Storage costs have many facets, from the cost of holding inventory, often more than all other warehouse running costs combined, to fixed overheads like rent, rates and utilities. Then there are the start-up costs for new premises, which will be governed by construction costs and installation of fixed items like racking shelving, mezzanines , sprinklers and loading bay kit.

bill-new-greyDynamic costs will include forklifts, conveyors and stacker cranes.

The size of the warehouse will also affect labour costs, usually the second highest cost in warehouses after inventory holding costs. If the size of the warehouse is larger than it need have been then that involves more and longer pedestrian/driver movements, a subject that is the focus of more attention as more warehouses switch over to order picking to fulfil online orders for direct delivery to customers – the fastest growing area of retailing.

Getting the space right, therefore, is critical to start-up and running costs but if business booms unexpectedly, putting pressure on the need for more space, there are various options that need not be financially onerous. These could include onsite temporary buildings and mezzanines, with the latter making use, for example, of space over loading dock areas, as one Midlands automotive components supplier did when looking for a 2,000 mt2, two-tier mezzanine for its parts storage. Another way of saving the cost of new, offsite warehousing could be to take the overhead conveyor route if clothing items are the predominant SKUs, and combining them with high speed sortation conveyors. Yet another possibility could be the narrowing of existing racking aisles that use conventional counterbalance forklifts needing at least 3.5 mt to manoeuvre in. A switch to articulated forklifts could allow 30-50% more pallet storage locations.

Once up and running, depending on the nature of the business warehouse costs absorb about 2% of total sales revenue, excluding the cost of holding inventory. Labour is usually the biggest single cost factor in that 2%, often absorbing 55% of total warehouse running costs. This emphasises the need to consider improving the productivity of labour by retrofitting existing picking faces with paperless pickto- light and voice systems, which save time, improve picking accuracy and the working environment, making it possible to achieve 12-18 month paybacks upgrading hitherto unintelligent flow storage techniques. Labour costs can also be cut if more consideration is given to proper training, believes UKWA. Labour turnover in warehouses is still high but if that can be reduced from 50% to 30% a year then according to one estimate that could deliver a 10% productivity gain.

Space comes next in importance after labour costs, with rents and rates typically absorbing 20% of storage costs but these often defy reduction. However, if there is room to build new storage areas above existing facilities, through mezzanines, it may be possible to avoid more business rates and rent. An examination of stored product dynamics and load weights may also show that some products could be stored in double-deep racking, others in push-back, some in mobile and a few in lifo systems.

Energy costs are usually relatively small, except in cold/chill stores where they can account for 25% of total running costs. Many cold stores, therefore, value high density racking solutions like drive-in and mobile but these do not allow 100% instant access to stored loads. If, therefore, APR racking is used it is important to keep racking aisles from wasting too much space. Here, again, a change in the type of forklift used from reach or conventional cb machines to articulated forklifts can make a worthwhile difference.