public vs private warehousing case study

1. PUBLIC VS PRIVATE
WAREHOUSING
BY
SMRUTHI RAYUDU
ANSHUL
MANISH SAINI
NASEER KHAN
SARATH CHANDRA

2. INTRODUCTION
This case highlights about which kind of warehouse to be chosen , either
public or private warehouses.
Influence of different costs on the warehousing.
Public Warehouse:
It is a standalone company that specializes in warehousing and distribution.
Most companies that sell large quantities benefit from public warehouse
Private Warehouse:
This is a storage facility that is mostly owned by big companies or single
manufacturing unit.

3. SYNOPSIS
Company’s warehouse reached capacity .
The most pressing need is overflow, which is currectly
handled by public warehouse.
Cause of growing needs the company will need 210000
square feet area.
There are two alternatives that can be evaluated are:
•Public Warehousing
•Private or leased warehousing.

4. Analysis One:
IRR and NPV are used to determine whether to go for an investment or
not. In the first case, it is given that the present value of 10 annual
payments of 577,500 = 3547,600 is taken as an investment in lump sum
(Cash Outflow). So, from the first year itself we don’t have annual lease
payments which gives us an improper savings figure (864000) and at
first glance it looks like we are saving.
NPV and IRR Calculations:
Excel Sheet.
Decision:
Invest in public warehouse.

5. Analysis Two:
NPV and IRR are used to determine whether to go for an investment or
not. Unlike the first case, the outflows here are not taken as lump sum
investment and hence are paid every year which gives us an annul cost
of leasing and operating (309914+577500 =$ 888000 (Approx.)) And
the true savings ( 864000 - 577000 = $286000) are reflected in this
case.
NPV and IRR calculations:
Excel Sheet
Decision:
Here, private warehouse is preferred.

6. Decision 1:
 Lease facility does not generate return on investment, but
significance the operating savings.
 The cost elements in the company’s is original analysis where all
hard dollars but no increments in revenue.
 Here, distribution projects meets the hurdle rate of company’s
capital projects.
 The lease which is capitalized in the company for warehouse is the
major cash flow against the cash savings.
 If the least space versus public warehouse alternative in the lease
payments treated has the annual outflows.

7. Decision 2:
 The net present savings between leasing and public warehousing
($1.6million) is compared to the negative net present value.
 Revised IRR (30%) is high then the original IRR (6.13%). This
leads to the company should take the decision to lease the space.
 Here the lease payments is treated has the final decision of the
company.
 The warehousing analysis should constantly challenge and carefully
evaluate the various cost elements.

8. THANK YOU