What to Consider Before Extending a Warehouse Lease

As businesses evolve, customer order patterns change and customer territories expand, it’s not unusual for the distribution requirements of a business to change significantly.

Over time, logistics networks often need to be ‘defragmented’ with existing warehouse facilities reconfigured, moved or closed and new facilities commissioned. This could be driven by the need for larger premises, an increased national footprint or the introduction of additional activities to the warehouse such as kitting, sub-assembly or expanded e-commerce sales.

If you have lease breaks on the horizon for your existing warehouse facilities, it’s a good time to consider if the current warehouses are fit-for-purpose and if their locations are well positioned geographically, or if there’s a need to consolidate or expand the number of facilities.

There are two important things to remember when undertaking such a review. Firstly, warehouse lease terms will be at least 5 years, if not 10 years, and consequently any change considered should be based on a reasoned view of the future business profile. Obviously, this will always be a best guess, so secondly you need to ensure that flexibility is incorporated within any potential solution.

If you are in the position of reconsidering your warehouse and distribution network requirements, we recommend addressing the following steps in sequence:

Profile Future Operations

The very first step is to understand what your business is likely to look like in the future. Based on demand forecasts, extrapolation, market intelligence and your business strategy you should develop a profile of your expected future operations. This profile is likely to consist of a series of potential scenarios, phased over a projected time plan, and detailed in terms of supply points, product profiles, demand profiles and inventory levels. The resulting data pack can then be used to support strategic level scenario modelling.

Strategic Level Scenario Modelling

The second step is to start scenario modelling. The number and location of warehouse facilities is a trade-off between warehouse costs, transport costs and service. There are many types of logistics network design that you can scenario test dependent on your business profile, including a single national distribution centre, ‘hub and spoke’ networks, multiple regional distribution centres, stockless out-basing or a combined solution. Once all potential scenarios have been modelled and compared, it’s time to consider the operational level configuration of the preferred scenario/s.

Tactical Level Configuration

At this step, you should consider how the assets within the preferred strategic level scenario/s will be configured and utilised. This will include both warehousing and transport. In terms of warehouse design, focus needs to be given to facility size, height, layout, operational flows and labour levels. Special focus should also be given to MHE and racking requirements along with their capital investment costs. For transport, detailed transport fleet profiling needs to be undertaken to determine the exact fleet size, type, driver requirements and cost. Where a 3PL is being used for transport then a logistics tender needs to be conducted.

Operational Level Impact Assessment

The scenario modelling provides a strategic level assessment of the network solution that gives the best balance of warehouse cost, transport cost and service. However, these are far from the only considerations that will impact your business. The Impact Assessment stage is all about getting into the detail of a preferred scenario by considering issues such as property availability, labour availability, staff transfer issues and implementation risk, amongst many others.

When considering the outputs of the above steps, it’s important to allow a margin for error. No matter how diligently the profiling of future operations has been done, it will always be a best guess. Undertaking a major network change to chase single figure percentage cost savings is ill-advised. With major changes based on predicted business activity, small savings can rapidly turn into on-costs as the realities and risks of implementation are realised.

Our logistics consultants are experts in logistics network modelling, warehouse design and transport fleet profiling. Our team can undertake rapid assessment of all possible scenarios and options, giving you the facts and costs to allow you to progress to a new solution, or retain an existing solution, with absolute confidence. Contact our team today to discuss your requirements.

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Tamsin Giles, Client Service Coordinator, contact photo

Hello! I’m Tamsin, Client Services Coordinator at Paul Trudgian. Please get in touch by phone, email or the contact form and I’ll make sure your enquiry is dealt with promptly and passed to the right member of the consulting team. We look forward to hearing from you!