Traditional 3PL Sourcing vs On-Demand Warehousing – The Pros & Cons

In today’s climate, the warehousing and logistics industry needs to prioritise where we get the most value-add. COVID-19 disruptions and continuing uncertainty has made this a must-do, as businesses reevaluate their processes so that they are as risk-averse and cost-saving as possible.

This industry in general has needed to continually innovate in order to keep up with changing consumer demands, especially as online sales more than double each year. And not only that, getting your fulfillment process wrong means money needs spending, reputations are damaged and your customer’s loyalty is unstable.

So this begs the question…

Are we seeing a new trend in on-demand services and will they solve our logistics challenges?

>>> See how Coronavirus has changed warehousing here. <<<

Let’s look at both and see what we find.

On Demand Warehousing - What is it?

Essentially, on-demand warehousing is a warehouse sharing model. Which means, an opportunity for businesses with excess warehouse space to rent out to other businesses who need to store their inventory.

There are great benefits for both parties. If you have excess warehouse space, this is a great opportunity to create a new revenue stream.

If you have excess inventory that needs storing, you can find a board range of new features by using an on-demand space. For example, some warehouse landlords may be able to contract warehouse staff, and some may help you get your product to its end-location.

The changing and dynamic nature of today’s business world certainly puts on-demand warehousing at the forefront of our minds when it comes to finding something more flexible and less permanent.

How does this differ from a 3PL service?

The 3PL provider offers this warehouse space as their core business function, and tends to offer a broader range of services that involve picking and putaway services.

A 3PL service is usually a longer term investment because they offer a fulfillment service with higher accuracy guaranteed and is a relationship that is built over time.

Not only that, your 3PL provider manages multiple customer inventory requirements and most are able to negotiate pricing with carriers due to higher shipping volume.

There is similar flexibility to on-demand warehousing in the sense that you can scale your inventory demands and pay based on the amount of space you use.

But it is more a replacement for an in-house fulfillment service, whereas the on-demand warehousing service is more of a supplementary model.

Let’s look more deeply at the pros and cons of each...

Pros to On-Demand Warehousing

- A great opportunity to test a 3PL fulfillment service on a smaller scale

- Allows you to see which distributors reach your customer faster and where you may be able to save money

- Can help you understand the size and scale of a more permanent warehouse solution

Cons to On-Demand Warehousing

- Because you are sharing the warehouse space with another company (and may be the only customer), that company may prioritise their sales orders first

- If working with an on-demand warehouse marketplace, the multiple companies and locations you deal with may increase in risk, error, inconsistency or delay

Pros to 3PL Providers

- Generally the more stable and predictable option

- Stronger, longer-lasting relationships

- 3PL services are designed to manage multiple clients, so are most likely accessing the best practices required to fulfill your company and customer needs

Cons to 3PL Providers

- Likely to have a minimum inventory size requirement

- You may need to enter into a longer contract

    Both on-demand warehousing and 3PL services have great and not-so-great benefits. But keeping up with consumer demands and expectations means you need to find a solution that works specifically to meet the needs of your company.

    Make sure to look at what generates savings, improves your delivery speed and meets your demands to be dynamic and flexible.

    The key points to remember here are to find a solution that prioritises:

    - Your customers

    - Your timeframe

    - Your volume of stock

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