In relation to economies of scale is economies of agglomeration. How does a manager decide where to build or open a warehouse? There are many factors to take into consideration: economies of agglomeration, which is the analysis of urban spatial structures and location of households. Location of warehouses affects the bottom line of your balance sheet. Poor placement could mean added labor expenses, increased transport cost, and even increased assembly costs. Placement of warehouses in the right market is important to ensure a successful company.
Part of this theory relates to functional linkage, which is the link between industries that manufacture related products. This includes information, raw materials, finished goods, and transport links. By placing your warehouse in a market conducive to your industry, you can take advantage of external economies like labor and training. For example, industrial links and support can include exchange knowledge between firms, product exchange, or delivery through proximity.
Another factor to consider is the current economy and unemployment rates as well as labor search. A warehouse located in a city that has labor resources, but is located beyond reasonable travel proximity can adversely affect payroll expenses along with transport costs. A thorough analysis of the warehouse requirements along with the urban economics is important when considering a warehouse location. Make sure you know the advantages of that come with warehousing.
Sources:
answers.com
huduser.org
Journal of Urban Economics
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