Choosing warehouse providers has a big impact on your supply chain’s ability to meet customer demands. It should be handled using the following criteria as building blocks to achieve a cost effective and efficient supply chain operation relative to your business.
Here are key criteria to consider when making the decision:
Location, Location, Location! A warehouse should be strategically situated to serve the customer base quickly and efficiently. Customer proximity is a critical factor, as it reduces delivery distances and lowers outbound freight costs due to shorter transit routes. In addition to selecting a location near the customer base, it is essential to ensure proximity to key modal transportation options. For over-the-road trucking, the warehouse should be near major highways. For imported or exported goods, proximity to applicable ports helps maintain reasonable drayage costs and efficient container turnaround times. In cases where rail intermodal or boxcar equipment is used, access to nearby railheads or a rail-served facility is necessary. For airfreight needs, proximity to key airports is also important. Ultimately, the warehouse location must offer strong access to the modal options that support the business’s specific delivery requirements.
Scalability! When a business is in growth mode, it’s essential to assess whether the warehouse can scale to meet projected increases in demand. It’s also important to evaluate the warehouse’s capacity to adapt to seasonal fluctuations that may affect business volumes. Outgrowing a warehouse due to its inability to scale can hinder operational efficiency; the goal should be to grow into a space, not out of it. Contract terms should align with anticipated business needs. If long-term forecasts are uncertain, it may be prudent to avoid committing to extended contract periods. While longer contracts can offer stability in pricing and escalation clauses—providing greater cost predictability—overcommitting can be risky. Contracts should be structured to avoid penalties in cases where inventory must be withdrawn early. Ultimately, “lock-in” rates and terms should reflect the operational and strategic needs of the business.
Visibility! A strong Warehouse Management System (WMS) is essential for efficient warehouse operations. When integrated with an Enterprise Resource Planning (ERP) system, a WMS enables accurate inventory tracking and management. In a B-to-B environment, providing customers with real-time information on product availability, shipping status, and delivery timelines is critical for maintaining high levels of customer satisfaction. For B-to-C businesses operating on E-Commerce platforms, seamless integration between the warehouse system and the sales platform is necessary to ensure smooth and efficient operations. A WMS that offers real-time visibility into inventory levels and the movement of goods to customers has become indispensable in today’s fast-paced business environment.
Cost Control! Warehousing costs have a direct impact on profit margins, so they must be carefully established and closely managed. Transparent pricing allows for a clearer understanding of costs related to storage, handling, pick/pack, and other services provided by the warehouse. It is important to identify all associated costs within the agreement. Some contracts include penalties for under-utilization, often tied to minimum volume thresholds. Unfavorable pricing terms—particularly unexpected ancillary charges—can significantly erode margins. Any potential hidden fees related to seasonal demand or long-term storage minimums should be identified and negotiated in advance. Contract terms should be structured to support the business, not create unintended financial burdens.
Protection! Security is a fundamental requirement for warehouse operations. When evaluating a warehouse, it is essential to conduct a thorough review of the physical security measures in place. Surveillance equipment should be assessed to determine whether it is sufficient to protect products from loss or damage. Proper access control for ingress and egress, along with fully functional alarms—especially during off-hours—are critical. The frequency of alarm system testing and the availability of detailed testing records from the operator should also be reviewed. For high-value merchandise or items vulnerable to theft or pilferage, it is imperative that the warehouse provides an appropriate level of protection.
Another key consideration is insurance coverage for inventory in the event of a loss. In cases of Force Majeure events, the level of financial protection offered by the warehouse operator must be evaluated to ensure it adequately covers potential losses. Liability terms should be clearly defined, and measures to safeguard inventory must be robust. This includes fire suppression, climate control, and backup power systems, all of which should undergo routine inspections and continuity testing. In the event of a disaster, these systems must perform reliably, and the warehouse operator should be able to demonstrate that preventive measures are in place to safeguard inventory under all circumstances.
Accountability! A clear vision of what “success looks like” is essential, and Service Level Agreements (SLAs) are the standard method for defining and measuring this success. A well-constructed SLA outlines the key performance metrics required to evaluate operational effectiveness, along with the performance targets that, when met, indicate success. Metrics such as picking accuracy, inventory loss and damage, on-time order shipping, order turnaround time, on-time delivery to customers (if applicable), and fulfillment accuracy are critical for any warehouse to commit to, monitor, and achieve. If returns are part of the operation, the SLA should also include metrics related to return processing and return rates.
Credibility! The reputation of a warehouse provider with both former and current clients is an important factor to evaluate. Feedback from other customers can offer insight into the consistency and quality of service provided. A strong and reliable reputation in the markets served is a positive indicator of performance. Client references and testimonials help verify the warehouse’s ability to deliver on its promises. Length of service to clients, along with relevant industry certifications such as ISO or FDA compliance, should also be considered where applicable.
For businesses requiring food-grade warehousing, it is essential that the facility has all necessary systems in place to meet applicable Food Grade standards. Case studies from actual clients can provide further clarity and allow the warehouse operator to demonstrate successful management of specific business needs. Additionally, client retention is a valuable metric; a longer average client relationship typically reflects a well-functioning and dependable operation.
Compatibility! When specialized services such as climate control or cold storage are required, it is essential to clearly define the specific needs and ensure that the prospective warehouse is equipped to provide those services. Additional offerings—such as kitting, labeling, or custom packaging—can vary significantly between businesses, and what works for one client may not be suitable for another. Thorough documentation of service requirements should be prepared and aligned with the capabilities of the warehouse provider.
Another important consideration, where applicable, is the ability to handle dangerous goods such as chemicals. It is critical to confirm that the warehouse staff is properly trained and certified in dangerous goods handling procedures, and that the facility is appropriately equipped to manage such materials safely and compliantly.
Support! When sourcing a warehouse, back-office and customer-facing operations are just as important as the operational staff handling products. Having a dedicated account manager is valuable, as it provides a single point of contact for daily communication and issue resolution. An effective account manager serves as an internal advocate for the client’s business within the warehouse operation, ensuring that interests are represented and supported.
The warehouse must demonstrate responsiveness to both client and customer needs. If the service model appears rigid—where staff follow a one-size-fits-all approach that does not align with the business’s operational style—it may indicate an unsuitable partnership, regardless of other strengths. Additionally, support should include robust data analytics capabilities to enable close monitoring and tracking of inventory performance. On-demand reporting is critical to maintaining real-time awareness and ensuring high levels of operational visibility.
Inspection! In addition to the considerations mentioned above, facility tours provide valuable insight into how well an operation is managed. Visible cleanliness—such as a spotless environment versus trash on the floor—can serve as an immediate indicator of overall discipline and attention to detail. Facility lighting should be assessed, particularly whether cost-effective systems are in use that activate only when areas are occupied. Equipment capability is another important factor. For operations involving lightweight, rackable products, the warehouse must be equipped with the appropriate handling tools. For heavier, high-density items, the facility must have suitable equipment and dock infrastructure to manage excess weight efficiently.
Ultimately, warehouse selection involves evaluating a combination of critical factors to support a sound decision. A warehouse functions as an extension of the business it supports and should be considered accordingly. The outcome of this decision can significantly influence the performance of a supply chain—either positively or negatively—making careful and thorough evaluation essential.
Riverside Logistics has nearly 30 years of experience in the warehousing industry, providing expert guidance in the selection and management of warehouse facilities for a diverse range of clients. Understanding that each client’s requirements are both unique and overlapping, we assist in identifying specific needs, assessing associated costs, and determining optimal solutions. For personalized consultation, please contact us at 804-474-7700 and request to speak with a warehousing specialist.
