Retailers consider different warehousing options when deciding the best route for their business needs. Three common options retailers choose are private warehousing, public warehousing and contract warehousing.
Third-party logistics (3PL) warehousing is an increasingly common choice for e-commerce retailers. 3PL warehousing is a term that is commonly used interchangeably with contract warehousing but they’re not exactly the same. Let’s explore these different warehouse options.
What is a 3PL warehouse?
A 3PL warehouse is an e-commerce fulfillment provider that offers an extensive range of logistic services. The outsourcing company handles the entire order fulfillment process on behalf of retailers.
3PL services are often used by companies that are starting to grow and expand to newer and larger markets.
The role of 3PL warehousing
Besides simply handling the warehouse operations, 3PL companies also handle inventory management, shipping, receiving and returns management.
There are different options of 3PL warehousing that specialize in different industries such as food, furniture or hazardous materials.
The 3PL process starts when the warehouses receive the retailers’ goods and store them away systematically. The goods remain in the warehouse until an order comes in. It is then picked, packed and shipped to the customer.
The warehouse will also handle inventory management to ensure stock is sufficient and processes returns efficiently.
Contract warehousing vs 3PL warehousing
Contract warehousing and 3PL warehousing are both outsource options for retail companies that would rather hire an external party to handle logistics. As we discuss the details of these warehouses, you’ll be able to see that they hold a lot of similarities.
What is contract warehousing?
Contract warehousing is an agreement for a company to partner with a warehouse to store and ship goods out for a retail client. The contract for services is set for a time frame and the fee structures will be agreed upon by both parties.
Contract warehousing is ideal for companies that need medium to longer-term storage needs with a variety of services. They are typically also able to provide quality control checks, pallet reworking, packaging options, and inventory management.
These warehouses are usually located in central locations which expedites delivery processes for products to reach destinations quicker. As contract warehouses provide better-individualised services, it is the preferred option compared to public warehouses.
Benefits of contract warehousing
By using contract warehousing, you are alleviating the burdens of handling day-to-day warehouse management. Besides that, contract warehousing comes with a few other added benefits.
- Reduced overhead costs. The costs of hiring a contract warehouse are cheaper than the investment of setting up a private warehouse that has the same services available.
- Inventory management services. Contract warehouses are set up with advanced inventory systems that retailers can take advantage of to boost their current inventory set-up.
- Value-added services. Working with these companies allows you to capitalize on their ability to offer cross-docking services, kitting and customized packing amongst other things.
- Scalability. Hiring a contract warehouse allows you to increase or decrease the warehouse space that is needed quickly without large investments or losses.
Added advantages of 3PL warehouses
The easiest way to understand a 3PL warehouse is to imagine a contract warehouse but with added services offered to retailers. The retailer is able to access all the benefits of a contract warehouse and has the option to take it one step further.
Some added advantages of a 3PL warehouse include:
- Working with industry experts. Often you’d be able to choose a 3PL company that specializes in your industry or target market.
- Expanding your business reach. Working with a 3PL partner will give you access to markets and expansion that would require too many resources if done in-house.
- Marketing analysis. Large 3PL’s are able to conduct market analysis and research for your business to help forecast the profitability of your business venture.
- Access to technology. These companies are usually equipped with high-end technology and management systems that simplify processes and reports.
- Good deals on shipping prices. The large volumes of products shipped on a daily basis give these companies leverage to bargain for lower shipping prices. As a customer, you usually benefit from this as well.
3PLs specialise in logistics and intend to deliver the very best service. 3PLs are also often more efficient than in-house services.
3PL warehousing companies like MultiB2B usually have great partnerships with other major ecommerce retailers and shipping providers that could help build connections for your company.
Each retailer will have to decide on the best option for their company based on their needs and available resources. Many of the extra services offered by these companies could increase growth and the reputability of your company.
Although you may be tempted to settle for the cheapest available option, it would be beneficial to assess the added value some of these services could bring to you and how they could facilitate the next growth cycle of your business.
The article is a part of our comprehensive series on “Warehouse Management Systems”