Storage costs – how to calculate?
Product storage is an inseparable element of logistics. Any company that stores the materials needed for production or stores produced products must be faced with it, until they are picked up by customers or contractors. This generates a number of costs that must be borne by the company, which has a significant amount of goods necessary for storage. We present types and components of storage costs, as well as a simple way to calculate them.
Where do storage costs come from?
- 1. Warehouse space
The need for storage does not mean that each production company has to create its own logistics center. Currently, these types of facilities are built by companies specializing in long-term rental. The prices of such a lease depend on many complex factors. Most often they are given for one square meter and refer to renting on a monthly basis.
Elements affecting rental costs:
- Location of warehouse space
The farther away from the city the warehouse is located, the land for its construction was cheaper, so it may, but does not have to, affect the price of the rent.
- Operating costs
These include all equipment: overhead cranes, forklifts, lifts and the cost of their maintenance. The operation also includes heating, water and gas costs, and even electricity or the Internet. Heating costs may assume a larger amount of costs incurred, if, for example, the stored goods require the right temperature or the labor laws to perform work under the given conditions regulate the temperature.
- Additional services costs
This may be, for example, the handling of storage systems by qualified persons or property administration activities. These costs may include charges for general cleaning of warehouse space, vehicle repairs and any other maintenance.
- 2. Warehouse services
Materials or products stored at a large distance from the company’s headquarters still require service that allows them to be used in accordance with the intended purpose. For this reason, you also have to take into account the costs of warehouse services, which include all activities related to the handling of orders, such as: receiving goods, placing them in locations, completing orders or issuing or sending goods.
What do you usually include individual storage services?
- the cost of having one pallet space within a set deadline, e.g. monthly;
- loading and loading of one pallet;
- mixing, foiling, confectioning;
Handling is the collection of loading units, addressed to one or several customers and placement in the field of loading, from which the vehicle will be loaded for further transport within the warehouse.
Mixing, on the other hand, is a more complex process consisting in taking from the storage zone an assortment addressed to one customer and placing on one pallet, in order to create an individual palette. Such a pallet also goes to a storage place for loading.
- 3. Service costs
These costs are created not only to ensure the safety of employees, but also affect the smooth operation and lack of unplanned interruptions in the production process, which is particularly important in the case of a large number of shipments, where everything must be done on time, because every minute delays, e.g. embarking on the route. Therefore, any overhead traveling cranes, forklift trucks or elevators must not only perform regular inspections of the competent Office of Technical Inspection, but also cyclical maintenance, e.g. exchange of fuels, liquids, parts significantly exposed to fatigue.
- 4. Equipment rental costs
Unless they are machines owned by a production company, it will be obliged to rent the most necessary machines, without which the entire logistic machine is not able to operate efficiently.
- 5. Costs of operating IT systems
For the efficient operation of the warehouse, qualified staff are needed, knowing the systems from the inside. In logistics, as nowhere else, time is money, so it is not worth risking delays in delivery by employees’ incompetence.
- 6. Insurance
Insurance of employees, expensive machines or rented space will be necessary in case of fire, for example, if flammable materials are stored in our logistic center. The insurance will also be useful in the event of damage caused by employees.
- 7. Retrieval of stocks
It is possible that a given assortment will not be sold in its entirety, its expiration date will end or it will simply cease to be fashionable. In this case, it is necessary to bear the cost not only for the pallet space from which there was no profit, but also it may be necessary to subject the goods to utilization, which may be associated with subsequent expenses.
- 8. Transport costs
The specificity of commercial activity requires the delivery of a specific good to the customer, hence costs are incurred for the forwarding of goods and products. They generate fixed expenses, such as: fuel; vehicle liability insurance; repairs and maintenance; inspections.
How to calculate storage costs?
A model that can help in estimating the costs of warehouse management will be the following list:
Km – storage costs
Mz – average inventory
Sm – inventory cost ratio expressed in% of inventory value
When estimating expenses, it is also worth taking into account the distribution of storage costs:
- store-storage costs account for 30-40% of storage costs
- handling costs are 5-10%
- the transport costs are 40-50%
- information processes costs 10-20%
Approximate prices for renting warehouse space
The cost of renting warehouse space is an order of a dozen or so PLN / m2 per month, but ultimately everything will depend on the location of warehouses and individual price preferences of the owner.
Very average rates are as follows:
- pallet place up to 25 PLN
- receipt / release of 2.5 – PLN 5
- handling about 15-20 PLN / pallet
- mixing about 20-35 PLN / pallet.
Logistics management is more than a complex matter. This is a series of situations that should be anticipated before renting the first pallet place.
Every aspect that will be implemented brings with it several more, which are no less important, which in the final stage puts us in front of a strictly refined structure in which the lack of one element has specific consequences.
Storage costs show the complexity and problematic nature of the approach to the subject of logistics management. We have been working with companies striving to optimize warehouse management for years.
Feel free to contact anyone interested in addressing the implementation of modern solutions that help in running a business: +48 517 827 436, firstname.lastname@example.org.