Dedicated Warehousing vs. Shared Warehousing: Which is right for you?
What is the difference between shared warehouse and dedicated warehousing and which one is right for your business?
There are many types of warehouse operations, but two are prominent. That is, shared and dedicated warehousing. How do you decide which one is right for your business? In this article we will examine the definition of the two and help define their difference and benefits and why one might fit better with your business.
What is a dedicated warehouse?
Dedicated warehousing is a totally managed third party warehouse dedicated to a single business. This includes outsourcing of all labor, operations, equipment, services, and of course warehouse space. Another name for dedicated warehousing is contract warehousing. Rather than share space with other tenants, the third party management company operates the warehouse specifically for the one tenant.
What is a shared warehouse?
Shared warehousing is a totally managed third party warehouse shared by multiple businesses. The sharing of resources in this type of warehousing includes labor, operations, services, equipment, and warehouse space. Another name for shared warehousing is multi-client warehousing.
Which is best for my business?
When deciding which type of warehousing operation is best for your business, treat it like any other business decision you make. First look at the benefits of each and then decide if that is worth doing in-house or outsourcing. Based on your priorities, you can decide on whether dedicated or shared warehousing is a fit for you.
A dedicated warehouse is typically larger than 50,000 square feet. Depending upon your business plans, this may not fit the scale of your operations. You should consider the size of your needs and weigh that against the length of time you will be operating under a dedicated warehouse.
Shared warehousing, however, can scale seamlessly with your business. Instead of operating a fixed amount of space regardless of how much inventory storage you actually use, with shared warehousing you only consume exactly the amount of space that you need.
Understanding the scale of the two types of warehousing operations, it’s easy to see how the cost is also different. A dedicated warehouse always has a fixed minimum cost each month to operate. This is regardless of the volume of used storage space or the number of orders processed. Because you are the only tenant, these costs are your burden alone.
Whereas shared warehousing, multiple tenants share the operation costs which reduces your risk and total expenditure. However, these cost albeit smaller in amount, are less fixed and therefore more difficult to forecast.
On average, the length of contracts are longer in a dedicated warehousing scenario. This is probably due to the risk exposure of dedicating an entire segment of business to a single client. Additionally, dedicated warehouses require a more customized service approach, noted in the next section.
A typical contract for a dedicated warehouse is 3-5 years, while some can even extend further into 7 years and beyond. Shared warehouse contracts range from as little as 1 to 3 years.
If your product requires a specialized level of 3PL services such as fulfillment, kitting, assembly, inspection, consolidation, cross docking, and even light manufacturing, you may want to consider the flexibility of a dedicated warehouse. This is because a dedicated solution can customize the services to suit the particular needs of a single business. Rather than a broad spectrum of services that suit many businesses, dedicated warehouses are shaped around your needs.
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