Optimizing E-commerce Warehouse Costs: Boost profit

Warehousing is a significant expense. Maintaining a 3pl warehouse constitutes a portion of your overall ecommerce operational costs. Whether you’re renting or purchasing a warehouse, these expenses must be carefully considered. Optimizing your ecommerce warehouse costs is essential for boosting profitability, though it can be a challenging endeavor.

To assist you, we’ve created this comprehensive guide to provide an understanding of the various 3pl warehouse costs, the methods used to calculate transparent warehouse pricing, and to help you determine whether buying or renting is the better option for your business. Furthermore, discovering strategies MacMillan uses to optimize your warehouse expenses, so they don’t erode your revenue.

What factors contribute to increased 3pl warehouse cost?

warehouse costs include a combination of fixed and variable expenses, which fluctuate monthly. A comprehensive understanding of the costs involved is crucial for effective logistics. Let’s delve into the main components of a 3pl warehouse costs:

Rent

Rent constitutes a significant portion of your warehouse expenses if you’re leasing space. It’s typically calculated based on square footage, meaning costs will vary depending on the total storage area utilized. Some 3pl warehouses also charge based on the number of items stored in the facility.

Utilities

Utilities such as electricity, heating/cooling, water, internet, and waste disposal are integral to 3pl warehouse operations. These costs are variable, fluctuating based on usage. For instance, heating costs may rise during winter, while electricity expenses might spike during peak seasons like the holidays when the warehouse operates overtime to meet increased demand.

Labor Costs

A substantial portion of warehouse operational expenses are attributed to labor. This includes wages for staff involved in various processes such as picking, packing, management, and equipment operation.

Equipment Costs

Equipment costs cover the purchase, rental, and maintenance of warehouse machinery. This includes forklifts, conveyor belts, pallet jacks, Automated Storage and Retrieval Systems, automated guided vehicles, and other essential equipment.

Technology pricing

Modern warehouses rely on technology like Warehouse Management Systems (WMS) and Inventory Management Systems providing system integration to streamline operations. MacMillan uses the latest tech-driven operations to provide real-time visibility.

Order Fulfillment Costs

Order fulfillment is another contributor to 3pl warehouse costs. This includes expenses for packaging materials and shipping. If you offer customized unboxing experiences, such as custom packaging, these additional charges fall under fulfillment costs.

Insurance and Taxes

Insurance is necessary to protect warehouses against damage, injury, or theft, with costs varying based on the types and values of goods stored.

How to calculate 3pl warehousing cost?

Calculating warehouse pricing involves several factors, including the chosen pricing structure and whether you opt to buy or rent the space.

Fixed warehouse pricing structure

Fixed variable pricing is the most popular model, where a business rents, leases, or purchases a fixed warehouse space. For rentals, a fixed monthly fee is paid for using the space, regardless of whether the full capacity is utilized. This fee is typically calculated per square foot, based on the total square footage and the cost per square foot.

You can use the following formula to calculate this type of warehouse pricing:

(Total rental space x Rental cost per square foot) + Operating costs = Monthly warehouse cost

Depending on the type of warehouse, you may incur additional expenses for value-added services like kitting, assembly, and fulfillment. Fulfillment providers often offer these services along with distributed 3pl warehousing, allowing you to outsource the entire operation and avoid overhead costs.

Another common pricing model in on-demand warehousing is the unit rates model, where charges are based on the number of transactions or units. This model may involve fixed fees per unit, pallet, transaction, or shipment. For instance, at $7 per pallet per month for 1,000 pallets, the total monthly 3pl billing cost would be $7,000.

Renting VS Buying

Purchasing a warehouse requires a significant initial investment, it can lead to long-term savings on monthly expenses. On the other hand, renting involves a lower initial outlay, making it ideal for smaller operations and businesses with tighter budgets.

Factors involved in buying a warehouse

  • Property Cost: (ranges between $625,000 and $750,000 for a 5,000 square foot space)
  • Maintenance Costs: Includes setup, repairs, and ongoing upkeep
  • Applicable Taxes

Factors involved in Renting a warehouse

  • Rental Cost: Around $8.84 per square foot in the United States, subject to increases
  • Applicable Taxes

Whether you buy or rent, you’ll still need to manage your own 3pl warehouse and fulfillment, which includes accounting for CAM charges, expenses not covered by rent or property cost.

How to optimize your 3pl warehouse cost to boost profitability?

Warehouse expenses significantly influence your total inventory costs and bottom line, making it crucial to optimize these costs for increased profitability.

Optimize Space Utilization

Maximize the use of your existing warehouse space to store more inventory with less expenditure. Improve your layout and storage systems, such as replacing racks with AS/AR systems, to better utilize vertical space and fit more inventory.

Avoid Overstocking/ Seasonal fluctuation

Excess inventory ties up capital and increases holding costs. MacMillan prevents overstocking by accurately forecasting demand and strategically planning procurement to align with these predictions.

Improve Inventory Flow

Ensure a smooth flow of goods through the warehouse to avoid bottlenecks. Arrange your space logically, placing fast-moving items near shipping docks for quicker access and turnover.

Enhance Operational Efficiency

Reduce overhead expenses by improving operational efficiency. Invest in automation technology and tools, such as warehouse management software and robotics, to streamline tasks and minimize labor and utility costs.

Consider Outsourcing Fulfillment

Outsource storage and fulfillment to 3PL warehouse providers to avoid the high costs of buying or renting warehouse space and running operations in-house.

Macmillan’s approach to 3pl warehousing?

Fortunately, MacMillan offers comprehensive solutions to support these strategies with its world-class warehouse management software and 3pl services. You can also adopt a hybrid approach, while MacMillan alleviates your workload and helps you reduce warehousing expenses.

Outsourcing fulfillment and warehousing to MacMillan

MacMillan outsourced fulfillment solution relieves you from the burdens of renting and managing your own warehouse. By keeping your inventory to MacMillan, you eliminate the need for renting or buying warehouse space, resulting in significant cost savings. Additionally, MacMillan handles all inventory management and fulfillment processes, reducing your labor and overhead expenses and significantly lowering your overall operational costs.

Optimize internal operations with Macmillan’s WMS

Empower your in-house operations with MacMillan’s WMS (Warehouse Management System). If you prefer utilizing your current warehouse space while cutting expenses, our WMS offers an ideal solution.

By automating tasks and optimizing operations, the WMS enhances warehouse productivity. For example, it calculates efficient routes and generates optimized lists, reducing travel time and improving pick-and-pack efficiency.

Additionally, it assists in order routing and carrier selection, enabling you to find the most cost-effective shipping routes and options to reduce shipping expenses.

Implementing hybrid fulfilment

You might decide to outsource direct-to-consumer (DTC) orders to MacMillan while handling Amazon orders internally if your current system is effective. Alternatively, you could delegate B2B order fulfillment and retail distribution to MacMillan while concentrating on managing DTC orders yourself.

This flexibility allows you to tailor a hybrid fulfillment strategy that enhances efficiency and lowers 3pl warehouse costs according to your specific needs and priorities.

Key Takeaways

This comprehensive guide has detailed the various costs associated with 3pl warehouses, from rent and utilities to labor, equipment, and technology. It has also provided strategies to optimize these costs.

MacMillan’s robust solutions, including their WMS and outsourced fulfillment services, offer effective ways to reduce warehousing expenses, whether through a fully outsourced model or a hybrid approach. By implementing these strategies, businesses can significantly improve their bottom line and streamline their logistics operations.

MacMillan Supply Chain Group Elevate Your Logistics Experience

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Meet the Author:

Jenifer Lee

Jenifer Lee

Jennifer Lee is a prominent expert in the realm of 3PL logistics, known for her strategic acumen in forging strong partnerships, designing efficient logistics networks, and enhancing customer service in supply chain management. Her career path has taken her across various logistics domains, from e-commerce fulfillment to warehouse management systems.
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