Why Should You Operate Multiple Warehouses?

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At an early stage in a business, it usually makes sense for inventory stock to be kept at and managed from one location, whether that location is a small warehouse or a stockroom behind a brick-and-mortar shop.

But at some point in your business’ growth cycle, operating multiple warehouses becomes a much more sensible proposition as it offers a way to spread risk, reduce fulfilment times and, counterintuitively, reduce costs.

Let’s look at why and how your business might run multiple warehouses.

multiple warehouses

Why Operate Multiple Warehouses?

Multiple warehouses were traditionally the province of distributors.

Amazon, for example, operates one of the most advanced fulfilment networks in the world, with more than 80 fulfilment centres globally.

Large multinational companies also operated multiple warehouses, reflecting the fact that they effectively had an in-house distribution function.

More recently, slightly smaller businesses (although still larger than a typical SME) have begun competing directly in other markets, creating a practical need for on-the-ground fulfilment operations in each of these markets.

Shipping orders from a central warehouse becomes inefficient once a business reaches a given scale.

Shipping costs decrease as shipment size increases, so moving large volumes between key fulfilment hubs is typically preferable to shipping small orders directly from a centralised warehouse.

Delivery from a local fulfilment centre is almost always much quicker than cross-continental shipping. Customers tend to place significant weight on quick and cheap delivery, so operating multiple warehouses can also improve the customer experience.

Another key reason to maintain multiple warehouses is to spread major supply chain risks.

Eliminating the risk of fire, theft or natural disaster is essentially impossible; in the event of a catastrophic event, your business will rely on supply chain redundancies to continue trading.

Without a second warehouse, your ability to continue to trade will depend on the ‘slack’ left in your supply chain. Unless your business operates a ‘lean’ model (in which case you are unlikely to rely on large warehouses), this ‘slack’ is unlikely to be sufficient to continue trading at full capacity. With multiple warehouses, you can draw on a buffer of inventory stock kept in reserve in another location.

It’s worth remembering that operating multiple warehouses is expensive what with warehouse rent (or capital costs), insurance, utilities and staffing really adding up.

For this reason, operating multiple warehouses is only really an option for businesses who can afford to spread the additional cost over a large volume of sales.

warehouses multiple

Challenges of managing multiple warehouses

The key to successfully managing inventory in multiple warehouses is to understand the challenges they present and how to overcome them. So, let us dive in and consider these challenges.

Inventory Management

Unsurprisingly, inventory management is the top challenge of managing multiple warehouses.

Incoming and outgoing inventory must be in sync so that neither one accumulates in excess, creating an imbalance that either results in too much stock, or a stock-out situation which is perhaps more detrimental.

This challenge grows with the inclusion of more warehouses in the company’s line-up and therefore must be expertly managed to ensure business continues as usual.

An inventory management system is needed that allows for distinguishing between inventory in each location to enable separate management, while also existing as one, holistic system providing a bird’s-eye view of all sites.

The key here is visibility where each site’s inventory and production lines are visible and manageable. Shipping from and to the appropriate locations is then possible, guaranteeing that no matter what errors are evident in inventory, an excellent customer experience is maintained.

Inventory understanding and analysis

With different geographical locations of warehouses, new factors are introduced such as different demographics, seasonal effects and cultural influences.

These changes can have a significant effect on established sales patterns and so must be anticipated to ensure supply and demand remains consistent. This is certainly a challenge, and the key to anticipating these fluctuations is proper analysis of inventory across the different warehouse locations, appreciating each as a unique entity.

Utilising space efficiently

We all know that the larger a space is, the more it will be filled and the messier it can become.

This applies to the warehouse too where the more warehouses the company owns and the larger they are, the more difficult it is to maintain order and create an efficient layout that promotes optimal filling of customer orders.

When we speak of optimal filling, we mean filling orders accurately and in the least amount of time, which drives down the cost of goods sold (COGS) and maximises the bottom line.

Even small savings in time and efficiency through a well-laid out warehouse can account for significant savings long-term.

Redundant or lack of technology

The barcode or better yet, RFID tag, have been designed to accurately and quickly encode and relay data such that items can be tracked at any point in the process.

These new technologies replace the pick ticket and can create a far better workflow and reduce warehouse inefficiencies. When companies maintain their traditional systems of manual data entry, checking, sorting, picking and loading, they open themselves up to increased error rates and significant time wastage.

multiple warehouses

Tips to Juggle Multiple Warehouses Effectively

Given the significant expense associated with operating a warehouse, carefully consider the likely costs and expected savings before opening a second or subsequent warehouse. If your business already has multiple warehouses, carry out a review to identify which warehouses continue to be a worthwhile investment.

Key factors you should consider when evaluating a warehouse include lease or purchase costs, location and accessibility, transportation options and costs and local regulations.

This process will involve a compromise between these factors.

That said, if a warehouse is expensive to operate, is far away from ports and rail and is in a relatively small market for your business, then that warehouse is unlikely to be a good investment.

Once you have a portfolio of well-located warehouses, the next step is to manage the inventory stocked at each of them.

The products in stock at each warehouse should reflect local demand.

For example, an appliances distributor should hold relatively few heaters in a hot climate. However, as one of the key advantages of operating multiple warehouses is risk spreading, make sure that each product category is stocked in at least several warehouses.

Managing inventory stock on a warehouse level is critical.

In a smaller business, it is often possible to keep across the business inventory records, balancing stock during an annual or quarterly stocktake if necessary.

In larger businesses, keeping track of inventory transactions on a per-warehouse basis is critical. The efficiency and risk-spreading benefits of operating multiple warehouses are lost if almost all of a particular product’s inventory stock ends up at one, isolated location.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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