A Primer on the Benefits of Public Warehousing

A Primer on the Benefits of Public Warehousing

Public Warehousing is a dubious term. It has several definitions, depending on your viewpoint, and several uses, depending on your business need. There are a lot of misconceptions about public warehousing, so let’s take some time to dig a little deeper into what it is and how to leverage it.

Public Warehousing  vs. Contract Warehousing

The easiest way to define Public Warehousing is to recognize its counterpart- Contract (or dedicated) Warehousing. Both public and contract approaches involve outsourcing business processes to a service provider, but there are some major and significant differences. First among those differences is the issue of real estate risk. In a contract warehouse agreement, facility leases are often borne by the manufacturer, or if borne by the service provider, they are typically aligned with the term of the warehouse agreement. This way, the warehouse services provider is not stuck with an empty building if and when the customer agreement ends. In public warehousing, that risk is assumed by the provider.  Whether the buildings are owned or leased, the service provider takes on space and then finds customers to fill it. It’s a subtle difference, but the risk profile can be important to a decision maker.

Another key difference between public and contract warehousing is the typical duration of the business relationship. Public Warehousing agreements are typically on an auto-renewing 30-day term, while dedicated contracts are commonly in the 3-5 year range.

Why Use Public Warehousing?

It’s reasonable for one to look at a public warehousing arrangement and ask “why would I want to do that? Why engage in such a transactional way?” Well, there are several answers to that question:

1. Ultimate Flexibility

Public warehouses can provide a tremendous level of flexibility. A manufacturer looking to expand a product line for the first time may not want to invest in permanent infrastructure to support that launch, so a public warehouse could be the perfect fit for fulfilling orders that trickle in as your product takes off.

A similar argument can be made for startup companies introducing a better mousetrap. Even more effective can be a seasonal or ad-hoc product introduction via public warehouse. Did you know that if you make a product that has chocolate chips in it, you may be interested in temperature controlled storage only in the summertime when ambient heat and humidity present a threat to the quality of your product? Using a public warehouse provider during that risky time can mitigate that risk without requiring significant investment in refrigeration.

2. Service Variety

There’s a reason we often refer to Columbian’s Hall Street facility in Grand Rapids, Michigan as the “amusement park of warehousing.” In that facility alone, there are more than five different types of racking, four separate temperature controlled spaces, a four-car rail dock served by one of the country’s largest rail carriers, a dedicated recoup room for disposition of damaged merchandise, and a parcel shipping station.

Pair that infrastructure with a daily workload that includes full pallet handling of finished goods, case picking, each picking, kitting, display building, and trans-loading from rail to truck using more than a dozen different types of equipment, and you’ve got interesting things happening in every direction Public warehouses offer what is often considered to be a “menu” of services. Some customers order just one or two items off that menu, but some go all-in and allow the provider to act as their outsourced logistics department. Did you realize that with so many options, it’s not hard to configure a solution that works for just about any client?

3. Pricing Diversity

In a recent meeting of a supply chain peer group, Blair Thomas, our director of customer care, came to realize that in a very senior group of supply chain professionals, very few of the members were even familiar with how a third-party logistics firm, and especially a public warehouse provider, even rings the cash register. Many people know that the two largest cost inputs for a public warehouse are space and labor. However, many do not know that storage (for space) and handling (for labor) charges can come in many different forms.

The traditional rate structure in a simple public agreement charges for space per pallet at the time of receipt and on the first day of every subsequent month that the pallet stays in inventory. Handling is billed as a one-time fee for inbound and outbound handling, also billed at the time of receipt. Surcharges such as for case picking or parcel processing are charged at the time of outbound shipment along with any other accessorial charges. From that baseline, many variations can take place.

Space can be charged on a per-square-foot- per month basis if a commitment to dedicated space makes sense for your business. Similarly, when customer requirements vary widely, handling labor can be billed on a per-hour basis. At Columbian, we have several customers who value dedicated space, but like transactional handling pricing, so we charge per square foot for storage and per pallet for handling. Did you know that storage can even be assessed by unit, by volume, by hundredweight, or just about any other measure?

4. Shared Scale

The final feature of public warehouses to explore is the benefit of shared scale. When you buy into a public warehouse program, you are buying into a mature business run by industry experts. Many startup companies or other small businesses do not have the time or the resources to invest in programs related to food safety, pest control, project management, employee training, cycle counting, and continuous improvement. At Columbian, for example, our customers get that service every day. Similarly, our customers benefit from a shared investment in security, systems capabilities, and insurance coverage.  Sharing scale can allow a company to get access to a big business infrastructure long before its bootstrap financing would otherwise allow.

We all know that outsourcing logistics services can provide benefits related to cost rationalization, turning capital dollars into expenses, or simply outsourcing the headaches, but it does not need to be so scary. By utilizing a public warehouse agreement there are no obligations in either direction, but relationships can last for decades. If you have not ever considered public warehouse engagement, give us a call. Let’s see how we can help.

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