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    March 4, 2022

    Advantages and Disadvantages of Contract Warehousing

    As the shipping process becomes more complex, managers are looking for innovative ways to minimize costs and make operations as efficient as possible. One key aspect of the delivery process is warehouse storage. Storing inventory before shipping presents a challenge for many companies.

    While renting an entire warehouse can be beneficial to have control over your operations, it usually isn’t cost-effective for a majority of companies. Instead, businesses can lease warehouses from an individual service, leading to the rise of contract warehousing.

    In this article, we’ll break down what contract warehousing is, the various types and its benefits and disadvantages.

    What Is a Contract Warehouse?

    When a company agrees to contract lease warehousing, they lease a storage warehouse from an independent company that lets them use their space. This independent company handles storage operations and sometimes offers additional specialized services like fulfillment.

    The agreed-upon contract outlines a specific period of storage, which usually lasts a couple of years or more. As companies look to reduce costs and use convenience to their advantage, contract warehousing is becoming more popular and attractive to companies.

    What Is the Difference Between Contract Warehousing and 3PL?

    Contract warehousing often gets confused with third-party logistics (3PL). Though similar, there are some key differences.

    While contract warehousing focuses primarily on storage, 3PL delves into fulfillment. Companies use contract warehousing to house supplies — these are facilities used for merchandise that will be stored for an extended period of time. On the other hand, fulfillment centers briefly house merchandise before being sent to the customer. 3PL services usually involve fulfillment centers to make sure shipments operate efficiently.

    In basic terms, contract warehousing is different from 3PL warehousing because of its functions — contract warehousing is for storage while 3PL is meant for fulfillment.

    Types of Warehousing

    Warehousing can be split up into three main types — private, public and contract. Each has unique characteristics:

    • Private: A company rents and uses the entirety of a warehouse building for a select amount of time. The company is responsible for all operations and inventory management. While this gives control to a company, it is also highly expensive and an extremely involved undertaking.
    • Public: In this scenario, the warehouse is shared among various companies. Instead of paying for a set amount of time or space, a company usually pays a monthly bill based on the amount of volume the company gets. This is more cost-effective than private warehouses but usually only used for brief periods like seasonal inventory.
    • Contract: This type’s function is reflected in its name. Contract or dedicated warehousing is just that — a warehouse dedicated to one client. While an independent company runs and operates the warehouse, they’re devoted to one company for a contractual amount of time.

    Although each type has pros and cons, contract warehousing is an attractive option for many companies because of its convenience and cost-efficiency.

    Benefits of Contract Warehousing

    Benefits of Contract Warehousing

    Companies see contract warehousing as a legitimate way to help their operations. Here are some of the benefits of contract warehousing:

    • Cost-Efficiency: Concerning price, the benefits of contract warehousing compared to private warehousing are clear. You usually have to pay per square foot for warehouse space, and when dealing with the sheer space of a facility, that price could easily rise high. Much of that cost per square foot depends on geography, but you’ll likely still be looking at a high price tag. Contract warehouses are the perfect option for midsize companies looking to increase profits without sacrificing efficiency.
    • Convenience: Contract warehousing is also very convenient. Instead of expending time putting together a team and figuring out the complex details of storing inventory, you can turn it over to an experienced team who knows exactly what they’re doing.
    • Specialization: The independent company controlling warehouse operations is solely dedicated to one company, meaning they can specialize to your unique inventory and make sure it’s getting the proper care it needs. You get the convenience of having an independent company to oversee operations while still retaining that specialization.
    • Reliability: When you find the right company to care for your inventory, you also get a sense of reliability. An experienced, specialized team oversees your merchandise at all times — that’s something that will give you confidence in your operations.

    Disadvantages of Contract Warehousing

    From cost-efficiency to reliability, it’s clear that contract warehousing offers many benefits. When it comes to shipping and deliveries, it’s important to look at all the pros and cons to see how it will affect the company.

    While contract warehousing offers many benefits, there are also a couple of disadvantages to know.

    Lack of Total Control

    The main drawback of contract warehousing is that you won’t have total control over the facility. Instead of completely taking over operations, you’re putting trust into the hands of an independent company to oversee and store your inventory.

    While this means you’ll sacrifice some level of control over your operations, it also means you’ll spend less time, energy and money assembling a team to operate the facility.

    Finding the Right Company

    When you decide to contract a warehouse, the most challenging part might be trusting the independent company to oversee your operations. You haven’t trained them, after all, so you’ll want to find a reliable, experienced team you can trust to do quality work.

    The cons of contract warehousing are something to consider. When stacked against their many benefits, those disadvantages look very manageable. If you know where to look to find the right company, you can entirely eliminate one of these disadvantages.

    Work With Street Fleet

    Work With Street Fleet

    When you need a company to handle your warehouse needs, you should work with Street Fleet. Street Fleet offers an experienced, professional team who can solve your storage needs and more, including:

    • Warehousing: Small and midsize businesses need a cost-efficient way to store merchandise. Street Fleet offers a 30,000 warehouse facility complete with cameras and alarms to ensure your inventory is protected at all times.
    • Fulfillment: Street Fleet also offers fulfillment services, ensuring timely and professional orders. We handle your external orders and give you convenience and reliability during the shipping process.
    • Cross-Dock: Many companies utilize cross-docking to improve efficiency. It reduces surplus inventory and shortens delivery times. It also requires a lot of planning — that’s where Street Fleet comes in. We’ll plan and maintain cross-docking tactics, so you can spend time on other pursuits.

    Street Fleet is the comprehensive, reliable company with the services you need. Create an account and start improving efficiency today!

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