Efficient logistics and supply chain management are important in a business. Companies need to store goods so that they can supply them to customers at the right time. Various warehousing options are available for storing goods. If a Company doesn’t want to build its warehouse or utilize a public warehouse, then it can enter into a third-party warehouse agreement. A contract warehouse is a third-party logistics provider that receives goods, stores them, and ships goods for the client. A contract is made between the client and the third-party logistics storage facility. The contract can range from a few months to years. Contract warehousing is generally reliable and affordable.
What Is a Contract Warehouse?
A contract warehouse means the business or owner of the goods does an agreement with the third-party warehouse provider for the management of goods and shipping. This is called a contract warehouse. The third-party warehouse provider takes responsibility for various aspects of warehouse operations, such as receiving goods and storing them in proper places. Whenever a customer places an order, the workers of the third-party warehouse partner will pick up the goods from their location, pack them, and then ship them. It leads to better inventory control and fulfilling customer demands at the right time. Contract warehousing is generally used by manufacturing, e-commerce, and retail businesses.
It is an attractive solution for businesses that cannot manage their warehouses or want to focus only on core business activities.
Difference Between Contract Warehouse And Public Warehouse
Contract Warehousing
In contract warehousing, a storage facility is available only for a particular client. The third-party storage provider will provide custom solutions based on the client’s specific needs. A long-term agreement is made between the warehouse provider and the business. Here, the Company does not have to worry about the space in the warehouse every month.
Public Warehousing
Public warehousing is a space that a business can rent for a short period. Multiple clients use the storage facility in public warehousing.
It is operated on a first-come, first-serve basis. This means that storage space is not always available for your company whenever it is needed. Public warehousing does not provide services like kitting, packaging, transport service, and logistics operations.
Benefits Of Outsourcing Contract Warehousing
Outsourcing contract warehousing has numerous benefits. We are listing some of them below.
Low capital investment
A Company will require a large amount of money to buy and construct a warehouse storage space for storing its goods.
The costs involved are renovating a building, recruiting staff, providing salaries to them each month, and buying warehouse solutions equipment like forklifts. The Company may opt for public warehousing if it does not have much capital to invest.
However, in public warehousing, the Company can store goods only for a short duration and must always fight for storage space.
Contract warehousing provides a particular storage space for a specific client. The warehouse space is divided into various zones depending on the type of goods. The Zones can be temperature-controlled storage or dry storage. The Company does not have to spend money on building a warehouse, staffing, or buying forklifts.
Expertise And Technology
Contract warehouses usually have expert logistics professionals. They use advanced technology for inventory management and order fulfillment. It helps to grow your business and increase customer satisfaction. A contract warehouse can achieve a high level of inventory accuracy. It reduces the chances of overstock or out-of-stock issues.
Focus On Core Aspects Of Business
By outsourcing the entire warehouse and logistics operations, the Company gets time to focus on core business activities like market strategies, product development, and many more.
Value Added Services
Contract warehousing not only stores and manages your goods but also provides other services like packaging, labeling, kitting, palletization, and B2B transportation.
24/7 Access
Most of the contract warehouses have advanced security measures and offer round-the-clock Access to inventories.
Risk Management
Companies can reduce risks associated with various aspects of warehousing operations, such as handling and damaging goods during transportation.
Challenges In Contract Warehousing
There are even some challenges associated with contract warehousing. We are listing them below.
Loss Of Control
Whenever a company outsources warehousing services, it loses direct control over operations, inventory handling, and service quality. It can affect the overall efficiency of the 3PL logistics operations.
Dependency On A Third Party
A Business becomes completely dependent on a third party warehouse service provider. If there is a delay or any error from the provider side, then it badly affects the Company’s supply chain.
Communication And Coordination
Effective communication is essential between the third-party warehouse provider and the business. However, miscommunication can lead to a delay in ecommerce fulfillment or order management.
Geographical Limitations
If the contract warehousing is not strategically located, then the transportation and warehousing costs of the Company will increase.
Less Flexibility
Contract warehousing usually involves long-term agreements with a company. It becomes difficult for a company to exit in the middle, especially when it wants to change the warehouse logistics provider over time.
Why Should You Outsource A Contract Warehouse?
- Outsourcing a contract warehouse eliminates the need to invest a large amount of money in building a warehouse, maintaining staff, and building different types of warehouse equipment like forklifts. So, hiring a third-party warehouse provider reduces the Company’s costs.
- Businesses can focus on important activities like product development and marketing strategies by outsourcing warehouse operations.
- Most of the contract warehouses utilize modern warehouse technologies like warehouse and inventory management systems and various automated processes, which help to increase customer satisfaction.
Conclusion
Contract warehousing provides a particular space for storing company goods. It is usually managed by logistics professionals who use advanced technologies to store and manage goods inside the B2B warehouse. Again, outsourcing the warehouse operations means that the Company does not have to build any warehouse facility or manage goods. It helps to reduce the large amount of capital of a Company.However, always look for a third-party pick and pack warehouse provider who has good experience and a well-equipped storage facility with advanced technology. Try to always look for a warehouse company in Tamilnadu or other cities that is located close to the target markets, suppliers, and distributors.
AAJ Supply Chain Management
