The following conversation takes place on a regular basis; maybe you’ve recently had a similar conversation to the one below:
“Great news everyone; we’ve won a new product line for a customer in Seattle. This should represent a significant growth of 10,000 pallets and will go a long way in us hitting our quarterly goals.”
Supply Chain / Warehouse Team –
“That’s great news; congratulations! Hey, quick question, you mentioned that this business was expanding into Seattle by 10,000 pallets. Is that correct? Our warehouse capacity fluctuates throughout the year, but on average we only have room for about 5,000 pallets. What are we going to do?”
Growing sales and continuing to add value to your customers is rewarding on multiple levels, but with it comes many challenges that need to be addressed in order to meet the ever-growing expectations of the customer. Every business has a different set of scaling issues and, for many, inventory management is oftentimes the most challenging.
The question that so many people try to answer is, “how do I avoid the example conversation provided above?”. There are a few options to consider and the correct answer really depends on your business use case.
For some businesses, there is a requirement to own and operate the warehouse and supply chain 100% internally. In this instance, the solution is investing more capital and hiring more people. Ultimately, the primary focus to solve capacity issues is to become experts at forecasting customer demand and the corresponding supply chain needs.
For other businesses, it may be appropriate to work with 3rd party logistics providers (3PL’s) to help solve short and long term capacity challenges. This is the area in which WarehouseQuote.com provides solutions, therefore, the following are the top 3 benefits and challenges of the 3PL approach.
- Additional capacity is just a contract away.
- Working with 3PL’s do not typically require large upfront capital investments and can be a great way to expand the supply chain while allowing capital to be focused elsewhere in the business.
- Speed to market is unmatched.
- The opportunity to find a 3PL warehouse partner, begin moving inventory into their warehouse, and benefiting from their existing operations team are significant advantages of 3PL utilization.
- Project timeline flexibility to meet the project needs.
- Another advantage of having the type of ‘on-demand’ capacity that a 3PL provides is the ability to find short or long term storage solutions based on the needs of your project. Some requirements may be for short term overflow storage and others might be to find a partner for a few years who can invest in the success of your project.
- Finding the right partner.
- Vetting a potential warehouse partner is not a trivial exercise. Instead, it requires asking the right questions, reviewing references, visiting the warehouse, and interviewing the operations team. Not only is the process challenging, but there are also 100’s of 3PL’s to consider.
- Managing multiple 3PL’s can be a daunting task.
- If your business requires having multiple warehouse locations across your supply chain then you have certainly encountered the challenge of having multiple supply chain partners who each do something different in their process. Regardless of how many warehouse 3PL partners you have they each have their own billing practices and timelines, they each have different levels of reporting, they each have different contracts (and therefore risk levels), and they each have different abilities to connect to your team electronically (EDI).
- Exception handling becomes more challenging.
- A few things are certain; death, taxes, and that mistakes will be made inside supply chains of all sizes. Introducing 3PL’s (non-employee relationships) into the mix doesn’t help. For each warehouse you contract with you have a new point of contact and a new process to follow. Therefore, this challenge grows in complexity as the size of your supply chain grows.
Whether your business requires you to operate your supply chain directly or work with 3rd party partners to execute, one truth seems to exist. A growing business requires a growing supply chain and, especially with the challenges we are seeing today with labor and capacity, that is no easy problem to solve.