Best Practices From Renewal Logistics:
How to Build a Warehouse
BUILDING A WAREHOUSE IS AN AMBITIOUS PROJECT
Maybe your business has finally outgrown your dining room table and you need to find someplace to house your expanding inventory and materials. Or maybe you’re just tired of paying rent every month for a warehouse that belongs to someone else.
Building a warehouse is an ambitious, yet rewarding process that lets you design your space just the way you like it to fit your needs and help your processes run as efficiently as possible.
Not many people or companies can say they have built their very own warehouse. Luckily, Renewal Logistics is one of the few! And we want to pass down the knowledge we gained through this experience. In today’s post, we’re outlining the seven main steps to take to build your own warehouse. We’re also offering insight on time estimates and hidden costs that you may not have considered. Read on to start learning!
Step by Step Guide:
The 7 Phases of Building a Warehouse
1. Locate A Commercial Realtor To Help Find A Property.
You’ll want to find a location that is conveniently accessible to a major road or highway. That way drivers won’t spend a huge amount of time navigating small side roads with a trailer full of merchandise.
Also important to consider are the size of the property and proximity to any other facilities you work with or operate. While the realtor will be able to handle a good deal of the research and evaluation of different properties, it’s up to you to know and communicate your specific needs.
2. Negotiate the lease.
When you’ve found the perfect spot and you’re ready to commit, it’s time to negotiate your lease on the property. This is one of the most critical (and complicated) steps in the process so it is definitely worth hiring a lawyer to review the document and make suggestions.
You’ll find that most lease agreements on commercial properties are for five to ten years. However, you may be able to work out a two to three year lease if you are not certain of you future plans for your operation.
Your lawyer should help with all of this but a few points to pay close attention to are the incidentals you are asked to pay, the conditions for lease termination, and conditions for a future renewal.
One last note: when you sign a commercial lease, you must be very confident that you will not default on it. Defaulting on a long-term lease can be disastrous for a business, and for a business owner’s personal credit. It is as bad as defaulting on a mortgage! Keep in mind also that a lease like this shows up on your balance sheet as a large liability, which can devalue your business when it’s time to apply for a loan, or sell your business. So, proceed with thoughtfulness and caution.
3. Get A Certificate Of Occupancy.
Any property (apart from a single-family home) must receive an official certificate of occupancy from the local government before it can be used for any purpose. The requirements for getting a certificate of occupancy can vary since these certificates are issued by local government bodies.
Generally, you will be asked to provide documentation on your facility plans and the property will need to undergo an inspection (or several). The inspection is sometimes completed by government officials but sometimes can be done by a third-party inspector who then signs official documentation about the results of the inspection.
Sometimes you are required to fix certain issues on the property that are flagged during inspection, before you can be granted the certificate of occupancy.
4. Choose a Warehouse Management System.
A warehouse management system, sometimes called a WMS, is a software product used to enter, store, and analyze data about your warehouse and inventory. This is the software that will allow you to track and organize inventory using scanners and SKUs.
Apart from this essential function, many WMS products offer other features like labor management, time-tracking, order management, and billing.
While all WMS software costs money, some charge a monthly or annual fee, while others charge for a one-time license. The cost of each product is an important factor to consider when choosing a WMS.
5. Decide How to Configure Your Space.
Your configuration will depend a great deal on your product, the size of your operation, and the tools you have at your disposal. To take advantage of high ceilings and fit a large volume of inventory, invest in storage racks. If space is not an issue or ceiling height is low you may choose to keep all inventory at arms-reach. This will help employees pick items more quickly.
Make a careful plan of where to place each type of inventory. When planning, consider which items are most popular, which items are often ordered together, and how much space each type of product takes up.
6. Obtain And Place Your Equipment.
Once you are confident in your warehouse plan, it’s time to place all of the equipment that you will use in your operation. Depending on the size of your facility, you’ll likely want to call in some helping hands to get this done.
Set up your computers and scanners. Find a good spot to place forklifts and hand trucks – and make sure that these can be easily maneuvered out of their starting placement once they are needed.
Importantly, set up your security cameras and alarm system as soon as possible. It is important to do this before you bring in any other valuable equipment or inventory.
7. Hire Workers.
While hiring can cause a big headache, it is also extremely exciting because it is the last step before you’re ready to begin daily operation. Plus, it is hugely satisfying when you find people who make a great fit on the team!
While onboarding your workers is one of the final steps in the warehouse-building process, it is a good idea to begin the hiring process as soon as possible as it will take time to find the right people. Managerial roles, in particular, can take up to 6 months to fill! You don’t want to be caught in a situation where all things are set to go but you’re missing vital team members.
How Long Does it Take to Set Up a Warehouse?
Working diligently it can take about 3 to 4 months to set up a new warehouse. Note that larger economic factors like the supply and demand of real estate and labor can make this process take longer on the front end and back end of the process.
In our own experiences, worker recruitment is the piece in the process that takes the most time. Finding and hiring workers is usually a 2 to 3 week process. Finding managers and other more senior roles can take 3 to 6 months! The people with the right skills and experience to fill these roles are quite limited and finding the right match is important. We usually recommend hiring a recruiter, which will cost about 20% of the new hire’s salary.
How Much Does it Cost to Build a Warehouse?
There are many factors that go into calculating the total cost of building a warehouse. The size of your facility and the conditions (and price) of your property are major factors on the overall cost. Cost will also depend on whether you decide to construct a brand new building from the ground up or simply build out a warehouse in an existing space. We recommend the latter option whenever possible.
Still, even when you have a building to start from, you need to buy racks, pay for your chosen WMS, pay taxes on the property and equipment, pay for insurance, buy a forklift and/or hand trucks, buy computers and scanners, install security fencing and a sprinkler system, pay for triple net or CAM (common area maintenance), and put down a security deposit for the lease.
Other costs to anticipate include moving all of your product into the new space and any kind of climate control you may need for your facility.
The Inside Scoop:
What is it Like to Operate Your Own Warehouse?
Operating your own warehouse is an exciting concept and will be an immense learning experience. However, it also brings with it sizable responsibilities and costs, not to mention long-term commitment.
Most commercial property leases last five or more years. The main challenge that many of our clients face is finding a space that is affordable for them now, but will also be suitable five years from now when their business has presumably scaled a great deal. You don’t want to pay for more space than you need, but you also don’t want to outgrow your initial set-up – especially not after investing so much time and money into building out the space.
The solution that Renewal Logistics offers is fractional warehousing. 90% of Fortune 500 companies rely on outsourcing, rather than building their own warehouses. This is because fractional warehousing allows for scalability, flexibility, and fewer mundane concerns (like equipment repairs and rack arrangement).
A Simpler Alternative:
Fractional Warehousing with Renewal Logistics
If building a warehouse is not something you’ve got the time or resources for, we totally understand. The fact is most companies rely on outsourced warehousing services rather than building their own.
At Renewal Logistics, we offer the space you need without any of the logistical problems. You can store your inventory with us knowing that it will be kept safe and in top condition. Our facilities include a sprinkler system and security system.
We pay for everything from insurance to property taxes to equipment and labor. All you pay for is the exact amount of space that you are using each month. If your business scales up quickly, just let us know and we can offer more space. Need to scale back down later on? No problem.
By choosing fractional warehousing, you also alleviate the worry of potentially defaulting on a long-term commercial lease. When you pay a vendor for fractional warehousing, it is included in your Profit and Loss statement as an expense. This actually adds value to your company by improving your debt-to-equity ratio! We’ve seen this choice pay off immensely when business owners apply for a loan such as a line of credit or to purchase an asset.
Want to learn more about fractional warehousing? Or are you set on building your own facility and want to ensure your operation is set up for success? Either way, give us a call or shoot us an email. We love talking with entrepreneurs and business leaders from all industries. Tell us about your latest projects!