Understanding 3PL Warehousing Costs

Third-party logistics (3PL) services allow companies to outsource operational activities like warehousing and delivery. By outsourcing logistics, your business has more time and resources to dedicate to sales, marketing, growth and product development.

One particularly important logistics service is 3PL warehousing. A 3PL warehouse takes care of your physical warehousing space for you, eliminating the need for major investments in warehousing space and staff.

Businesses seeking 3PL services are not only looking for customized 3PL warehouse solutions, but a mutually beneficial relationship with the provider. Because a 3PL company can provide a range of specialized services outside of your core competencies, outsourcing your warehousing and logistics needs can actually save you money in the long run.

If you already know the reasons to use a 3PL provider, and are closer to making a purchasing decision, below are some important 3PL warehousing charges and pricing models to consider.

3PL Warehouse Costs

When considering whether to handle warehousing in-house or outsource to a third-party logistics warehouse, it’s important to first understand 3PL warehousing costs and what you can expect to pay. All warehouse types are not the same. In fact, there are a few different warehouse options to choose from and different pricing models.

In addition, there are factors like 3PL warehousing insurance and liability considerations to keep in mind as you evaluate providers.

Warehouse Options

There are two primary offsite warehousing options:

• Contract warehousing with a 3PL provider
  • In this agreement, a company outsources to a partner warehouse that agrees to receive, store and ship goods.
• Public warehousing
  • This is a space that can be rented for a given time period, usually billed monthly by square foot usage. This option, however, doesn’t cover other critical components like pick and pack fulfillment, kitting, packaging and logistics.

3PL Warehousing Charges

In addition to simply holding your inventory, there are several crucial functions you should look for in a warehousing provider. A 3PL warehousing company may or may not offer all of the services below, but the more capabilities they have, the better.

The value-added warehousing services you choose to utilize will be a major factor in determining your 3PL warehousing costs.

• Receiving
  
  • Receiving and unloading inbound goods
  • Often billed by line, piece, order, or at a flat rate

• Storage
  • Utilizing warehouse space to store goods
  • Charged per square foot or pallet

• Inventory audits
  • Confirming that records match the physical count of goods
  • Charges vary by provider
• Picking
  • Fetching goods from storage to fill orders
  • Charged by line, piece, order, or included in total costs
• Packaging
  • Protecting goods to ensure safe transit
  • Charged by piece,order, or included in total costs

• Kitting
  • Separate but related items are packaged together
  • Charged by hour, kit, or project

• Sorting
  • Arranging different SKUs for storage and picking
  • Charges vary by provider

• Shipping
  • Dock loading and checking goods for transport
  • Often billed by line, piece, order, or at a flat rate

Factors Affecting 3PL Warehousing Costs

Along with the warehousing services you need, there are other factors that affect the cost of 3PL warehousing services, including:

• Warehouse space needed based on average pallet dimensions, number of pallets and pallet stackability considerations
• Specialized handling and other labor needs
• Temperature requirements for products
• Number of shipments per year
• Number of orders processed annually
• Hazardous material considerations
• Inventory value estimation
• Inventory turns per year
• Stock rotation considerations
• Average order size
• Average number of inbound/outbound shipments per day
• Percentage of cross-dock shipments
• Special transport requirements
• Warehousing insurance needs

Comparing Internal Costs to 3PL Warehouse Solutions

It’s natural for businesses to try to save money by handling as many processes internally as possible. In the case of warehousing, how do the internal costs compare to outsourcing?

In-house warehousing can be very inefficient because it’s difficult to optimize warehouse space and employee labor when that expertise is outside your core competencies. In addition, starting an in-house warehousing program can require a significant investment in things like building or renting warehouse space, buying the necessary equipment, developing and testing operational processes, and hiring and training staff.

It’s no wonder that some of the biggest brands in the world outsource their needs to 3PL warehousing companies. In fact, 80% of all Fortune 500 companies utilize 3PL services.

How Companies Save Money With 3PL Warehousing Companies

Choosing a 3PL supplier is an important cost-control decision for your company, especially if you’re looking to scale your business in the future. Here are some of the many ways companies save money with 3PL warehouse solutions:

• Lower capital investment
• Changes fixed cost to variable cost
• Reduces time-to-consumer
• Increases cash flow
• Reduces shipping costs
• Enables efficient handling of peak volume
• Reduces cost per order
• Focuses management time on business growth

If you’ve never worked with a 3PL provider, now is a great time to reach out to a company that demonstrates expertise and a willingness to guide you through the process. NewStream Enterprises, LLC not only offers 3PL warehousing services, but also comprehensive supply chain management solutions.

Gain access to our knowledgeable team and eliminate the headache associated with figuring out logistics, warehousing and distribution. When you partner with us, we give you the tools, technology and manpower to meet your needs today and position your company for future growth.