What is Contract Warehousing?

Contract warehousing (or “dedicated warehousing”), is typically used when warehouse space and resources are required for longer terms. In other words, the “tenant” company commits to fixed, and therefor more predictable costs for the period of the contract.

The main alternative to contract warehousing offered by 3PL service providers is referred to as shared, general or “public” warehousing. In shared or general warehousing, the available warehouse space and facility provider’s resources are divided among many companies or warehouse tenants.

Advantages of Contract Warehousing

Lower Costs and Capital Investments. Instead of being saddled with the costs of maintaining a proprietary warehousing facility, contract warehousing offers a ready-made solution complete with staffing and equipment. Additionally, contracted facilities are typically divided into zones that can accommodate different varieties of goods and their particular storage requirements.

Locked-in Service Period. Whether the term is one year or ten, a contracted warehouse space protects your company from unexpected expenses. There is added stability as the contract will specify the terms costs – annual or monthly, as well as offer contingency for possible changes over the contract period such as period extensions.

Reliability. A contracted warehousing facility also offers the ability to efficiently react to and accommodate increases in demand and expanding warehousing needs. Along with related services such as co-packing, reverse logistics and quality controls, a good logistics partner can be trusted to help a business to grow by keeping their goods flowing in and out of storage smoothly.

Advantages of Shared or General Warehousing

Extra Flexibility. The advantages of this mode of warehousing are in extra flexibility of the amount of space used and the associated costs. For example, a smaller company may not need an extraordinary amount of storage space or require additional services. Therefor warehousing overhead for these smaller footprints can be more cost-effective for companies that have limited resources.

Scalability.  3PL providers able to accommodate changes in volume and scope. By providing flexible space, staff and equipment, they enable a business to expand and change storage requirements to suit a business’ needs.

Types of Contract Warehousing Models

For many businesses, contract warehousing provides the perfect balance between the total freedom and control associated with owning a private warehouse, and the relatively low cost of using a shared warehouse.

Depending on your business’ needs, contract warehousing can be divided into three basic models:

1. The third party logistics partner owns the warehouse and dedicates the facility and its associated resources, in part or in whole, to the operations of the tenant company.

2. The 3PL owns the warehouse but the tenant company independently runs and manages all operations within it without use of the 3PL’s resources and associates.

3. A company owns or leases warehouse space and hires a 3PL to manage all operations within that space on its behalf.

Additionally, contract warehousing can apply to just a portion of a warehouse. Because a company may not need the full warehouse space, they can commit to a proportional contract arrangement: 40,000 square feet out of a 150,000-square-foot warehouse. This also allows the 3PL to use the balance of the space for shared warehousing or other contract arrangements.

Companies Best Suited to Contracted Warehouses

Every business is different, yet there are a number of factors that indicate whether an operation should be using contracted or shared general warehouse space.

For example, if your company’s sales volumes change substantially, but infrequently because they’re tied due to peak holidays seasons, then shared warehousing is more likely the better choice.

If on the other hand, your warehousing needs ebb and flow within consistent ranges and you’re able to maximize the warehouse’s resources and space over time, contract warehousing would be a better fit.

Another consideration would be around your plans for growth, and your warehouse provider’s ability to provide additional space.

If your company needs to rely on more predictable costs, the fixed rates attached to long term contract warehousing offer the best solution to manage your logistical operations and storage needs.

Additionally, larger companies can help mitigate the risk associated with operating their own proprietary facilities by partnering with an experienced 3PL provider that already control existing warehousing space.

What Makes for a Good Contract Warehousing Provider?

Though the nature of warehousing can vary from temperature controlled refrigeration to dry storage and others, the basics of efficient modern warehousing, whether contracted or general, are essentially the same. A few examples of better warehouse providers include:

Strategic Locations. Since your goods will move from point to point eventually, you want to choose a 3PL partner withs location that enable efficient distribution to your customers.

A Warehouse Management System. Make sure your chosen 3PL partner has an up-to-date warehouse management system (WMS) that can monitor the flow of your inventory and orders, and report on them in the way you want them managed.

Temperature-Controlled Capabilities: If your products require temperature sensitive or climate controlled storage, a good 3PL partner will have all the necessary resources available to you.

Recognized Certifications. The best warehouse providers will also have gone through the rigours of inspections that guarantee proper and safe handling of goods. For example, food-grade facilities will be SQF certified and HACCP compliant.

Is Contract Warehousing Different Than 3PL Warehousing?

Contract warehousing is not necessarily different from 3PL warehousing. By leveraging a number of network facilities, or their own, better third party logistics providers have the capability to offer contracted warehouse space.

What are the Differences Between Contract and Private Warehousing?

Simply put, a contract warehouse space receives a guaranteed amount of storage space every month. The third party that controls the warehouse will not be able to give away the reserved space. Thus the occupying company can choose to either fill it or leave it empty.

Private warehouses on the other hand are usually company owned and operated, though they may choose to have a third party manage warehouse operations.

What Type of Warehousing Do You Need?

Whether you’re looking for public, shared or contract warehousing, Brimich has you covered. With access to over 1,000,000 square feet of certified warehouse space and complete fulfillment capabilities, contact us today for a quote!

Increasing demands on your logistics needs will eventually lead to a partnership with a 3PL service. As a specialist in supply chain management, a well rounded and responsive third party logistics provider can allow you to move your products through the supply chain as your business expands.

Choosing A 3PL Company That Fits

Choosing a good 3PL provider will help to increase your business’ efficiencies, control costs and allow you to concentrate on keeping your customers happy.

Here are the key points to follow, and the characteristics to look for that set the better 3PL providers apart:

Understand Your Own 3PL Needs

Without a clear vision of exactly how you see your business growing, and how your products will need to move through the supply chain, choosing the process of choosing right logistics provider becomes less of a calculated decision and more of a gamble.

Forecasting sales and projecting future shipping volumes should be less guess work and more science as dictated by your known business trends.

In other words, having a better idea of where you expect to be will enable you to choose a logistics company that can grow with you.

Research 3PL Provider Options

With a better understanding of your own business needs, you can filter through the various services and specialized expertise offered by third party logistics providers.

As a shipper, you can use an RFP (request for proposal) to find the best 3PL provider to meet your needs. Better companies will have a track record of reliability, proven processes and stable ongoing relationships with carriers.

Pick A Provider That’s Compatible

Just as individual people have their own personalities, so do businesses – every business’ culture is a product of those who created it. Picking a 3Pl company that aligns with your values will help foster trust and allow better communication.

Between shippers and logistics partners, having a good working relationship from a similar cultural standpoint will certainly prove beneficial when tested.

Know Your Provider Can Accommodate All Your Needs

Rather than spreading your logistical needs across multiple services, better efficiency lies in streamlined touch-points.

A single 3PL provider that has a broad range of capabilities will have greater flexibility in customizing solutions to fit your particular needs, and be able to handle the changes that happen as your business scales up.

Make Sure You Have Compatible Technologies

Over time, the very nature of technology is fluid and changes quickly. Most notably, the logistics industry has seen massive benefits in shipment tracking over the last few short decades. With advancements in WMS (warehouse management systems) and EDI (electronic dat interchange) systems, the movement of products through the supply chain is both sophisticated and streamlined.

Working with a logistics company that can integrate with your systems is a major bonus towards growth and efficiency. Moreover, a good 3PL provider will not only be using current technology you can leverage as you grow, but provide business intelligence on your shipments that helps you make smarter decisions.

They Have the Ability to Scale

A good 3PL service provider will also have the room and means for you to grow along with your shipping needs. Sharing space is a common practice that reduces overhead costs for both parties, but when your own operations scale up make sure your logistics partner has the room and capability to accommodate you accordingly.

They’re Committed to Improvement

Choose a 3PL provider that takes the long view towards improving their own operations and has adopted an attitude of continuous development. Quality management and a commitment to provide excellent client service are assets that will allow you to thrive against the competition.

They’re Agile

Because not every widget that makes up the whole arrives exactly on time every time, there has to be room for contingency. The days of sitting on idle warehouse stock are long gone, replaced by optimizing inventory levels for just-in-time manufacturing and build-to-order solutions.

By leverage postponement strategies, your 3PL partner can help with production flow-throughs and also help reduce inventory carrying costs.

They Have Omnichannel Logistics Capabilities

As mentioned previously, technology is changing the nature of logistics at all levels. Because of the need for shipping transparency, omnichannel logistics technology is unifying inventory tracking , logistics and distribution across sales channels.

Choose a provider that understands the intricacies of omnichannel commerce and how to deliver the best customer experience – preferably with experience with your business or industry category.

They’re Financially Stable

A 3PL company that has a long history of hanging in is one thing, a 3PL company that has a history of growth through reinvesting in equipment, facilities, manpower, systems expertise and financial stability is another.

The results of good management carry a business through the harder times, and as we’ve seen in the last few years anything can happen. The types of third party businesses that continually invest in themselves are the ones you want to do business with.

They Have Location Diversification

Having multiple locations and types of facilities provides a high degree of ability to handle your current and future shipping needs effectively. Thus, a better choice in a 3PL partner will be one that has set up a network of strategically located facilities and warehouses that are already a good match for your shipping criteria.

Focus on Customer Service