Many small and medium sized businesses are searching for a warehousing and shipping company to store and ship their goods for them. But determining where the fulfillment company should be located can be a great challenge.
Someone Close to You Isn't Necessarily the Best Option
Many businesses would prefer for a fulfillment company to be located right down the street. This way, they can easily travel to them to check on stock and in case there are any issues. In some cases, it might be best:
- If you simply have a difficult time letting go of the control and 'psychologically' need the warehouse to be close.
- If you want to maintain a very close and personal, face-to-face relationship with your warehouse company.
While this isn’t a bad strategy to employ, looking at the world this way could also lead to missed opportunities.
First and foremost, finding a warehouse company right down the street doesn’t necessarily mean that they’re going to be the best fit for your business. There are so many other factors that mean a great deal when considering who to choose to perform your outsourced warehousing and distribution. Other things could have a big impact such as the specialty of the fulfillment company and their pricing. For example, most people wouldn’t know this because most third party fulfillment firms tell you that they can do “any” project, but the reality is that most fulfillment vendors focus on certain types of clients. Some are really good at e-commerce fulfillment, while other are really good at retail fulfillment to retail stores. Furthermore, there are some really good fulfillment companies that offer great service and some of the most competitive pricing, but if you won’t consider anyone outside of your city, you might miss on these potential cost savings.
Second, a huge indicator of costs involved in any fulfillment project is shipping. If you choose a fulfillment company right by your company, it may or may not be the best decision to lower your overall shipping costs. Two factors come into play when making this determination – where your product is manufactured and where your customers are. For example, if your product is produced in China and most of your customers are in California, then it would make sense to located a company in or near a major port in California. And for many companies that ship to customers all across the US, finding a fulfillment company that is centrally located may be the best option.
Are Multiple Warehouse Locations the Answer?
Logistics firms are trying to serve their clients the best they can by providing the most reach, the best price and the highest quality service. Sometimes that means having eyes and ears on the products themselves. Other times it means working with trusted partners. However, more companies are seeking to become multi state and multi national fulfillment companies to meet all of their clients needs.
The Pros of Multi-Location Fulfillment Companies
The top benefit of having a multi-location company is that you can control more parts of the value chain. You are shipping between your own locations and you have your people handling goods. If clients have questions about packing, shipping or handling, you can answer immediately.
Next, you can have a more unified technological infrastructure. You track packages and know exactly when they arrive at each location. You anticipate the movement of goods from one place to the next with much greater accuracy. Your ERP system has more data inputs which creates more accurate predictions in the future.
The third benefit is that you can manage inventory much better with many different locations. While demand is low, you can keep inventory in low-cost locations or not order it at all. When demand is high, move the goods much closer to the end customer for faster turnaround. That increases cash flow and ultimately gets to the bottom line. If carefully managed, your debt will also be lower as a percentage of the overall business.
The Cons of Multi-Location Fulfillment Companies
The drawbacks of a multi-national or multi-state fulfillment companies are many. Firstly, fixed costs are much greater. Each location has its own contract for rent, it's own general manager, it's own staff and it's own equipment. These require a large upfront and ongoing cost. Without sufficient business to cover these expenses, the business will face grave difficulties.
The second issue is bridging the cultural gaps between the locations. If your two warehouses are in Illinois and Indiana, this won't be a huge problem. However, if they are in Oregon and Ohio you may have different work cultures. If they locations are in Maryland and Mexico you are sure to have language, legal and financial challenges that are tough to bridge. Management must place special emphasis on common, shared goals and east to understand principles for everyone in the organization to follow.
The last issue is logistical. As mentioned earlier, more locations improves the capability of your ERP system. However, that also mean putting effort, manpower and attention to the back-end coordination. Without careful coordination, responsibilities may be lost as managers in different locations expect their counterparts to take care. Similarly, customers are putting greater trust in you to move goods from one location within your firm to another one. At a minimum, you will have a much larger web of relationships to manage with logistics firms, distributors, manufacturers etc. that will all have to be managed.
The unifying feature is that the more capital you have, the more you can expand and the less it will impact your business. On the other hand, if you are like most businesses and have a limit to your capital, you will have to weigh the trade-offs of growing to many different locations. Ambitious companies that want to grow their revenue eventually will have to expand to more locations in order to acquire more customers and better serve existing ones.
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