How to Plan for Relocating an Ecommerce Fulfillment Center

The planning and execution of an ecommerce fulfillment center relocation is a massive undertaking. The budgeting of one-time costs, startup costs and ongoing expenses alone involves a rigorous process.

I’ll demonstrate how we approach a FC move and provide an example of how we collaborated with an ecommerce client to develop their budget for opening a new FC while operating two other facilities during the transition.

New location

The first step in an FC move is to select the location. Among the major financial considerations are available space and costs, labor costs and labor market/pool and shipping costs.

One recent client’s first choice was to remain in a major metro area in order to keep current management and fulfillment staff. In reality, there were no facilities within a 100-mile radius that were large enough to include expansion to 100,000 square feet. The triple net lease cost for the new warehouse will cost 25% less than current square foot costs.

Their site studies showed current warehouse labor costs were a minimum of $3 per hour higher than smaller cities surveyed. The company made a tough decision to move its ecommerce fulfillment center operations to a smaller city that was 350 miles away, where quality labor was more available at a significantly lower cost. This move meant an all-new management team and fulfillment staff had to be recruited.

Plan by month

FC moves of larger facilities typically take six to 12 months from the time the lease is signed.

The detail line item budget was projected by month from lease signing through the shutdown of the existing facility. This approach gave management visibility into the incremental expense increases for personnel, purchasing equipment, deposits due and overlapping transition costs for two facilities.

Expense planning considerations

We recommend the following considerations during your budgeting process:

Personnel budget

Our client has 75 total staff members including management and department leads. Because of the distance from headquarters, one of the major considerations was hiring a capable and experienced operations director who could be trusted to manage the facility with minimal senior management involvement. Salary databases for the selected market showed both warehouse and fulfillment center managers earn $50,000 to $125,000 plus bonus and benefits, obviously indicating a big range based on experience and skills. The client decided on a salary of $90,000 (in the 75th percentile) plus bonus and benefits.

The client developed a personnel budget at the detail level by job title, hours worked annually and wage rates. If applicable, they included performance and retention bonuses and severance costs. Retention bonuses were used to incentivize existing employees to work the transition period.

Recruitment and training budget

By job title, plan the number of new hires by week. Recognize the need to hire more employees initially, keeping in mind churn rates, in order to end up with the required staffing level. Set up a separate line item for estimated employee turnover. Turnover by week can be anywhere from a couple percent to 20%. Be sure to include hours impacted by agency fees and overhead cost per hour, advertising and other recruitment costs and training hours and costs in your calculations.

Budget for loss of productivity

The reality is that starting up a new ecommerce fulfillment center takes time for the staff to reach your expected productivity goals. In concert with the task plan, make your projection for orders, line items and units by facility. Set hiring goals and order productivity by week for each facility. How will the two facilities keep up with the projected incoming orders? This can be done by hiring more temps, paying overtime and transferring fewer orders to the new facility until they are up to speed.

Budget for infrastructure costs

Items to include in your projections include: RF devices and handhelds; security system; desktop computers and printers; telephone equipment and communications; routers and servers; office equipment; pack stations; trash compactors; and facility upgrades (e.g. dock levelers).

MHE and storage costs

Items to include: pallet rack and shelving; conveyors; pick carts; lift trucks and pallet jacks; recharge stations; wire decking; carton/envelope sealers; shipping/manifesting systems; taxes; delivery and installation.

Relocation of equipment

What equipment can be used in the new warehouse? Include costs for disassembly and setup for reuse of existing equipment, electrical and preparation and transportation.

Facility expense plans

For all other expenses, plan out the individual facility expenses by month and merge the results of the above expenses. These include payroll and benefits, shipping costs, packing supplies, communication, utilities, lease and travel. Transportation costs will include transfer of remaining inventory to the new facility. Include any disassembly costs or shut-down costs for the existing facility.

Opening a new ecommerce fulfillment center is a major logistical and financial effort for most companies. Good planning is required so management knows the assumptions about the ramp-up as well as when cash needs to be available for capital purchases and one-time expenses.

Curt Barry is Founder and Chairman of F. Curtis Barry & Company

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