What is Third Party Warehousing and Do You Need It?

A warehouse is a planned space reserved for storing and/or handling products. Third party warehousing is the outsourcing of this function and its associated services. Outsourcing the warehousing function in the supply chain is a practice that has been growing steadily over the last decade and is projected to increase by five percent over the next five years. Third party warehousing can take any one of several forms including public warehousing, contract warehousing, or private warehousing.

Common Third Party Warehousing Services

Warehousing is part of supply chain management. As such, many third party warehousing firms also offer integrated distribution services. Some third party warehouses specialize in temperature controlled environments or handling hazardous materials. There are, however, services offered through third party warehousing which are common features apart from any specialized requirements.

Crossdocking Service Provided by Third Party Warehousing

Although every customer may not require it, crossdocking is a commonly provided warehousing service. Some companies receive bulk shipments from a manufacturer which must be broken down into smaller shipments that are then distributed directly to customers. This is called crossdocking. While the products may not spend time on the shelves of the warehouse, they do need to be re-packaged, labeled, and then re-loaded onto distribution vehicles. Third party warehouses often offer this service to customers who require it.

Third Party Warehousing Offers Inventory Control

Most, if not all, third party warehouses operate with on-demand cloud-based software that allows both the warehouse provider and the client to have minute-by-minute visibility into where products are at all times. This technology provides smart, accurate inventory control. Whether the inventory needs to be rotated, has expiration date monitoring requirements, or requires specific warehouse conditions, the third party warehouse provider is able to maintain an open, shared view of stock with its clients.

Pick and Pack: A Third Party Warehousing Provider Offering

Pick and pack is an order fulfillment service frequently made available through third party warehousing providers. The term describes the service of taking particular products out of general stock (picking) and then re-packaging them (packing) for delivery to the end customer. The service may include light assembly, pallet or carton building, shrink-wrapping and labeling.

Deciding if you Should use Third Party Warehousing

How do you decide if third party warehousing is the right choice for your business? Most companies are moving away from private warehousing, but what determines if outsourcing is the best option?

  • Think about where your profitability centers are. If the supply chain or warehouse is an area of high profitability in your business, then you will probably not benefit from outsourcing. For most businesses, warehousing is neither a core competency nor a revenue driver.
  • How does location factor into your warehousing requirements? Consider if you need to be located near to manufacturing, to a transportation corridor, or to your customer base. If so, do you already have warehouses in place at those locations or will you need to construct them? Most often, it is more cost-effective to outsource rather than build and staff your own warehouse, especially if they are needed in multiple locations.
  • Consider who needs access to the warehouse and how frequently.
  • Are there special conditions which need to be met in the warehouse such as temperature, ultraclean, or documentation?

Once you have considered your warehousing requirements, then consider the costs associated with performing this function yourself. Structure, labor, and administration are just some of the overhead expenses to take into consideration.

Advantages and Disadvantages to Third Party Warehousing

The advantage to the company involved in private warehousing is the complete control it maintains over all the operations. Additionally, if there is unused warehouse space, this may be leased out to other businesses at a profit. The obvious disadvantage to private warehousing is the enormous capital outlay upfront and the steady cash stream required to maintain it.

For most businesses, the supply chain and warehousing in particular are not profit-building functions. Instead, most companies can save money through outsourcing and thereby discover greater revenue for business expansion. Third party warehousing can lower inventory costs, improve management through industry-specific technology, and improve customer service all while freeing up cash for expanded production or development. Isn’t it time to consider joining the majority of businesses finding increased profitability through third party warehousing?

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