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Shared warehousing vs dedicated: What should you consider?

Mar 05, 2024 - Alyssa Wolfe
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Warehousing is a cornerstone of ecommerce operations – it plays a vital role in the success of online businesses. Efficient warehousing ensures timely order fulfillment, which is crucial for meeting customer expectations and maintaining satisfaction. When a warehouse layout is well-organized, you maximize space utilization, minimize travel time for workers and optimize inventory storage, improving productivity and cost-effectiveness. Warehousing also facilitates inventory management, allowing brands to accurately track stock levels and prevent stockouts or overstock situations. Effective warehousing operations contribute to the overall efficiency, profitability, and competitiveness, which is why choosing a warehouse model that fits your business is critical.

Shared warehousing vs dedicated warehousing

Understanding your business's requirements and growth trajectory is essential in making an informed decision between shared and dedicated warehousing. Each offers its own pros and cons – and often suit businesses better depending on their current phase. You’ll need to consider factors like cost, scalability and customization capabilities along with how each model will affect you in the future.

What is shared warehousing?

Shared warehousing, also known as multi-client warehousing, is a model where multiple companies share space, resources and services within a single warehouse facility. In this arrangement, each company rents or leases a portion of the warehouse space and pays only for the space and services they use. Shared warehousing offers cost savings and flexibility, ideal for smaller businesses with fluctuating inventory needs. However, it is an attractive option for businesses of all sizes.

Pros

Shared warehousing offers several benefits for ecommerce businesses:

  • Cost-effectiveness: By sharing warehouse space, companies can split the expenses, including rent, utilities and labor, resulting in lower overall costs compared to maintaining a dedicated facility.
  • Flexibility: Shared warehousing provides the flexibility to scale operations up or down based on changing business needs. This may mean growth or seasonal demands. Companies can adjust their storage space requirements without being locked into a long-term leases or commitment.
  • Access to resources: Retailers can access shared resources and infrastructure, such as equipment, technology and specialized services, without the need for large upfront investments.
  • Reduced risk: Sharing warehousing facilities spreads the risk among multiple tenants, mitigating the financial burden in case of unforeseen events or fluctuations in demand.
  • Geographic reach: Facilities are often strategically located in key logistics hubs, allowing businesses to expand their reach and serve customers in new markets more efficiently.
  • Collaboration opportunities: Sharing a warehouse with other companies may foster collaboration and networking opportunities, potentially leading to partnerships or shared best practices.

Cons

While shared warehousing offers several benefits, there are also some potential drawbacks to consider that can often be alleviated with the right 3PL. The potential common shared warehouse issues include:

  • Limited control: Brands may have less control over their warehousing operations compared to having a dedicated facility. They may need to adhere to shared rules and schedules, which could impact their flexibility and ability to customize processes.
  • Security concerns: Sharing a warehouse with other companies may raise security concerns, especially when protecting sensitive or high-value inventory. Businesses must trust that their co-tenants uphold adequate security measures to prevent theft or unauthorized access.
  • Competition for resources: In a shared warehousing environment, companies compete for resources such as space, equipment and labor. During peak seasons or times of high demand, there may be increased competition, leading to potential conflicts or delays unless the warehouse can scale across tenants and provide a stellar peak fulfillment performance.
  • Lack of customization: Shared warehousing facilities are designed to accommodate multiple tenants, which may limit the ability to customize layouts, workflows or processes to align with specific business requirements.
  • Potential for disruptions: Dependency on other tenants or third-party providers within a shared facility increases the risk of disruptions to operations. This might result in delays, errors or disruptions in service.

Despite these challenges, shared warehousing can still be a viable option for many businesses, particularly those looking to minimize costs, improve flexibility and access additional resources without significant upfront investment.

What is dedicated warehousing?

Dedicated warehousing involves leasing or owning a facility solely for storing and distributing a single company's inventory and products. In this arrangement, the warehouse space, equipment, and personnel are exclusively dedicated to fulfilling the needs of that business. This model allows the company to control its warehousing operations completely, including customization of processes, layouts and workflows to suit its specific requirements and preferences.

For businesses with the resources and volume to invest in dedicated warehousing, there are several benefits, including:

  • Customized infrastructure: Dedicated warehousing allows businesses to design the warehouse layout, storage systems and workflow processes according to their specific requirements and preferences. This customization ensures optimal utilization of space and resources, leading to greater efficiency in operations.
  • Enhanced security and control: Companies have tighter control over security measures and inventory management protocols with exclusive access to a warehouse facility. Good examples of industries that require more stringent security warehousing are healthcare fulfillment or government fulfillment – although there are 3PLs that are set up to handle these industry as well. Enhancing security reduces the risk of theft, damage or misplacement of goods, providing peace of mind and maintaining the integrity of the supply chain.
  • Scalability and flexibility: Dedicated warehousing offers scalability options that can accommodate fluctuations in inventory levels and business growth. Companies can easily adjust space allocation and operational processes to meet changing demands without being constrained by shared arrangements or contractual limitations.
  • Improved productivity: By dedicating resources solely to one company's operations, dedicated warehousing promotes streamlined workflows and optimized processes. This results in faster order processing, reduced lead times and enhanced productivity throughout the supply chain.
  • Brand image and customer experience: Exclusive warehousing arrangements enable companies to maintain consistent quality standards and uphold their brand reputation. With prompt and accurate order fulfillment, businesses can deliver exceptional customer experiences, fostering loyalty and positive brand perception.

Cons

The disadvantages of dedicated warehousing are:

  • Higher costs: Dedicated warehousing typically involves higher upfront investment and ongoing operational expenses compared to shared arrangements: It’s one of the biggest deterrents for many brands. Companies must bear the full financial burden of leasing or owning the facility, maintaining infrastructure and staffing dedicated personnel.
  • Fixed capacity: While dedicated warehousing offers exclusive access and control, it also means companies are limited to the fixed capacity of the facility they operate. This lack of scalability can become a constraint during periods of fluctuating demand or rapid growth, potentially leading to underutilized space or insufficient capacity.
  • Flexibility limitations: A dedicated warehouse requires a long-term commitment and may lack the flexibility to adapt quickly to changing business needs or market conditions. Companies may face challenges in resizing or reconfiguring warehouse operations without incurring significant costs or disruptions.
  • Operational risks: Businesses bear sole responsibility for managing all aspects of warehouse operations, including staffing, equipment maintenance, and compliance. Any operational inefficiencies, disruptions or unexpected challenges can directly impact the business and may be more difficult to mitigate without external support or resources.
  • Geographic constraints: Companies opting for dedicated warehousing must carefully consider the location of the facility. It may limit accessibility to certain markets, increase transportation costs for distribution or prevent meeting shipping speed expectations. Selecting an ideal location requires thorough analysis of supply chain dynamics, customer demographics and logistical infrastructure.

Choosing the right warehousing model for your business

Choosing the right warehousing model for your business takes careful consideration of different factors and ensuring that you align with operational requirements, budget and growth objectives. Start by assessing your current and projected inventory volumes and seasonal fluctuations to determine the appropriate level of storage capacity needed. Evaluate your product characteristics, such as size, fragility and shelf-life, to decide whether specialized storage solutions or temperature-controlled facilities are necessary. Additionally, analyze your distribution network and customer base to optimize proximity and minimize shipping costs – you’ll also want to consider geographic reach and transportation infrastructure.

Next, weigh the pros and cons of different warehousing models based on your unique business needs. Look at what gives you operational flexibility and capacity and helps you meet long-term growth plans and your budge. The solutions should optimize the efficiency in your supply chain operations while also helping you enhance the customer experience.

Dedicated site takeovers: A unique solution for brand-owned distribution centers

Cart.com offers a unique solution: A dedicated fulfillment site takeover. While dedicated fulfillment, or self-fulfillment, presents advantages, brands risk excessive investment, diverting resources from core functions. Additionally, they must address challenges like high return rates, inventory control, shipping cost fluctuations, labor scarcity and evolving regulations. When drawbacks outweigh benefits, companies seek alternative solutions.

If they want to keep their dedicated site, they can consider a "dedicated fulfillment site takeover." It’s a strategic move where a third-party logistics provider (3PL) assumes control of a retailer's distribution facility or certain operations within it. This can encompass various tasks such as labor supervision, order processing, inventory handling and shipping preparation within the designated facility.

Warehousing with a 3PL

Warehousing with a 3PL offers numerous advantages, including access to advanced technology, scalability and expertise in logistics management. By partnering with a 3PL, businesses can benefit from optimized inventory control, streamlined operations and reduced overhead costs. To experience these benefits firsthand and enhance your supply chain efficiency, contact Cart.com today.

 

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