In Warehousing and Fulfillment, Cost is King
August 23, 2012 at 12:42 PM
What do warehousing and fulfillment suppliers fundamentally do for their customers?
If you explore the web searching for an answer to this question, you’ll find plenty of fancy descriptions, and plenty of confusing verbiage. Terms like 3PL, EDI, Kitting and Packaging services, etc. abound. But what does all that mean? It simply means that warehousing and fulfillment providers are trying to distinguish themselves in a field where there are limited competitive dimensions.
When you get right down to it, a warehousing and fulfillment company’s primary function is to provide storage and labor at specific locations.
I’ve already blogged about the importance of location. Most warehousing and fulfillment customers will want their materials stored in a single location (to minimize inventories). When that is the case, they should select a location close to the center of their markets to minimize shipping costs and keep transit times as short as possible. Along the dimension of location, not all warehousing and fulfillment companies are created equal, and the buyer of such services needs to understand the pluses and minuses of any location under consideration.
Labor and space, however, primarily differ on cost and price.
That is exactly why you should ask your warehousing or fulfillment supplier what they pay for their space. Space is a commodity, and some of the lowest cost spaces are found in surprising locations. Even if your potential warehousing or fulfillment provider owns their own building, they will have an imputed cost per square foot they should be able to quote. Almost without exception, lower is better.
The same goes for labor cost. When you ask for those, however, you need to know the average base wage, and then the overhead rate. If you make a matrix of all your potential warehousing and fulfillment providers and compare them based on labor, overhead, and space costs, the ones that come out the best will almost certainly give you the most competitive proposal.
If you need some of the fancy stuff – environmentally controlled storage, EDI, return and repair services, value-added assembly or fabrication, whatever – start with your most cost competitive suppliers and see what they can do for you, rather than just excluding them from your selection set. Most warehousing and fulfillment suppliers will do everything they can to adapt to your specific needs.
TEK Services is a contract manufacturing company located in Eastern Nebraska specializing in metal work, wiring work, and electro-mechanical assembly. The company also provides warehousing and fulfillment services to our contract manufacturing customer base, as well as other businesses. Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.