There are many options to consider when outsourcing warehousing and distribution to a third-party logistics provider (3PL). One factor is determining whether a dedicated or a shared warehouse is right for your business.
In the simplest terms, a dedicated warehouse (also referred to as a contract warehouse) refers to the management of a warehouse facility that is occupied by a single tenant. You may own or rent the location, but in either scenario, all labor, operations, technology implementations, capital equipment, and value-added services are dedicated to a single tenant.
A shared warehouse (also referred to as a multi-client or public warehouse) is a campus-like environment where multiple companies utilize the same distribution facility and share resources. In this scenario, tenants share labor, capital equipment expenditures, material handling equipment, and IT infrastructure costs.
Share or Dedicated? What's right for your business?
- Costs: All fixed costs of running the operation are the expense of the single-tenant
- Contract Terms: A dedicated warehouse typically involves a multi-year commitment (3-7 years). You may own or rent the facility, but
If you have a dedicated warehouse, all of the fixed costs of running a warehouse are the expense of the single tenant. A dedicated warehouse typically involves a multi-year commitment, anywhere from 3-7 years where the shipper and 3PL agree to a contract and align to a warehouse service agreement that includes labor structure, capital equipment expenditures, and warehouse management system implementation and all operational processes. Typically the building lease, which can be tied to either to the client or the 3PL, is tied to the length of the warehouse service agreement.
A shared warehouse can be a more flexible solution with shorter contract terms (1-3 years). The 3PL provider owns the facility which is equiped with the capital equipment, warehouse management system (WMS), racking, and technology.
Cost structures for dedicated and shared warehousing can similar in the form of cost-plus, fixed variable, or a hypbrid. But isn’t cost just cost whether it is “dedicated” or “shared”?
No, here’s why.
With a dedicated warehouse, a lot if not all the costs are fixed month to month regardless of the volume of orders and product moving through the facility. The rent stays the same, as do much of the labor costs and other expenses of running a facility.
With a shared warehouse the costs are spread more equally across the companies using the facility. Most importantly many of the costs become variable and move with the volume and activity levels of your business at a given time.