What is contract warehousing?

What is contract warehousing?

Contract warehousing is an arrangement in which a partner warehouse agrees to receive, store and ship goods for a client. The contract usually dictates the terms of service and length of the agreement. The time-frame can vary from months to years and the fee structure can be fixed cost, costs-plus or a combination of the two. Contract warehousing agreements can provide for various other services including handling, packaging, shipping and inventory management.

Additionally, contract warehousing companies help businesses store goods in a central location so that products can get to their destination more efficiently. A centralized warehouse facility reduces both the cost of transporting goods after order processing and the delivery time-frame. Contract warehousing is a preferred alternative for many organizations because it lowers overall costs and capital investment. Since contract warehousing can provide access to a multitude of strategic warehouse locations, it’s no wonder that the practice has become a popular solution for businesses.

 Contract Warehousing vs. Public Warehousing

That’s great, but what about public warehousing? Is it any good? And what are the differences between contract warehousing and public warehousing? I’m glad you’ve asked.

Operating a private warehouse requires a level of daily involvement and inventory management that may or may not be attractive to you. This generally includes, but it is not limited to, general upkeep and the logistics associated with keeping track of your items in storage. Contract warehousing and public warehousing provide a more hands-off approach. But what is the difference and which strategy is best for you?

Rows of shelves with boxes in modern warehouse

Well, in summary, a public warehouse is a space that can be rented for a given time period. Often used as a short-term resource, public warehousing may be the right choice for seasonal or less-involved storage needs. So if you need a place to store your stuff for a few months, this is ideal. Public warehouses usually operate in a pallet in/pallet out mode, and billing occurs monthly by square footage used.

In public warehouses, space is available on a first come, first served basis. As a result, a warehouse might not have the space your company needs when you need it. In addition, there typically aren’t options for value-added services like pick and pack fulfillment, kitting, packaging and logistics with this type of arrangement.

In contrast, using a contract warehouse guarantees you will have access to a specified amount of storage space each month. That means you are more in control of your space and don’t have to worry about availability.

Obviously, the most important downside of contract warehousing is the cost. It is much more expensive typically than a simple public warehousing contract. But then again, it offers a lot of flexibility and can be tailored to your needs.

Contract warehouses are also able to accommodate client needs such as pallet reworking, pick and pack order fulfillment and quality control checks. Contract warehouses work well for companies with medium- to long-term storage needs or those looking for a larger portfolio of warehousing services.

Benefits of Contract Warehousing

Here are a few benefits of using contract warehousing. Using a contract warehouse means that you don’t have to worry about managing day-to-day operations of inventory management. For many companies, that’s a huge selling point. By leaving daily warehousing operations to the experts, businesses are able to flourish by sticking to their core competencies.

Here are some of the main advantages of contract warehousing:

Lower capital investment

Buying, building or expanding a warehousing space requires a considerable amount of capital. With contract warehousing, the facility is already built and businesses bypass capital costs by partnering with commercial warehouses to utilize the space they already have. Sounds great, right?

Lower costs and fees

But in addition to reducing capital requirements, contract warehousing companies offer specialized services and procedures plus expert manpower that increases warehouse efficiency. In other words, this improves customer satisfaction and cost savings. Entering into a contract warehousing agreement also helps you avoid fees associated with running a warehouse yourself. These fees include facility renovation costs, utilities, maintenance and various others.

Value-added services

For companies with very specific warehousing needs, the option to capitalize on value-added warehousing services can make this type of arrangement especially valuable. Contract warehouses can not only store your products, they can also take care of pick and pack order fulfillment, quality control checks, product handling, packaging, kitting, shipping and inventory management.

Greater reliability

Businesses can trust a contract warehouse with a good reputation to keep goods flowing to and from storage on-time. This reliability can be crucial to customer satisfaction and the long-term success of your business.

Conclusion

As previously mentioned, while contract warehousing tends to be much more expensive than typical public warehousing, it is better in every single way. And this is exactly why we recommend it for most of our users.