Topic for Discussion: How do you know whether your business would benefit from a central warehouse facility?

Answer: Crunch the numbers. There's really no other way. Establishing and maintaining a separate location for receiving, storing, and shipping inventory items entails incremental costs to your business. These costs include rent or interest and depreciation in the case of an owned facility, other occupancy costs such as insurance and utilities, personnel cost for staffing the warehouse, and administrative costs such as technology and accounting requirements. These costs need to be compared to the positive bottom line impact of having such a facility.

Topic for discussion: What benefits might you expect from maintaining a separate warehouse facility?

Answer: Marcel talked about the benefit Navarro Pharmacy has realized is in the company's cost of goods. Buying for multiple stores at the same time increases the size of their purchase orders and thereby makes them a more valued (bigger) customer to their vendors. Navarro is able to reduce their costs, which in turn allows them to provide their customers with lower prices while still selling their products at a profitable margin. Lower prices are something customers notice, and when combined with all the other things the Navarros do right, result in higher market share.

Topic for discussion: Are there other benefits of maintaining your inventory in a single location?

Answer: There sure are! Inventory control is one of the biggest challenges a small business owner faces. A separate location facilitates achieving the ultimate and often elusive goal of just-in-time (JIT) stocking. Overstocking of inventory is expensive since it ties up your capital or results in increased interest cost.

Even more costly, excessive quantities of inventory lead to obsolescence and/or spoilage problems, resulting in markdowns and lost profits. "Stock outs," not having an item available that a customer wants to buy, are potentially the most damaging aspect of a poor inventory control system as they result in lost sales and even lost customers. These costs are difficult to measure since they are "off the books" but they have just as big an impact on the bottom line as the costs associated with overstocking.

You think about it: How can you increase your influence with suppliers?