When should you outsource your ecommerce fulfillment and logistics to a third-party logistics (3PL) company?
Commercial and office real estate is generally much more expensive than industrial real estate. Online retailers and consumer product companies tend to lease or own offices that are in nicer, commercial or retail areas for appearance and business purposes. Order fulfillment companies lease or own large industrial size warehouses that range from tens of thousands to hundreds of thousands of square feet, if not more. This allows order fulfillment and 3rd party logistics companies to have a much lower cost per square footage, many times over, than companies in commercial, retail and office districts.
How does that benefit you? Order fulfillment companies are then able to charge their clients much lower warehousing fees than a company who attempts warehouse or store in-house. Companies like SM Operators even offer warehousing square footage rates at a loss to their clients as an incentive for companies to partner with them to get their logistics business.
Companies attempting to warehouse in-house are forced to lease or own a set amount of square footage, whether the entire amount is used or not. For example, if company “A” wants to get additional office space for warehousing they have to rent 3,000 square feet from their landlord. If they use 50% or 80% of that space they are still being forced to pay for 100% of the 3,000 square feet. When a company outsources their warehousing to a 3rd party logistics company they are only charged for the exact amount of square footage their inventory occupies. 3rd party logistics companies like SM Operators charge a per pallet fee or an on shelf square footage fee. If a company has 4 pallets, or is using exactly 378 square feet on a shelf, they are charged that exact amount and the total square footage is even prorated as the inventory amounts fluctuate throughout the month.
Overall one should do an in depth analysis before contracting a 3rd party logistics company for their warehousing. A company should calculate how much in-house square footage costs and compare those to a 3rdparty logistics company. While some companies have warehousing square footage minimums, other 3rd party logistics companies like SM Operators do not have minimums. Take our word for it though, 3rd party logistics warehousing rates are tough to beat, even if you keep your products in your garage!