How to decide if it’s time to upgrade your food and drink warehouse


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Time to upgrade your food and drink warehouse? Not so fast...

Maybe sales are increasing requiring additional inventory and more personnel to fulfill orders. Or maybe your warehouse is about to reach its maximum capacity and people are bumping into each other when working.

Before you start going around to find the next big warehouse for your Food & Drink company you want to consider the following:

ARE YOU USING SPACE AT ITS BEST?

You will be surprised by how much storage space can still be made out of what it already looks like a crammed warehouse. A good place to start with is to map the goods handling process.

Is the goods-in area appropriate? Given the average daily – weekly volumes, how much space is required to safely unload the goods, brake-down and perform quality control before put-away?

Same logic applies to goods-out. Often the feeling of having a small warehouse is due to users performing time-critical tasks in an unsuitable area. Think of the receipt of chilled goods. Here the solution could be rearranging the layout and allocate more space to the operation and lessen the storage

DO YOU USE DYNAMIC BINS?

The concept of dynamic bins is one of the most undervalued tools in WMS. In essence, dynamics bins mean to move goods in the warehouse according to the replenishment velocity which is calculated dividing the COGS by the average inventory value for a specific time frame. Because of the high seasonality of most Food & Bev products, items with low velocity should be moved to small bins far from the dispatch area and purchased in lower quantities, while moved to easy to reach larger bins when velocity is high. A dynamic warehouse is more efficient and better utilized. Very often you can upgrade your food & drink warehouse just by chainging how bins are managed without moving to a different premise

CAN YOU LEASE ADDITIONAL SPACE FOR SLOW MOVING ITEMS ONLY?

Often, instead of just moving the entire organization to a different, larger place, it can be worth it just leasing an additional space to use as a replenishment only location. Such place is ideal for slow moving items with long shelf life. You will keep only a small quantity of these items in your main warehouse. The planning and purchasing of these products is then managed in two stages:

  1. Less frequent bulk purchases received to the storage location
  2. More frequent transfers from the location to the main warehouse

It is good practice to have specific setup in your accounting software so that, when the inventory is received, the inventory value hits two separate ledgers.By doing this, you can get real time data of your inventory valuation. I talk more about purchase and planning in this blog post

WHAT ARE THE OPTIONS TO UPGRADE YOUR FOOD AND DRINK WAREHOUSE?

There are several options when considering a new warehouse.

Lease

Leasing is the most popular for SMEs. Mainly because of the low upfront costs compared to acquiring a purpose built unit. Keep in mind that retail and distribution units are the most lucrative in commercial real estate. Rates are not cheap and, unless you plan to scale and move in less than 10 years, you might want to consider buying a place to upgrade your warehouse.

Acquisition

One of the least used strategies, yet one of the best if well thought and planned, is to acquire another business and use their facilities as an additional warehouse. This can be a good move if, as it always should be, a new storage unit is part of a growth strategy that includes more than just operations, but also sales, marketing and business development.

Outsource

Alternatively, a 3PL can a good solution for companies in immediate need of a one stop place for receiving, storage and distribution. There are several options.

Form large, integrational groups with ties to retailers and wholesalers, to small companies with the warehouse strategically located. Handling and storage costs per item can be very high though. Also, almost all established 3PL have strict IT requirements when it comes to booking, reporting, shipping and receiving goods. They are fast and flexible, but costly in the long term. Fast moving high-value good can justify the cost of a 3PL. The Grocer has a comprehensive lists of 3PLs for the food industry in this article

In conclusion

Unless you are a big corporate entry, and if you were, you wouldn’t be reading this blog anyway, planning to move into a bigger warehouse is a move that should be done considering a lot of details.

Finding the location, agree terms and conditions, calculate the costs and them transfer inventory, equipment and resources is a massive set of tasks and should not be light-heartedly.

Moving a Food & Bev company to a new place is hard work. Analyze the reasons why you are considering moving first, reach out for feedback internally, take an informed decision, plan well in advance and then execute.

If you would like to engage expert support as you look to move to a larger premise for your food and drink business please get in touch and let’s have a conversation. I have over 20 years’ experience in helping food and beverage businesses scale up by implementing supply chain efficiencies. It means I can advise and help you making the right decision for your business.

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