What are the Factors determining type and number of Warehouses?

Factors determining type and number of warehouses

The factors that determine the type and number of warehouse are.

1. Presence Synergy: Marketing benefits of locating the warehouse in the market
2. Industry Synergies: Reducing cost by sharing resources such as warehouse, transportation with other firms.
3. Operating flexibility: Ability to adjust internal policies and procedures to meet product and customer need
4. Location flexibility: Ability to adjust location and number of warehouse depending on the customer demand
5. Scale economies: Ability to reduce material handling and storage cost through application of advanced technologies.

The factors influencing the number of Warehouses are

Warehouses are erected for two reasons — to reduce cost and to give better service to the customers.

As the number of warehouses increase there is initially a decrease in the inventory carrying cost, transportation cost and obsolescence cost. But after a particular limit there is an increase in these costs. Also the warehouse overhead cost increases with the number of warehouses.

The benefits of more warehouses are that it improves the customer service by reducing stock out and by reducing market delivery time.

The number of warehouse is predominantly decided by the tradeoff between cost and customer service. The other factors that affect number of warehouses are customer locations and buying habits of people.