With shared (or public) warehousing, your logistics costs parallel your revenue stream. When volume (and revenue) is up, the transaction-based invoicing from the 3PL is also up. When volume is down, you see cost reduction tied to fewer transactions. The value proposition for shared warehousing is that you don’t run out of space, equipment or staffing during the peak volume periods, but also don’t pay for excess space and staffing during lax periods.
Large shippers who contract with a 3PL to manage a large, contract warehouse just for their products tend to have a more strategic relationship with their partners, with regular dialogue on how to adjust operations to get better, faster and more efficient.
But smaller shippers who may store goods in one or multiple shared warehouses across the country too often view the relationship with their 3PL as tactical, focusing solely on getting the lowest possible transaction cost. Hence, many of the benefits of outsourcing to a logistics specialist are left on the table.
Based on the common mistakes we see, here are some suggestions to maximize the many benefits of shared warehousing.
- Provide an accurate business profile. Getting the transaction rate right at the start is a result of having the right information, in detail, to build a solid order profile. Some shippers may not have the staff or the time to parse through and provide the requested data. Instead, they rely on standard, system-generated reports. Example: A manufacturer recently provided a monthly shipping volume report as the primary piece of data on which to base pricing. The missing puzzle piece was that volumes on the last 3 days of the month equaled the volume of the first 17 business days. Surprises like this lead the 3PL to request a pricing adjustment – a frustrating process for all concerned and one that could have been avoided with an earlier, deeper dive into the data.
- Determine Key Performance Indicators (KPIs). Again, it takes time to think through and decide on how you want to measure success. But, otherwise, how can you judge the value of the relationship – for yourself or your senior executives? Having just one KPI – the lowest possible transaction cost – may encourage shortcuts that lead to quality problems and costs in other areas (retailer chargebacks, reworks, etc)
- Establish regular communications that provide a “telescope” view of upcoming business changes. Again, such meetings take time. But it pays off tenfold in increased productivity and lower costs. Let’s say an increased volume of products is required to support an upcoming promotion with a retail customer. If your 3PL gets this information 4-5 weeks in advance, they can use it to plan required space and labor to avoid costly overtime. In a shared warehousing environment, better planning of day-to-day shipping requirements easily translates to 6- and 7-figure savings over the course of a year. Most shippers don’t want to keep their 3PL in the dark, it’s just what happens when there’s too much to do and not enough time and people available. That’s why regular, scheduled communications are so important.
- Talk strategy. These higher level discussions could be scheduled on a quarterly, semi-annual or annual basis. The focus would be on your longer-term business plan and performance expectations. Are you planning to add a new sales channel, such as direct to consumer? Will your product offering expand – possibly through acquisition? Will there be a need for value-added services at the distribution center – variety packs, display building, postponement activities? The purpose of such meetings is to engage the brainpower and experience of your 3PL partner, which can lead to creative solutions you may not have considered.
Shared warehousing should not be regarded as a tactical, transaction-based solution. Establishing a more strategic relationship with your 3PL will help maximize the service and cost advantages that shared warehouse solution can deliver.
Interested in learning more about the shared warehousing services of Weber Logistics? Contact us today.