Warehouse Costs: Storage, Possession, and More
Storage Cost
Storage cost refers to any cost that comes from the physical use of space in the warehouse during a determined time.
Possession Cost
Possession cost is a financial concept that encompasses storage cost plus other concepts derived from risk and the interest of invested capital.
Cost Center
A group of people/machines that do similar and repetitive operations in the storage area. Examples:
- Picking products
- Product preparation
- Truck loading and unloading
Operation
A group of specific work that is done in a cost center; could be manual or mechanical. Examples:
- Shrink wrapping of pallets
- Packaging
- Labeling
Process
A group of operations done sequentially in a cost center, or through different cost centers, whose principal objective is to cover a determined activity of the warehouse. Example: goods reception, goods storage, dispatch preparation.
Fixed Costs
Fixed costs are those costs charged in a periodical or continuous way, independently of the warehouse level of activity. Example: insurance, amortization, rent, the salary of fixed personnel.
Variable Cost
Variable costs are those charged in function of the activity done. Example: Electrical bills, personnel hired by hours, materials.
Direct Cost
Direct costs are those costs charged directly to a specific process or operation. Example: operator cost, amortization of specific equipment, gas-oil consumption.
Indirect Cost
Indirect costs are those costs that should be distributed to the productive processes as a calculated fee, according to an equity criteria.
Cost
COST is the group of expenses, consumptions, and sacrifices that are carried out in a productive process, which could be payout or not (amortization).
Type of expense generated:
- Facility amortization
- Facility maintenance
- Facility rent
- Lighting
- Furniture insurance
- Electricity
Way to distribute:
- Occupied area
- Occupied area
- Occupied area
- Light points
- Occupied area
- Installed equipment power
Storage Unit Cost
The storage cost of a product is directly related to the space occupied in the warehouse and the average stay time in this one. This concept is transformed into a percentage over the price cost of the product. This concept is based on knowing the “storage area”, linked to some administrative criteria.
Cost of Product Possession
Cost of product possession is a financial concept applied either to stock management or in general to all the calculations to make a decision. It is formed by three concepts:
- Cost of storage product
- Risk cost
- Opportunity cost (Cost of interest)
Capital Interest Cost
Depending on the type of interest rate applicable, we should take into account the following principles: The higher interest rate paid for company pending loans, market average interest rate.
Storage Cost
Includes fixed expenses either direct or indirect charged to the storage area; they should be proportional to the occupied capacity. The storage cost of a product will depend on its physical features because its cost will be related to the volume required for its storage.
Risks
Risk costs are related to the insurance that companies have to pay for located merchandises; this will cover fire contingencies, theft, and product damage.