Should you outsource your warehousing?
Most industries rely on the supply chain in some way. Supply chains, in turn, depend on warehouse operations. Therefore, running an efficient company often requires choosing the optimal storage strategy.
An increasingly popular option is to outsource a company’s warehouse operations. In fact, this is the one second most frequently outsourced service by third party logistics provider (3PL) after domestic transport.
Is Warehouse Outsourcing Right For Your Business? Here are seven considerations to keep in mind.
Benefits of Outsourcing Your Warehousing
Consider the benefits when deciding whether or not to take advantage of warehouse outsourcing. Here are five of the key benefits.
1. Cost savings
The most tempting benefit of warehouse outsourcing is the potential for savings. Keeping a warehouse can a. being Multi-million dollar operationthat not every company can comfortably afford. Outsourcing these operations to a 3PL provider can help reduce these costs.
While businesses have to pay a 3PL provider, they no longer have to worry about the biggest storage costs. Leases, equipment costs and labor costs are no longer the company’s responsibility. This can free up a lot of capital.
Many 3PLs that offer warehousing-as-a-service also offer additional services to reduce costs. These vendors can take care of assembly, packaging, inspections, and more, and combine multiple factors into a single issue. This can help tighten and simplify budgets and give companies more financial freedom.
Another benefit of warehouse outsourcing is that supply chain operations are more easily scalable. As the last few years have shown, the supply chain is can be an unpredictable business, grows and shrinks in no time. The warehouse operation must shift with the markets.
Outsourcing makes these shifts easier, as companies can expand or reduce their capacities at any time. With the warehousing-as-a-service model, companies only pay for the services they need. With fewer assets, adding capacity, reducing operations, or moving locations is far less disruptive.
This scalability is important given factors such as the rapid growth of e-commerce. In 2020, online shopping accounted for 74% of total retail spend growthwhich leads to an exploding demand for logistics. Rapid expansion through outsourcing could explain this, but in-house operations may not be growing fast enough.
3. Location optimization
Outsourcing also enables companies to benefit from ideal locations for their facilities. While ownership may give businesses more options, using a 3PL gives them access to optimal existing real estate. Many of these companies have large, central warehouses near major cities, ports, and highways.
These ideal locations can help make a company’s supply chain operations far more efficient. This could become a more important concern as ecommerce and shipping grow. Businesses can be states or countries that are remote from their customers, but a third-party central warehouse can be closer, allowing for faster shipping.
This optimization can also contribute to sustainability. Causes of transport 29% of all greenhouse gas emissions in the USA, so shorter travel distances can lower these values ââsignificantly.
4. Access to industry expertise
When companies use a 3PL to manage their warehousing, they get that company’s expertise too. Warehousing is a complicated business that not every executive or company is suitable for. Outsourcing mitigates this talent shortage and provides access to industry leaders.
The increase in available expertise is that second most common reason Companies outsource every process. This also happens through two different channels. 3PL providers make their warehouse know-how available, and the reduced workload allows a company’s internal staff to focus on their strengths.
This factor becomes increasingly beneficial as regulations and industry technologies become more complex. Not every company can be a warehousing expert, but outsourcing doesn’t have to be.
5. Risk Mitigation
Just as warehousing involves many complicated processes, it also carries a high level of risk. These processes can result in significant disruptions, periods of intense crisis, physical danger and much more. Outsourcing shifts the responsibility for these risks to third parties and helps companies avoid unnecessary complications.
The 3PL is responsible for the building lease in an outsourcing company, the raising of capital for the operation of the warehouse, the procurement of manpower for the staff and much more. Therefore, you assume all business or legal risks associated with these considerations. As a result, your customers have far fewer complications in their supply chain management.
Outsourcing also means companies avoiding the risks of peaks and valleys in inventory demand. Having an under or overused warehouse is not a problem if you don’t own it.
Potential drawbacks to warehouse outsourcing
Like many strategies, warehouse outsourcing is not ideal for every business. It is important to weigh the benefits against the potential risks to determine if this is the right solution for a particular situation.
Here are two considerations to keep in mind when considering the benefits of outsourcing warehouse operations.
1. Less visibility and control
Outsourcing means giving up a certain amount of control. Because a company does not own or manage the warehouses in question, it cannot make decisions about its employment policy, technology implementation, or similar factors. Some companies, especially those in highly specialized and specific markets, may find this lack of control frustrating.
A step outside of actual warehouse operations also means a lack of transparency. Reliable 3PL partners will certainly be open about their practices, but real-time transparency will be difficult to achieve. Since almost 70% of the organizations say they need a better view of the warehouse, some companies may be concerned.
Organizations can mitigate these issues by finding the right 3PL provider. But even with a transparent provider who gives companies maximum control, this is not the same as managing the operation internally.
2. Slower response times
Outsourcing could also lead to slower response times to incoming interruptions in the supply chain. If an unforeseen circumstance disrupts operations in the warehouse, 3PLs must inform customers of this before reacting. Even with instant communication like email, this can slow the process down.
It will be some time before the responses from companies reach the 3PL. Not being directly involved in the situation can also make it more difficult to understand.
Find the best storage strategy for your needs
Whether or not warehouse outsourcing is the best way to go depends on the specific needs of the company. It offers many advantages in general, including solutions to common supply chain problems.
Inventory management can be complicated, but companies may have more options than they realize. Outsourcing can help many companies that are otherwise unsuitable for supply chain management to get the most out of their inventory.