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19/04/2023
15 mins read

The Benefits of Outsourcing Warehousing: Why It's a Smart Business Decision

Outsourcing is a growing trend as companies try to save money and improve the efficiency of their operations. Storage and related processes are core activities for most companies, making them a natural and attractive target for outsourcing.

The Benefits of Outsourcing Fulfillment and Warehousing

Considering outsourcing warehousing and distribution? This is a big step, but one that will bring big benefits to your business. Here are some reasons why outsourcing could be the cost-cutting answer to your supply chain problem.

Cost savings

Save time and money by outsourcing warehousing and distribution to a third party. Use your money to help grow your business and allow 3PLs to invest in storage space and infrastructure. Labor, capital, and transportation costs can all be reduced through these outsourcing efforts.

Improved scalability and flexibility

Using a third party gives you the flexibility you need to scale up or down based on seasonality or fluctuations in demand throughout the year without compromising cash flow or customer service. Through continuous improvement initiatives and process updates, 3PL efficiently adapts to your fulfillment needs.

Access to expertise and specialized equipment

Investing in warehouse outsourcing to enable employees to work faster and reduce manual and repetitive tasks can improve both efficiency and overall productivity.

Reduced risk

These outsourced services require minimal human input and very little manual data entry. These services not only reduce the risks and costs associated with your business, but they can also reduce the size of your various in-house operations teams.

Choose the Right Third-Party Logistics Provider (3PL)

A good third-party logistics company should offer different types of shipping options, including additional services such as full truckload, less than truckload (LTL), use of multiple modes of transport (intermodal), and software to manage transportation, warehousing, and freight management.

Evaluate your business needs

A business need is a strategic opportunity for an organization. Whether it's a series of customer complaints, reduced revenue, or new market opportunities, when companies encounter problems, they know business needs are really in motion.

Corporate valuation is another term for corporate valuation in which the monetary value of a company is determined. This process may involve counting the company's assets, analyzing its costs, and estimating their current market value

Research potential 3PL providers

Third-party logistics providers include freight forwarders, courier companies, and other companies that provide integrated subcontracted logistics and transportation services.

The global 3PL industry is projected to exceed $1.3 trillion by 2026 (some estimates project the market to exceed $1.75 trillion by 2027), with three key factors shaping the direction of modern 3PL providers in 2023.

Questions to ask potential providers

Questions to ask when choosing the right provider:

  • What is your USP?

  • Is Your Business Financially Secure?

  • Can I speak to the customer/referral site?

  • Are you capable of meeting our needs?

  • Can we profitably grow together?

  • Do you have a service level agreement?

Compare costs and services

Outsourcing costs typically include bid prices, contract administration costs, and transition costs, less net proceeds from the sale of unnecessary fixtures and equipment.

Outsourcing Fulfillment: How It Works

Outsourcing storage options is a more cost-effective option. It is important to note that the cost of building a warehouse becomes significantly more competitive as the scale of operations increases.

For example, if your camp is four times larger, it may cost less per square foot to buy one acre of land than to buy half an acre. The same applies to the number of packages sent. Businesses can negotiate better rates as shipments increase.

The fulfill process

Outsourcing storage is a more cost-effective option. It is important to note that the cost of building a warehouse becomes significantly more competitive as the scale of operations increases.

For example, if your camp is four times larger, it may cost less per square foot to buy one acre of land than to buy half an acre. The same applies to the number of packages sent. Businesses can negotiate better rates as shipments increment process

How can a 3PL handle your order fulfillment needs?

3PL companies provide storage space so orders for multiple companies can be processed in one place. This increases efficiency and reduces costs by not having to travel between numerous warehouses to complete an order.

The importance of order accuracy and speed

Order accuracy is a key metric to track as it has a huge impact on customer satisfaction. Shipping the wrong order not only negatively impacts the unpacking experience, but can also be costly and time-consuming as extra time and effort must be expended to get it right.

Businesses generate revenue by selling goods, products, and services directly to other businesses or consumers. No sale, whether B2B or D2C, is complete until the item you sell reaches the customer.

Outsourcing Warehousing: How it Works

Outsourcing or external warehousing and distribution describes the use of specialized external warehousing facilities and inventory management expertise by a company, rather than building or expanding capabilities across the supply chain and coordinating goods internally.

The warehousing process

The six basic warehousing processes include receiving, storing, warehousing, picking, packing, and shipping. By optimizing these six processes, you can streamline your warehouse operations, reduce costs and errors, and achieve higher perfect order rates.

How can a 3PL handle your warehousing needs?

3PL further reduces the burden on organizations with increased access to fulfillment resources and best practices. You can combine storage and fulfillment and let his 3PL partner take care of storage space, store inventory, manage returns, and receive inventory.

The importance of inventory accuracy and management

With an accurate picture of your inventory, you can ensure that your customers always have the products they want without investing large amounts of capital in excess inventory. Accurate inventory also helps spot trends in sales data and adjust purchases accordingly.

Fulfillment and Warehousing Metrics

Measure compliance performance across multiple product lines using the following method:

The total number of PO lines picked and shipped / total time taken to pick and ship

Since orders can contain items from different product lines, this is a broad metric for identifying fulfillment differences between orders.

Key performance indicators (KPIs) for fulfillment and warehousing

Inventory KPIs are related to the inventory of products you have in your warehouse. This is perfect if you're looking for a way to monitor inventory movements. Common inventory KPIs include inventory accuracy, shrinkage, inventory cost, inventory turnover, and inventory-to-sales ratio.

How do businesses measure success and identify areas for improvement?

One of the best ways to measure success is to compare your current self to your past self. This comparison could be as new as yesterday compared to today. Monitor yourself daily to measure your success and what changes you want to make to keep moving forward.

Conclusion

While it may seem like a hefty investment at first, the ROI is much higher, and having the right warehousing partner also means faster growth and easier access to new markets. In today's economy, having a warehouse partner is important only if you want to build a strong business foundation and have a vision of rapid growth.

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