When to Outsource Warehousing, and When to Keep It In-House

Outsource

 

If your strategy is to grow through acquisitions

 

The sizing of your warehouses is likely to always be wrong and risk being in the wrong geographical location if you want to integrate your acquisitions into your infrastructure. A flexible outsourcing contract will be easier to adapt to accommodate your ever changing new realities.

 

If you (or someone else) want to minimize capital expenditures

 

There will be no burden on your balance sheet with an operation outsourced to a 3PL. It will also ensure that you have the latest software and appropriate equipment without having to go through the labor intensive investment application processes.

 

If you’re having short peaks in capacity demands

 

Obviously you don’t want to build and pay for capacity that is only used for a limited period or infrequently   Two big issues though; First, you would probably want to do a storage only solution since it costs too much time and effort to set up in the WMS system. This brings us to problem number two, which is that you are probably not the most attractive customer for any 3PL, so it can be hard to find a good one.

 

If you need to get the logistics together quickly and don’t have the resources

 

We would, of course, argue that it is a good idea to hire good logistics consultants to sort out your problems. However, if there isn’t anyone to catch the ball and run with it, then it’s better to face reality and let a good 3PL run your warehouse operations.

 

When you don’t have the size to get the economy of scale

 

If your volumes are small it could be hard to defend investments in WMS systems, up-to-date-equipment and the resources to manage it.

 

When your volumes are shrinking

 

When you are in a revenue decline you want to have your costs as variable as possible. Outsourcing your logistics is a very good card to play.

 

Keep Warehousing In-House

 

If money matters

 

Many 3PLs run efficient and high quality warehouse operations. It is very rare to come across not-for-profit 3PLs so typically you pay for the services. Also, you will likely find that there are costs you never expected that will bring the margin up. So, if you have a good team and you know what you are doing, chances are very good you will save money by operating the warehouse in-house.

 

If you perform a lot of value added services in the warehouse

 

In general, it is easier to get good prices on standard services such as receive  a pallet, store it for a month and then pick it and ship it. For special services the margin is often higher as is the cost to train someone to perform the task.

 

If logistics services is an important part of your offerings or your cost mass

 

When logistics really matter and your company is stable, you are better off figuring out how to run a good warehouse operation on your own. Then you are in control, and can develop better solutions since you have the knowledge and the skills to see what would work best for you.