When your business is growing, shared warehousing with a third-party logistics provider (3PL) enables you to scale your warehousing investment to match your order volumes. Need more or less space? You can add or remove it based on your needs.
But, what happens with a mature business that is flying high and wants a more customized distribution solution? Companies in this situation often turn to a contract warehouse model to support their supply chains. In this article, we’ll take a closer look at contract warehousing and when it may be a good fit for your operation.
Most contract warehousing contracts entail ‘cost-plus’ pricing in which you reimburse your 3PL for the cost of its space and/or resources, plus an additional (agreed upon) percentage.
There are four main factors that will determine a company’s readiness for contract warehousing: size, customization, cost, and consistency.
Like most contracts in the logistics world, 3PL contracts are negotiable. It all starts with finding the right 3PL – one that has the space and resources you require, and that is willing to commit them to your operation. From there, every aspect of your contract warehouse operation can be customized to meet your requirements.
If you’re going from shared to contract warehousing with the same 3PL, that 3PL can make the transition a seamless one. It will transfer inventory, systems, and other aspects of your operation quickly while you pay only for minor implementation expenses.
The transition is equally smooth if you’re going from shared to contract warehousing with the same 3PL for only a portion of contracted space. For example, you can say “I store 15,000 pallets with you. I always go up or down 2,000, I want to lock in 15,000, and I want to lock in the same 8 associates that are handling my business today. Let’s make a deal that works for both of us.” Your 3PL can then dedicate those people, switch to a cost-plus agreement and voilà, you’re now a contract warehousing customer.
If, however, you’re moving into a new warehouse (whether yours or a 3PL’s) from another warehouse (whether yours or another 3PL’s), then there could be more significant time and money investments involved. You’ll need to move out of the old warehouse and into the new one (warehouse labor and transportation). You may have systems integration work with your new 3PL. And, you’ll need to change all your ship points with customers. All of this takes time and money.
If you’ve picked the right 3PL for your contract warehouse operation, it will act as a coach and guide you through the transition process. This often entails working directly with your former 3PL so that you don’t have to deal with the logistics intricacies.
At Weber Logistics, we appreciate the significance that a move to a contract warehouse means for your business. And, we’re happy to work with our customers to create a blended cost-plus / transactional arrangement to create a financially favorable contract that is as customized as your operation (if this is preferable). To learn more about our contract warehousing capabilities in California, contact Weber Logistics today.