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Enjoy today’s guest post about how to take the pressure off a small business with warehouse space and inventory to manage.
Entrepreneurs face myriad challenges in launching their new businesses. On virtually a daily basis they must step outside their comfort zone to address issues they never contemplated, nor have the skills or sometimes budget to resolve.
Take for example an e-commerce, consumer-products company. After months, or perhaps a year or more of development, prototyping, testing, reconfiguring, working and negotiating with factories and marketing efforts, you finally have a product ready for market. All you have to do is store the inventory, take orders, pick, pack and ship the products to your customers. Sounds easy, right?
All you need to do is find and lease a warehouse, put down the first and last month’s rent and security deposit, buy some racks to store the inventory, material handling equipment to move the inventory around, find and install a computer system, integrate your shopping cart platform to the computer system, hire and train employees, develop processes and procedures, negotiate a contract with a freight carrier, and voilà, you’re ready to ship your first order—at the low cost of tens of thousands if not hundreds of thousands of dollars which you probably don’t have.
There is a simple solution; hiring a third party logistics company (3PL). 3PL companies can:
- Safely and securely store your products
- Seamlessly integrate with your shopping cart platform
- Pick, pack and ship orders to your customers
There’s no initial capital outlay. There’s no learning curve in figuring out how to manage a warehouse. And, if well chosen, you’ll have a partner to ensure that the final leg of your supply chain is in place ensuring the right product is shipped to the right customer, on-time, and undamaged.
In the following case study, we examine a new business that initially managed their own warehouse, the challenges faced and how they efficiently transitioned to a 3PL.
Outsourcing Warehousing Operations – Saving Money and Improving Customer Service
A specialty cycling company was contemplating outsourcing its warehousing and fulfillment operations. After managing the warehouse for a couple of years, the owner wanted to spend more of his and his management’s time on developing new and innovative products to help grow market share. He found that operating a warehouse was outside his company’s core competency; he couldn’t afford to hire experienced warehouse management and personnel, nor purchase an adequate business system. His on-time fulfillment and order accuracy suffered. The cycling company had the additional challenge of operating a seasonal business that required more warehouse space than they leased during the busy seasons and left them with expensive excess space during slower seasons.
After interviewing several 3PLs and preparing a detailed cost analysis, the owner was surprised to learn that the fully-loaded cost of running his warehouse—after taking into account salaries and wages, workers compensation, rent, insurance, material handling equipment, and general warehouse costs—was far greater than he realized. He also recognized that those costs were about to go even higher when factoring in recently passed minimum wage legislation and increasing health insurance costs.
With this data in hand, the owner was ecstatic to learn that by outsourcing his fulfillment operations to a 3PL he was able to:
- Significantly improve customer service metrics
- Reduce warehousing and fulfillment costs by 43%
- Mitigate future minimum wage and health care cost increases
Transition to Go Live
Once the decision was made to transition the operations to a 3PL, an implementation coordinator from the 3PL prepared a detailed and comprehensive transition plan in coordination with the cycling company operations team. Weekly meetings were held and a target cutover date established.
The detailed transition plan included obtaining the client’s SOPs, routing guides, item master uploads, electronic data interchange requirements, packaging and labeling requirements, and myriad other details. After integrating with the client’s shopping cart platform, the next order of business was implementing a more efficient slotting strategy in the warehouse.
Using data obtained and analyzed during the transition planning process, specific SKUs were assigned to the most appropriate storage medium by family of products. Next, products were assigned to pick locations based on their velocity to maximize labour efficiently, and implemented a “Golden Zone” for high velocity movers to ensure the most efficient pick locations. After a 60 day planning and implementation cycle, the warehouse transition was complete and the warehouse was up and running; ensuring a smooth transition and minimal downtime in fulfilling new orders from customers.
A series of key performance metrics were reported: inventory accuracy, order cycle times, on-time delivery and other key performance indicators as determined in conjunction with the customer. And the customer had 24/7 visibility to their inventory, receipts, shipments and tracking information through the 3PL real-time web portal.
Ultimately, the customer experienced in excess of 40% cost savings over running their own warehouse, received up-to-date metrics to better understand key customer satisfaction indicators and their team was able to focus on developing new and innovative products.
Utilizing a 3PL to manage your warehouse operations not only saves capital and expenses, but helps ensure the final leg of the supply chain is effectively and efficiently managed so that management has time to focus on its core competencies and grow the business.
About XB Logistics
Peter Resnick is the Chief Executive Officer of XB Logistics, a leading third party logistics company which works with companies to design customized, value-added warehousing and distribution solutions. Whether it’s direct to consumer, big box distribution centers or retailers with complex individual store distribution needs, XB Logistics works with you to efficiently manage, process, and distribute your products for significantly less than you pay today. Learn more at xblogistics.com