One of the main factors that you should consider when choosing your warehouse space is the cost. Whether it’s monthly or yearly, you need to be aware of how much the storage space will be costing you in relation to the size of the goods you intend to store. Being aware of your warehouse space cost goes a long way in improving your overall efficiency and even determining whether your warehouse is profitable and cost-effective. You can then come up with ways to streamline your processes. Here is how to calculate warehouse space cost.
1. Measure the outside walls of your warehouse.
When taking these measurements, remember to include the entirety of the warehouse, not just what you consider to be usable storage space. All areas for which you are paying rent need to be measured. This task may take a bit longer if the building is oddly shaped.
For the purposes of this example, let’s assume you have a regular shaped rectangular space that is 50 metres wide by 70 metres long. That gives you 50×70=3500 square metres. This is the first number we will need in our calculations.
2. What expenses have you incurred in the previous 12 months?
You need to review your accounts statements for the last year to determine how much you have spent for the warehouse so far. This number is calculated by adding the cost of rent, utilities, security, and the cost of any other miscellaneous services such as landscaping or janitorial services. When you have this number, add it to the cost of employee salaries over the specified period, including benefits and taxes. Next, include insurance costs and equipment costs. Equipment costs are everything from forklifts to computers and vehicles. Finally, add any other expenses you incurred in the warehouse for that period. You need to consolidate all expenses to determine the overall total warehouse expenses for the past year.
Once this is done, you will have your total operating costs for the warehouse. This is the amount of money it takes to keep the warehouse running for a year. It is the second number we will need in our calculations.
3. You need to calculate your cost per square metre.
To do this, you need to divide the total expenses that you got in step 2 by the total number of square metres that you got in step 1. For the purposes of this example, let’s assume you are spending 700,000 pounds a year to run your warehouse. This means that the 3500-metre square space costs you 700,000/3500= 200 pounds per square metre.
The cost per square metre is a very important piece of data, especially when you want to change warehouses. It is essential in determining the overall costs of operating in different warehouse facilities.
4. You need to figure out your storage costs based on the number of units you handle.
How many units did you ship from that warehouse the previous year? How many units do you currently have in storage? When you add these two numbers, you get the total number of units you handle every year.
For the purposes of this example, let’s assume you handled 700,000 units. You need to take the total warehouse cost you got in Step 2, which came to 700,000 pounds a year, and divide that by the total number of units handled. So that comes to 700,000/700,000= 1 pound per unit. This is how much it costs for every unit you handle in your warehouse. This metric is important because it also helps you determine whether you are being profitable, and by how much. By knowing how much you are spending per unit, you will be able to figure out where you can improve to maximise profitability, and how every change you make affects your cost per inventory unit.
1. The Vertical Cube
– From our 3500 square metres above, assume that after subtracting non-storage areas like bathrooms and offices you get 3000 square metres of pure storage space.
– Assume that you have a 7-metre functional floor to ceiling height. Functional here means usable, so we ignore the distance above the lowest obstructions such as sprinklers or lighting fixtures.
– Assume that the tallest rack you can put in the warehouse is 6 metres tall.
The first step is to take the total storage space and multiply it by the floor to ceiling height. That gives us 3000 x 7= 21000 cubic metres. This number is our total vertical cubic feet.
However, we want to know what our potential storage space is. Therefore, we will use the size of the tallest rack we can use, which is 6 metres. This gives us 3000 x 6= 18000 cubic metres, meaning we have 21000-18000= 3000 cubic metres of unused space. You can calculate this using the heights of the storage racks you intend to use. This is why racks that emphasise verticality work best because they are cost-effective.
When we divide the storage cube by the building cube, we get an overall cube utilisation of 86%. The industry average is 73-78%, so our example is way above average, which is great.
This metric is important when you are thinking about moving to a new warehouse location and you need to know how much potential storage you are looking at. It does not give you the actual space utilisation. The higher the density of your storage solutions, the better.
Besides the actual size of the warehouse, there are other factors that influence the total final warehouse space cost. Some of these include:
1. Warehouse Location
Location is one of the most important factors you need to think about. Your warehouse needs to be strategically located in relation to your main markets. However, this costs more. Also, consider access to trucking hubs, main roads, airports and rail lines. Remember, you pay more for better access to major areas.
2. Value Added Services
What exactly does your warehouse do for you? Do you just store things there? Does it take care of everything including the entire process of handling inventory, counting, sorting, storage, packing and delivery? Your total eventual costs depend on these.
3. Terms and Conditions
Is it possible to lease that warehouse for a long period of time to reduce costs? Can you lease extra storage space as needed?
As for the conditions, is your stock being stored for the long term or the short term? Security, ventilation, air conditioning and cleaning services, all these are part of the overall conditions you need to pay for, and you get charged for each one.
When It Comes To The Warehouse Itself, These Are The Factors You Need to Consider
1. Types of Storage Racks Used
The type of storage racks to be used will, of course, be influenced by the kind of products you are storing. Generally, slow movers are stored in bulk racks while fast movers are stored in pallet flow racks. However, it is up to you to determine the kind of solutions you need in your warehouse, and how to maximise the overall efficiency.
2. The Vertical Cube
You need to maximise your utilisation of the vertical cube. Take advantage of high-density storage and taller racks to be most cost-effective.
You need to optimise the layout of your pick up paths. Do not sacrifice pick path efficiency for storage density. This is one of the most common mistakes companies make. Do not compromise your picking speed and efficiency just to stock more product, it is not worth it.
4. Pick Rate
Make sure that your fastest moving inventory is closest to the pick path, or has the shortest path. You should also consider placing the faster-moving products closer to the ground, while slower moving products go higher.
5. Dead Inventory
Do you have items that are just eating up space and barely moving? What is the longest period of time you intend to store a product while still maintaining profitability? If you have dead inventory, how can you eliminate it and find better use of the space?
Knowing your warehouse space cost is an essential step in maximising your profitability. For more information, you can have a look at our services page where we have a collection of efficient storage solutions to meet your every warehousing need.
1. How Can I Maximise My Warehouse Space?
The first and most important step in maximising your warehouse space is calculated your warehouse space cost. Once you determine how much you are spending on your warehouse, you can implement solutions that will lower your running costs. These include getting better racks, going vertical, and getting rid of dead inventory to free up storage space.
2. How Do I Organise My Warehouse For Efficiency?
Simple organisation strategies can have a significant impact on your overall efficiency. Keeping your warehouse clean can improve the efficiency of movement of your workers and reduce accidents. Adopting lean inventory practices, where you do not overstock, can maximise the utilisation of your storage space while reducing dead inventory. Other strategies include organising your shipping station for efficiency, assessing shelving space utilisation, and improving the accuracy of your warehouse. All these, however, begin with figuring out what your total warehouse costs are, and making a conscious decision to improve its efficiency and reduce running costs.