How Does It Affect Capital and Is There A Better Way For You?
Sometimes inefficiency is celebrated. A winemaker might create value, in part, by holding onto a particular vintage, creating scarcity for a bottle and increasing the future demand for the product. That time-lag might even improve taste or add character that consumers value. Most businesses don’t have that luxury. The axiom that time is money is underlined by another refrain – haste makes waste. Across a wide range of businesses, efficiency is the secret weapon to staying competitive.
As a third-party logistics and warehouse source, we create opportunities for efficiency every day. Still, not everyone will choose to go the third-party route. Why? They’re already efficient? Maybe. Inertia is one common reason, especially for a smaller company. “We’ve always done our own thing and have achieved a level of comfort.” Ownership is another. There is a sense of pride related to owning the inventory and the process and parts in the management of that inventory. “We can see and manage the inventory, watch the dollars closely, manage the people…our volumes are low, our data is sensitive” – just to name a few of the commonly stated reasons for going it alone with warehousing.
All of the reasons for taking a DIY approach are valid. Nothing stays the same in business, though. And for that reason, third-party warehousing is a growing factor in the business landscape. If you haven’t looked into it yet, it might be time.
So, what sort of changes might precipitate a change in thinking about warehousing? In just a few words: pressure on margins. Each situation is different. As you look at the reasons that people choose to outsource their warehousing, you might see some of your own company. And the bottom line is probably the bottom line when you filter through all the factors. One simple reason many cite for outsourcing warehousing is that it’s not their core competency. They see their resources as finite and wish to dedicate more of them to something other than warehousing. On a related note, as the workforce of a company increases, it can place burdens on that company that impact competitiveness. The sheer energy and capital required to manage a layered, larger workforce can be difficult and even debilitating at times. And it can distract from the task of making the business go.
What goes into Warehousing for yourself? A short list:
- Space (Purchased, leased, constructed)
- Land (See above)
- Utilities, including specialized considerations like moisture and/or temperature control
- Disaster preparation: insurance, security, fire suppression, pest control, etc.
- Racks and Conveyors
- Operational tools: hardware, software, training
- Loading Docks
- Handling Equipment
- Labor (handling, clerical, supervisory, etc.), wages, benefits, training
- Trucks, trailers, etc.
The choice to go with a third-party warehouse can have multiple impacts across your business. For one, it can free up capital for other investments. And the capital you invest in a third-party relationship can be more flexible – a “pay for what you hold” arrangement – so you’re not paying the same rate when your inventory levels are lower due to changing markets, seasonality or other temporary factors. There are more ‘levers to pull’ in this relationship. In that regard, it’s not as static as owning your own warehouse (and staff, equipment, etc.).
It’s also about expertise. That third-party relationship brings a “plug-and-play” level of warehousing and logistics knowledge to the game – this can relieve the business of training expense and time. It can also have positive effects on uptime, tracking, insights, reporting and other aspects of basic accountability a management team needs. And as needs change, such as geographic expansion, that third-party partner is more likely to have the knowledge of the new territory – its regulations, assets, liabilities, and all the factors related to logistics that could trip up the organization tackling the logistics on their own. We’ve just scratched the surface here. As you think about where your business investment goes, it pays to look at the entire spectrum of factors that play into it. Everybody’s situation is different. That’s why Distributor’s Terminal offers customized solutions. If you’re looking to analyze your growing, evolving business and you think warehousing is a lever you want to adjust, let’s talk.