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One has to ask What, Where, and How when it comes to your warehousing strategy.

Or
another hot area to consider in build-to-order fulfillment is the explosion of 3D Printing
Companies.
There are at least 3 critical items that allow you to reduce costs and increase service level
in warehousing:
1.

Tight and Necessary Warehousing Processes

2.

What Warehouse Metrics do you have in place to help you determine if your
processes are going well or not.

3.

You warehouse location is optimal in the first place to meet service level
commitments.

4.

These together will help you reduce costs in your warehouse.

Where to build a distribution center, fulfillment center, or warehouse is a strategic


question. The answer to where are drivers to costs and the customer experience.
Where to build your next warehouse is an incredibly important question to answer.
After you answer the where question, then we need to discuss what warehouse
processes and warehouse metrics ought you establish.
There are, of course, many factors to consider:

What is your expected inventory profile?

What is your geographic distribution strategy?

State and Municipalities incentives? State and Local Government Incentives?

Proximity to the Logistics Carrier (such as UPS World Hub or Ground Transport)

The pool of local talent available in the area.

Inbound and Outbound transportation costs.

Access to interstate highway systems or inbound sea import locations.

Crime rate, Housing, Educational Facilities

State Taxes, Nexus

Building construction codes and zoning restrictions

The above are important criteria and should be considered. But, to answer the question
of where, also requires a more quantitative approach that should be used in concert

with the above considerations. One common approach to identifying where to build the
next single fulfillment center location is a method called the Center of Gravity Method.

Center of Gravity Method


The Center of Gravity Method is an approach that seeks to compute geographic
coordinates for a potential single new facility that will minimize costs. Its an approach
where the main inputs that it considers are the following:

Markets

Volume of goods shipped

Shipping costs

This method is beneficial because its (1) Simple to compute, (2) Considers existing
facilities, (3) and Minimizes costs.

How To Use Center of Gravity Method


Step 1:

Place existing warehouse, fulfillment center, and distribution center locations in a


coordinate grid.
Place the grid on an ordinary map.
The relative distances must be noted.

Step 2:
Then, using the equations below,

Cx= dix Vi/ Vi

Cy= diy Vi/ Vi

We calculate the X and Y coordinates using these equations where Cx is the X


(horizontal axis) coordinate for the new facility. Cy is the Y (vertical axis) coordinate for
the new facility, dix is the X coordinate of the existing location, diy is the Y coordinate of
the existing location, and Vi is the volume of goods moved to or from the ith location.

Step 3:
Once you have obtained the X and Y coordinates place that location on the map.

But, it doesnt end there. As I mention earlier, there are other factors to consider. What
this method allows is a point of departure or, literally, a starting point of where (from
the perspective of longitude and latitude) you options are for where to grow your
fulfillment or logistics network.

Center of Gravity Example


Lets suppose your company wants to expand its logistics network and locate a facility
within a network of three existing facilities. Given the following assumptions below,
what are the coordinates for the new potential location?
Lets assume the following:

Warehouse 1 has a daily outbound goods volume of 2,500 units

Warehouse 2 has a daily outbound goods volume of 1,300 units

Warehouse 3 has a daily outbound goods volume of 5,000 units

And the current coordinates of the existing facilities:

Given the assumptions and grid coordinates above, we get the following:

d1x= 200

d2x= 300

d3x= 100

d1y= 50

d2y= 100

d3y= 150

And,

V1= 2,500

V2= 1,300

V3= 5,000

Which gives us,

Cx= (200 x 2,500) + (300 x 1,300) + (100 x 5,000) / (2,500 + 1,300 + 5,000) =

158
Cy= (50 x 2,500) + (100 x 1,300) + (150 x 5,000) / (2,500 + 1,300 + 5,000) = 114

If we were to plot the new suggested warehouse coordinates on the grid, we would get:

Or course the discussion doesnt end here. Once a coordinate or several are identified
given the current logistics network context, then other factors must be considered. This
is just the beginning a point of departure.

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