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What is a reasonable cost model for providing a 3PL warehouse management service (Survey Result 2)

Written by: Jon Hansen

Article Overview: What is a reasonable cost model for providing a 3PL warehouse management service and how would it best be structured to hit the key points with both the logostics and finance executives?

What is a reasonable cost model for providing a 3PL warehouse management service (Survey Result 2)

Jaikumar, Supply Chain Management, Proctor & Gamble, India

I can provide some advices cost elements consideration for running a warehouse (considering its structural design and operational design).

From the structure stand point:

Transportation
• Location of warehouse and its distance from the retailers it handles. This will give you the idea for transportation cost in terms of distance.

• The transport model, The size of trucks used, will it run full or Half full and its probability. This will provide you with truck utilization plan.

Capital cost
• What will be the capital cost for the warehouse (including storage bins, racks, material handling devices, fire protection systems, GMP equipments, lighting and power systems, IT systems etc. This depreciation will come in as a part of rental cost for warehouse when you outsource. Finding a vendor (who is providing service to other customers helps) where you can leverage their scale and making contract in terms of usage with a minimum/ Maximum commitment range will help. There will be minimum charge in any case. Hence that estimation of minimum space usage is essential to know (u say about 56 skids).
The above two costs will be more of less fixed to your network design and will have to live with it till you use that warehouse.

Operational costs (also known as Material Handling costs)
• This will need to be estimated by understanding the No of people involved in operation of the warehouse, their costs, power consumed and other utility expenses. This will be prorated to your usage plans and will be variable costs.

• Damages: Invariably there will be damages in handling, transportation etc and that needs to be budgeted and insured. That is a cost which your need to understand based on insurance premium, which depends on some statistical history of similar damages in your warehouse.

Other consideration:

How this warehouse responds to your customer need compared to your owned warehouse and you may want to put a cost to training of those people, the customer dissatisfaction implication in terms of cost for poor , lost sales etc.
Need to study the market and see what is the rental escalation or rate variation over past few years and what is the latest trend and projection.

Above this, there will be mark up of profit expectation of the warehouse owner.
When you get a quote it will become essential to do a NPV analysis vs self owned warehouse and decide the best outcome for your business.

Finally, if there is a need to reduce “Time”, I advice usage of Value Stream Mapping tool and that will help you find loss of time and shrink it!

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Article Tags: cost elements, fire protection systems, insurance premium, material handling, maximum commitment, minimum space, operational costs, operational design, proctor gamble, skids, space usage, statistical history, storage bins, structural design, supply chain management, transport model, transportation location, utility expenses, utilization plan, variable costs



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