Warehouses are high cost assets with lots of smaller costs associated with them. The world of warehouse costs can be a complex one. Reading online you can find many mentions of handling costs, storage costs, administrative expenses or otherwise. However, these can be broadly classed as either capital or operating costs. In this article we will be giving a brief overview of both, and the kinds of things involved.
Capital Costs vs Operating Costs
The first part of understanding warehouse costs is to understand the difference between capital and operating costs. Capital costs are one off payments, whilst operating costs are a series of regular payments. For example, if you want to buy some clothes from a shop, you pay a lump sum of money to own them and that is a capital cost. Operating costs on the other hand are thing you pay for instalments for the right to use. For example, gas and electric bills for your house are operating costs.
You can sometime think of a capital cost as operating, dependent on how you treat them. For example, buying a car is quite expensive, so instead of spending a large lump sum, you may pay for it in monthly instalments much like operating costs. However, you do end up owning the item so technically it is still a capital cost.
1. Buying a Warehouse
The first big capital cost in warehousing is buying the warehouse. This may involve spending capital to have it designed and built or buying an existing warehouse. Much like the car example, it may be wiser to pay for the warehouse through a series of instalments, rather than to buy it in one transaction. There is, of course, the option of renting a warehouse, which we will get to later.
2. Buying Equipment and Machinery
After procuring the warehouse, the next capital cost is filling it with the equipment and machinery you need. Assuming you are wanting to own and not rent equipment, all equipment and machinery can be considered capital costs. Consider everything from a forklift to conveyor belts.
Much like the buying of the warehouse, any expansion is also considered a capital cost. Whether that be building an extension to the current warehouse or expanding its capability, each will require a lump payment to procure them.
SEE ALSO: How to Increase Warehouse Capacity
One of the largest operating costs in warehouses is labour costs. Employees salary, pension, uniform, benefits – all have to be accounted for. This obviously varies wildly depending on the number and salary of those you employ.
Warehouse utilities come in as another big part of operating costs. This refers to the electricity costs, heating costs, water costs for operating a warehouse. These can be significant depending on the size and nature of the warehouse. Specialist warehouses such as refrigerated warehouses can have huge utility costs.
3. Taxes, Insurance, Loan repayments
Another of the operating costs is the various government and legal expenses of the warehouses. Taxes from the government, insurance for the warehouse, as well as the repayments of any loans which have been taken out to pay for the warehouse or the equipment. These naturally vary depending where the warehouse is located, the size of it, and whether or not any loans were required to purchase it.
In warehousing, you can either rent or outright buy things. This applies to everything in a warehouse: the equipment used, vehicles required, and even the warehouse itself. There are benefits and disadvantages to both renting and buying, and it is largely up to you which you prefer. Most warehouses have a mix of both, for instance the warehouse could be owned but the equipment rented or vice versa.
Lastly, maintenance is another big operating cost of warehouses. The absolute magnitude of this cost depends largely on the age and reliability of your equipment, as well as the amount you have. If you rent a lot of the equipment and the contract states maintenance costs are the responsibility of the assert owner, maintenance costs can be very small.