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Is Your Warehouse a Cost Center or a Profit Center?

Is Your Warehouse a Cost Center or a Profit Center?

November 25, 2014

Each entity in distribution operations, each piece of the “value stream,” is part of your company’s financial picture. But distribution centers and warehouses tend to be viewed as cost centers – not profit centers – and it becomes a very clear distinction in terms of how you might approach your distribution operations.

Think about it this way: What if you had to outsource your distribution operations and the functionalities you now provide internally? How much would you pay for it? An even better question: How much would you want to pay someone else to do it? How would it affect your profitability?

Your mindset has to change. You have to show what profit a distribution center/warehouse can generate. What is it adding to the bottom line? How do you actually show how much profit it is pulling for the company?

It’s more than just saying: “I want to improve.” Ask yourself what the financial impetus for that investment is. There is none, if you are not playing in the arena that companies are driven by - the financial arena.

A distribution center can absolutely be a profit center, if your definition of profit is retaining more money than you have previously. If you save $1 in the distribution center, you put $1 into your pocket.

You made more money on the same sales and the same margin than you did before – and that's more money to the bottom line.

It begins with changing your mindset. If you start viewing your warehouse as a profit center, you can operate it as one.

I recently released a white paper with tips on how to make your warehouse a profit center. Download it here.

As principal of MCA Associates, a management consulting firm since 1986, Howard Coleman works with wholesale distribution and manufacturing companies that are committed to operational excellence, providing thought-leadership and continuous improvement solutions. Learn more at mcaassociates.com.

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