Business today is growing. Whether it be a one-person operation out of a garage or a multi-million-dollar operation, businesses will always have the need to expand their inventory.
As part of their supply chain strategy, businesses may choose to build or expand warehousing to increase storage capacity or to outsource warehousing and distribution to a third-party logistics provider (3PL).
Which is the best option for your company? In this blog, NewStream explores the pros and cons of building or expanding a new warehouse compared to outsourcing.
Pros of Building or Expanding a Warehouse
There are a few pros to owning your own warehouse. This solution is beneficial for those needing to keep everything in-house.
Full Control Over Your Inventory and Processes
It is also easier to keep track of inventory and data availability when everything is sorted out in your management flow, especially when dealing with a large number of customer-specific options.
Long-Term Asset Ownership and Potential Tax Advantages
There are also tax benefits for owning the land on which the warehouse is built, but that may not be feasible for everyone.
Cons of Building or Expanding a Warehouse
It can be very difficult to scale when relying on your own warehousing, especially during a sudden influx or decrease in orders. A warehouse’s space is finite, and suddenly overstocking it can ruin space management, while understocking it is a waste of resources.
Significant Capital Investment Required
The cost to build a distribution center or expand a push warehouse can be very high, especially given the upfront payments.
This includes purchasing or renting building/land, obtaining permits to build, buying construction materials, building on the actual property, furnishing the warehouse with all equipment for later use, supplying manpower for the construction process, and hiring and/or training new staff in warehousing operations.
Equipment, Technology, and Maintenance Expenses
You should also factor in the cost of hiring an administrative team, as well as the time required to develop an efficient warehouse operating process, including quality assurance.
In addition, consider expenses for restocking materials, packaging and shipping supplies, safety compliance, ongoing maintenance, security systems, insurance, and utilities.
The risk of capital loss throughout this process is significant, especially in the unfortunate event that a business needs to sell the property prematurely, as the likelihood of selling for less than the purchase price is high.
Pros of 3PL Warehousing
If the above list of costs sounded a little overwhelming, don’t worry. Benefits of outsourcing warehousing and distribution to a 3PL include significantly reduced costs, eliminating the costs of property leases and warehousing equipment, and freeing up resources to invest in more important areas.
Lower Upfront Investment and Reduced Overhead
Working with a 3PL also frees you from worrying about warehousing operations, especially if your company is not optimized for order fulfillment.
Outsourcing fulfillment, from pick-pack-ship, can decrease turnaround ship times, which means more product leaving the facility, making room for additional products to be sold.
Access to Expertise, Technology, and Skilled Labor
3PL companies also often have a full team of highly experienced professionals, access to advanced inventory management technology, and tracking and reporting tools for your products.
Outsourced warehousing and distribution companies are more than capable of meeting your price and specification requirements for custom packaging and shipments.
Fast Startup Time and Simplified Scalability
Also, because these 3PL companies are responsible for your product, they regularly conduct inventory checks, relieving you of the need to manage inventory.
In addition, these companies also provide hassle-free scaling, no matter what your inventory looks like.
When outsourcing, finding a strategically located 3PL is critical, especially for lower shipping rates. The benefit of having a 3PL partner located in the central United States is that it makes access to two-day expedited shipping to any location within the continental US a reality.
No longer do you have to ship from your company’s physical location, which may increase shipping costs for customers.
Cons of 3PL Warehousing
There is a risk of losing control over certain aspects of the production process when outsourcing.
Reduced Direct Control Over Day-to-Day Operations
Companies that outsource will most likely not be responsible for distributing their products, which can make it harder for some customers to receive their custom shipping or subscription packages.
However, expert control over distribution is exactly the core competency that a 3PL can provide, so consider this a warning if that aspect of control is important to your company’s values.
Things to Consider When Choosing to Expand Warehousing or Outsource
If you are still debating which option is right for your business, consider all the problems that may be occurring in your current warehousing space.
Asking these questions will better determine your company’s bottom-line needs and help you decide which direction suits you best.
- Are there high-traffic areas causing disruptions to the workflow?
- Would a new building be worth the cost of reducing this?
- Are the costs of supplying energy to the building and equipment too high?
- Are there specific production areas that could be automated or outsourced to reduce labor costs?
For many, choosing to hire a 3PL warehousing and distribution company has proved to be the most effective way to reduce costs and sustain growth in the marketplace.
Expected Growth, Seasonality, and Inventory Patterns
Not only does it allow one’s company to save on massive costs, but it also gives them a competitive advantage to scale their product lines quickly and efficiently, all without taking up additional space in their own work environment.
This saves you from going through a long process of building or expanding a warehouse, when it may be more cost-effective and long-term to outsource fulfillment and logistics services to a 3PL.
Leveraging cost-effective warehousing and distribution services can improve customer satisfaction and increase profits for supply chain management and order fulfillment.
Inventory location and warehousing are critical components of a high-performing logistics operation. That’s why NewStream Enterprises has positioned our warehouse and distribution networks in Springfield, Missouri.
This central location allows for easy shipment to anywhere in the continental US within 48 hours. It ensures the fluid availability of products for the companies we partner with, helping eliminate backorders.
Contact NewStream to Get Started
Contact our NewStream experts today to see how we can maximize your warehousing and distribution services!