Most industries rely on the supply chain in some form or another. In turn, supply chains depend on warehouse operations. As a result, running an efficient business often requires choosing the optimal warehousing strategy.
One increasingly popular option is to outsource a company’s warehousing operations. In fact, this is the second most frequently outsourced service by third-party logistics (3PL) providers after domestic transportation.
Is warehouse outsourcing right for your company? Here are seven considerations to keep in mind.
Benefits of Outsourcing Your Warehousing
Consider the benefits when deciding whether or not to embrace warehouse outsourcing. Here are five of the leading advantages.
1. Cost Savings
The most enticing benefit of warehouse outsourcing is its savings potential. Running a warehouse can be a multi-million dollar operation, which not every business can comfortably afford. Outsourcing these operations to a 3PL provider can help diminish these costs.
While organizations must pay a 3PL provider, they’ll no longer have to worry about warehousing’s largest expenses. Property leases, equipment costs and labor expenditures will no longer be the company’s responsibility. That can free up a substantial amount of capital.
Many 3PLs that offer warehousing-as-a-service also provide additional services to help lower costs. These providers can take care of assembly, packaging, inspections and more, consolidating multiple factors into a single expense. This can help streamline and simplify budgets, giving companies more financial freedom.
Another advantage of warehouse outsourcing is making supply chain operations more easily scalable. As recent years have proven, the supply chain can be an unpredictable business, growing and shrinking at a moment’s notice. Warehousing operations must shift as the markets do.
Outsourcing makes these shifts easier since companies can expand or decrease their capacity at any time. In the warehousing-as-a-service model, businesses only pay for the services they need. With fewer fixed assets, adding capacity, reducing operations or moving locations causes far less disruption.
This scalability is important, considering factors like e-commerce’s rapid growth. In 2020, online shopping accounted for 74% of all retail spending growth, causing skyrocketing logistics demand. Quick expansion through outsourcing could account for this, but in-house operations may not grow fast enough.
3. Location Optimization
Outsourcing also allows companies to capitalize on ideal locations for their facilities. While ownership may provide businesses with more options, using a 3PL gives them access to optimal existing properties. Many of these companies have large, centralized warehouses near major cities, ports and highways.
Those ideal locations can help make a business’s supply chain operations far more efficient. That could become a more prominent concern as e-commerce and shipping grow. Companies may be states or countries away from their customers, but a centralized third-party warehouse may be closer, enabling faster shipping.
This optimization can also help embrace sustainability. Transportation causes 29% of all greenhouse gas emissions in the U.S., so shorter travel distances can considerably lower these levels.
4. Access to Industry Expertise
When businesses use a 3PL to manage their warehousing, they also gain that company’s expertise. Warehousing is a complicated business, one that not every executive or company is fit to handle. Outsourcing mitigates that talent shortage, providing access to industry leaders.
Increasing available expertise is the second most common reason businesses outsource any process. This comes through two different channels, too. 3PL vendors will provide their warehousing expertise, and the decreased workload will let a company’s internal employees focus on their strong points.
This factor will become increasingly advantageous as regulations and industry-standard technologies become increasingly complex. Not every company can be an expert in warehousing, but with outsourcing, they don’t have to be.
5. Risk Mitigation
Just as warehousing involves many complicated processes, it also involves a fair amount of risk. These operations could encounter substantial disruptions, face intense crunch periods, pose physical hazards and more. Outsourcing shifts the responsibility for these risks to third parties, helping companies avoid unnecessary complications.
The 3PL is responsible for the building lease in an outsourcing operation, raising capital to run the warehouse, acquiring labor to staff it and more. Consequently, they assume any business or legal risks associated with these considerations. That leaves their clients with much less complication in their supply chain management.
Outsourcing also means businesses avoid the risks of peaks and valleys in warehousing demand. Having an under- or overutilized warehouse isn’t a concern when you don’t own it.
Potential Downsides to Warehouse Outsourcing
Like many strategies, warehouse outsourcing may not be ideal for every company. It’s important to balance the benefits with potential risks to determine if it’s the right solution for a specific situation.
Here are two considerations to keep in mind while thinking through the benefits of outsourcing warehouse operations.
1. Less Visibility and Control
Outsourcing means giving up some amount of control. Since a business won’t own or manage the warehouses in question, it can’t make decisions about its employment policies, technology implementation or similar factors. Some companies, particularly those in highly specialized and specific markets, may find that lack of control frustrating.
Similarly, being a step removed from actual warehouse operations means a lack of visibility. Reliable 3PL partners will certainly be open about their practices, but real-time visibility will be difficult to achieve. Since nearly 70% of organizations say they need better warehouse visibility, some companies may be concerned.
Businesses can mitigate these issues by finding the right 3PL provider. Still, even with a transparent vendor who gives companies maximum control, it won’t be the same as managing operations in-house.
2. Slower Response Times
Similarly, outsourcing could result in slower response times to incoming supply chain disruptions. If an unforeseen circumstance disrupts operations within the warehouse, 3PLs will have to tell clients about it before responding. Even with instant communication like email, that can slow down the process.
It will take time for companies’ responses to reach the 3PL. Not being directly involved in the situation may make it more challenging to understand as well.
Find the Best Warehousing Strategy for Your Needs
Whether warehouse outsourcing is the best course or not depends on a company’s specific needs. It generally presents many benefits, including solutions to common supply chain problems.
Warehouse management can be complicated, but businesses may have more options than they realize. Outsourcing can help many companies otherwise unequipped to manage supply chains make the most of their warehousing.