One of the major factors leading to the decision between public and private warehouses is throughput volume especially for private warehouse.

This is because private warehouses incur high fixed costs. Thus, higher throughput volume would help to spread out and reduce average cost.

Public warehouses do not incur any fixed costs as it does not initial setup costs such as land and equipment. It only incurs variable costs. Thus, the cost increases as the throughput volume of items increase.

The point of intersection is the point of decision. From the graph, it can be seen that if the firm has low throughput level, it would be better to adopt the public warehousing approach. If throughput level is high, it would then be more viable for the firm to own a private warehouse.

Reference: Johnny Tan, Oh Hui Ling, Cheryl Wee-Teo, Distribution Centre Management, Fourth Edition (2007)