Whether you plan to lease, build, and operate your warehouse yourself or outsource it to a third party, the location will impact everything from workforce availability to timely delivery of goods. Therefore, it’s essential to take a comprehensive approach when choosing your warehouse location.
To assist you in making the best choice, we’ve compiled a list of the 09 factors to consider when selecting a warehouse.
Customer Base
The first question to ask during warehouse location planning is, “Where are my customers located?”
If most of your customers are in the Pacific Northwest, a single, centrally located warehouse in that region might suffice. However, if you serve all of North America, it makes sense to have multiple facilities near major transportation hubs across the country.
With consumer expectations for delivery at an all-time high, positioning your warehouse (or warehouses) close to your customer base helps meet this demand, enabling faster and more cost-effective shipping.
Supplier Network
After identifying your customer base, the next question to ask is, “Where do I receive goods from?” Proximity to suppliers is crucial in warehouse selection. Being close to your suppliers can reduce inventory carrying and transportation costs and minimize the risk of transit disruptions.
This applies to both domestic and international suppliers. For instance, if you source materials mainly from China or the APAC region, it typically makes sense to have a warehousing facility on the West Coast or an import warehouse dedicated to supplying your distribution network.
Foreign Trade Zones (FTZs)
Regarding international supply chains, if your supplier network for components or raw materials is mainly outside the United States, it might be beneficial to use an active foreign trade zone (FTZ) warehouse. Utilizing an FTZ offers several advantages, including the deferral or elimination of duties, tariff and tax relief, improved inventory visibility, and more.
Proximity to Transportation
What mode or modes of transportation do you typically use to ship and receive goods—air, train, trucking, or parcel?
Given the high consumer expectations for delivery, optimizing customer satisfaction includes factoring in proximity to transportation services when selecting a warehouse location.
Choosing a warehouse near your primary mode of transportation, such as a port for ocean imports and exports, can help reduce drayage costs and enable more efficient container movement.
Ideally, locate your warehouse close to parcel or intermodal transit hubs, like the Memphis Intermodal Facility or Indianapolis Parcel Hub. Your eCommerce fulfillment needs should heavily influence how close your warehouses need to be to these parcel hubs.
If you heavily rely on LTL shipping or last-mile delivery services, consider which carriers have terminals near your warehouse to improve service levels.
If a warehouse near your primary transportation mode or an intermodal hub isn’t available, look for a location with access to major roadways for a more direct connection. Aim for a warehouse centrally located relative to customers, suppliers, and carriers.
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Building Availability and Expandability
This might seem obvious—you can’t access a warehouse in a particular area if there aren’t any available—but it’s worth mentioning. Building availability extends beyond immediate site selection and can impact your ability to scale your business over time.
Consider this: you secure a facility in a prime location, close to both customers and suppliers. However, five years later, your operations double, and you need more warehouse space. The problem is, due to the competitive area you chose, no additional warehouses are available for expansion. Now, you face a significant logistical challenge and need to start the warehouse location selection process all over again.
This isn’t meant to deter you from choosing a warehouse in a competitive market—it’s important to do what’s right for your business. Instead, it’s a reminder to consider the bigger picture when selecting a warehouse location.
Lease Rates
Cost is certainly a key criterion when selecting a warehouse location. Warehouse space in high-cost markets such as San Francisco, Long Island, and San Diego typically comes with higher lease rates compared to lower-cost markets like Memphis, Dallas-Ft. Worth, and Atlanta.
Tax Structures & Incentives
Tax structures and incentives play a crucial role in warehouse costs, both directly and indirectly. When assessing potential warehouse locations, it’s essential to scrutinize business-related taxes such as inventory tax, franchise tax, and others, as well as personal taxes affecting you and your employees, like income tax, sales tax, and property tax rates.
Seeking out potential tax incentives can help offset these costs. For instance, Legacy operates in Mississippi and Nevada, where significant business incentives and tax relief options are available to our customers. We also prioritize maintaining strategic relationships with economic development associations in key markets, as they provide valuable resources for identifying and leveraging such benefits.
If you’re considering leasing warehouse space, it’s advisable to partner with a provider that offers tax benefits and thoroughly researches local tax structures and incentives.
Environmental Conditions & Restrictions
Certain regions of the country are more prone to natural disasters such as earthquakes, hurricanes, tornadoes, flooding, and snowstorms, which can disrupt supply chains. For retailers and distributors planning to construct their own warehouse, local environmental conditions can impact building requirements. While every location experiences inclement weather to some extent, it’s crucial to factor this into your warehouse location decision.
In addition to weather considerations, retailers and distributors should also evaluate traffic patterns and truck access. Peak traffic hours and congestion levels vary by location and can influence delivery times. Moreover, certain areas, including some industrial zones, impose restrictions on truck pickup and delivery times.
Workforce Availability
Traditionally, warehouses have relied on a mix of full-time employees and temporary workers. In recent years, the pool of skilled labor has shrunk due to various factors, prompting retailers and distributors to compete more aggressively by offering higher wages, flexible scheduling, and additional benefits. The COVID-19 pandemic has further constrained this workforce due to health concerns, though this situation is expected to fluctuate in the coming year.
When evaluating warehouse locations, availability of skilled labor is a critical consideration. Beyond simply finding qualified workers, you may need to innovate ways to transport labor to the site, potentially increasing long-term costs. Your recruitment strategy must align closely with market conditions. Urban warehouse locations are gaining popularity due to their larger labor pools resulting from higher population densities and access to public transportation, despite their generally higher costs.
Deciding between a rural or urban warehouse location isn’t straightforward. It’s essential to thoroughly research demographics, local educational opportunities, and economic conditions—including state and city income levels—before making an informed decision.
FAQ’s
How should I decide whether to lease, build, or outsource my warehouse operations?
Choosing between leasing, building, or outsourcing your warehouse depends on factors like your business scalability, financial resources, and operational control preferences. Leasing offers flexibility without the upfront costs, while building allows customization but requires significant investment. Outsourcing can provide expertise and cost savings but may limit control.
Why is customer base location crucial in warehouse selection?
Understanding where your customers are located helps optimize delivery times and costs. A centralized warehouse in the Pacific Northwest may suffice for regional customers, while national distribution warrants multiple facilities near major transportation hubs to meet diverse market demands efficiently.
What are the advantages of using a Foreign Trade Zone (FTZ) warehouse?
FTZ warehouses offer benefits such as duty deferral or elimination, tariff and tax relief, enhanced inventory control, and streamlined international supply chain operations. They are advantageous for businesses sourcing materials globally, particularly from regions like China or the APAC region.
How does proximity to transportation hubs impact warehouse location?
Choosing a warehouse near transportation hubs like ports or intermodal facilities reduces logistics costs and enhances supply chain efficiency. It facilitates faster movement of goods via air, train, trucking, or parcel services, meeting consumer expectations for timely delivery.
What considerations are crucial when assessing building availability and expandability?
Securing a warehouse in a competitive market may limit future expansion options. Evaluating long-term scalability and availability of additional warehouse space is vital to avoid logistical constraints as business operations grow over time.
How should I evaluate lease rates when selecting a warehouse location?
Comparing lease rates across different markets—high-cost regions like San Francisco versus lower-cost areas like Memphis—helps manage operational expenses effectively. Understanding lease terms and negotiating flexibility are key in optimizing cost-efficiency.
What role do tax structures and incentives play in warehouse location decisions?
Analyzing business-related taxes such as inventory tax, franchise tax, and personal taxes impacts operational costs. Seeking tax incentives in favorable locations like Mississippi or Nevada can mitigate tax burdens and enhance overall financial viability.
How do environmental conditions and restrictions influence warehouse site selection?
Natural disaster risks and local building regulations affect warehouse construction and operational continuity. Considering environmental resilience and regulatory compliance ensures business resilience against adverse weather events and logistical disruptions.
Why is workforce availability critical in warehouse location planning?
Access to skilled labor influences operational efficiency and customer service levels. Assessing local labor markets and adapting recruitment strategies to attract and retain talent aligns with business growth objectives and operational requirements.
Conclusion
Choosing the right warehouse location is critical for optimizing supply chain efficiency and business success. Factors like proximity to customers and suppliers, transportation hubs, and favorable economic conditions such as lease rates and tax incentives, all contribute to operational effectiveness and cost management. Additionally, considerations like workforce availability and environmental resilience underscore the need for strategic planning and thorough research. By carefully weighing these factors, businesses can make informed decisions that support growth and competitiveness in the logistics industry.