In this blog, we’ll take a closer look at one type of warehousing which is called “Contract Warehousing”.
What is Contract Warehousing?
The warehousing services offered by third-party logistics (3PL) companies are basically of two types: shared and contract.
In shared or public warehousing, the warehouse space and the 3PL provider’s resources are divides among many warehouse ‘tenants.’ This model gives the flexibility to the companies to use more or less space and resources as per their requirements. The cost of public warehousing is affordable and is flexible as well, as companies only pay for the space and services they use.
Incontract (or “dedicated”) warehousing, the warehouse space and resources are fixed, so the cost is fixed. The tenant company is committing to the fixed space and resources for the time period of the contract (these contracts are for the long term, while shared contracts are for the short term).
Here are a few basic contract warehousing models:
1. The 3PL owns the warehouse and dedicates the complete facility (or part of the facility) – and the necessary resources – to the operations of the tenant company
2. The 3PL owns the warehouse space and the tenant company runs all operations within it by itself, without using 3PL’s resources and associates
3. A company owns or leases a warehouse and hires a 3PL to staff it and run all operations within that space
Contract warehousing can also apply to just part of a warehouse. For example, a company may commit to a contract warehousing arrangement for 30,000 square feet out of a 130,000-square-foot warehouse. The 3PL can use the rest of the empty space for shared warehousing or even other contract arrangements.
What types of companies are suited best for contract warehousing?
There are various factors that can help determine whether an operation is suited for shared or contract warehousing. For instance, if a company’s sales volumes change substantially (e.g., it needs much more space and resources near the holidays than it does the rest of the year), then shared warehousing is likely a better fit.
If, however, the volumes are consistent throughout the year so that resources are not underutilized – and substantial enough to fulfill the space – then contract warehousing may be the best, most suitable, choice.
Contract warehousing is a better solution for companies that like the predictability of a set fixed rate for their operations instead of the fluctuating rates which is the case with shared warehousing. Moreover, companies with operations large enough to warrant their own facilities may prefer to contract with a 3PL that owns a building because there’s less risk involved.
What to look for in a contract warehousing provider
The things you need to look for are not all that different from shared warehousing providers. Some examples include:
Warehouse management system (WMS): you want to make sure that your 3PL partner has up to date WMSthat can manage your inventory, orders, and reporting the way you want them managed.
Temperature-controlled capabilities: if your products havetemperature- or climate-related needs, you want to make sure your 3PL partner has all the necessary resources to store such products.
Strategic location: you want to choose a 3PL with alocationthat enables fast distribution to your customers – whether retailers, manufacturers, or eCommerce customers.
Learn more about Tenaxx Logistics warehousing services
Whether you’re looking for shared or contract warehousing, Tenaxx has got you covered. We have over 50,000 square feet of warehousing space – with the ability to add more to meet customer needs. To learn more about Tenaxx warehousing and fulfillment capabilities,contact us today.
FAQs
In contract (or “dedicated”) warehousing, the warehouse space and resources are fixed, so the cost is fixed. The tenant company is committing to the fixed space and resources for the time period of the contract (these contracts are for the long term, while shared contracts are for the short term).
What is a contract warehouse? ›
A contract warehouse is a third-party logistics (3PL) storage facility that stores goods on behalf of a client. The client and the warehouse enter into a contract, which can range from months to years. The agreement may have a fixed fee structure or operate on a cost-plus model.
What is the difference between a private warehouse and a contract warehouse? ›
The most common types of warehouse include public, private, and contract warehouses. Public warehouses serve multiple businesses, private warehouses are used exclusively by a single business, and contract warehouses are dedicated to a single client under a long-term agreement.
Is contract warehousing is different than 3PL warehousing? ›
Warehousing services offered by third-party logistics (3PL) companies tend to fall into one of two categories: general warehousing or contract warehousing. Broadly speaking, general warehousing offers the most flexibility and scalability, while contract warehousing provides more control and stable costs.
What is the difference between warehousing and contract logistics? ›
Warehousing and logistics are often used together or in tandem because they are essentially two sides of the same coin. Warehousing deals with the storage of goods while logistics focuses on transportation of the goods.
Why might a company choose contract warehousing? ›
Contract warehousing is attractive to business owners because of its lower costs. The absence of maintenance and construction costs allows for lower capital investments and the ability to transition your warehousing from private to contract immediately.
Why contract warehousing is a preferred alternative for many organizations? ›
A contract warehouse can bring several benefits to businesses. Firstly, it provides exclusive and dedicated storage space tailored to the specific needs of the contracting business. This customization enhances operational efficiency and allows for specialized handling of goods.
What is the difference between contract warehousing and public warehousing? ›
Unlike public warehousing, which is usually priced based on the amount of product moving within and out of the warehouse, contract warehouses most often charge fees based on the timing and scale required by clients.
What are the three major types of warehouses? ›
Types of Warehouses
- Private Warehouses. Private warehouses are owned and managed by suppliers and resellers to fulfil their distribution activities. ...
- Public Warehouses. ...
- Bonded Storage. ...
- Co-operative Warehouses. ...
- Distribution Centres.
While contract logistic companies typically help arrange transportation and routes, a 3PL company handles much more than just transportation; 3PLs provide a full suite of logistics services, from warehousing and order fulfillment, to inventory management and automated shipping.
14 best warehouse types for modern ecommerce
- Bonded warehouses. ...
- Government warehouses. ...
- Distribution centers. ...
- HAZMAT warehouses. ...
- Cross-docking warehouses. ...
- Reverse logistics warehouses. ...
- Contract warehouses. ...
- Consolidation warehouses.
Third-party logistics (or 3PL) refers to the outsourcing of ecommerce logistics processes to a third party business, including inventory management, warehousing, and fulfillment. 3PL providers allow ecommerce merchants to accomplish more, with the tools and infrastructure to automate retail order fulfillment.
What is the difference between a trucking company and a 3PL? ›
As well, the shipper may engage with a 3PL for a wider variety of supply chain services, not just transportation. “A trucking company, on the other hand, typically is 'asset heavy,' owning and operating a fleet of assets – drivers, trucks, trailers and terminals.
What is an example of contract warehousing? ›
Contract warehousing can also apply to just part of a warehouse. For example, a company may commit to a contract warehousing arrangement for 50,000 square feet out of a 150,000-square-foot warehouse.
Who uses contract warehousing? ›
Contract warehouses are also able to accommodate client needs such as pallet reworking, pick and pack order fulfillment and quality control checks. Contract warehouses work well for companies with medium- to long-term storage needs or those looking for a larger portfolio of warehousing services.
What is an example of a contract logistics? ›
Examples of contract logistics services include warehouse management, inventory management, order fulfillment, distribution, and transportation management.
What does it mean when a job is a contract position? ›
Contract employees, also called independent contractors, contract workers, freelancers or work-for-hire staffers, are individuals hired for a specific project or a certain timeframe for a set fee. Often, contract employees are hired due to their expertise in a particular area, like writing or illustration.
What is a contract and how does it work? ›
A contract is a legally binding agreement between two or more parties. Once signed, this contractual agreement creates a promise that certain rights and obligations will be fulfilled by each party. In essence, a promise is at the heart of every contract.
