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Advantages and Disadvantages of Contract Warehousing

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You have outgrown your current warehousing situation, or you do not have the financial capacity to build a warehouse, what do you do now? If you are looking to rent out new warehousing space, contract warehousing services may be the solution that you are looking for. Whether your needs include extra space to store goods or a full-time facility crew to distribute your product, contract warehousing can do it all. Here are the advantages and disadvantages of contract warehousing.

What is Contract Warehousing?

As you may be familiar with warehousing processes in general, you may be asking yourself “what is contract warehousing?” Contract warehousing is an arrangement in which a partner warehouse agrees to receive, store and ship goods for a client. Contract dictates the terms of service and length of the agreement. The timeframe of the contract can vary from months to years and the fee structure can be fixed cost, costs-plus or a combination of the two.

Contract Warehousing can perform the following functions:

  • Material Receiving
  • Storage
  • Inventory Management
  • Shipping

Contract warehousing is different that public warehousing, however similar the two may be. Public warehousing offers space on a seasonal or first come – first served basis and may not have the square footage necessary depending on how full their facilities are, due to serving multiple clients. Public warehousing also often does not offer any value-added services, such as kitting, custom labeling, or trade compliance. Contract warehousing services, on the other hand, offers value-add services and guarantees access to your specified amount of warehousing space, even if you have to scale your product.

Advantages and Disadvantages of Contract Warehousing

Advantages of Contract Warehousing

Contract warehousing can be a huge benefit to your business. Some advantages of using these services include:

1. Lower Capital Investment

Buying, building, or expanding a warehouse can quickly become too expensive. With a contract warehouse, the building is already built and fully operational, significantly reducing capital cost.


2. Lower Operational Costs and Fees

Contract warehouses are built and run for maximum efficiency, both with utilizing space and manpower. Entering into a contract saves you the fees of running the warehouse by yourself, including utilities, maintenance, potential renovation, operation and distribution costs. And because the space is rented, businesses can contract on an as-needed basis, scaling up or down as you need.


3. Benefit of Value-Added Services

Contract warehouses not only store your products, but they can also take care of pick and pack order fulfillment, quality control checks, product handling, packaging, kitting, shipping, and inventory management. 


4. Greater Reliability

Contract warehousing and fulfillment services work hard to maintain a good reputation by keeping product flow consistent to and from storage to on-time shipment. This is critical for customer satisfaction and long-term success.


5. Centralized Operations

A centralized location makes shipping time even faster, especially if your business is situated away from your target market. The ideal contract warehouse would allow for two-day shipping across the continental United States.


6. Streamlined Processes

Operation centers often have specialized services and equipment with trained personnel to decrease turnaround times. This saves you the cost of hiring and training warehouse managers and staff.

Advantages and Disadvantages of Contract Warehousing

Disadvantages of Contract Warehousing

There can be some negatives associated with contract warehousing, which may include:

1. Uncertain Economic Conditions

You may encounter a larger overhead than expected due to varying market conditions or seasonal reasons, although this is still less expensive than having to build a warehouse from scratch or renovate.


2. Less Control over Processes

Businesses will inevitably have less control over their inventory management when using a contract warehouse. However, this could also be a benefit, leaving you more able to focus on your KPI’s.

Advantages and Disadvantages of Contract Warehousing

Businesses can gain a competitive edge over their competition by using the contract warehouse advantage. By allowing contract warehousing and logistics experts to sort, store and transport your inventory, you leverage an expert resource instead of spending time and money on trying to get it right yourself. So, you can rest assured knowing that a team of specialists is taking care of your inventory while your team focuses on hitting your business growth objectives.

Advantages and Disadvantages of Contract Warehousing

In supply chain management and order fulfillment, leveraging cost-effective warehousing and distribution services can improve customer satisfaction and increase profits. A contract warehousing solution by NewStream Enterprises, LLC can offer custom warehousing that integrates seamlessly with your current system. NewStream also offers unique industry differentiators that add further value, such as inventory control and warehousing proximity savings because of our centrally located facility in Missouri.

Contact us today for a free estimate for YOUR warehousing solution!

Advantages and Disadvantages of Contract Warehousing

Tagged: Warehousing

Jul 7, 2021 8:24:46 AM

Written by Jacob Harris

Jacob is currently the Sales and Marketing Intern at NewStream Enterprises, LLC. He is a Film and Marketing major at Evangel University (EU). Jacob is also the PR Director for the EU Activities Board, and was previously the Chief Editor for the 2021 EU film, “Witness.” Jacob is experienced in advertising and videography as he has helped several local businesses in creating advertisements and promotional videos in his spare time. In his role, Jacob assists our Sales and Marketing department in content creation and visual production.