Choosing a warehouse location is a network-design decision, not simply a real-estate decision. The best site is the one that balances transportation cost, service requirements, inventory, labour, property cost, risk, infrastructure and future growth across the whole network.
Why Transportation Matters So Much
Transportation is often one of the largest logistics cost components, so warehouse location has a direct effect on inbound and outbound freight. A site close to customers may reduce outbound delivery distance but increase inbound cost from suppliers. A site near a port may improve import flows but provide poor access to inland customers.
This is why location should be evaluated using total cost to serve, not rent alone.
Key Warehouse Location Factors
| Factor | Questions to ask |
|---|---|
| Customer proximity | Can the site meet required delivery times and service levels? |
| Transportation | What are inbound/outbound rates, distances, modes, congestion and carrier availability? |
| Supplier / port access | How efficiently can imports and supplier deliveries reach the site? |
| Labour | Is suitable labour available at sustainable cost? |
| Property and operating cost | Rent, utilities, taxes, fit-out, maintenance and expansion cost? |
| Inventory impact | Will another node increase safety stock and working capital? |
| Infrastructure | Road access, power, communications, drainage, truck yards and equipment? |
| Risk | Flood, political, regulatory, security, port and single-route exposure? |
| Sustainability | Transport distance, energy use and facility efficiency? |
| Growth | Can capacity expand without another network redesign? |
Customer Service vs Cost Trade-off
Adding warehouses closer to customers can improve delivery speed and responsiveness. However, more facilities normally add fixed operating cost and can increase inventory because stock is split across more locations.
A network therefore needs to balance:
Transportation + Warehousing + Inventory + Labour + Service Risk + Other Operating Costs
The cheapest warehouse rent can produce a more expensive supply chain if it adds freight, lead time, stock or service failures.
Inbound and Outbound Flow Analysis
A location study should map actual flows rather than rely only on a map:
- Annual volume by supplier origin.
- Annual orders and volume by customer destination.
- Transport mode and rate by lane.
- Peak-season capacity.
- Import port or airport dependencies.
- Returns and reverse-logistics flows.
This shows whether the network is predominantly inbound-cost driven, outbound-service driven, or a combination of both.
Example: Weighted Location Score
Assume a company is comparing three potential warehouse sites. Management assigns weights based on business priorities:
| Criterion | Weight | Site A | Site B | Site C |
|---|---|---|---|---|
| Transport cost | 30% | 4 | 5 | 3 |
| Customer service | 25% | 5 | 3 | 4 |
| Labour availability | 15% | 3 | 4 | 5 |
| Property cost | 15% | 3 | 5 | 4 |
| Risk / resilience | 15% | 4 | 3 | 5 |
Site A score = (4×0.30)+(5×0.25)+(3×0.15)+(3×0.15)+(4×0.15)=3.95
A weighted score does not replace network modelling, but it forces decision-makers to make priorities explicit and provides a transparent first-stage comparison.
Inventory Consequences of More Warehouses
Adding locations can improve responsiveness but often increases duplicated safety stock. Before opening another site, model the working-capital effect alongside the transportation savings. A network that saves freight but ties up significantly more cash in stock may not be the better design.
Risk and Resilience
Warehouse location should also be tested against disruption scenarios. Consider whether a facility depends on one highway, one port, one border crossing, one labour pool or one utility source. A slightly more expensive location can be justified if it materially reduces a severe continuity risk.
Useful KPIs After Go-Live
- Transportation cost per order / unit
- On-time delivery
- Order fulfillment cycle time
- Cost per case / pallet shipped
- Warehouse utilisation
- Inventory turns / days of supply
- Expedited freight cost
- Distance or emissions per shipment where measured
Common Mistakes
- Selecting the cheapest rent without modelling freight.
- Optimising outbound delivery while ignoring inbound cost.
- Ignoring additional safety stock from extra facilities.
- Using average demand but not peak demand.
- Overlooking labour availability and turnover.
- Failing to test disruption and growth scenarios.
Common Interview Question
Question: What factors would you consider when selecting a warehouse location?
Strong answer: I would compare total network cost and service, including inbound and outbound transportation, customer lead-time requirements, inventory impact, labour, facility cost, infrastructure, risk and expansion. I would use flow data and network modelling or weighted scoring rather than selecting on rent alone.
Related SCMANA Guides
References
Download the Practical Workbook
Use the SCMANA Warehouse Location Weighted Scoring Workbook to compare candidate sites with editable criterion weights and scores.
Download the Warehouse Location Weighted Scoring Workbook (Excel)
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