Owning/Leasing Your Own Warehouse Vs Using a 3PL Provider

But which is the best choice for your business? To help you decide, we've put together this useful guide to owning/leasing your own warehouse vs. using a third-party logistics service.  

What is Involved in Owning/Leasing a Warehouse?

Before deciding between owning/leasing a warehouse or using a 3PL service it's important to understand what's involved with each of these options and the basic differences between the two.

The following explains what is generally involved when owning or leasing a warehouse.

Owning a Warehouse: Buying a warehouse means investing in a property and building, or investing in a property and constructing your own facility. You'll have equity and total control of the process, but the time and investment to successfully own and operate a warehouse is considerable. There are numerous costs involved when owning a warehouse, including ongoing maintenance.

Leasing a Warehouse: Leasing doesn't involve the same commitment as owning but presents challenges of its own. You are subject to the whims of a landlord, and the possibility that the building could be sold at any time. There are also fluctuations in rent that often occur. There are different types of rental agreements you'll need to consider. Some may include utilities, a software system, and managing employees. Most, however, will not. There are also hybrid approaches and lease-to-own options available.

What is a 3PL Company?

While 3PL (third-party logistics) companies have been around for over a hundred years, the explosion of E-Commerce has made these services (and the number of providers who offer them) far more ubiquitous.   

Third-Party Logistics is outsourcing with a service that removes the need for your E-Commerce company to own or lease its own warehouse. 3PL companies have the ability to receive, dispatch, and track your shipments for you. The company will store and keep an accurate inventory of all your products. They will then pack and ship any products to your customers as they place an order. Increasingly, E-commerce stores are using 3PL as part of their business plan. A 3PL is sometimes referred to as a fulfillment center or just a warehouse. 

Tima Miroshnichenka / Pexel

But how does 3PL compare to owning or leasing your own warehouse? Let's explore some of the key areas involved in distribution and how the two options compare.

Services

There are some basic services that both warehouses and 3PL companies must offer, and you'll find a 3PL service can more efficiently handle basic services you need when warehousing, managing, and packing orders.

Receiving and Warehousing: When operating your own warehouse, you are responsible for organizing and warehousing all of your products. A 3PL company will manage this responsibility by safely and efficiently storing your products. The first part of the process is receiving inventory. You may need to fill out an inventory receiving order so the service knows how much of what products they will receive. The 3PL company will need to have an efficient software system to identify each product as soon as it is received and know when and where it was stored in the warehouse.

Managing Inventory: Once your inventory or products are received, the company will store them in a designated location in their facility. Storage may be in a bin, on a pallet, or a shelf. A 3PL service can help you decide how much inventory is necessary and the best storage methods. How much inventory you need to keep on hand at any one time may change seasonally. Inventory must also be maintained. This could mean storing it in a temperature-controlled room or keeping items free from insects, dust, etc. When you are operating a warehouse, you are also responsible for all inventory forecasting. Forecasting involves investing in the right software and training your employees to correctly use it. A quality 3PL team already has the expertise to manage all your inventory needs.

Manage Orders: When customers order your products online, your 3PL team should have a software system that immediately lets them know so they can get to work organizing your products. This would start with receiving the order as soon as it is placed. This involves fulfillment software that integrates with all major e-commerce platforms. A 3PL service might have certain orders assigned to a picker or a specific picking team. The picker must receive accurate instructions regarding where each item is located in the warehouse. Operating your own warehouse means you are responsible for managing all orders.

Picking and Packing: Picking and packing is simply the process of selecting products in a warehouse and correctly packaging them. There is often more to this process than meets the eye. Because of same-day delivery and rapid online shopping, you need a service that can accurately and quickly pick and pack your products as soon as they are ordered. Your products should be packed according to your specific instructions. This could include using bubble mailers, brown boxes, or poly bags. How packages are sealed is important to make sure your product arrives intact to customers. A 3PL service may also print shipping labels for your business for each package.

Shipping and Transport

After the picking and packing process is complete, the packages must be shipped using the most efficient route possible. Transportation plays a crucial role in determining how quickly and efficiently customers receive your products. There are several important differences between how transportation works when owning or leasing a warehouse and when a 3PL service manages your transportation needs.

Unlimited Shipping Range: A 3PL service can ship your products across town or the globe. Organizing the logistics for global, and sometimes even national shipping, is often complex. Most smaller businesses do not have the expertise or the in-house staff to efficiently organize and manage extensive logistics. You will also likely save on high postage costs when outsourcing your shipping responsibilities. 

Flexible Shipping and Receiving Services: Some businesses may need both FTL and LTL shipping services. This is particularly important if you're shipping to both retailers and individual customers. If you are shipping temperature-sensitive items, is the service able to provide consistent temps throughout the entire shipping process? Are sturdy and appropriately sized pallets available when shipping large or heavy items? Your third-party logistics company can provide your business with individualized shipping methods.

Transportation and Freight Forwarding: A 3PL might schedule your transportation needs through carriers such as UPS, USPS, and FedEx. Some 3PL companies will only work with certain carriers, while others will look for the most efficient and cost-effective carrier for each package. There are often multiple stops for your products when shipping and multiple carriers are involved from the time the product leaves the warehouse to the time it reaches its final destination. A package might be shipped by rail, truck, and ship at different times. It takes extensive coordination to make sure a product arrives at each location on time and doesn't miss the next phase of the journey. A 3PL company can provide you with peace of mind when managing all your transportation needs. They can also provide tracking information so you can track your package until it reaches the customer.

Many Warehouse Possibilities: If you buy or rent your warehouse, you only have one location from which to operate. When using a 3PL service, they will often have several locations to store products. Once your products are stored in various locations, this will ultimately save time and money when shipping items. Having different locations from which to pick and ship your products can shorten delivery times for your customers.

Types of Storage

When you own or lease a warehouse, you only have one type of warehouse. If your business or storage needs would change, you would have to go through the lengthy process of buying or leasing another type of facility. When you work with a 3PL company, you'll have unlimited warehouse options available. The following are a few general storage service examples you'll have to choose from.

Public Storage: While 3PL teams still manage and operate these warehouses, they generally provide basic services that include storage, picking, packing, and shipping for a variety of customers.

Fulfillment Storage: These are warehouses that store and manage specifically E-commerce. They provide general services such as processing, packing, and shipping products and packages.

Customer Adapter: This service will provide most of the customer's needs, including the picking, packing, and shipping process. They will also negotiate with carriers to find the most cost-effective ways to ship and manage products.

Customer Developer: This type provides the most comprehensive services for your business. These 3PL services will manage all aspects of your business from the moment products are received in their warehouse to shipping, tracking, and reverse logistics.

The following are some examples of 3PL specialization storage solutions available you'll have access to when using a 3PL service.

Cold Storage: If your business sells food items or certain types of medications, you would likely need a cold storage warehouse. These types of warehouses would include a precise temperature-controlled environment and monitoring systems. They would also need a backup source of power.

Hazardous Material Storage: These might also be called Hazmat warehouses. They store and manage a variety of hazardous materials. These might include items such as fireworks and products with chemicals or radioactive materials.

Contract Storage: These warehouses are for a specific business or group of businesses. The 3PL company has designed the warehouse to meet these clients' particular needs. These storage services would likely have the capability to provide more specialized services such as cold storage or hazardous material storage.

Business-to-Business Fulfillment: Sending products to individual customers is just one type of fulfillment an E-commerce business may need. A 3PL service can also handle your B2B and B2R fulfillment needs. These types of orders are often larger and shipped in bulk. They sometimes need greater logistical coordination.

Technology and Security

Technology plays a huge role in the success of your company. A 3PL service can expertly manage all of your technology needs.

Managing Technology Systems: Whether it's implementing a phone system or ways to track and monitor your products, owning a factory means taking on the responsibility for everything technology related. Your team will need to research various software systems that can effectively handle all communications as well as manage your products. You'll need software that manages your products throughout the entire process, whether you manufacture your own product or dropship. A 3PL service has the experience and expertise to provide the right software to efficiently manage all technology aspects. Multi-channel selling is essential for most online companies. This means strong IT service is necessary to integrate and manage various platforms and sales channels. You'll want a company that allows you to easily track all orders in real time.

Provide Strong Security:  According to Big Commerce, internal theft, password guessing, malware viruses, and phishing were four of the biggest problems relating to E-commerce data breaches. Implementing a strong cybersecurity plan is crucial for safeguarding your customer's information and making sure that when selling your product your customers experience as little downtime as possible. A quality 3PL service will implement the highest security standards to safeguard not only your products but all your company's information and your customer information. A good security program would include both physical security to protect the warehouse and cybersecurity to protect data and personal information.

A 3PL can also be called a fulfillment company, fulfillment warehouse, or fulfillment center. Companies that provide 3PL services offer the same services as order fulfillment companies. These services generally include:WarehousingInventory managementPicking and packing

Costs

Many business owners, particularly startups, have a very narrow profit margin. Efficiently managing a budget can mean the difference between success and losing your business. There are several ways a 3PL service can save you money.

Cost of Owning or Renting Space: Owning property and a warehouse are often considered valuable assets. However, there are potentially several costly drawbacks. These include paying taxes on the property and following all land usage and environmental regulations. Even when renting, you'll likely be responsible for costs such as insurance and utilities. Working with a 3PL service will eliminate all of these separate costs and take on the responsibility of managing all aspects of maintenance, utilities, following regulations, etc. You will likely pay a single monthly fee when doing business with a 3PL company.

Only Pay for Space You Need: Owning or even renting a warehouse means you're paying to use and maintain a certain amount of space at all times. While using a 3PL service, you're only paying for the space you currently need. During seasonal changes or shifts in your business needs, the amount of space you need may change dramatically. Only paying for what you need at any given time can potentially save your company a lot of money.

Only Pay for Staff and Equipment You Need: When you have your own warehouse, you are also responsible for hiring, training, and maintaining the staff to run all the necessary operations. This is not only expensive but is often extremely time-consuming. A 3PL service takes on this entire responsibility for you. There's also quite a bit of equipment to purchase and maintain when operating your own warehouse. At a minimum, you'll likely need to invest in a forklift, pump truck, pallets, bins, and warehouse racks. There's also the need for a computer and phone system.

A 3PL Can Provide Individualized Packages: A 3PL company can offer you various packages depending on exactly what services you need.  While calculating as precisely as possible how much you'll spend is important, it's also necessary to keep the big picture in mind. A good 3PL means fewer complaints, satisfied customers, and a more profitable business in the long run.

Specialty Services

Not every product is packed and sent in the same manner. There are also products that may need special types of storage to keep them safe and in optimal conditions. How does a 3PL stack up against owning or leasing a warehouse?

Custom Kitting: Kitting is a process in which different items that are related are shipped together in a single order or "kit." Kitting is different than bundling in that items in a bundling package are not always related. An example of kitting would include packing a phone, a case, and a charger in one package. A bundle might include a frying pan, a pair of shoes, and a hairbrush. Kitting is something that many E-commerce businesses are trying to capitalize on. You can combine your most popular items with lower-volume sales to increase your overall sales. A 3PL company can provide customized kitting for your business.

Customs Clearing: Customs clearing involves declaring products to authorities in Customs whenever they leave or enter a different country. Packages are often inspected regarding content and how they are packaged. A 3PL company can make sure your packages meet all legal requirements and avoid delays in shipping. They know how to work with customs brokers and navigate sometimes complex supply chain issues.

Solutions for Amazon Sellers: While there are multiple platforms and marketplaces available for selling, Amazon is still the dominant market for doing online business. You'll want a 3PL service that specializes in providing solutions for Amazon sellers. This might include providing multi-channel fulfillment, quick scalability, and an efficient return system.

These are specialized services that some, but not all 3PL companies may offer. Depending on your business needs, you might need a 3PL that only warehouses your products. Another company might need custom kitting and customs clearing as well as extensive freight forwarding coordination.  A 3PL service can offer you an individualized plan that meets the precise needs of your business.

Returns

Effectively handling returns is a crucial part of your business. A 3PL team can handle your returns as well as manage returned items.

Reverse Logistics: While returns are not something most businesses look forward to, it's one of the first things many potential customers will want to know about. No matter how great your products are, if returns aren't handled properly you can lose customers and garner bad online reviews. A quality 3PL company can effectively handle reverse logistics so returns are done efficiently and products are quickly back in stock. They can efficiently recycle and dispose of damaged items to help your business minimize losses.

Clarify Your Priorities: Make sure you provide your 3PL team with as much detailed information as possible. A few specifics you'll want to share include your expected order volume, all the platforms you use for ordering, and the approximate size and weight of your typical packages. You'll want to identify KPIs and clear performance expectations from the start. Also, discuss with your 3PL team how you will monitor and assess their performance. A 3PL service will be able to manage your returns according to your specific instructions.

Growing Your Business

Managing and shipping inventory is just one aspect of your business. There are several benefits to growing your business when you use 3PL services.

Focus on Core Business Activities: Delegating the logistics aspect of your business frees your company to focus on actually running your daily operations. Storage and distribution is a timely and critical process, and unless you're a large corporation with extensive resources, it's often not practical to handle these services on your own. When using a 3PL company you can spend valuable time on planning, marketing, and customer service instead of worrying about product storage, shipping problems, and supply chain issues. 

Less Risk and Greater Financial Freedom: Outsourcing your warehouse needs will provide less risk for your company. You are more adept at handling influxes in a decrease or increase in order volume. Less overhead will free up money that can be used elsewhere. Besides only paying for the space and staff you need, there are also other financial benefits. For example, you will likely save money on shipping costs. A 3PL has larger volumes and per-shipment pricing that may be available in bulk quantity. An outsourcing company has a vast network of connections and bargaining power that most businesses don't have.

Scalability: No matter what type of business you have, the goal is to prosper and grow. You need a 3PL service that can grow along with you. A 3PL company needs the capability to grow on a global level. They should be able to quickly scale up or down, depending on the changing needs of your business. Your team should also be able to grow as far as customized services are concerned. For example, your packaging and labeling needs may change and your 3PL service should be able to adapt along with your changing needs.

Customer Relationships: Building and maintaining positive customer relationships is the only way you'll stay in business. There are several reasons why owning or leasing a warehouse will not provide your customers with the best benefits. These include longer shipping times and a lack of transparency when following products. A 3PL, however, can shorten shipping times since they have access to warehouses in multiple locations. They may also have access to companies that provide later courier hours. Besides quick, low-cost deliveries, a 3PL can provide ongoing data visibility and customer alerts. The best 3PL services can seamlessly manage a positive customer experience.

Why Choose All Points for Your Warehouse and Distribution Needs?

All Points is an industry leader in providing a variety of logistics solutions for E-commerce companies. Their expertise includes fulfillment and distribution services, direct response project management, database services, and retail display production. Their experienced team of professionals offers pick and pack services, complex kitting, warehousing and distribution, and Amazon seller services. They also provide full-service printing and marketing material to promote your brand and impress your target audience.

All Points provides integration with various platforms and organizations. A few include eBay, Etsy, and Shopify. With advanced technology and exceptional customer service, All Points works with these platforms to provide outstanding fulfillment services that will build your business. All Points is a professional 3PL team that can create an individualized plan to meet the specific needs of your business. Contact All Points today for more information.