High leasing and labor cost is compelling businesses and companies to outsource their warehousing operations. There are various 3PL (3rd party logistics) fulfillment options available, but it is not an easy decision for companies and they have to keep in mind various factors. Today, we’ll discuss outsourcing warehouse operations; its definitions 3PL, things to remember while outsourcing, benefits, and challenges.
What is Outsourcing Warehouse Operations?
Outsourcing warehousing operations is the method of employing external specialized inventory management and storage facilities; rather than building and expanding the storage capacity in-house through the supply chain.
3PL (3rd party logistics) is the process of dealing with the storage and flow of business goods and orders through expert partners. The focus of outsourced warehousing is to manage the storage of customer goods in the short term in large quantities. However, 3PL consists of outsourcing various areas of warehouse management like dispatching, stock control, and receipt.
Things to Remember for Outsourcing WO – Tips
Some of the key tips to remember while outsourcing warehouse operations, and they’re as follows;
It is significant to keep in mind that outsourced warehousing is a continuous process and journey ranging from designing the solution, testing and experimenting, implementation, and then startup. Every phase in the 3PL process is a great learning process for you and the company. However, some of the processes are out of the control of your 3PL providers, and the others have a great impact on your order consolidation process, IT infrastructure, and inbound material.
Engage All Stakeholders
Outsourcing logistical processes is a strategic decision of the company and it has a great impact on various areas of the company. It is significant that the company’s management has performed all the preliminary processes like following;
- Recognizing saving potential
- Initiating the project
- Choosing the right supplier
- Creating a business case
- Designing optimum logistical solution
It is significant that the management should bring the entire stakeholder on board.
Well-developed IT plan is significant for the successful implementation of outsourcing. You should check and test the interface between your system the system of logistics service provider and the transportation management system. Usually, the testing and experimentation don’t deal with all the processes and exceptions.
You need to share the data with the logistics service providers to get the quote during the proposal stage. The data is a measuring unit of dimension or weight, and it could be unreliable in the context of operations. However, an IT problem would come up during the implementation stage and it doesn’t have the same quality as described in the proposal. Your focus should be on the quality and reliability of the data in order to receive the right quote from the logistics service providers.
Your SC Company has developed knowledge and expertise over the years that you haven’t stored in the process documentation or system. If something is not in the company’s documented record, then it doesn’t exist for the company. You should acknowledge all the non-documented process and activities at all levels of the supply chain and brings them into the company’s record.
Launching the outsourcing process and collaborating with 3PL is a great learning process for the company and the logistical professionals. This is because many logistics professionals aren’t familiar with the outsourcing implementation process and its working methodology and nature. Your focus should be on having an integrated team as one, rather than two parallel teams.
3PL is Different
Managing your logistical operations and process with 3PL is completely different than dealing with it in-house. Some of the things that you should keep in mind are as follows;
- Negotiating and discussing service level agreement
- Analyzing performance on unambiguous data
- Following predefined KPIs
- Launching continuous improvement
- Managing bonus agreements
You should be ready for the change while working 3PL. Your objectives should be clear and have regular meetings with the management and discuss the structural changes.
Businesses are curious about the performance of logistics service providers, potential problems, and improvement areas. It is difficult to evaluate the performance; because you are blind without having any KPIs or evaluating criteria. However, your stakeholders should be on the same page with you on measuring criteria.
Benefits of Outsourcing WO
Some of the key benefits of outsourcing warehouse operations are as follows;
- Employing the saved resources from in-house warehousing to new business opportunities
- Offers you consistent customer service
- 3PL helps you to decrease the risk factor relevant to distribution network and warehousing operations
- Better service to the customers through well-managed labor, a strong warehouse management system, multi-warehouse option
- Allows you to focus on the main areas of your business relevant to merchandising and marketing
- Decreases the cost to a great extent
Challenges to Outsourcing WO
Some of the main challenges to the outsourcing WO are as follows;
- An increase in internal fulfillment cost it would affect the bottom line
- Seasonal uncertainties that would disrupt your management capabilities
- Investing significantly in the infrastructure
- Product fulfillment is the weak area of your business
- Launched a company with limited financial resources
Conclusion: Outsourcing Warehouse Operations
After an in-depth study of the outsourcing warehouse operations; we have realized that outsourcing warehousing through 3PL is becoming increasingly significant. If you are learning about outsourced warehousing with 3PL, then you should keep in mind the abovementioned tips, benefits, and challenges.
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