distributors and retailers have multiple, geographically dispersed warehouses to reduce delivery times and save on shipping costs.

Answers to these and other questions will help you determine the size, location, accessibility, scalability, and other requirements you need from your warehouse.

Warehouse layout

It is also important to know the optimal layout of the warehouse and how items will be picked and replaced.

• Will items be stored in bins or containers, on shelves or racks, on pallets, or standing in the aisle?
• Will you be using barcodes or RFID to track inventory? Will you be using handheld devices to scan items?
• How will inventory be picked and prepared for shipment?
• How will replenishment work? Will trucks deliver them using the same loading dock as outgoing shipments? How will they go from receiving into the warehouse and stored?
• Will you be using inventory management software? Who will be configuring and using it? How will it integrate with your financial management or ERP software?
• How will items be picked and put away? Will employees need forklifts to retrieve items? Is there enough room to operate the equipment?

The bottom line is that warehouse staff can find each item at any time because it has a precise location. Optimizing your warehouse layout also facilitates inventory counts, makes accessing recalled and expired items easy, and moves the older inventory to make room for the new.

Warehouse styles

So, which warehousing style is best for your business? Here are the most common types of warehouse styles for you to consider:

• Private warehouse – A private warehouse is used exclusively by a single company. This option is typically used by large manufacturers, wholesalers, and distributors. Private warehouses usually carry the highest cost but give companies complete control over the warehouse operations.
• Public warehouse – Public warehouses allow you and other businesses to lease space from a third party or government entity. This option offers flexibility to businesses whose storage requirements are expected to change and avoids the costs of owning or leasing an entire warehouse. Public warehouses are especially attractive for new businesses and eCommerce companies with limited capital or whose storage needs are difficult to predict.
• Cooperative warehouse – A cooperative warehouse is owned jointly by several companies that share the storage space and the associated costs. Businesses with similar storage requirements, such as farmers or wineries, often use this option.  
• Bonded warehouse – A bonded warehouse stores imported items before they have been cleared through customs or items slated for export. Businesses can store goods while deferring payments for customs duties or taxes until the items are released.
• Government warehouse – These warehouses are used by government entities to store supplies, ranging from school desks to emergency medical supplies to military equipment to items seized by law enforcement.
• Cold storage/climate-controlled warehouse – These warehouses offer a climate-controlled environment for inventory. These warehouses are used by businesses that sell perishable goods, including food, artwork, plants, and pharmaceuticals.
• Hazardous materials (HazMat) warehouse – This type of warehouse stores hazardous or dangerous items that pose a risk to the public, such as flammable, explosive, chemical, radioactive, or corrosive goods.
• On-demand warehouse – These warehouses provide storage for businesses that need the space temporarily, such as for seasonal spikes, without committing to a long-term lease.
• Consolidated warehouse – Consolidated warehouses receive goods in small lots from multiple suppliers and combine them into a larger load destined for a single location, which is more efficient and reduces shipping costs per item. Companies with small inventories benefit from these lower costs.
• Fulfillment centers – A fulfillment center is typically operated by a third-party logistics (3PL) company and is used to process orders for retailers and eCommerce businesses. These centers are responsible for receiving, picking, packing, and shipping the orders to the customer. Fulfillment centers allow companies to avoid the complexity and expense of finding and managing their own warehouse space and fulfilling orders themselves. They also can help businesses extend their markets to anywhere in the country without buying warehouse space, which can be a cost-effective option for many companies.
• Distribution centers – Unlike fulfillment centers, they are intended to receive large quantities of inventory from suppliers and move them out quickly to wholesalers and retailers. Items rarely “sit” in a distribution center vs. a warehouse. Distribution centers thrive on efficiency and are vital to the supply chain.

Which warehouse style is best for you?

Every business is different. Choosing the best warehouse style for your business is an important decision that can impact your profitability, customer satisfaction, and capability to meet demand.

If you need help determining the best warehouse style that works for you, contact ArcherPoint. Our distribution experts can help you sort through the details and optimize your inventory and warehouse management in Business Central.

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