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Thread: cost of warehouse space

  1. #1
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    Smile cost of warehouse space

    I'm a new member; I've been wondering if such a forum as this existed. I'm been in purchasing/supply chain management for over 35 years, but there is always something new to be learned. For example, we have a lot of surplus
    (dead stock), and I've been wondering how much keeping it around is costing our company. I'm sure there is some calculation considering square footage, ect, but I don't know how to figure it.

    I retired from a large corporation as a buyer in procurement, now I'm managing a warehouse and trying to keep it stocked properly. It's a small company, so I'm a big fish in a small pond.

    I've been trying to unload the dead stock but either no one wants it or they are not willing to pay what we think it's worth. Our company president
    I think wants more for the material than he is likely to get, so I'm between a rock and a hard place.

  2. #2
    Forum Founder & Owner TopLink's Avatar
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    Default Re: cost of warehouse space

    Antonyh. Welcome to the Board.

    The problem you face is a very common one. Lots of obsolete (dead) stock that no one will write off.

    A simple calculation of the cost of this dead stock can be quite easy.

    Fixed Costs.
    How much space is occupied by the dead stock? Either square feet or cubic feet.
    What % of the total warehouse space is this?
    What is the total fixed cost of the warehouse? Lease/rent or if owned an imputed rental (ie a market rental, because owning the warehouse actually costs you money)
    Also include in the warehouse fixed costs, anything related to maintaining the building, security etc. Any costs that are incurred, even if the stock does not move.
    So whatever the total fixed cost, take the % of that occupied by the dead stock.

    Cost of Capital
    To own the stock involves tying up capital. Capital costs you money. Typically 7% at today's interest rates.
    So 7% of the value of the stock now is added as an annual cost.

    Variable Costs
    Even if the stock is not moving, you need to maintain it, count it and so on.
    That takes some labour cost. So include that.

    So add up all the costs of holding this dead stock.

    On the flip side, you can at least recover some money if you sell it.
    And you will ceate free space in the warehouse to hold stock that does sell.


    That was just a quick back of the envelope approach, but I hope it helps.
    Regards

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    Default Re: cost of warehouse space

    thanks for the reply

    we actually have two kinds of dead stock: we have several pallets of misc stock that we did write off back in 2001. It's still there, wrapped neatly and sitting on shelves. When it was originally written off back then, i understood we would donate it to some charity. It didn't happen. I've tried several times to sell it with no luck - the best I could to was 10cents on the dollar and that wasn't good enough. The other, what we call class 13, we've been collecting for a long time.

    I'll work on the class 13 - I'm not sure there is hope for the other.

    AntonyH

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    Default Re: cost of warehouse space

    AnthonyH.

    Best of luck with it. If it really is 'dead' stock, I would take the 10c in the Dollar :-)
    Regards

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    Default Re: cost of warehouse space

    ANTONYH,

    Have you tried flogging it off as part of a promo?

  6. #6
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    Default Re: cost of warehouse space

    If you originally bought this stock from a supplier, would they be willing to take it back, or buy it back, sometimes dead stock in one area is active and selling stock in another.

    If this is the case your original supplier may bite your arm off to buy this stock back if it is selling well in another region.

    Worth a try.

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    Default Re: cost of warehouse space

    Warehouse space costs are one of the most abused or over looked subjects IMO by top Management or Ownership. They see empty space of any kind they think they can just fill it up. Can drive a person like me crazy at times.

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    Default Re: cost of warehouse space

    Hi guys, I have semilar question, please help.

    we are operating a public warehouse of 13600 pallet position and i was asked what is our cost per pallet or cbm. please tell me how can i come up with numbers here.

    Thanks

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    Default Re: cost of warehouse space

    Quote Originally Posted by omartanael View Post
    Hi guys, I have semilar question, please help.

    we are operating a public warehouse of 13600 pallet position and i was asked what is our cost per pallet or cbm. please tell me how can i come up with numbers here.

    Thanks
    There are very many lengthy equations to calculate this but I prefer a simple approach, it may not be exact but it will not be far out..

    Simply add up all the costs of the warehouse, such as ground rent, maintenance, power, vehicle rental, wages...etc etc

    Then divide this number by the number of usuable locations in the warehouse, this will give you the cost per location, or in your case cost per pallet...

    Hope this helps..

    SJ

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    I am proud to work for Europe's leading Single Price Retailer

    Poundland Retail
    Dealz (Part of the Poundland Family)

    I am pleased to be associated with Himsworth Consultancy - The Supply Chain Performance Improvement Specialists
    Himsworth Consultancy

  10. #10
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    Default Re: cost of warehouse space

    Thank you very much

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