Dedicated Warehousing vs. Shared Warehousing: What is the Difference?
A common decision for any company with warehousing needs is to choose between a strategy based on Dedicated warehousing vs. Shared warehousing space.
There are many options to consider when outsourcing warehousing and distribution to a third-party logistics provider (3PL). One factor is to determine whether a dedicated (single client) or a shared warehouse (multiple clients in one distribution center) is right for your business.
In the simplest terms, a dedicated warehouse (also referred to as a contract warehouse or contract warehousing) 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, warehouse 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.
Shared or Dedicated? What's right for your business?
When it comes to a dedicated warehouse, the sole occupant bears all the fixed expenses of running the facility. Usually, this type of warehouse requires a long-term commitment, ranging from three to seven years, where the shipper and third-party logistics (3PL) company enter into a contract and align to a warehouse service agreement. This agreement covers various aspects such as labor structure, capital equipment expenditures, and implementation of a warehouse management system, along with other operational processes. Typically, the building lease, which can be tied to either the client or the 3PL, is aligned to the length of the warehouse service agreement.
A shared warehouse can provide a more adaptable solution, with shorter contract terms of one to three years. The 3PL may either own or manage the warehouse facility. All capital equipment, warehouse management systems (WMS), racking, and technology are shared among multiple tenants in the building. Labor can also be shared between operations to flex with the demands of clients. This can be particularly advantageous if your business experiences peak seasons with an increase in order volume.
Cost structures for dedicated and shared warehousing can be similar in the form of cost-plus, fixed variable, or a hybrid. But isn’t cost just cost whether it is “dedicated” or “shared”?
No, here’s why.
With a dedicated warehouse, costs could be fixed month-to-month regardless of the volume of orders and product moving through the facility. The single tenant is responsible for 100 percent of the rent, labor and capital equipment costs within the distribution center.
With a shared warehouse the costs are spread more equally across the companies using the facility. Multiple clients share the space as well as capital equipment and labor. Most importantly many of the costs become variable and move with the volume and activity levels of your business at a given time.
So what's right for you? Is your company experiencing rapid growth and requiring flexibility in terms of space and labor? Does your overall distribution center footprint lack sufficient space to support a dedicated building? In that case, a shared campus warehouse environment might be a suitable fit. On the other hand, if you opt for a dedicated operation, you bear all the expenses of running the distribution center and can construct a supply chain model that aligns with your specific requirements.