What is Contract Warehousing? Your Ultimate Overview

There are countless eCommerce players today. 

While some are huge enterprises and large-scale businesses that have the financial capability to invest in private warehousing and logistics facilities, there are other smaller players that usually outsource these activities. 

Contract warehousing is the solution that most businesses choose for the purpose of getting a dedicated storage space for processing orders and distributing them. While you’d find a lot of other warehousing options like public warehouses, private warehouses, leasing warehouses, etc, contract warehousing is one of the cheapest and most efficient services out there.

What is Contract Warehousing?

Contract warehousing is a type of warehousing agreement between a third-party logistics company and a client where the former will handle storage, fulfilment and distribution services on the client’s behalf. The price and time are negotiated at a fixed or a cost-plus model but usually, the time length ranges from two to five years. 

When to Use Contract Warehousing?

1. Size

Contract warehousing isn’t for everybody. Like mentioned before most giant eCommerce players have their in-house private warehouses. But you have so many other companies that don’t have the financial bandwidth or even companies that may have outgrown their own warehousing facilities. If the volume of your orders is constantly going up, you may eventually need extra space to expand into and that’s when you can consider contract warehousing.

2. Customisation

As your business grows, you also need value-added services that may not be available at your storage facility. Contract warehousing services are known for providing customised services in the form of value-added services like tracking, kitting and packaging, temperature-focused storage, etc. Most of these services require automation in logistics that require additional resources, infrastructure, and personnel. If you’re at that stage where these services are more of a necessity, it is ideal to get into a contract warehouse agreement.

3. Cost

Private warehouses cost a lot of money. But contract warehousing costs far less especially since you don’t have to build a facility from the ground up. Contract warehousing is perfect for you if you have enough investment to avail of value-added services but not enough to opt for private warehousing. The margin for contract warehousing is lower than it is for shared or public warehousing since the latter is based on transactional pricing.

4. Consistency

Being in an eCommerce business for a while gives you a sense of the idea of how much is your order volume on a weekly and monthly basis. If there is a strong consistency, you can get the exact idea of the amount of space and number of warehouses you’ll need. 

Only then, it makes sense to enjoy the benefits of contract warehousing in the form of cost savings and fixed agreements. Just remember you’re accurate about your volume consistency as you don’t want to end up paying for excess labour and unused spaces.

Benefits of Contract Warehousing

1. Low Captial Investment

A warehouse isn’t just an empty storage space. It requires a logistics infrastructure that calls for significant investment. You need to set up basic warehouse robotics like forklifts and robot arms that enable easy order pickup and loading and unloading. 

You also need to invest in all the different software that automates a lot of logistics processes such as inventory management software or delivery tracking software. Contract warehousing services make all of this easier by paying only for the space and services that you need. You don’t have to pay for the hefty capital investment that comes with having a private warehouse.

2. Benefits of Value-Added Services

Apart from private warehousing, you also have the option of public warehousing where you can use a shared space with other companies. But one major benefit that contract warehousing has over public warehousing is that of value-added services. Some of the services contract warehousing includes are:

• Cross Docking: The warehouses receive deliveries, organise them, break them into smaller shipments, and send them out on the next outbound trucks. 
• Rework: Third-party warehouses can help you with minor rework issues such as reprinting labels, replacing broken materials, repacking, etc. 
• Pick and Pack: Warehouses help with eCommerce order fulfilment which involves workers pulling items for many customer orders and packing them for shipments.
• Palletisation: The warehouses can organise incoming shipments onto pallets or break down products on existing pallets.

3. Reliability

An apparent advantage of outsourcing to a contract warehouse is the level of expertise involved. Warehousing and storage is a risky business with so much machinery and heavy equipment involved. These warehouses are known to keep the product flow consistent and meet your customers’ delivery requirements on time without compromising workplace safety.

4. Scalability

You need a warehouse strategy that supports organic growth. It's not feasible to pay for space you don’t need or to acquire less space for more products. Contract warehousing solves that problem by allowing you to use only what you need thereby supporting scalability in the long run. You can also benefit from the infrastructure and procedures at a minimal rate. 

5. Improvement of Business Practices 

Warehousing and storage is a different branch of logistics altogether and a lot of factors go into it to make it a success. Having a source of expertise, specialised services, and equipment with trained personnel decreases turnaround time and improves the efficiency of warehousing business practices. It saves you the time and hassle of hiring and training warehouse managers and staff. 

6. Eliminates Risk

High capital investment invites high risks. However, since contract warehousing services eliminate high capital investment, it also eliminates the risks associated with it. You don’t require a long-term commitment nor do you need to hire excess labour and tools to manage and run your warehouses. As contract warehousing fulfils these requirements, it spares you from facing the hardships of running a distribution centre.

Conclusion

If your business requires contract warehousing services, look no further than PACK & SEND. We have years of experience in the 3PL domain that can be fruitful for your business. 

We assess your requirements and support your eCommerce growth with economical warehousing solutions and other storage services. Contact us for getting a customised quotation and taking a step closer to improving your supply chain.

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