Business today is growing. Whether it be a one-person operation out of a garage or a multi-million-dollar operation, businesses will always have the need to expand their inventory. As a supply chain strategy, businesses will choose either to build or add on to warehousing to increase storage capacity or to outsource their warehousing and distribution to a third-party logistics provider (3PL).Which is the best option for your company? the pros and cons of building or expanding a new warehouse compared to outsourcing.
Pros of Building or Expanding a Warehouse
There are a few pros to owning your own warehouse. This solution is beneficial for those needing to keep everything in-house. It is also easier to keep track of inventory and data availability while having everything sorted out to your management flow, especially when dealing with a high number of custom options for customers. There are also tax benefits for owning the land the warehouse is built on, but that may not be feasible for everyone.
Cons of Building or Expanding a Warehouse
It can be very difficult to scale when relying on your own warehousing, especially when dealing with sudden influx or decrease in orders. A warehouse’s space is finite, and suddenly having it overstocked can ruin space management, while having it understocked is a waste of resources.
The cost to build a distribution center or push warehouse expansion can be very hefty, especially when considering the upfront payments. This includes purchase or rental of building/land, having permits to build, buying the materials to build, building on the actual property, furnishing the warehouse with all equipment for later use, supply manpower for the building process, and hiring and/or training new staff on warehousing operations. One should also account for hiring an administration team for warehouse management, understanding the learning curve of developing an efficient warehouse operating process (including quality assurance), buying materials for restocking packaging and shipping, adhering to safety regulations, and continuing maintenance costs, security systems, insurance, and utilities.
The risk of capital loss in this entire process is huge, especially in the unfortunate event a business should need to sell the property prematurely, as the possibility of selling for less than the purchase price is likely.
Pros of 3PL Warehousing
If the above list of costs sounded a little overwhelming, don’t worry. Beneficial reasons for outsourcing to a 3PL for warehousing services and distribution include significantly reduced expenditures, taking away the cost of property leases and warehousing equipment, leaving you open to put resources into much more important areas. Working with a 3PL also frees up having to worry about warehousing operations, especially if your company is not optimized for order fulfillment. Outsourcing fulfillment, from pick-pack-ship, can decrease turnaround ship times, which means more product leaving the facility, making room for additional products to be sold.
3PL companies also often carry a full team of highly experienced professionals, having access to advanced inventory management technology, along with tracking and reporting technology for your products. Outsourced warehousing and distribution companies are more than able to meet your price negotiations and specifications in meeting your custom packaging and shipments. Also, because these 3PL companies are responsible for your product, they regularly perform inventory checks, relieving you from having to worry about inventory management. In addition, these companies also provide hassle-free scaling, no matter what your inventory looks like.
When looking to outsource, looking for a strategically located 3PL is critical, especially for reduced shipping rates. The benefit of having a 3PL partner located in the central United States makes access to two-day expedited shipping to any location within the continental US a reality. No longer do you have to ship from your company’s physical location, which may increase shipping costs from customers.
Cons of 3PL Warehousing
There does come the risk while outsourcing to lose control over certain aspects of the production process. Companies who outsource will most likely not be in charge of the distribution of their product, which can be harder for some custom shipping or subscription packages. However, expert control over distribution is exactly the core competency that a 3PL can provide, so consider this to be the warning if that aspect of control is important to your company values.
Things to Consider When Choosing to Expand Warehousing or Outsource
If still debating which option is right for your business, consider all the problems that may be occurring in your current warehousing space. Asking these questions will better determine your company’s bottom line needs to decide which direction suits you best.
- Are there high-traffic areas that are causing a disruption in the workflow?
- Would a new building be worth the cost of reducing this?
- Are the costs of supplying energy to the building and equipment too high?
- Are there certain areas of production that could be automated or outsourced as to cut down on labor expenses?
For many, choosing to hire a 3PL warehousing and distribution company has proved to be the most effective choice for reducing costs to sustain growth in the marketplace. Not only does it allow one’s company to save on massive costs, but also gives them a competitive advantage to scale their product lines quickly and efficiently, all without taking up additional space in their own work environment. This saves you from through a long process building or expanding a warehouse when it may be more cost-effective long term to outsource fulfillment and logistics services to a 3PL.
Leveraging cost-effective warehousing and distribution services can improve customer satisfaction and increase profits for supply chain management and order fulfillment. Inventory location and warehousing is a critical component of a high-performing logistical operation. That’s why NewStream Enterprises has positioned our warehouse and distribution networks in Springfield, Missouri. This central location allows for easy shipment to anywhere in the continental US within 48 hours and ensures the fluid availability of products for the companies we partner with, helping to eliminate back orders.
Contact our NewStream experts today to see how we can maximize from your warehousing and distribution services.