Production and shipping delays are costly, which is why any plan for improving efficiencies should include warehousing, but setting up a place to store your goods presents different challenges. Land is expensive. Buildings are expensive. Even if your company leases a facility instead of buying it, you could still face a significant expense without a little planning—that’s where warehouse logistics fit into the picture.
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According to the Council of Supply Chain Management Professionals (CSCMP), logistics is a component of supply chain management that plans and manages the flow and storage of goods from their source to the consumer.
Warehousing logistics, by extension, focuses on factors impacting the organization and management of stored goods in a warehouse. These factors include complexities surrounding inventory management, as well as other considerations such as pest control, safety procedures, and the management of data to ensure optimal shipping and receiving.
Understanding your business capabilities and market demand are the first steps to figuring out how warehousing logistics fits into your supply chain strategy.
How much product can you sell? Can you control your inventory well enough to keep the warehouse operating at optimal levels? Can you afford the staffing costs and rent in the areas that serve as the main arteries for distribution?
When you start asking these questions, it becomes clear why an outsourcing model is often attractive to shippers. Smaller operations don’t want the expense of managing their own warehouse, so they often let other providers handle it. In addition to freight forwarding, some Customs brokerage companies are beginning to offer warehousing services called “Third-Party Logistics” (3PL).
A 3PL partnership works best when you treat it as a component of your supply chain and not as additional storage space. The 3PL system is designed to move freight like a restaurant turns tables, and if you’ve ever worked a summer job as a server, you know how well that system works. But that’s not the only reason more companies are choosing 3PL.
Outsourcing can also free up capital expenditure and reduce exposure to risks and liabilities associated with the process. On the other hand, some companies keep warehousing in-house so they can exert greater control over the process. If maintaining your own workforce and distribution facilities
is a core competency for your company, outsourcing may not make as much sense.
The size, location, and type of warehouse must be considered as well.
How much space do you need? If your market is in Los Angeles or New York, can you afford a 5,000 square-foot space in such a high-rent area? On top of that, many products need to be in a climate-controlled environment. So, do you need a reefer warehouse or will ambient temperature suffice?
No matter the size or type of warehouse, location is important. If you can’t effectively stage your goods in a location that allows for rapid, cost-effective distribution, then it’s only a matter of time before there’s a break in the supply chain.
Let’s imagine a company that brings goods to market in the Pacific Northwest.
They have a warehouse in Seattle, and everything is going well, so they decide to expand to an emerging market in Georgia. Should they make a land purchase or set up a long-term lease to serve potential customers in Atlanta, based on projections? Or, would it make more sense to use a 3PL model where the provider already has facilities in Atlanta?
Using a 3PL will insulate them from wasted land investment costs if the expansion
fails. In this case, outsourcing allows an established company to test a new market before committing to land purchases or signing expensive leases.
Big box stores, like Walmart and Target, have a book called a “routing guide for retailers” or a similarly titled handbook.
The book includes compliance rules that must be followed, or they will apply a fine to your invoice and withhold whatever amount you owe. Depending on the store, the guide may be 30 or 50 pages long, and your bottom line depends on not skipping a single rule.
There’s no shortage of fines in the routing guide: you have to use a certain carrier and the right kind of pallets; boxes must be certain dimensions; and labels have to be printed in the proper format and displayed in a specific place.
If your business is a startup running out of your own warehouse without a best-of-breed shipping system implemented, you’re going to struggle with a lot of these regulations. Take the labels, for example. They’re called UCC128 labels, designed in a format to include specific information that varies between the different box stores.
Any missteps will be realized in your revenue.
The expectations are precise and non-negotiable. If you run into any production problems that make it likely you’ll miss a purchase order window, you’ll lose less money expediting a shipment than paying the penalty for missing the timeline.
Using a 3PL will help you avoid these penalties. Not only are they familiar with the detailed routing guide specifications required by big box stores, but they also have the logistics infrastructure to make turnarounds quickly to avoid additional delays once your shipment arrives state-side. Not to mention, they also have the supplies on hand to meet additional packaging requirements.
If your 3PL is also your freight forwarder and Customs broker, you have the added leverage of an all-encompassing system to support your supply chain. From point A to point B, you can expect the same standard for compliance.
Owning your own warehouse is a variable cost.
If you have 50,000 square feet of space but only need 30,000 square feet, you’re paying for 20,000 feet of wasted space.
Running a warehouse is also expensive: you have to provide staffing and security; you will need to insure the facility; and most leases pass on the cost of property taxes and utilities to the tenant, so you can expect to pay those costs as well.
With a 3PL, warehousing becomes a fixed cost that’s priced against your actual footprint (plus whatever additional services your product might require). You’ll pay for only the space you use, and you won’t have the overhead costs of maintaining the warehouse space itself. This scenario only improves as you scale.
If you’re a company with your own warehouse, you’re either going to have too much space or too little.
Neither scenario is a good problem to have. A 3PL solution gives you some flexibility. Think of it as cloud storage. If you need more space, you pay a little more. If you need less space, you pay a little less. There’s room for fluctuation and it’s easy and cost-effective to scale either up or down.
This is especially useful for growing companies. As you sign more customers and increase the amount of freight you’re shipping, a 3PL can accommodate your inventory (or you can easily find one that can).
3PL can scale to your exact needs as your business naturally ebbs and flows. You may require ample warehouse space one season and need to scale back the next. 3PL offers endless scalability and helps you respond to sudden increases or decreases in orders.
Amazon has certainly disrupted and changed logistics processes over the past few decades.
Consumers expect free two-day shipping. To keep you competitive, 3PLs provide access to multiple distribution centers located around the country, usually in major cities like Los Angeles and Atlanta. If your customers are located all over the country, you can use 3PLs with multiple locations, some with bi-coastal options, to increase your reach with speedy service.
If you’re relying on your own warehouse, trying to compete with Amazon’s shipping policies will start to eat into your margins or drive up your prices.
If you’re located in Los Angeles but ship to a lot of customers in Maine, they’ll be waiting at least a week to get their order by ground shipping. Or you can pay to ship by air, which will eat into your profit margins.
Either way, you’re adding a number of costs to your process that can easily be avoided using a 3PL located in the right place.
Most 3PLs use a best-of-breed warehouse management system (WMS), and customers have access to it.
WMS is software that allows warehouses to maintain inventory and clear shipments while capturing data on tracking goods moving in and out of the warehouse.
Customers are able to interface with the WMS through a web portal. Account data is updated as often as every fifteen seconds in some solutions.
Systems like this are usually cost-prohibitive for smaller companies, though the visibility and insights into the warehouse leg of your supply chain are unparalleled.
Even highly qualified teams get overwhelmed sometimes—especially when businesses experience exponential growth. If your company is feeling growing pains, it’s usually a sign of recent success.
It’s common for obsolete inventory to pile up in a warehouse over time. Without dedicated warehouse logistics staff, you may become overwhelmed with outdated merchandise. Fill your valuable shelf space with correspondingly high-value items.
There’s nothing wrong with getting third-party help when you’re unsure how to solve your logistics issues. If your customer complaint inbox is filling up—or your company is expanding into a new region or opening a new facility—it may be time to enlist a competent 3PL service.
Hiring warehouse workers, managing ground logistics, keeping up with contracts, and invoicing are all costly and time-consuming. Although your 3PL represents an additional cost, it could actually save you money compared to doing everything in-house.
Navigating the convoluted world of trade compliance is challenging—even for a seasoned professional.
Hiring a 3PL service allows you to focus on your core operations without the constant distraction of changing regulations and shipping backups. Most business owners simply don’t have time to ensure they have the correct duties, Customs entry(ies), and documentation for their products.
3PL gives you the flexibility to expand into new markets and cross international borders with ease.
Rather than investing heavily in new staff and new warehouse infrastructure, count on the expertise of a qualified 3PL service to deal with your logistics for you.
More than 99.9% of businesses are designated “small” by the Chamber of Commerce. Most of these businesses can’t afford standalone warehouses, a dedicated transportation department, and staff to deal with invoicing.
As a result, many companies enlist the help of 3PL for fulfillment services. Businesses mitigate risks with instant access to years of expertise and knowledge of the industry. A common solution is “pick and pack,” wherein a 3PL service combines numerous businesses in a single warehouse and deals with shipping logistics.
Pick and pack offers a sizeable cost reduction so that growing businesses can invest in other important areas of their production. With improved forecast accuracy, users are generally happier with their customer experience.
Building and maintaining an efficient logistics system requires years of dedicated work. Concentrate on your core business and leave logistics to professionals with a quality 3PL service.
Depend on a cost-effective supply chain and optimize warehouse space as your business expands across international borders.
They allow companies to consolidate and house products while awaiting shipment to customers. Among the many services warehouses facilitate, they can help to reduce transportation costs when the facilities are strategically located.
The 3PL model allows for optimal agility. Most 3PLs have warehouses located at ground transportation hubs across North America. Some even have warehouses set up in free-trade zones. Furthermore, a 3PL has warehouse staff experienced with handling various types of goods, like consumer goods or pharmaceuticals. For high-volume operations with a well-established supply chain, it may make financial sense for those companies to invest in their own warehouses and staff. Either way, warehouses should be one of the first things on your mind when planning your supply chain.
When you select Deringer as your supply chain partner, you can trust that your business is in the hands of dedicated, knowledgeable professionals, who have a strong commitment to carrying on the company's legacy of exceptional customer service. Our caring people work with you to develop tailored solutions that improve efficiencies, reduce overall supply chain costs, and manage the risks associated with global trade.
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