Operations Management

Managing Logistics/Warehousing Off-Site

Written by Andrew Goldman for Gaebler Ventures

Properly managing your warehousing and logistics can deeply impact your bottom line. Make sure you're not losing your shirt while paying for these services.

If you store goods offsite or spend a lot of money on the transportation of goods, how well you manage your logistics and warehousing can greatly impact your company's profitability.

The costs of storing goods or materials off-site can be extremely costly. In addition, with rising gas prices, the cost of transportation can easily get out of hand.

There are a number of reasons why you might store goods at an off-site warehouse. The first question you should ask yourself is if the inventory is entirely necessary. If the product has already been promised to a customer and is just being stored elsewhere, you may be able to work something out where you can ship in partial loads. This would obviously have costs associated with transportation. The cost of storage versus the cost of partial load shipment should be analyzed thoroughly.

If you are storing goods that are finished goods inventory so you can make "off-the-shelf" sales then there may be significant room for improvement. By using better forecasting techniques to analyze demand, you may be able to reduce your inventories and your holding costs.

In addition, by improving your Operations and reducing your overall lead time, you may be able to reduce the amount of stock you keep in inventory, as you can turn an order around more quickly.

Depending upon your product and industry, you may have several options when storing goods or materials off-site. If your product is temperature sensitive you may have no choice but to store the product in a climate controlled warehouse. This is usually costly and efforts to reduced goods in storage should be made.

If your product is not degradable, you may be able to get creative in its storage. Try contacting other manufacturer's who may have additional warehouse space. You'd be surprised how many companies have extra pallet spaces and would be more than happy to rent it out. If you require a lot of ins and outs, this may not be feasible, but it's certainly an option that should be considered.

With rising gas prices, how well you manage delivery of products can have a major effect on your bottom line. Small businesses almost always use outside trucking agencies to manage their deliveries. If the delivery is to a customer, make sure the customer is paying the freight charges or the correct cost has been built into the price of the product.

There's nothing worse than selling a product for an acceptable margin, only to lose the profit on shipping costs.

If you are storing product off-site that is not going directly to the customer, you want to be smart in your deliveries. You may be able to seek assistance from the trucking company in developing economic route schedules or you may have to do this work on your own.

Calculate the cost of delivery to each storage location and set typical delivery sizes. By understanding the cost of delivery per pallet, you can make better educated decisions about delivery. In addition, if you are making small trips, you may be able to find a more cost-effective alternative.

For example, if there are times when you are just sending a single pallet's worth of product, you may be able to rent a van for a couple of hours to deliver the goods. Exploring creative alternatives is a must for small businesses.

Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.

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