Is less more when it comes to warehousing locations? This is the main idea behind reducing the total number of warehouses you own and operate. The idea is to simplify your supply chain, making it easy to manage and control.
On the other hand, you have warehouse expansion, the idea that more really is more when it comes to the number of warehousing locations you own. It makes sense; the more storage and fulfilment locations you have, the more reactive you can be when orders are placed. Shipping times are generally better, as are shipping rates. But having too many warehouses does have its drawbacks.
Do the pros outweigh the cons when it comes to warehouse reduction? The short answer: maybe. Not surprisingly, it comes down to your business, budget, what you ship and where, and many other components of your supply chain. At King, we’ve helped our clients accomplish both; increasing their number of warehousing locations for some, while reducing warehousing operations for others. No article or guide can completely answer the question for you, but we can provide some helpful tips, questions to ask, and considerations to make.
Is warehouse reduction right for your supply chain?
The Cost Benefits and Drawbacks of Warehouse Reduction
It’s always the first question asked: how much is this going to save/cost? When it comes to warehouse reduction, there are cost savings and increases to be had.
The cost-saving benefits of warehouse reduction include reductions in:
- Real estate/rental costs.
- Labor costs
- Utility costs
- Warehouse management and upkeep
The formula is simple: the fewer warehouses you have, the less you pay to keep them operational. Even if you contract warehousing services, you are still paying a third party for all the above. Warehouse reduction allows you to reduce these costs across the board.
How does warehouse reduction increase costs? It depends on what you ship and where. Reducing the number of warehouses you manage can mean longer shipping distances, which inevitably leads to higher shipping costs. It also increases the chances of damages incurred during shipping, costs for returns, etc. The increases in what you’ll pay for shipping when reducing warehousing spaces are outweighed by the savings you get from owning and managing fewer warehouses. From a cost standpoint, in most cases it’s better to reduce the number of spaces you have.
The Customer Experience Benefits and Drawbacks of Warehouse Reduction
Customers expect fast and free shipping, that is the way of the modern world. Whether you’re dealing in small e-commerce orders or large B2B shipments, most customers want their orders to arrive quickly and cost effectively. This is the primary benefit of having more warehouse locations across the country. The more distribution centers you have, the quicker you can fulfil orders. Shipments from local centers are always going to arrive quicker than from those located across the country.
When it comes to cost effective shipping, however, more warehousing spaces located closer to where your clients are is not always guaranteed to lower costs. Shipping costs are not always limited to how much you pay to move freight, everything from your warehousing costs to what you pay carriers is factored into your costs, so owning and operating fewer warehouses can actually lower shipping costs, even if it increases shipping times.
It’s up to your company to decide what is more important to your customers.
Simplicity vs Risk When it Comes to How Many Warehouses You Operate
Are you looking to simplify your supply chain to reduce the operational headaches? Do you want to distribute and reduce risk in your supply chain? Reducing the number of warehouses ultimately increases supply chain simplicity, which can help you more effectively manage your supply chain, but it also increases risk.
Let’s say you operate two warehouses in the US: one on each coast. What happens if there is a fire in your East Coast warehouse, or a storm that forces it to close? This means that you have effectively lost shipping capabilities to half the country. Everything must be shipped out of your West Coast warehouse, which can take far longer to reach customers out east.
Now, add a third warehouse to your operation in the Midwest. The closure of your eastern distribution center now has a much smaller impact on your supply chain. Orders can be distributed to two other warehouses, rather than one, and your Midwest location is in a much better proximity to your East Coast customer base.
By adding more warehousing and distribution centers to your supply chain, you mitigate risk and reduce the impact of closures and other unexpected events.
If risk is increased and consolidated when you pare down the number of warehouses you have, then why is it worth doing? The answer is simplicity and quality. Too many businesses try to stretch out their operations, which reduces the quality in which they are run. Too much growth can hinder a business if they are unable to manage the number of distribution facilities they have. If you are unable to adequately manage your supply chain, reduction can often be the best solution. It reduces your reach, but the customers you have will be much better served in the end.
Which is Best? You Don’t Have to Decide
At King Solutions, we help customers figure out what is best for their business and its supply chain. We take a data-based approach to your supply chain, analyzing how many warehouses you have, how many you should have, and what the best way of managing them is. We offer warehousing and distribution locations in Chicago and Minneapolis, giving you options for where you can store and ship your freight.
Ready to talk about your supply chain? Want to see how you can best store and ship your products? Get in touch with our team today.