Private Warehouse Cost Dynamics

Abstract

The results of an empirical study which has investigated the cost dynamics of a group of private warehouses is presented. Specifically the article tests the applicability of using a learning curve to plan and evaluate a private warehouse′s average labour cost per case performance. To test the applicability of using a learning curve in this industry, the study has analysed the empirical performance of a small sample of private warehouses over a five‐year period. A regression model of the private warehouse′s average labour cost per case performance shows that they do follow the standard log‐linear learning curve relationship between unit cost and cumulative units. The regression model shows that the private warehouses have a learning rate of 87 per cent. An example application shows that including the study′s results in a private‐versus‐public warehouse selection problem, using a discounted cash‐flow analysis, increases the private ware‐house′s internal rate of return by approximately 10 per cent.