Contract Logistics Cost Model

Warehousing Costing methods vary with the business models. While some warehouses using common shared facilities may be worked up based on transaction costs, dedicated and stand alone facilities would be on a different costing model.

In this section, we shall go through the cost elements of a warehouse project briefly.

Warehouse Cost elements are primarily divided into Fixed Costs, Variable Costs and Overheads.

  1. Cost of Land & Building

    This cost element is included if the land and building are provided by the 3PL and not the buyer.

    Incase the land and building is acquired by the 3PL, the cost of land and building may be amortized over the life of the building or as per industry standards (average 10-12 years) and proportionate monthly costs can be added. One needs to ensure that the costs are realistic and nearer to market rates for rentals.

    Incase the land and building is rented by the 3PL, the cost of monthly rental along with the cost of funds for security deposit may be added to the costs.

    All costs would be worked out for the term of contract period with annual escalations considered annually.

  2. Infrastructure Cost

    Cost of acquisition of all infrastructure including racks, MHE, Charging equipment, dock levelers and any other equipment including office equipment are itemized and amortized over the contract period or over the shelf life of the equipment as the case may be, to arrive at monthly cost of infrastructure.

  3. IT Infrastructure

    IT infrastructure consists of the cost of Hardware & Cost of Software. Hardware covers all servers, desktops, printers, laptops, RF Equipment and any other IT related hardware.

    Software application costs include cost of WMS based on one-time fee or individual number of user license, cost of other soft wares including mailing system and any operations related soft wares.

    IT Costs are amortized over two or three years depending upon statutory audit guidelines.

  4. Manpower

    Detailed manpower costing will include the cost of Management Staff, Operating staff, in-house operatives and outsourced operatives like labor, MHE Drivers, etc. Outsourced security staff costs are also added under this item heading.

    In case of in-house staff, detailed calculations based on cost to the company is worked out including staff benefit, insurance, bonus, training costs, uniform, etc. along with proposed incremental cost over the number of years as per contract period.

    Outsourced staff costs are also tabulated for the contract period including annual escalations.

  5. Utilities & Consumables

    Utilities are not fixed costs. They are monthly variable costs. The items in this category are the costs towards office and communication expenses including telephones, the internet, etc., stationary and consumables both for office and shop floor items like tapes, packing materials, etc., cost of electricity, water, fuel, etc.

  6. Administrative expenses

    Costs of office support, cost of insurance and third party liabilities and travel costs, etc. including any other statutory costs, deposits are covered here.

  7. Overheads

    Cost of management time is estimated and included here. Alternatively, a percentage of corporate or regional office cost overhead is loaded.

    Cost of money or interest cost on working capital for three months can be included.

  8. Profit/Management Fee

    Management fee can be added as a percentage of total cost or a fixed amount.

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