Question

How are warehousing costs affected by the decision to use third party or private warehouse facilities? What effect would this have on handling, storage, and fixed facility costs?

Answer 1

Public or private warehouse:

The public or third party warehouse can be hired for short or long term. There is no requirement for capital investment. Further due to leverage of combined needs of users there is a chance for shared scale economies. A public warehouse generally offers storage, handling & transportation. In these kinds of warehouses the clients are charged with a fee for storage & also in & out handling. In the case of handling the amount is decided on the basis of cases of pounds that have been transferred. Whereas in case of storage the amount is based on the case or weight in storage over time. The handling & storage costs are calculated on the basis of deliveries that are being shipped from manufacturer to the third party warehouse.

Private warehousing is regarded reasonable and less costly due to the lower fixed and variable costs included than for hire companies, employing a 3P provider would lead to decrease in the overall handling, storage and the fixed facility costs due to economies of scale involved. Furthermore, the coordination work done by third party reduces the administrative costs. Thereupon, it would decrease the warehousing costs (storage and handling costs+ fixed costs) and result in lower transportation costs by providing consolidation of multiple client freight.

Public warehousing generally involves higher variable costs than private warehousing, Though fixed investment is usually not required. Storage and handling costs are usually greater for high volume products distributed through public warehouses, though the quality of performance may make up for this difference. Fixed facility costs are definitely more of a concern with private warehousing. Outsourcing warehouse functions is often a good idea when the product in question has a seasonal, cyclical, or uncertain sales nature. We can assume that