10 Reasons Companies Outsource Their Warehousing Needs
Many import, export, retail, wholesale or manufacturing companies in the UK choose to own and operate their own warehouse facility.
Others outsource warehousing to a third party logistics specialist, often alongside transport and distribution.
What are the reasons for outsourcing? Is outsourcing a smart decision for your company?
Outsourcing decisions involve taking a whole load of factors into consideration. In this article, we take a look at the reasons our customers tell us about why they decided to outsource some or all of their warehousing.
Hopefully it will provide a few insights for you!
- “We prefer a rental model instead of upfront capital cost investment”
This is the number one reason customers decide to outsource their warehousing and/or logistics requirements.
Renting, constructing or otherwise running a full warehouse facility is very capital intensive. Companies that are risk averse or that don’t have the means to invest in large capital projects will therefore turn to third-party providers to help keep capital costs to a minimum.
These 3rd party warehousing and logistics operators have a business model based on getting a return on their own capital investment by specialising in providing these services to other companies.
These companies benefit from the economies of scale generated by the 3rd party logistics operator, and the fact that the capital machinery, staff and infrastructure are already in place to run the operation for them.
- “We need extra overflow space to call on when we need it”
Sometimes our clients buy a few hundred racking spaces to have as overflow space as and when needed.
They may not always be occupied, but the assurance that the capacity is there if needed is very important, and is a lot more cost efficient than owning a warehouse just for the times when extra stock comes in.
- “We’re too small to run our own warehouse”
The size of your business can play a major role in your decision whether to outsource or not.
Smaller companies may not warrant their own full facility, as limited stock lines and slower turnaround make the running a warehouse more expensive and less viable. Cash flow and access to capital may also be issues facing smaller businesses that encourage them towards the outsource model.
However larger companies can also benefit from outsourcing some warehouse operations.
Warehouse management can be a highly complex, time-consuming and costly function, so if it becomes too resource intensive then outsource all or part of your warehousing operations in order to focus on your core business model.
- “Outsourcing to a specialist gets us a better service”
Outstanding service is an important factor in the deliverables of every business.
Outsourcing your warehousing requirements to experts can help you to achieve this in a number of ways. Firstly, by using 3rd party warehouse providers you’ll have access to knowledge and experience that can deliver the best results.
Furthermore, by agreeing a professional contract with your supplier, they will be incentivised to maintain a minimum standard when working for you – that can include KPIs if need be.
- “We prefer to focus on our core business and outsource everything else”
Managing a warehousing and logistics operation is, for many companies, a step outside the comfort zone and into somewhat unknown territory.
It’s like any operation that a company might deem ‘non core’. If it draws time and resources away from your core business model, diverting your attention onto your storage facilities and procedures, it may be best to outsource the operation to a business that can do it more efficiently and cheaply than you can.
Outsourcing can remove both the distraction and some of the added cost. And by sticking to the field you know whilst your third-party warehousing company does what they do best, efficiency and quality of service should both increase, while your costs reduce.
- “Our main location is a long way from our customers”
If your manufacturing operation is in Scotland but your main customer base is in East Anglia, it makes great sense to warehouse your goods in East Anglia to minimise road miles.
Similarly, if you import goods to the UK, a warehouse facility located within easy reach of the port will save you money in the long run by cutting transport costs.
Take all these factors into consideration and look at location options for both outsourced and self-operated facilities to find the best fit for your business.
- “We want flexibility”
Outsourcing your warehousing and logistics requirements to a third-party offers great flexibility compared to running a warehouse with a set amount of space of your own.
In fact your own facility – albeit that you have the freedom to use your space as you wish – may actually limit your options.
For example, if your company experiences rapid growth, meaning you need to increase stock levels quickly, negotiating to increase your available warehouse space with an existing third-party supplier with extra capacity will be quicker, easier and cheaper than expanding or relocating your own warehouse.
On the other hand, if you suddenly find your business requires less storage capacity than previously, you can also easily cut back on the space you’re paying for, reducing overheads until business picks back up.
- “Our business is seasonal so our requirements are special”
To extend on the previous point, seasonal stock fluctuation can play havoc with warehouse efficiency, because your racking may sit empty for several months of the year.
Maintaining your own warehouse in such circumstances can mean can be very wasteful unless you go to the effort of trying to fill it during the quieter months with other types of stock. Instead of the wastage this entails, it makes better business sense to outsource warehousing to a 3rd party operators.
Outsourcing will mean your warehouse operations can adapt to fit this fluctuating market as your requirements change – and it may generate considerable savings for the business.
- “We want a ‘one stop shop”
Many professional outsourced warehouse operators don’t just provide ‘warehousing’ or ‘distribution services’ alone. They’re fully integrated suppliers with a strong capability in the field of logistics.
So although you start your search for a specialist 3rd party warehouse partner only, you’ll soon be able to make use of other services that they supply.
Whether it’s a fully integrated logistics service, occasional transportation or haulage using services such as Palletline, or pick and packing for an ecommerce operation, some warehouse operations specialists also offer services that allow you to easily streamline all processes under one roof.
Such single-point sourcing offers a potentially healthy boost to efficiency while also cutting down on costs by keeping as many processes integrated into a single solution.
- “We want to work with experts”
Expertise is probably one of the most valuable commodities an outsourced warehousing company can offer you.
Having an experienced team at your disposal to support your business with specialist services will help you improve efficiency, cut wasted time and reduce overall costs of operations and training.
The difficulties of maintaining such an expert team yourself in-house should not be underestimated. So signing up an established provider for this is likely to be a very worthwhile investment.
If you are currently trying to decide between outsourcing or maintaining your own facility, we hope this roundup has helped. To find out more about how outsourcing some or all of these services could help your business, get in contact with the team here at Masters Logistical.
Take a look at our article on “The Business Case For Outsourcing your warehousing operation” for more information and to discuss your warehousing and distribution requirements, contact Masters Logistical on [email protected]. Or call us on 01353 648222.