In the case of external storage, storage takes place outside the company. The counterpart is the internal or self storage. Taking into account various costs, such as warehouse operating and inventory costs, a break-even analysis can provide information on whether internal or external storage is appropriate. The analysis makes it clear from which quantity of sales proceeds and expenses cover each other.

When is the external storage suitable?

The implementation of external storage is suitable and unproblematic if  goods do not require special storage. If a company decides to use external storage instead of internal storage, there can be various reasons for this. Reasons are among others:

  • Limited storage capacities
  • Missing storage device
  • The internal storage would be too cost-intensive
  • Fluctuating demand

The advantages of external storage are that investment and maintenance costs as well as costs, as well as costs for storage equipment and own personnel, are eliminated. In addition, the warehouse operator bears the costs for the qualification of his personnel. In addition, only the goods need to be paid that are actually stored. As a result, there are no idle costs due to inadequate warehouse utilization.

Disadvantages are the existing dependence on the warehouse operator and the acceptance of longer information and transport routes. Due to the dependence on the logistics service provider, a partnering company must always expect possible unreliability when utilizing external storage.

You can find more information on the expenses associated with warehousing under Warehousing Costs.

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