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Choosing a Warehouse Location: Five Critical Factors to Consider

By Anthony Liu

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Choosing the right warehouse location is crucial for any business, and can make all the difference in how effective, efficient, and profitable a company is.

Traffic & Transportation

A warehouse is a place where a large amount of materials is often transported and distributed, which means good transportation conditions are vital. It not only needs a comprehensive transportation network, complete transportation infrastructure, but also should be connected with the local logistics system.

Transportation costs are affected by some or all of these variables and can impact the competitiveness of the company or the attractiveness of the warehousing facility to customers. Consider the following points:

  • Accessibility to highways & exit ramps

  • Highway inter-connectivity

  • Public transportation penetration

  • Average traffic speed

  • Average traffic volume

  • Traffic peak hours

  • Road safety & conditions

  • Proper roads signs & signals


In terms of transportation, depending on the main mode(s) of transportation used, companies should pick the warehouse as close to the transportation facility (airport, railway stations & ports) as possible. It is recommended that at least two modes of transportation are considered, such as road, railway, and water.


Proximity to Value Chains

Any new warehouse should be as close as possible to major suppliers, producers, and/or customers. This will help reduce lead times, decrease transportation costs, and enhance responsiveness.


Local market factors are customer demand conditions and companies should consider the size of customer demand. Keep in mind that not only the current market demand should be considered, but also the future development prospects. If there are any upcoming market development projects, it can have a lasting market demand and lasting economic benefits for your business.

Local Politics & Incentives

Since planning is influenced by national and local policies, the quality of planning may bring convenience or inconvenience to enterprises. Based on this fact, the first task of enterprises is to fully understand the general climate of local policies, which plays a crucial role in the long-term development of enterprises.


A firm in one sector can mean new jobs in the local economy, leading to increased demand for local goods and services through a ripple effect that is not limited by sector. As workers spend more locally, there is more demand for local businesses, greater tax revenues, and more jobs. Inventive are often intended to attract existing businesses to a region.


The relocation of an existing business can be seen as a way to bring jobs to the area and stimulate the regional economy. Local government sometimes sets up special zones or various economic development zones to rent or sell land, factories, warehouses at lower prices, and to provide preferential policies in taxation, capital and other aspects.


Rental Rates & Taxes

Cost is always the determining factor in any type of business. However, there are often hidden costs, which can offset any savings on low rental rates. The rental rate of a warehouse in the US is normally based on square feet (SF) per year or per month, depending on the property owner. Average lease cost for warehouse space in the US was $7.14/SF per year during the 4th quarter of 2021.


As mentioned earlier, it is also critical to look at local government regulations, tax structure, and tax incentives. For example, the state of Oregon offers an incentive program called Business Expansion Program (BEP), which is a cash-based inventive provided to businesses that create at least 50 new full-time, permanent jobs with wages at or above 150% of the state or county average wage, and it comes in the form of forgivable loans equivalent to the estimated increase in income tax revenue from new hiring from an expansion or relocation project.


Workforce Availability & Local Demographics Center

When it comes to workforce availability, it is directly associated with the local demographics. Not every geographical location offers a workforce with the right skills at the right price. It is important to pay attention to the supply and demand of the local labor pool. The supply of the local labor force is a key factor in the warehouse location consideration. When the supply of labor is lower than the demand, operating costs can be higher. Reversely, high supply will drive salaries down.


It is also worth the time to look at educational attainment and characteristics, and income levels. These are the underlying factors that affect people skills and qualities. For technology-intensive warehouses, developed regions should be considered to attract potential talent. For labor-intensive businesses, such as light textile industry and handicraft industry, lower wage areas can be considered.


Additionally, social and living conditions such as good housing, schools, hospitals, sports recreation facilities, can provide a good living for employees; shopping, education, transportation, entertainment, health care services such as living environment, can reduce the burden of businesses, and improve the workers’ working efficiency. With that said, when choosing a warehouse location, research the local demographics.


Conclusion

The location of your warehouse is directly related to the long-term success of your business but selecting the best services in the optimal location to customers’ demands is not easy. Not only does it affect the transit time as you ship orders to your customers, but also your costs. In order to stay competitive in today’s tough market, it is important to take into consideration some of the main factors and criteria mentioned above when choosing the prime location for your business.


References:

https://www.statista.com/statistics/626555/average-rent-per-square-foot-paid-for-industrial-space-usa-by-type/

https://www.oregon.gov/biz/Publications/Business%20Expansion%20Program%20Program%20Flyer.pdf

 

ASCI specializes in helping businesses like yours to address supply chain management challenges, including warehouse support, inventory management, transportation coordination and order tracking. We offer consulting services to help your team with safety, responsiveness, and integrity. Visit our website to learn more and to arrange for a free consultation.

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