Warehouse storage charges comprise the fee that is incurred when the goods are stored in a warehouse. These charges are dependent on many different aspects like the type of goods, the type of storage conditions they may need, the space required, their volume, and much more. Hence the storage charges are important to consider when thinking of warehouses.
It is important for businesses to assess the charges so that they can maintain inventory levels efficiently and achieve the economy of scale. The guide below comprises a detailed discussion of the warehouse storage charges so that you can store your inventory accordingly. So, let’s read.
Factors Influencing Warehouse Storage Charges
There are many factors that impact the warehouse charges and some of these are as follows:
Space Utilization
The first consideration is the space occupied by the inventory. The warehouse storage rates per square foot are calculated to identify the charges. Utilizing the given space efficiently can help in reducing the cost and this includes using less space to store more inventory. In this case, making the best use of the vertical space of the warehouse is also considerable.
Inventory Volume and Turnover
Warehouses that have large amounts of inventory charge high fees as they have to offer more space and need more resources to manage the inventory. Also, if the goods stored in the warehouses are slow-moving and stay in the warehouse for a longer span, they also attract more fees. They need to be held for a longer span and hence the warehouse space is limited for a longer time.
Value-Added Services
Warehouses also offer additional services which are more than just the storage space. Hence, such warehouses also cost more. These additional services consist of preparing the orders for shipment, application of the labels on the products, and altering the packaging.
The more services you undertake along with the storage space the more is the cost incurred. Hence, it is important to ensure that you look for the services that make the process of storage and handling convenient but with cost-efficiency.
Storage Type
Each product has a different storage, some are perishable goods and some are not. Hence, with perishable goods, the need for having a temperature-controlled system of storage is very crucial. If they are not stored in a properly controlled temperature they may damage and this even adds to the cost of utilities.
There are certain products that also have a high value and hence need secure storage. Such products require more security and hence due to their sensitivity, their storage cost is also very high. It is crucial to store the products in relevant storage systems by balancing the cost of the warehouse.
Contract Terms
The nature of the contract you have made with the warehouse owners also plays a role in the charges they ask from you. If you have short-term contracts you may have to pay a high cost as they offer flexibility.
Whereas, if you are opting for long-term contracts you may get the discounted price because there is a long-term commitment. However, every business doesn’t need a long-term storage space for their products, so it varies from business to business.
It is important to negotiate the contract in a way that is favorable for you and also meets your storage requirements without costing you more.
Typical Pricing Models for Warehouse Storage
There are different pricing models that play a vital role in warehouse storage costs and some of these are discussed below.
Flat Rate
The flat rate comprises a fixed cost which is charged either per square foot or cubic foot of storage space irrespective of your duration of storage for your inventory turnover. This type of pricing model is suitable for businesses that have stable inventory levels and can predict their storage requirements.
It offers ease in budgeting and forecasting the storage cost and offers more cost stability in the longer run. Such a pricing system is not suitable for businesses that have inventory volumes that fluctuate.
Variable Rate
Variable pricing system comprises calculating the cost based on some specific factors. These factors are the volume of inventory, whether the goods are slow-moving or fast-moving, or what duration of storage they need.
The variable rate method of pricing is suitable for businesses that have fluctuating inventory levels or businesses that require storage space to meet their seasonable product demand.
This system is suitable as it offers efficient inventory turnover and even matches the cost with the usage. However, as this method of pricing has unpredictable costs it may make budgeting a challenge for the businesses.
Pay-Per-Use
Pay per use as the name suggests is a pricing method that charges for specific services that you take. For instance, if you are using a certain pallet you will have to pay for the pallet storage cost per month. If you are taking services like packing, labeling, and order picking you will have to pay for that service.
It is suitable for such businesses that require on-demand or occasional storage space with the services. It offers a high level of flexibility and the services can be customized as needed. Moreover, you can avoid paying for services that you are not using. However, this is an expensive method if you are opting for it repeatedly.
Ways to Reduce Warehouse Storage Costs
There are many ways you can reduce warehouse storage costs and some of these ways that can help you with this reduction of cost are as follows:
Optimize Racking Height
Making the best use of vertical height helps reduce the warehouse storage cost. When you have racking systems that have a good height you can store more items by occupying less floor area. Hence, the space is utilized at its full capacity and very efficiently.
Moreover, the modern racking systems these days are meant to be customized and are highly sturdy which makes them suitable for storing a wide range of products.
At the same time, hiring trained staff and automated equipment for warehouses also helps in managing inventory in an efficient way and also saves costs.
Use High-Density Storage Solutions
The density of storage systems also helps in increasing the storage capacity. Options for storage systems like push-back racks, drive-in racks, and mobile racking systems help increase the storage capacity of the warehouse. It enhances the best use of the space. These systems are suitable for such businesses that have a high volume of products and limited space to store them.
Drive-in racks offer to store products in depth and the pushback racks are suitable for such items which have a high turnover rate. Similarly, when it comes to mobile storage systems you can opt for high flexibility as the racks are movable and space and are created when needed.
Organize Inventory Efficiently
The way you organize inventory also plays a vital role in minimizing the cost of warehouse storage. Try to place the items that are fast-moving on the priority racks so that they can be accessed easily and products that are slow-moving can be kept at less accessible locations.
The goods should also be labeled correctly so that the order is maintained and the obsolete items are not stored unnecessarily. The inventory demand and the layout of the warehouse must match so that any sort of inefficiency is avoided. It reduces the cost of overpayment that you may incur for the storage space.
Negotiate Better Terms
You can negotiate the terms with the warehouse service providers to attain cost savings. Businesses that have storage needs that can be predicted may enjoy discounts by opting for a long-term contract with them. Some warehouses also offer flexible pricing at the time of off-peak seasons or when you are a repeat customer.
Keep your terms transparent and communicate them by discussing the duration of storage and any additional services that you may need. It ensures that the agreements can be arranged in a way that avoids unnecessary costs.
Invest in Technology
Invest in a Warehouse Management System that improves cost control as well as enhances the management of inventory. Such software may offer to track the products in real-time in terms of their location and businesses are able to store products only that they require. It helps in avoiding overstocking and the cost of holding is also reduced as the demands are forecasted very accurately.
Moreover, having automated systems in the warehouses like packing, picking, and shipping reduces the cost of labor. The cost of investment in warehouse management software is high but it offers long-term savings by enhancing efficiency and reducing waste.
Consolidate Shipments
You can also consider consolidating shipments as it reduces the storage cost for the warehouse because the time spent in storage by the products is also reduced. When you combine multiple shipments into one, the inventory moves faster. It reduces the storage fee as well as the cost of transportation.
Regular Audits
Regular audits are conducted to identify the goods that are obsolete or slow-moving so that unnecessary storage space is not occupied. The audit comprises reviewing stock levels and assessing the patterns of demand. It helps in freeing the storage so that the holding cost is reduced. These regular checks ensure storage space is utilized effectively by aligning with operational goals.
Benefits of Reducing Warehouse Storage Costs
There are many benefits to reducing the cost of warehouse storage and some of these are as follows:
Improved Profit Margins
Reducing the cost of warehouse storage impacts profit margin. When you reduce the cost of storage you can improve profits and allocate the money on other expenses like marketing and customer services.
Enhanced Operational Efficiency
The reduction in cost streamlines inventory management and optimizes the space well. When you have an organized storage layout and efficient systems in place, the time for tracking is improved and the workflow is enhanced. It ensures that the resources are utilized efficiently.
Scalability
When you lower down the storage cost you free up resources to reinvest in future opportunities. The reduction in overheads helps businesses scale their operations and helps them expand their product range. Storage solutions that are cost-efficient offer flexibility for adapting to varied business needs like seasonal inflows and offer cost-effective storage solutions.
Conclusion
The control of warehouse charges is crucial for the business’s growth and enhanced profit. If you are looking for efficient and flexible storage systems for your warehouses, we at Lracking can help you. Our storage systems are equipped with high quality, seamless efficiency, and high scalability. So, contact us and get your racking systems customized based on your requirements.
