7 Key Benefits of Contract Warehousing for Large Businesses

Steve Schlecht
May 24, 2024
Contract Warehousing Warehouse

It can be overwhelming for large business owners to store, manage, and distribute their items. Understanding what contract warehousing is and how it can benefit your business can help you make smart decisions that boost efficiency and growth.

In this post, we’ll discuss seven benefits of contract warehousing and how it can drive growth for your large business.

What is Contract Warehousing?

First, let's make it easier to understand what contract warehousing is. A company partners with a warehousing provider to store, distribute, and run its logistics as part of a third-party logistics (3PL) service called "contract warehousing." 

Contract warehousing allows companies to bring multiple disparate warehousing services like e-commerce, bulk storage, co-packing, and retail logistics under 1 roof. 

Another unique feature of contract warehousing is that it can include a dedicated amount of space in a warehouse or simply services provided to a client over a fixed amount of time. 

Addressing the Challenges of Warehousing for Large Businesses

Warehousing and logistics can be difficult for large businesses. Operations are expensive, supply chain management is complicated, and 3PLs only provide 1 to 2 unique services such as e-commerce or retail logistics. Contract warehousing and the companies that provide this service solve all these issues, thanks to its flexibility and turn-key approach.

One challenge that has cropped up recently is from e-commerce. Recent data shows that e-commerce and the necessity for efficient logistics solutions have increased demand for warehouse services. Warehousing and storage in the US is worth $28 billion as of 2023, with a 3.8% projected compound annual growth rate (CAGR) through 2026. 

E-commerce adds a level of complexity to already existing warehousing services such as bulk pallet movement, value-added logistics, and retail logistics. One of the solutions and benefits of using contract warehousing is that it provides a turn-key solution. In this example, contract warehousing brings all of these services under 1 roof and can provide cost savings. 

A great example of contract warehousing in practice that solves this is Buske Logistics' work with the joint venture between PepsiCo and Starbucks. We provide a contract warehousing solution to provide not only storage and fulfillment but also building their retail displays and some e-commerce orders. Without it, the customer would have utilized multiple 3PLs. 

The Benefits of Contract Warehousing for Large Businesses

  1. Cost Savings and Efficiency: A major benefit of contract warehousing is cost reduction. Starting a warehouse demands a significant upfront investment and can be expensive without the expertise to run a dedicated operation. Contract warehousing providers also have advanced systems and processes to maximize productivity and reduce costs. Advanced warehouse management systems (WMS) let organizations track inventories and fulfill requests which reduce labor costs and errors.
  2. Scalability and Flexibility: Your warehousing demands expand with your business. Contract warehousing lets you alter operations to demand, giving you more flexibility. Large businesses with changing demand or abrupt customer orders may benefit from this. You can change your warehouse needs without using up space or signing long-term contracts. Scalability is crucial for high-demand enterprises like holiday merchants. Contract warehousing lets organizations store more products without investing in permanent storage. However, when business is slow, corporations can shrink their warehouses and cut expenditures.
  3. Expertise and Technology: When you partner with a contract warehousing provider, you gain access to their industry expertise and advanced technology like what Buske Logistics has. We make use of cutting-edge warehouse inventory management systems and data analytics to maximize efficiency in storage and distribution. Having this level of expertise can greatly improve the efficiency of your supply chain and minimize errors. Contract warehouses rely on logistics and supply chain management experts to efficiently handle your products in accordance with industry standards. This experience has the potential to greatly improve inventory accuracy, lead times, and operational efficiency.
  4. Access to Specialized Services: Many contract warehousing companies provide a variety of specialized services that can greatly benefit large businesses. The range of services includes kitting and assembly, packaging, labeling, and returns management.  With the help of these extra services, you can make your operations more efficient and streamline your overall processes.
  5. Compliance and Security: Warehouses that are used for professional purposes are subject to strict regulations and have robust security measures in place. Your products are stored in a facility that meets all compliance and security standards, ensuring their protection from damage, theft, and loss. You can have peace of mind knowing that your inventory is fully protected, allowing you to concentrate on other important aspects of your business.
  6. Focus on Core Business Activities: Outsourcing logistics warehousing and distribution lets you focus on business growth. By outsourcing warehousing, you can focus on marketing, product development, and customer service. You may devote more time and resources to revenue-generating activities with this strategic emphasis, improving corporate results. You can focus on other important aspects of your business instead of warehouse workers and inventory.
  7. Improved Customer Service: Meeting client expectations requires logistics warehouse efficiency. Contract warehousing stores, handle, and ship your products efficiently, providing faster delivery and better order accuracy for customer satisfaction. Contract warehouses improve customer reliability and consistency. Faster and more precise shipments can set your business apart and build consumer loyalty. Our company Buske Logistics and other contract warehouses offer specialized packing, kitting, and returns handling to satisfy your customers.

FAQs About Contract Warehousing

What is the importance of warehousing?

Warehousing is an essential component of supply chain management as it guarantees the secure storage and efficient accessibility of products. It helps with keeping track of inventory, fulfilling orders, and distributing products efficiently.

What are the advantages and disadvantages of contract warehousing?

There are several benefits to consider, such as saving costs, easily scaling up or down, gaining access to specialized expertise, and enhancing customer service. There are some drawbacks to consider, such as relying on a third-party provider and having less control over warehousing operations. Depending on how a contract is structured, a recession could put the customer on the hook for unused space in a warehouse.

What is logistics warehousing and distribution?

Logistics warehousing encompasses the crucial task of storing goods prior to their distribution to customers or retailers and distributors.  Distribution involves getting these commodities to their destination. 

Many contract warehousing providers offer integrated logistics, warehousing, and distribution. These services improve supply chain efficiency and streamline.

Choosing the Right Contract Warehousing Services

Choosing the appropriate contract warehousing services is vital to fully enjoy the benefits mentioned earlier. Here are some valuable tips to ensure that you make the best decision:

  • Assess Your Requirements: Gain a clear understanding of the unique warehousing and logistics requirements for your business. Take into account factors such as the volume of goods, the nature of your products, and your distribution requirements.
  • Research Providers: Look for top warehousing companies with a good reputation and a track record of reliability and efficiency. Read reviews, get references, and assess their expertise in your specific industry.
  • Technology and Systems: Ensure that the provider has modern technology and systems that can integrate with your existing procedures. This includes automated systems, best inventory management software, and real-time tracking.
  • Flexibility and Scalability: Select a provider that provides adaptable solutions and can adjust to the growth and seasonal changes of your business.
  • Location: Consider the location of the warehousing facilities. Being close to your target markets can help you cut down on shipping times and costs, which ultimately leads to happier customers.

Common Concerns About Contract Warehousing

Although contract warehousing has many benefits, some large business owners may have concerns about outsourcing. Let's discuss common issues:

Loss of Control

Some worry about losing control over warehouses. Renowned contract warehousing providers work closely with clients to ensure operations meet corporate goals. Control and service levels are maintained by regular communication and performance reviews.

Quality of Service

Contract warehousing service quality is another issue. To mitigate this risk, find a company with a good reputation and client reviews. Due diligence and facility visits can also help evaluate the provider's capabilities and service quality.

Cost Considerations

Some businesses worry about contract warehousing costs. Outsourcing has costs, but reduced capital investment, operating costs, and efficiency frequently outweigh them. One unique and fair way to mitigate labor expenses is to peg hourly labor for a given job to an index and create ceilings or floors. If the index from the creation of the contract goes above or below that number, then prices are renegotiated. One index includes using a benchmark from the Federal Reserve of St. Louis (FRED). Another index is simply looking at Indeed to get a market benchmark. 

Resolve Your Warehousing Problems

Ultimately, contract warehousing benefits large businesses in cost, efficiency, scalability, and customer service. So, imagine the relief of having a trusted partner for warehousing and logistics. Partnering with Buske Logistics lets you focus on growing your business and maximizing profits.

Contact us today for personalized solutions that meet your goals from our team of experts.