Weighing up the benefits and risks of operating out of a single warehouse

At a recent client presentation about the logistics of online and multi-channel retail the client asked about the risks associated with a company operating out of a single warehouse compared with multiple warehouses.

This was a relevant question given retailer ASOS had been in the news recently as their warehouse in Barnsley, which is used to service customers globally, was damaged in a fire, causing the company to close its website and cease trading for 48 hours (for the sharp eyed amongst you, I have previously discussed this example in a blog relating to contingency plans).

So in answer to the question, allow me to weigh up the pros and cons.

Operating from a single warehouse comes with a number of benefits: it allows a company to have a full view of its inventory and to keep stock levels lower as it does not have to be spread out across a number of warehouses. Additionally, if the warehouse is used for fulfilling internet orders via a parcel network then the latter may enable an efficient logistics operation from a single building.

However by using a single warehouse there are operational and consequently reputational risks that can arise when something fails either within, or around, the warehouse. Weather can provide some potential risks with flooding and snow for example affecting access in and out of the building. There are also potential risks internally, for example if the warehouse is highly automated and the automation fails then this will have a knock on effect on the supply chain. When operations in a single warehouse fail and a company does not have access to another building this can result in a period where the company cannot sell its stock until the situation is resolved. And throughout this period the risk of losing customers is of course heightened.

In my opinion, the important thing for any company to realise is that irrespective of it operating from a single warehouse or across multiple warehouses, there are a number of things it will need to consider to run a fully efficient supply chain:

  1. Running a system that provides a full view of your inventory no matter how many warehouses you occupy.
  2. Being set up to handle returns so that items get back into the system as quickly as possible.
  3. Having warehouse/s in the optimum location to cut down transport costs.
  4. Setting up a good contingency plan to allow for any potential threats to the warehouse, for example if the warehouse is damaged and unusable being able to quickly access another building so that the company can carry on operations.

These four points highlight the importance of a company knowing its stock in terms of what is where; being able to deliver it to customers on time; and ensuring that if anything happens to its warehouse that it is still able to continue to operate its business. I think that with social media becoming more prevalent in everyday life, companies will increasingly find that when it has a problem delivering goods to a customer, that the customer is not afraid to give their opinion of the company through the likes of Twitter and Facebook be it sympathetic or not! This can then be seen by thousands of people which is a scary thought for any company!