Degree of control
From inventory control, optimum space utilization, maintenance and equipment, internal material flow, handling routines, supervision, and associated cost control, the firm has a direct control and clear visibility for the product until it is delivered to the customer. Thus, this will allow the firm to integrate the warehousing function more easily into its total logistics system.
Flexibility
With a higher degree of control, the firm is able to exercise greater flexibility in designing and operating the warehouse to suit the needs of its customers and the characteristics of the products. This means that firms which require unique or special handling for their products would not find public warehousing suitable. The private warehouse can also be modified through expansion or renovation to facilitate product changes, which is not possible on a public warehouse.
Intangible benefits
Distributing through a private warehouse gives the customer a sense of permanence and continuity of business operations. The customer would perceive the company as a stable, dependable, and lasting supplier of the desired products. This gives a personal rapport and a relationship between the companies building trust and goodwill.
Constraints:
Lack of flexibility
The major drawback about private warehousing is the high costs of setup and maintenance. Due to its fixed size and costs, the warehouse is unable to expand or contract to meet the fluctuations in demand in the short run. Thus, when demand is low, the firm still assumed the fixed costs as well as the costs associated with unused warehouse space due to lower productivity. However, the disadvantages can be minimized if the firm is able to rent out part of its space when not in use. Since they cannot respond quickly to to rapid changes in market size, location and preferences, they may lose potential customers or business opportunities.
High opportunity cost (high risk)
Rate Of Interest (ROI) on other investments may be greater if funds for the warehouse are channeled into other profit-generating opportunities. There is also a high probability of not being able to sell the warehouse in the later period due to its customized design. Warehouse may end up as a liability when there is a change of product line which defeats the purpose of the warehouse.
High start-up cost
Private warehouse requires a significant amount of investment in land, building and equipment thus incurring high start-up cost. As private warehouse are adopted on a long term basis, the risks are high. In addition, there is still cost incurred from hiring and training of employees. The high cost involved may force the company to seriously consider switching to public warehousing as a better option.
References: Management paradise
Public/Private warehousing
dcm @ 1/18/2009 01:16:00 AM 
