Let’s assume you are a retailer with multiple retail locations along the east coast. From the time you started your business, you have always managed fulfilment and distribution operations. It has always been a necessary part of the business, but it’s the part of the business that you are passionate about. Now that your business is maturing, your SKU profile is growing, volume is increasing, and the scale of your distribution and fulfillment operations is becoming more complex. You’ve reached a point where your existing distribution and fulfillment facility is not capable of scaling to support your growth. The question now becomes, do you invest in your own warehouse operation, which is capital intensive, or look to outsource your operation?
As you weigh your options, consider the cost of operating your own distribution / fulfillment operation. First, there is the building and the associated operating expenses. Let’s assume you are in a 50,000 square foot building. With a cost per square foot of $9.00, which is reasonable, plus operating expenses, your baseline costs are over half a million dollars. You also have 15 full-time employees, and one supervisor which will cost you about $750k per year. A third expense line is your system expense. Up until this point, your business has been managed on an Excel spreadsheet. In the beginning, you had fewer customers to serve and SKU’s to manage, but now that solution does not support the business. Depending on the Warehouse Management System (WMS) that you choose, you are going to be signing-up for a $500k investment. Keep in mind, that $500k only gets you the system. You will still need to invest in the site surveys, IT infrastructure, and equipment.
If the price tag on the investment doesn’t give you pause, consider everything else that capital can’t be used for. Those dollars can no longer be directed towards new marketing efforts, product design, cash on your balance sheet, etc. Also, you are in a 50,000 square foot space, but you think you will need 3x that much space in three years – the space you are now leasing may not have that run-way available for you.
Your other option is to outsource your operation to a proven and capable Third-Party Logistics (3PL) provider. By outsourcing, you have the benefit of leveraging the space, operating expenses, and infrastructure of a mature logistics operation. Typically, when outsourcing your operation, you can find a provider who has more space than you need. There are at least two benefits to this. First, you only pay for the space you need. If you only need 50,000 square feet, that’s what you’ll pay for. In some cases, you will only pay for the pallet locations that you occupy, which gives you the greatest degree of flexibility. Second, as you grow, your 3PL provider is generally able to grow with you.
3PL providers are also able to scale labor. You have 15 employees, but during the holidays, you need 25. Managing temporary staffing relationships has been a necessary part of your operation, but not something you personally want to consider managing. Not only do 3PL’s maintain relationships with staffing agencies, they are able to shift labor from their other customers to support yours as volume shifts. The 3PL’s trained labor, typically used for other customers, becomes your safety net.
Finally, 3PL’s have WMS’s already deployed. Instead of paying outright for your own system, you can leverage what a 3PL has already put together. Not only is the lead time to implementation shorter, you get to share the cost of the system with multiple other customers. Instead of a $500k investment, that you would need to maintain and only includes the software, you might have a $5k per month IT fee, that includes the service plus maintenance, updates, infrastructure, and equipment.
With 30 years of experience and an experienced team of logistics and supply chain experts, Orbit Same Day is positioned to support your current and future distribution and fulfillment needs. Orbit Same Day has the facility, personnel, and system necessary to help you take your business to the next level and support you as you continue to grow.