You are running out of fulfillment center space to meet your company’s strategic plan for storage, shipping, and returns processing. As Director of Fulfillment, you have been assigned the project of finding warehouse space that will meet the company’s logistics requirements for the next 3 to 5 years. But if you have never been tasked with evaluating new facilities, this can be a stressful undertaking. Below is a checklist of the major requirements you need to consider in evaluating an existing facility for use as a fulfillment and distribution center.
Trends in Warehouse Facilities
According to recent industry research, warehouses built in the 1960s average 24 ft. Today’s warehouses are now approaching 40 ft high, allowing for more product storage capacity often in smaller square foot facilities. The downside is that those warehouses that are mid to upper 30 feet in height and higher require more expensive lift trucks and pickers due to the mast height.
Technology and Automation
As labor costs increase, and difficulty in hiring continues, technology and automation are playing much bigger roles in warehousing and distribution. These trends will have an impact on how warehouses of the future look and operate.
“In addition to heightened awareness of safety and health measures due to COVID-19, there will be an increased need for technology and sustainability leading to bigger power requirements for machinery, robotics, and other picking-and-sorting technology. More warehouses will have HVAC systems for employee comfort and to keep machinery at optimal operating temperatures. Taller, more environmentally conscious, and tech-centric buildings will be the norm. Occupiers will demand more skylights and renewable energy sources. Other sustainable features will provide water savings, recycling capabilities, and eventually charging units for electric trucks.”
According to commercial real estate leader, JLL, U.S. industrial rents increased from $0.09 to $6.39 per square foot. Since Q1 2020, rents have increased 4.2 percent.
Micro Fulfillment Centers (MFCs)
With the retail bankruptcies and store closings, there are suitable downtown sites for micro-fulfillment centers to speed e-commerce orders to customers in as little as several hours. https://www.fcbco.com/blog/micro-fulfillment-centers-deliver-ecommerce-orders-at-reduced-costs-and-within-hours
All Time High Occupancy Rates
Warehouse occupancy rates are above 95% in many metro areas. The centers that are being built on a spec basis are very large. This leaves older, lower clear height span for small to moderate-sized companies. All of this means that you have to be even more sure as to your requirements and matching those up to facility characteristics.
Homework Before Visit
Before you start a real estate search for space, determine the requirements for the facility needed to meet your strategic business plan. Putting the work in on the front end will really help to pay off when the physical search begins.
Quantify current storage space
The starting point is to identify the square footage and cubic space of the current facilities and ancillary spaces. This may sound simple, but many companies are using multiple smaller bulk facilities; storing pallets on trailers in the yard; or using short-term rental space. Understand the space needs for all functions, not just product storage. Where does the existing facility fall short of space needs or flow?
Future capacity needed
Where many companies struggle is deciding and agreeing on growth over the length of time the new facility needs to last. There’s sales growth, SKU growth, inventory growth, and change in the number of turns to consider. These can be very difficult to predict, but it is important to have a line in the sand to measure against when looking for a new space.
To calculate bulk and forward picking storage locations, you will need the number of SKUs, dollar inventory for average weeks and peak weeks; inventory turnover rate; planned SKU growth, and typical percentage of stock that is obsolete. Are there any changes in the product mix that radically affects this (e.g. adding home décor which is bulky to a soft goods apparel business)?
Where you want to end up is how many bays of pallet rack storage are required, and at what height? How many forward pick slots?
With all this work, identify how many years does the facility need to last before another move or expansion?
Department space requirements
It is important to think about the space allotment outside of just product storage. This can be a big footprint when all areas are added together.
For inbound receiving space, you’ll need the profile of the incoming shipments, average and peak, the number of cases, pallets, and containers received; space for QA tasks; and space to stage product awaiting put away.
For outbound shipping space, use the number of shipments per month (peak and average), types of shipment (small package, pallet, LTL, etc.), and carrier. Space is needed to aggregate for specific carriers.
Identify requirements for store shipments by type (e.g. small package versus pallet), the outbound shipment frequency, and volumes.
Space for supplies by type and proximity to the packing area.
Current Shortcomings and Wish List Items
Where does the existing facility fall short of space needs or flow? Would the process be much more efficient if a change in product flow happened in the new facility? Is additional space needed for custom racking that would be beneficial to your products?
It's important to have items that you would like to have to help differentiate facilities you may look at that are all so similar. One may be just better than another because it offers something on your wish list.
What are the facility options like in terms of proximity to Interstates or airports? Would there be the need for bringing trucks through residential areas or congested streets to the facility?
Truck yard configuration and traffic pattern. Does the yard have sufficient space to drop/store trailers? Does it have required security?
For safety, does the site’s traffic flow separate trucks from visitors and employees?
Receiving and shipping dock doors
How many dock height dock doors versus ground height dock doors are offered? Is that enough for inbound, outbound, and dedicated doors for trash or staged pallets? If there are not enough doors, was the building preplanned for additional doors? It can be cost-prohibitive if they were not preplanned and more are needed. Are the dock doors on one side or multiple sides of the building?
Warehouse shape and product and order flow
Consider the shape of the building as you evaluate suitability for your operations. How does the inbound product flow from inbound docks, staging, QA, bulk reserve, returns processing, and value-added operations? A long and narrow facility can be big enough square footage-wise but create inefficiencies as compared to a more standard-shaped building.
Use of cube
What is the opportunity to go vertical with space versus outward with a larger square foot space but lower ceilings? What is the clear span for storage? What will be your maximum number of pallets high? Take into account building codes for sprinkler clearance from the product.
What is the distance of the column separation to maximize pallet rack capacity, depending on which type of aisle you want, very narrow aisle, narrow aisle, or standard aisles?
Equipment and robotics used
What types of sortation, picking modules, and robotics will you be employing? What advantages and disadvantages do you see immediately to this space and its configuration? What are the specific requirements that are positive or negatives to this facility?
Condition of floors
Are the floors in good condition? Are the floor joints in working order, how many cracks are starting to form? How thick is the floor slab, thinking about how much weight from rack or equipment is needed to withstand on the floor? Having issues with the floor can damage equipment and increase spend on maintenance.
Lighting, electrical, and communications capacity
Will existing lighting need to be moved once the racking is installed? Will an upgrade be needed to switch to LEDs or increase the brightness to get adequate foot candles on the ground for picking?
If you are putting in material handling equipment that requires 3-Phase electrical etc., does the building have sufficient service to accommodate this? If not, what will be the cost increases and time to rewire the facility?
Other space requirements
These aspects below are just as important, and should not be forgotten about or skipped over quickly:
- Forklift charging stations - is the correct power needed already servicing the building
- Maintenance and equipment rooms
- Security hardware and fencing
- Meeting rooms
- Training rooms
- Conference rooms
- Employee lunchroom and break rooms
- Bathrooms (placement convenient to the floor or at extreme ends of the building)
- IT server rooms and storage
Can the warehouse be expanded to suit future needs? Does the expansion direction make sense from a flow and storage perspective? How many cubic feet and square feet does the expansion allow? Is there sufficient acreage for the building, parking, and truck traffic?
- Using this checklist, survey your current space use and identify where the current facility falls short.
- Using your business plan, project out the storage and facility needs to get through a determined number of years into the future.
- Identify commercial real estate databases of all available facilities and build to suit properties.
- Create a spreadsheet for a side-by-side comparison of current to prospective facilities.
- Consider hiring a fulfillment consultant to work as part of your team along with your real estate firm.
Most warehouse leases are 5-to-10-year commitments, even though the initial lease term may only be 3-to-5 years. Assessing existing facilities to determine if it meets your business plan can be challenging. It's important to get as many things needed on your list you worked so hard to put together in order to begin the search. Know which items are worth fighting for when picking between the finalists.