The supply chain is complex and involves several different steps to provide goods to buyers. The diagram below provides a simple overview of the supply chain, the organizations involved in each step, and the role they play in producing and delivering goods. Still, there is a lot of detail involved in each of these areas, and it can be hard to understand. The purpose of this article is to dive deeper into the role of warehousing within the broader supply chain.
Receiving and Storing Products
Your goods have been produced, and now you need somewhere to store and distribute them to your consumer and retail customers. This is the role 3PL plays. As discussed in other articles, there are many reasons to consider partnering with a 3PL and benefits they can provide, but what is the simple function of warehousing? What are the benefits you can reap from 3PL warehousing and what challenges should you expect?
Benefits of Third-Party Warehousing
The benefits of third-party warehousing can be categorized in three areas:
- Cost savings
- Centralized storage
Typically, warehouses will charge based on the number of pallets you store in their facility or the cubic feet of space your products require for storage. The labor, equipment, and facility costs are usually accounted for in this fee structure to keep invoicing simple for all involved. Most warehouses will have several companies as clients, and the ability to spread these costs across clients enables the warehouse to provide lower inventory storage rates than most companies can secure on their own.
As a simple rule, the more spread out your inventory is, the more complicated it is to manage it and the higher your costs will be. Finding a good warehouse location relative to your inbound and outbound product distribution center that has the capacity you require will simplify your supply chain logistics and minimize your cost.
The people who own, operate, and work at warehouses possess the skill and knowledge to efficiently and effectively manage your product storage needs. Although this process probably seems simple on the surface, there is a lot involved in receiving, storing, and distributing your products. The accurate tracking of all of this movement provides you with current and useful information when you need it. Completing this work on your own requires a significant investment in highly skilled people — not to mention the facility and equipment.
High-quality third-party warehouses are steeped in processes to ensure the work they do is accurate and efficient. This means that you can have confidence in repeatable and measurable processes that keep the flow of your inventory smooth. With inventory flowing well, you can focus on growing your business and providing your customers with high-quality service.
The Challenges of Using a Third-Party Warehouse
Warehouses can have dramatic differences. If you are considering storing your product with a third party, it is important to keep the following in mind and make sure you’re comfortable with each before you move forward.
You may find that some warehouses are very low-tech operations with little organization or concern for the products they handle. As you evaluate potential partners, it is important to understand how much relevant experience they have and where they see the future of their business. It is far too common for people with little or no experience to lease a warehouse space and go into business without any meaningful experience or understanding of how a good warehouse should operate.
Your products are critically important to your business, so make sure they are well-protected at your warehouse. Look for:
- Door security that restricts and tracks who enters and exits the facility
- Security cameras throughout the facility, both inside and outside
- Fire suppression systems
- Earthquake-grade pallet racking
- A current disaster recovery plan
- Technology backups and a comprehensive cybersecurity plan
You need to understand what your needs are and then negotiate an agreement that aligns with them and is fair for both parties. Pay particular attention to the length of the agreement, rates, and under what circumstances either party can terminate the contract. In the end, both parties need to feel the agreement is fair and meets their needs.
Using a third-party warehouse can be a great way to simplify your supply chain and maximize savings. As with any partnership, make sure you understand what your requirements are, then search for a warehouse that meets them. With a clear understanding by both parties, you are set up for success and a mutually beneficial partnership.