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Capturing Warehouse Costs and Margins

This is my third blog which is an extension of my previous one, "Channels to Leverage Warehouse Revenue". In this blog, I will explain what a WMS software needs to scale up to in order to capture revenue related information.

First, it must be able to capture costs for warehousing tasks carried out or space utilised. Having said this, tasks carried out will be treated under activity based costing, wherein each activity carried out within a WMS transaction will have an certain cost associated to it.

Let us understand this with an example. Take the case of Kitting that needs to be carried our for a certain product before it needs to be packed into a shipping carton. The cost associated with the kitting task would be labour cost, equipment cost, consumables used,and so on. This would all pile up to the cost that incurs to kit a finished product.

The WMS needs to provide capabilities to define such costs. Next, there needs to be a margin applied to each of these cost and also a overal margin over and above the total cost. This will define the profit that the warehouse will make when product comes out from this kitting process. The cost plus margin is then charged as customer who utilizes the kitting services of the warehouse.

There may be many such activities that can be defined within various warehousing transaction for which a customer can be charged for. Cost of other expenses can also be factored in like Pulley cost, Batteries, Labor unloading from Truck, Security Cost, Salaries of Labor, Cleaning Expenses and so on. These costs need to be associated with relevant warehousing transactions and need to be tracked as and when these transaction are being executed. These costs are accumulated over a period, say a week or month and billed to the customer, of course, with the margins added to each of them.

Next, we will delve into the other side of costs that can be defined and charged to the customer utilizing the space. This is known as storage based costing.
This can be defined as Storage Unit of Measure (UOM) based costing, Package UOM based and Fixed rental based costing. These are the three types of costing that can be defined, tracked, captured and billed to the customer.

In my next blog, we will delve much deeper on each of these storage based costing on how they need to be setup, with real situational examples. 


1. The activity based costing is useful for logistics service providers who provide warehousing and VAS services to multiple clients in the same warehouse.
2. The WMS should also ensure that client confidentiality is maintained for all such transactions.

Good post. Our 3PL clients use a graded scale also based upon 'sit time'. I am interested in the follow up, especially with regards to non host dependant costs.

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