Is Outsourcing to a 3PL the best choice?
A cost analysis is useful to compare outsourcing warehousing and fulfillment or purchasing space and managing the warehouse services internally. Many times, the cost of constructing or purchasing warehouse space is much greater than outsourcing to a third-party logistics company, these depend on the location, size, scarcity of warehouse space, materials, and labor.
There are different cost structures when outsourcing depending on the space needed, the term, type of product and the number of SKUs, type of equipment needed to move that product around, the turnaround on the product in and out of the warehouses; services needed such as hand unloading, sorting, picking, packaging, palletizing, shipping, kitting, shrink wrapping, and integrations needed for fulfillment of orders, such as EDI, REST API, FBA, etc.
The fee will be either a pallet fee, cubic footage fee, square footage fee, or a bin fee, with about 90% of providers using the pallet fee method due to the types of customers they serve. There is a pallet in/pallet out charge plus the monthly storage on that pallet.
The pro to these types of cost structures is you only pay for what you use. This is especially helpful for seasonal businesses or growing businesses. There may be a minimum storage rate, but chances are it will be lower than the fixed costs of renting a warehouse.
The fees for services are priced individually – container unload, sorting, picking, packing, palletizing, etc. There will also be a charge for labor – either broken down into salary and hourly or one fee that will cover supervisory labor as well.
There may be a setup fee for special integrations for order fulfillment, but most integrations are easily completed in a few steps.
When considering renting or leasing a warehouse, there are other fees to consider such as utilities, taxes, and insurance. The space may need upgraded for technology as well. The most common forms of warehouse operating costs are either NNN or triple net or CAM, common area maintenance. Operating costs can add $2-$5 per square foot to the overall cost of renting.
The cost of purchasing or building a warehouse is by far the most expensive option but can be a great investment for a company with cash reserves or the ability to secure a long-term note.
Based on surveys of 3PL providers and their pricing, this seems to be the most cost-effective option due to the variable component. This offers the flexibility companies need to effectively manage their supply chains. In addition, the order-picking accuracy of these providers surveyed was 99.1%.
When considering outsourcing, checking with multiple providers on their capabilities, technology, understanding, and experience can help you find a the right partner. Another advantage is if working with an asset-based company that can also provide transportation, your warehousing and transportation is under one roof with one team who can work together to manage the full process.
KTI LTD is an asset-based 3PL with locations in Pulaski, Virginia, Bluefield, Virginia, Lincolnton, North Carolina, and Greenwood, South Carolina. Starting out as a transportation company in 1995 and adding warehousing in 2010, KTI has worked with companies in all types of industries, providing custom solutions and flexibility to be a partner on their paths to growth. https://www.ktiltd.com/test/warehouse-transportation-services/