Capturing Warehouse Costs and Margins - Part II
This is the second part of my blog on warehouse costing.
In my previous blog, we touched upon activity based costing. Now let's look at storage based costing.
As I had mentioned earlier, just to recap, there are three types of costing which comes under storage, they are 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.
Let's first look into Fixed Rental Based Costing. In this model, the client pays a fixed fee to the 3PL provider, irrespective of the volume of goods stored during the billing period. There can be additional parameters like the fixed space used during the period that would have a ceratin rate. In case the client exceed the space used and moves to the next bracket, then the Fixed rental fee for the next space bracket would apply. For example, the client can use upto 500 square feet a month for which he would be charged say $300. Now if he exceed 300 sq ft for that period (week/month), then he would fall under the 501 to 1000 sq ft bracket which will have a higher rate, say $500. There can be 5 to 10% tolerance that can be applied to each bracket (based on the Contract with the client), beyond which the storage cost can move to the next bracket.
Now let's look at Storage Unit of Measure (UOM) based costing. Here, the storage charges are based on the storage UOM, which can be square feet, cubic feet, etc . The rate is based on the UOM, like $50per Sq Feet per week/month. Clients can choose which UOM they would go with, which would depend on the the shape and dimension of goods they want store in the warehouse. Also, a minimum monthly fee can be applied, in case the total storage cost falls less than the minimum monthly fee. (Say $300 per month, below which the warehouse may incurr loss).
Finally, we have Pack UOM based costing, where storage is charged based on the UOM of the Pack code of the items being stored. This can be Carton, Box, Drums, Pallets which can have their indivdual rates based on the standard size for each of these catagories. Say, for example carton of Size 20 x 10 x 10 inches would have rate of $10 per carton stored for a month. This size will have a certain pack code maintained by the system to whcih this rate will be attached. In the same way other storage Pack codes will have different rates based on the sizes. The storage cost will depend upon the total number of Pack Codes that were stored in the warehouse during the billing period. Here too, a minimum monthly fee can be made applicable.
Next, we will look into how a 3PL contract needs to be formulated between a 3PL provider and the client utilizing its services.