Including operational costs in warehouse location problems: A case study in USA

Abstract

There is vast research on particular aspects of warehouse design - layout, material handling, order picking, and operating policies - when, in fact, the decisions involved in the process are interrelated. In this paper, we develop an engineering economics framework for warehouse operations that decomposes the cost structure of the operation and lays out the relationships between them. Our framework decomposes operational costs into four exogenous characteristics (wages, leasing costs, cost of capital, and access to technology) that depend on the geographic location of the warehouse and two operational requirements (throughput and storage capacity). Using these six parameters, and publicly available information, practitioners can estimate the total operational cost of the warehouse for potential locations in facility location analysis, which have been traditionally limited to transportation costs. In our case study, we use our framework to establish a rank of preferable warehouse locations in terms of operational costs among logistics clusters in the United States of America.