Everything looks good on paper – until a few months in, costs start creeping up, trucks are stuck in traffic more often than not, and customer complaints about delays are piling up. 

Turns out, the warehouse is a few hundred kilometers too far from where your customers actually are. 

This scenario happens more often than you might think. 

Even as technology reshapes the supply chain, one thing remains constant – location still matters. In fact, it matters more than ever. From fuel prices to same day delivery expectations, choosing the right warehouse location is one of the most strategic decisions a supply chain leader can make. 

Let’s break down how to make that choice wisely. 

Why Is the Location of a Warehouse Important? 

This is one of the most common questions in logistics – and for good reason. 

A warehouse is not just a storage unit. It’s a critical node in your supply chain network design. A well-placed facility can lower transportation costs, shorten lead times, reduce carbon emissions, and improve service levels. A poorly placed one? It becomes a bottleneck. 

Here’s the reality: the further your warehouse is from demand, the more you spend on last-mile delivery. And if it’s far from reliable labor or infrastructure, expect higher costs and lower productivity. 

So, what is the best place to have a warehouse? The answer isn’t the cheapest land or the city with the most highways. It’s the location that aligns with your actual supply and demand footprint. 

5 Factors That Determine Warehouse Location 

When evaluating potential sites, logistics leaders often weigh five key criteria: 

✓ PROXIMITY TO DEMAND

While being closer to your customers can lead to faster and potentially cheaper deliveries, it’s not always that straightforward. In sectors like e-commerce and retail, where speed is essential, proximity helps—but it’s only one piece of the puzzle.

Even with a nearby location, efficiency can be affected by traffic congestion, road conditions, or limited transport options. That’s why access to major roads, highways, and logistics hubs is just as important as distance.

A strategically chosen site balances all these factors—not just where your customers are, but how smoothly you can reach them.

✓ TRANSPORTATION INFRASTRUCTURE

Access to highways, ports, rail, and airports can significantly impact the efficiency of inbound and outbound logistics. Poor access means delays and rising freight costs.

Efficient access to transportation networks, including highways, railways, airports, and ports, is essential for facilitating the smooth flow of goods in and out of your warehouse. Evaluating factors such as traffic flow, transportation costs, and proximity to major hubs can help optimize logistics operations.

✓ LABOR AVAILABILITY AND COSTS

Warehouses don’t run themselves – yet. A location with a strong labor pool at sustainable wages can make or break daily operations.

Consider the availability of a skilled workforce in the chosen location. Access to a pool of trained workers streamlines operations and reduces recruitment challenges. Pay attention to the local demographics of the state or city being considered. City and state government websites are also likely to provide this information.

✓ REAL ESTATE AND OPERATIONAL COSTS

Rent, utilities, taxes, and regulatory requirements vary widely by region. Balancing cost and convenience is key.

Cost will remain a key criterion when selecting the right location for a warehouse, but it must not be the only one. Hidden costs could offset any savings on cheap rental rates and, therefore, must be considered. Real estate costs vary widely depending on factors such as location, property size, age, and market demand. With high-cost, port-close markets like Los Angeles commanding higher rates, your team can consider more outskirt markets with newer and improved warehouses.

✓ RISK AND RESILIENCE

It’s not just about where your warehouse is – it’s about how well it can handle surprises. Natural disasters, political changes, or sudden disruptions can shake up your operations and cause delays.

Knowing these risks ahead of time helps you pick warehouse locations that keep your supply chain steady, no matter what comes your way.

Bonus factor? Sustainability goals. More companies are evaluating warehouse locations through the lens of emissions and long-term environmental impact.

The Center of Gravity Method in Logistics 

If you’re wondering how leading companies make these decisions, one answer is the Center of Gravity (CoG) method. This approach helps you calculate the geographic “sweet spot” based on the locations of your suppliers, production sites, and customers.  

But supply chains rarely play out on a blank map. Transportation costs, service levels, and infrastructure realities often shift the story. That’s why we use the Center of Gravity optimization method as a foundation – not the final answer.

With the right tools – like our Network Design applications – you can build on the that foundation to simulate multiple scenarios, test cost trade-offs, and ultimately select the best site for your warehouse based on an existing infrastructure, financial, and strategic inputs.  

Real-World Example: Optimizing a Growing Supply Chain with the Right Tools

A German apparel manufacturer was operating with a single warehouse model, distributing goods from two production sites to hundreds of retail locations across the country. As demand surged, this once-efficient setup began to strain — causing higher transportation costs, reduced flexibility, and service challenges. 

To address these issues, the company turned to Log-hub’s Advanced Center of Gravity and Network Design Plus Apps. Starting with a simulation of their current network, they identified inefficiencies and explored new warehouse locations based on demand, distance, and service targets. 

With these tools, they compared several future scenarios, balancing service levels with operational costs. The final solution included the introduction of three new distribution centers, which helped them: 

✓ Meet a 92% delivery distance target 

✓ Reduce CO₂ emissions by placing warehouses closer to customers 

✓ Maintain high service levels across a growing retail base 

✓ Develop a long-term scalability strategy

Want to see how they made it happen? Download the full use case here.

Overcome These Supply Chain Challenges with the Right Tools

NETWORK DESIGN PLUS

Once you’ve found your candidate locations, it’s time to bring the whole network to life. The Network Design Plus App helps you simulate product flows from suppliers to warehouses to customers—while considering constraints like warehouse capacity, transport costs, and service levels. It turns your plan into a data-backed distribution strategy.

Conclusion: Lay the Groundwork, Then Optimize

The Center of Gravity method is a great place to start when evaluating warehouse locations. It gives you a clear, data-backed overview of where your distribution centers could go based on demand and distance.

But supply chains are rarely that simple. As soon as you factor in transportation costs, service levels, or sustainability goals, things get more complex. That’s when you need more than just a starting point.

With tools like Log-hub’s Advanced Center of Gravity and Network Design Plus Apps, you can explore different network scenarios, understand the trade-offs, and build a setup that actually fits your business – not just on paper, but in practice.

Because choosing the right location isn’t about theory – it’s about making decisions that move your supply chain forward.