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.
Share or Dedicated? What's right for your business?
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 aligned 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 may either own or lead the warehouse facility. All capital equipment, warehouse management system (WMS), racking, and technology are shared by the multiple tennates int he building. Labor can be shared between operations to flex with th demands of client. This can be particularly beneficial if your have peak seasons with your 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 distribuiton 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 business scaling quickly and do you need flexbility in space and labor? Is your overall distribuiton center footpring (squar feet of space) too small to support a dedicating builing? You may be a good fit for a shared campus warehouse environment. With a dedicated operation, you are responsible for all costs in the distribtuion center and can build the supply chain model to fit your needs.