Another 3 Years

We recently renewed our lease to stay in our warehouse for another three years. Over the past six months we seriously considered upgrading to a new facility. We could use more office space. We could use another shipping dock. We could use more space for our products.

But ultimately we weren’t ready to make that huge jump. If we were going to move, we’d probably jump from just over 5,000 sq-ft to around 15,000 sq-ft. At that point everything becomes more expensive – the rent, the heating, the lighting.

Right now the low our warehouse is one of our competitive advantages. We aren’t ready to give that up quite yet. There’s still space to comfortably fit in more products. We don’t plan on adding any full-time employees any time soon, which would force us to add more desks. If we ever do outgrow our place faster than anticipated, our lease includes an out that allows us to upgrade to one of our landlord’s properties at any time, and they own a sizable amount of the commercial real estate in our area.

Plus, our customers never see our warehouse. I’d rather focus on making their entire shopping experience top-notch.

The lease included some small improvements to upgrade our current place, such as some new doors and fixing our second bathroom so it’s usable (we’ve never actually had a second bathroom). Along with previous upgrades to the office and heating system (and our coffee machine!), we’ve improved the place quite a bit. It’s gone from a place I despised – mostly due to the lack of cleanliness and oil heat smell – to a relatively comfortable work environment for us and our employees. It’s more than adequate for us to grow our business to the next level. Now we’re able to take the time spent contemplating relocation and focus on doing just that.

9 comments on Another 3 Years

  1. Rob says:

    Hey,

    congratulations on signing for another 3 years, it’s really great you’re thriving.

    If you need more space but don’t want to move presumably there are other options – like making more of the space you have by using taller shelves and stairs/scissor cherry picker, or library-style moving bookcase shelves or perhaps trying to turn over your stock even faster using a just-in-time inventory system with narrower time margins than you have now.

    I’d be interested to see a chart showing how long various items stay on your shelves – presumably some are much slower moving than others so you have fewer in stock and I suppose you also need to take account of varying lead times from different suppliers.

    • Adam McFarland says:

      Thanks Rob. Really good observations as always…

      Taller shelves is an interesting debate amongst us. Initially we always thought it would be something we’d do given how tall our ceilings are (approx 30 ft) and how short our shelves are (6 ft). However, it does introduce quite a bit of added complexity to stocking products and packing orders, as well as warehouse safety concerns. We’ve spoken to other similar businesses and most say they’ve avoided going upwards. The head of our industrial park told us that from his experience the cost of going up isn’t generally worth it – that it’s more cost effective to get more square footage than to introduce fork lifts, training programs, and reduce the time to add and remove products from the shelves. For now we’re trying to really avoid it.

      Our inventory is pretty just-in-time right now but there are a few things holding us back. We’re turning over the full retail value of our inventory every 2.5 months or so. Now some products sit much longer and some are off the shelves immediately. We have begun to weed out some of the slower sellers, which will help. Overall though this has been one of our greatest competitive advantages. My partner Greg is really really good at only picking up products that will sell, he has a golden touch.

      Our suppliers are notoriously inconsistent with their lead times, which I think is the biggest detriment to our JIT efforts. You did spark an idea in my head to have one of our employees do a study of lead times by distributor to figure out who the worst offenders are. That’s something we haven’t done…the absolute worst are obvious but some other ones might be more inconsistent than we realize.

      At some point I plan on having Bobby, our math major, do an overhaul of our projections system, which right now just uses the past 30/60/90/120 days to project out the next month and doesn’t account for all of the many other factors that can influence sales. That’s when I think we’ll be able to make another jump and go even leaner potentially with our inventory.

      One other factor keeping us from being ultra lean is the incentives that the suppliers offer. Some offer free shipping over $x or a 5% discount when we spend $x so we try to always take advantage of those when we have the cash and it’s a product that sells. It’s a tradeoff – you save some $ but there’s the associated cost of stocking the products.

      • Rob says:

        What about adding a mezzanine floor? Maybe buy some shipping containers and stack them in your warehouse with a stair/gantry system?

        Do you think your industrial park head is biased as he’s got a vested interest in selling you more space?

        Frustrating that the lead times are inconsistent – at least if they’re just long then you can forward predict a bit… Do you pay when you order, when they ship or on net 30, 60, 90 etc?

        Do you have enough buying power/good enough historical relationships to try and negotiate on the discounts they offer?

        • Adam McFarland says:

          What about adding a mezzanine floor? Maybe buy some shipping containers and stack them in your warehouse with a stair/gantry system?

          We have thought about this. Mike is a big proponent of it. It’s tough to gauge the cost and time involved vs. how much time it’s going to buy us before having to move. It’s certainly a possibility, especially if we’re certain we only need an extra 1,000 sq-ft or something.

          Do you think your industrial park head is biased as he’s got a vested interest in selling you more space?

          It’s a possibility but I don’t think so, only because we’re super small potatoes to their company. We’re in the smallest space they lease in this park. I got the feeling he was genuine when we discussed it but there is certainly a potential conflict of interest. We’re most concerned about the safety aspect – buying forklifts, training employees, complying with OSHA regulations, etc.

          Frustrating that the lead times are inconsistent – at least if they’re just long then you can forward predict a bit… Do you pay when you order, when they ship or on net 30, 60, 90 etc?

          Many are net 30, others are pay when you order, which we try to put on credit card for as many as we can (to earn points and for simplicity). For some we do have to send a check before they ship but that’s rare.

          Do you have enough buying power/good enough historical relationships to try and negotiate on the discounts they offer?

          In some cases we do. Greg negotiates the best he can. Some of those deals we have aren’t offered anymore but we’ve been able to negotiate to keep them. That’s more common than getting an outright special discount. We’re never the suppliers #1 customer, we’re usually in the middle of the pack, which only gives us just so much leverage.

          • Rob says:

            In the big box stores around here (costco etc.) they have open cases up to 6-7′ and then another 6’+ above that of shelves with full cases in. When a case of product gets finished, they move another case down and open it. If you did a similar thing, you could have people pick from the open cases, you’d gain lateral shelf space as you’d store stock vertically rather than horizontally so you could both carry more lines and more product. It would double your carrying capacity in one go and the best bit is, you don’t need everyone trained in using those higher shelves, just whoever it is rotates the stock. They access the higher shelves with these http://bit.ly/13GSWO2 or scissor lifts. You’re absolutely right that it’s cheaper to go out rather than up, on a per-square foot basis, however on an overall cost basis I simply don’t buy it. If that were the case why would cash & carry/trade wholesalers/warehouses you see in lots of youtube videos do it?

            Going in a completely different direction, did you ever calculate the cost of outsourcing your warehousing to a 3PL company? How does that compare to your current costs?

          • Adam McFarland says:

            Valid points Rob. The stair case you linked to would probably be what we’d have to use to avoid getting into all of the safety training around pallet jacks or fork lifts.

            There’s also the investment in entirely new shelving units to consider if we did that, although that’s definitely cheaper and easier than a mezzanine level. They likely would cut down on the number of aisles we’d have because they’d be deeper units.

            I agree that eventually it is more cost effective to go up, like in case of the Costco type places. I’m not sure at a smaller level like ours if it does or doesn’t.

            Admittedly we haven’t sat down and crunched the numbers because it was relatively obvious to stay for these 3 years, we’re mostly going on what we’ve heard from others.

            Additionally we have the office issue. We can’t fit another full-timer in our office (ok maybe one more but it would be really really tight). So it’s questionable whether we should invest too much more in the current place if we won’t be able to fit our future employees in there.

            Then again, we can always add to the office space or do a mezzanine for that. Or hire remote contractors. Or us owners could share desks because we’re generally not in on the same days.

            I also have no idea how much growth we have left from a product standpoint. We are in a small niche. If it’s just 2x what we have now, we could keep this place for a long time. If it’s 4x we definitely need a new place.

            Overall I’d say Mike and I lean towards trying to max out the current place and Greg leans toward moving to a 10,000 – 15,000 sq-ft place and then trying to max that out instead. We’ve had these discussions many times and we always end up concluding that for now we’re OK so it’s not worth diving in any deeper.

            I think when we start talking about the next lease in a year or two we’ll have to start doing out the math on a lot of these options to really decide what’s best.

            …and that would include seriously looking at a 3rd party company to do our distribution. My guess is that it would work cost-wise if we did our research and did some negotiating, it’s just a question of whether or not we want to give up the control of the operations.

  2. Dale says:

    Adam, love the behind the scenes peeks into your business. It’s refreshing to see real business stories vs all the PowerPoint decks on business strategy. This also provides me with a vision for my future as a business… I currently have a 5 x 5 storage unit for my bathroom cleaner and my inventory turnover time is about 10 months. 🙂 It’s nice that I can think of this as a stepping stone to get to where you are.

    • Adam McFarland says:

      Haha yea those Power Point decks are usually useless. Glad I could help a bit. You’ll be there soon enough with PowerPro 🙂

  3. […] I wrote back in July when we renewed the lease, the place actually isn’t so bad […]

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