Businesses of all kinds, from online retailers and national restaurant chains to auto parts manufacturers and makers of vitamin supplements, need warehousing and distribution.
Today, those bulky, nondescript warehouses that sit along major highways and near airports are more than places to store things. More often, they are warehouse distribution centers, beehives of activity where products are delivered, stored safely and securely and picked and packed into boxes to fulfill orders, which are then shipped to customers or clients across the country and the world.
Boom times for distribution centers
Thanks to the entrepreneurial spirit the internet has ignited, more companies, especially start-ups, are partnering with distribution centers. They realize they could spend a lot of time, trying to figure out how to navigate the increasingly complex supply chain and distribution network. After doing some study and talking to business advisers, they may decide it makes more sense, from a business point of view, to contract with a third-party company that specializes in warehousing and distribution (or, third-party logistics).
Here are 5 factors that spur businesses to use distribution centers.
They realize they should focus on core business
Many businesses, and not just small ones, learn that although it is fairly simple to store a product, distributing a product is a complicated and multi-step process. They should ask, “Will it cost us more to do this ourselves than it would to have a third-party company that specializes in distribution handle this?” Those costs will go far beyond leasing a few thousand square feet in a warehouse–they’ll have to invest in staff, equipment, technology, and training.
They realize their capital could be better spent
There are definite financial downsides to leasing or buying warehouse space. For one, it requires a larger ongoing capital outlay than a contract with a third-party distribution center. Plus, the amount of warehouse space a business needs today might go up–or down–next week, next month, next year. Being locked into a specific amount of space can make a business less agile and flexible, two qualities businesses definitely need in an unpredictable world economy. A third-party distribution center will typically charge for only space used and can increase or decrease the amount of space — and the charge for it — as clients’ needs change. A business adviser would likely advise a company to invest in product development, marketing or manufacturing instead of permanent warehouse space.
They realize distribution requires time and money
When a company decides to run its own fulfillment warehouse, a building is only part of the investment. There will be security systems, specialized HVAC, ample staff, forklifts, scanners, rolling ladders, scales and other equipment to purchase. There will be OHSA regulations to learn and enforce, loss prevention systems to set up and suppliers to find.
They can harness the power of an inventory management system
Distribution centers use Inventory Management Systems (IMS) to monitor, fill and ship orders as well as to track inventory. Companies that opt to manage their own distribution systems will need to buy an IMS program and train staff to use and maintain it. These systems are amazing tools though and by using a third-party partner, a company can tap into IMS without having buy and maintain a system. The system we use gives our clients access to all the information we have about the products we store and ship for them. We can set automatic reminders that tell us–and them–when supplies of certain items are running low. We can tailor reports that our clients can use to track their sales, by season, by region, by all kinds of other factors. This system gives them a comprehensive record of their sales and a detailed picture of their business. Our clients tell us it is an extremely valuable tool.
They decide to stay more focused on their mission
Businesses often try to do too much, and when they do, they lose sight of their core purpose. Sometimes their product quality suffers; sometimes it is customer service that gets shortchanged. At any rate, whatever gets overlooked typically trickles down and has a negative effect on customers. When companies decide to turn their warehousing and distribution over to a third party, they can focus all efforts on their mission and customers.
If you are considering outsourcing your warehousing and distribution, read our post on how to choose a fulfillment partner.
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