The AOP Category Cost Drivers Series is a new content offering created in partnership with ProcurementIQ.
Today we will uncover the primary cost drivers impacting warehousing and storage providers.
The Numbers
Operating a warehouse requires a considerable number of employees to perform a range of tasks, including operating forklifts, managing warehouse space, and running operations. Suppliers in this market face significant overhead costs, including utilities, rent, depreciation of machinery and vehicles, and maintenance.
The majority cost drivers are wages at 31.2%, supplier profit and overhead at 42%, and rent and utilities at 12%. Although there are other cost drivers that procurement may be able to address, including fuel, MRO, and packaging, they are relatively small and are unlikely to deliver the broad impact savings procurement is looking for. Utility costs present an especial challenge, as they have been increasing at an estimated annualized rate of 11.1%.
How to Use this Information
Although the prices paid by procurement are affected by general supply and demand, supplier cost drivers are an important data source. They not only provide procurement with insight into how large or small the savings opportunity is likely to be, they also illustrate the relative efficiency of each prospective supplier’s operation. Procurement can request this information in an RFP and benchmark against their responses, as well as using it as a point of discussion in subsequent negotiations. Once a contract is in place, procurement can track the underlying input costs to support cost reduction negotiations or to understand the validity of supplier cost increase requests and respond appropriately.
Dig Deeper
We have partnered with ProcurementIQ to dig into their treasure trove category intelligence reports, with new insights every Friday. To dig deeper into the Warehousing and General Storage category, and over 1,000 other indirect spend categories, visit procurementiq.com
