Introduction
Warehouses store surplus goods in a company to ensure adequate and timely supply to clients whenever demand arises. Companies make projections on demand for their products and therefore produce goods in excess. A warehouse’s efficiency depends on its layout, operations, and location. The ease of addressing a client’s wants makes for an efficient warehouse, which improves the general performance of an organization (Arnold et al., 2016). To ensure profitability, the balance between demand and supply should be achieved. A company’s success is achieved through the strategic placement of a warehouse since it improves supply chain management (Huang, 2020). Customer demand is generally short-term and fluctuating; therefore, crucial for a company to satisfy these wants while adhering to its long-term goals.
Factors That Influence the Decision to Lease versus Purchase a Warehouse
Leasing and purchasing are terms in which a business owns an asset. In leasing, two parties agree that one party (lessee) rents its property to the tenant for a given time. On the other hand, purchasing is the permanent acquisition of assets by a business. The decision to purchase or lease a warehouse in a business is influenced by the cost of investment, the business’ long-term expansion plans, cash flows, mobility, and maintenance duties.
Considering the costs of acquiring an asset, businesses might consider purchasing a warehouse rather than leasing it. In leasing, the tenant pays for maintenance costs, which cumulatively results in higher expenses in leasing than purchasing (Arnold et al., 2016). Additionally, the freedom to design the warehouse layout depends on the terms of the acquisition. Making a complete purchase gives the owner privileged control over the interior design of the warehouse. Uncertainties in the markets result in mobility in a business, which encourages leasing over purchasing a warehouse. Not being sure that a warehouse will serve the company’s long-term goals due to the mobile nature of the target market will allow a business to choose leasing over complete purchase to promote its profitability. Its cash flows keep the warehouse afloat (Arnold et al., 2016). Determining the cash flow in a business is a critical factor in choosing whether to lease or purchase a property. Leasing is highly encouraged due to less upfront outlay as compared to purchasing. Moreover, initial expenses for leasing a warehouse are lower compared to purchasing costs.
Company Strategy for Selecting a Warehouse Location
Selecting a free trade zone warehouse is an essential factor when selecting a location for a warehouse. According to Arnold (2016), one hundred ninety-five areas are considered Free Trade Zones under the U.S. custom-based territory. Thus, selecting a warehouse within these zones acts as a privilege for the business. An organization in the free trade area enjoys a tremendous reduction in both import and export duties, a move that increases the business’s profitability.
Many businesses limit the volume of products they store in their warehouses regardless of the demand for their products. Locating a warehouse within a free trade zone eliminates the limit of the goods that can be stored instantly. Therefore, the company enjoys flexible inventory depending on the demand; a balance between demand and supply is achievable. Inventory tracking is essential to business profitability (Arnold et al., 2016). The tracking gives the basis to compare sales and determine whether there has been an increase or decrease. Moreover, a business may experience unexpected expenses due to logistical costs and errors resulting from miscalculations in the inventory. Locating a warehouse in a free trade zone (FTZ) allows the business to sort products at the warehouse in the steed of the port.
Impacts of Warehouse Site Selection on the Design of a Company’s Supply Chain
Selecting a prime location leads to a fast flow of goods and reduced logistical costs. However, locating the warehouse in a highly competitive area leaves little room for expansion if the business grows. Strategic warehouse locations are paramount to ensure a business’s long-term growth and cut relocation costs, which might result from competition (Huang, 2020). Logistical costs are incurred while transporting goods from a company to its customers. Choosing a convenient warehouse close to the customers cuts logistical costs and increases supply chain management. Ensuring timely delivery of products determines customer dependability on a business (Huang, 2020). The transit time taken by goods also affects their quality since some businesses deal with perishable products. Locating a warehouse near the customers reduces the risks of reduced quality since the goods become easily accessible. The ease of transportation of goods from the producers to the clients depends on the availability of transit systems. Roads, railways, and shipping ports are the major systems that alleviate the transport of goods to the point of consumption.
Real-World Example of Warehouse Location Strategy: Ford Motors Company
Ford Motor Company’s success has come due to its location, layout, and design strategy. Since 2008, the automobile business has adopted a multiple-site strategy: setting warehouses on different customer bases depending on the demand for their products (Sanci et al., 2021). The warehouse size and activities are dependent on the size of the markets. Regional production facilities, which are the main production zones, are located close to warehouses to reduce logistical costs.
Conclusion
In conclusion, it is vital for a company to satisfy the fluctuating needs of its customers while maintaining its long-term goals. Several factors should be considered when selecting the firm’s warehouse. For instance, it is imperative to evaluate the advantages of leasing over purchasing and vice versa. Another crucial factor is the selection of the location of the warehouse. Admittedly, strategic warehouse sites are paramount to ensure the logistical costs are managed effectively for the company to achieve its goals.
References
Arnold, T., Chapman, S., Clive, L., & Gatewood, A. K. (2016). Introduction to materials management (8th ed.). Pearson Education (US). Web.
Huang, E. (2020). Location, location, location: Important factors in selecting a warehouse’s location. MoreThanShipping. Web.
Sanci, E., Daskin, M. S., Hong, Y. C., Roesch, S., & Zhang, D. (2021). Mitigation strategies against supply disruption risk: A case study at the Ford Motor Company. International Journal of Production Research, 1-21. Web.