If you’re starting to find that you no longer have space for your merchandise, or the staff to manage it all, it probably means that your business is growing. And that’s a good thing! Unfortunately, it might also mean that you’re outgrowing your current needs. If you’re in need of a quick solution, one option that may be able to help solve your problems is contract warehousing.
Outgrowing your current situation is a good problem to have, but it’s also one that needs to be addressed. Contract warehousing can be custom-tailored to meet your exact needs, including increasing warehouse space, outsourcing logistics, and order fulfillment. Businesses are also likely to experience improved reliability, efficiency and cost-savings.
Our complete guide below provides you with everything you need to know about contract warehousing.
Simply put, a contract warehouse is a facility run by a third-party logistics (3PL) provider that can be contracted to handle warehousing operations like storage, shipping and receiving on a company’s behalf.
Contract warehousing, sometimes referred to as dedicated warehousing, is generally used when a company either doesn’t have a storage facility available to properly manage its cargo flow or wants to outsource order fulfillment. In addition to storage, contract warehouses specialize in distribution and inventory management to offer a variety of value-added services including packing, shipping, receiving and transport.
In the case of dedicated warehousing, an entire warehouse and all of its resources are devoted to a single client. Multi-client, or shared warehousing, can also exist on a contract basis and include value-added services, however, that’s typically not what’s being referred to by the term contract warehousing.
There are three primary warehousing options that companies consider when in need of storage space. Arguments can be made for and against each, but typically the choice will come down to a few factors. Factors include how long the space will be needed, the capital a company is willing to invest, and what services the client requires.
Private warehouses are typically owned and operated by one company. The primary purpose of this type of warehouse is to store goods in a central location and provide easy access to storage and distribution.
While more convenient and better for long-term storage, private warehouses require a large investment of capital. This applies to both the purchase or construction of the warehouse and in the equipment and staff needed to maintain it. Additionally, a high degree of daily involvement is needed to ensure they’re running properly.
Private warehouses are best suited for addressing long-term storage needs and for companies that want complete control of how their merchandise is managed and distributed. While there are no rental fees, it can take decades to see a return on investment as a result of the initial costs associated with private warehousing.
Public warehouses are run by third-party entities and rented out almost exclusively as storage space.
The price can vary depending on the amount of storage space required (typically measured in square feet), the amount of time the storage is needed, and the number of inbound and outbound transactions that a company makes.
While rental agreements can usually be made for any amount of time, public warehousing is best suited for companies looking for either short-term or seasonal storage. It’s worth noting that public warehouses don’t typically offer any additional services, and oftentimes store goods for multiple clients under the same roof.
Unlike private or public warehouses, contract warehouses offer a variety of value-added services and can be tailor-made to fit a client’s specific supply chain goals.
Some of the specialized services offered include packing, kitting, transport and inventory management, in addition to dedicated storage of all merchandise. By outsourcing these services to a 3PL provider, companies can focus their time and money on other areas of their business.
The typical length of a contract runs between two and five years, and the pay structure can usually be negotiated at either a fixed rate, costs-plus, or a combination of the two. Contract warehousing will almost always be more expensive than renting, but depending on your needs, it can be well worth it to gain access to additional services and avoid high initial investment costs.
Contract warehousing may sound like a great option in theory, but is it the best choice for you? Before making your decision, you should first determine what your needs are.
Contract warehousing is best served for companies that are looking for medium- and long-term storage options and have an interest in outsourcing logistics and order fulfillment to a 3PL provider.
If you’re busy trying to grow or maintain other areas of your business, you may not have the necessary time or resources to dedicate to the storage and distribution of your merchandise.
Contract warehousing solves that problem by providing a dedicated staff that can offer a variety of logistics solutions. You still retain control over the warehousing process, but it removes the need for daily oversight. In turn, this gives you the ability to focus your attention and resources on the areas that need them most.
Contract warehousing can also make sense if your company lacks the time or money necessary to invest in a private warehouse, or is simply looking to boost its distribution efficiency and reliability.
Contract warehousing offers many benefits that other options just aren’t able to. Whether you’re looking to save money, ensure your company has dedicated warehouse space, or increase the reliability of your services, it’s hard to argue with the advantages of using a contract warehouse.
One of, if not the biggest advantages of contract warehousing is the amount of money that you’ll save, particularly in bypassing the need for large investments of capital.
The start-up costs of a new private warehouse, particularly if it has to be built from the ground up, can be cost-prohibitive for the average company. And even if you’re able to go that route, it can take decades to see the return on your investment.
Building or expanding a warehouse means expensive construction costs, not to mention time (and we all know time is money). Even if you plan on buying a fully constructed warehouse, you can still expect to spend a decent chunk of change on not only the initial purchase, but on additional renovations and equipment installation. And both options still require you to staff the warehouse.
With contract warehousing, all of those issues are taken care of. It gives companies instant access to a fully staffed warehouse capable of storing a variety of goods and equipped to offer services optimized to meet their supply chain goals.
A contract warehouse, as the name implies, requires that a contract be signed by all parties involved in order to do business. Another way to view the contract is as a safety net for your warehousing needs.
Entering into a contract agreement is in the best interest of both you and the 3PL provider running the warehouse. The contract length is agreed upon before signing, meaning that whether it’s signed for one year or for 10, both parties are locked into the agreement until the term comes to an end.
For the warehouse company, that means they’re guaranteed a client and source of revenue for the duration of the contract. For you, it means peace of mind, knowing you don’t have to worry about unexpected expenses or a sudden need to find new warehouse space. You know exactly what you’re getting when you sign the contract, and for many companies, that assurance can mean a lot.
In the business of logistics and order fulfillment, reliability is key.
In order to keep customer satisfaction high, goods need to be delivered as ordered and in a timely manner. And that all starts with the warehouse.
The good news is that contract warehouses employ a dedicated staff tasked with providing accurate and efficient work, and most importantly, with the ability to handle increased demand.
Your flow of goods is not always going to remain consistent and the warehouse providers know that. As such, contract warehouses are specifically engineered to adjust and meet your current level of need, ensuring that your goods are delivered in a reliable and timely manner and that your customers remain happy.
Finding the right partner to address your storage concerns and help you meet your supply chain goals is crucial to growing your business, optimizing cost-to-serve, and keeping your customers happy.
We’ve already outlined how a contract warehouse can provide your company safe, reliable and cost-effective storage while providing a number of other value-added services. Now, the key is finding one that can be shaped to meet your needs so that you can make the best choice for your company.
Fulfillment and Distribution, powered by R+L Global Logistics, can help you do exactly that. Fill out a fulfillment warehouse quote today and see how we can help you find the right warehouse option for you.