What is a public warehouse? Choosing Private vs Public Warehousing
The definition of public warehousing and how its advantages and disadvantages help you make good supply chain decisions.
Warehousing is a key service for industries ranging from manufacturing to consumer goods and consumer retail. Although some large corporations have capacity to run their own warehouses, they may lack the infrastructure or expertise to operate these facilities. This is where public warehouses offer a great value to serve businesses in this position.
What is a public warehouse?
A public warehouse is space that businesses rent for storage of materials or products. The space rented by a business is typically accounted for by square footage and may include various levels of services. An SLA or other agreement defines the scope of these additional services. Because different companies operate differently, this scope may fluctuate wildly from one warehouse service provider to another.
In a public warehouse, storage space is usually rented by the total space the materials or products occupy. Other services such as product fulfillment are provided for an additional fee by the warehouse. Some warehouses include requirements for a minimum average order volume (AOV) or higher storage rates for slow-moving inventory. Others only offer a simple pallet in / pallet out model charging only for inbound and outbound movement.
Benefits of public warehouses for storage & shipping
Purchasing and building a private warehouse can be a huge advantage. That is, only if the capital expenditure, workforce, and expertise is available to build and run it. In many cases, companies determine the best option is to contract with a warehouse partner for these services. There are quite a few benefits of public warehousing that you should consider:
Because there is no capital expenditure associated with building or buying a facility, public warehouses are a cheaper options initially. This affordable warehousing option is a competitive advantage for small to medium sizes companies. While large companies may have the capital to build out custom solutions, smaller businesses do not. Therefore, public warehousing is a good option for obtaining storage and fulfillment space without large upfront investments.
Available space for building out your own private warehouse is more and more difficult to find. Because of this, obtaining a warehouse in a location beneficial to your business is also increasingly difficult. The location of your warehouse is highly important for meeting logistics objectives. These objectives include rapid delivery to your customers or access to transportation hubs such as highways or airports. Additionally, the locations of your warehouse or warehouses may impact your ability to hire qualified workers. Some areas are well suited for available pools of talent, and some are not. You should consider this when deciding on a future private or public warehousing option.
Choosing the public warehousing route may offer you a broader spectrum of location options than building out a private solution. This benefit alone may dictate your decision between private or public warehousing.
Storing inventory is relatively simple. Things get more complicated when a company needs special services in addition to storage space. These services often require special equipment, systems, resources, or other processes and technology to complete. A warehouse that specializes in a particular type of fulfillment may have special technology systems. These systems may prove difficult to implement on your own without a very large investment.
For example, most public warehouses employ a warehouse management system that digitally tracks all inventory. This system can be highly complex with a large swath of capabilities, requiring extensive knowledge or training on its operation. Your investment in a private warehouse may gain you the systems, but proper implementation requires the skill of an expert. A public warehousing solution provider grants you access to such expertise.
The most common form of billing for public warehousing is by the total amount of consumed floor space. Sometimes this is divided by pallet, while others by carton or bin. This means that your costs only increase when the total square footage (or the amount of space) increases. For a small to medium business focused on reducing operating cost, this scalability is highly advantageous. Your business can scale fairly rapidly without additional capital expenditure or loss time.
Disadvantages of Public Warehousing
While the advantages of public warehousing are substantial, there are also some disadvantages to be aware of. It’s important to fully consider these disadvantages so you are not caught by surprise. This can happen when future circumstances limit your warehousing provider’s capability of serving you in the same capacity.
Long Term Cashflow
While the short term cash benefits of public warehousing outweigh the capital costs of private warehousing, long term storage may cost more. This might not be a deal breaker for you in view of the other benefits of a public warehousing provider. Regardless, the future cost is something to keep in mind.
While your overall long term storage cost may cost more under public warehousing vs private warehousing, it’s possible your overall cost is less expensive. This is due to the various other efficiencies offered by well-oiled public warehouses. These efficiencies include improved logistics (third party logistics), reduced shipping costs, improved distribution times, better software, and overall improved supply chain management.
Limitations of Customized Services
Flexibility is one of the advantages of public warehousing. However this flexibility does have limits. While public warehouse service providers offer a wide swath of custom services, they never perfectly tailor to your exact business needs. Other third-party solutions such as a dedicated warehouse suit well for exact customized services. However, the best way to obtain 100% customization of your warehouse services is to build them out yourself with private warehousing.
This may not fall into the “disadvantage” category, but it certainly something to be aware of. That is, public warehouses are owned and operated by a company that is not your own. Because of this, the sustainability of that company must be examined in detail. Example questions include:
- Is this warehousing provider solvent? Are they at risk of going concern or shutting down?
- What is the long-term strategy for this warehouse provider? Are they capable and interested in expanding if required?
- Is this warehouse provider capable of growing with my company’s needs?
- Are there any risks of default, foreclosure, eviction, bankruptcy or other scenarios that could halt business operations?
In general, it may me preferable to diversify your product distribution and warehousing strategy. In other words, work with multiple public warehousing service providers rather than a single entity. However, this strategy can cause risk of decreased efficiency and quality. In our case, we own the land and the warehousing infrastructure which clears much of the potential risk detailed above.
What types of companies should use a public warehouse?
Public warehouses are incredibly convenient for businesses that do not want to spend money to build their own storage facilities. By employing public storage services, your company could save money and time in the process. That is, when compared to running and managing private warehouses. Public warehouses are good for small or medium-sized companies because they enable the flexibility of choosing the space and locations best for the storage of your inventory. If a small to medium sized business needs warehousing, then a public warehouse is likely the best choice to meet that need.
What to look for in a public warehouse space
Since there are many public warehouse companies competing in the market, you should consider the specific capabilities of a particular public warehouse. Compare this capability next to your specific warehousing needs. That said, there are certain guidelines that help determine the fitness of any public warehouse for your company. While these guidelines provide a helpful framework, it is sensible to visit a public warehouse site to discover exactly how they operate. Incorporating team leaders and the company manager will also assist in solidifying the decisions you make.
“Location, location, location.” That’s the number one rule in real-estate, and so it is with your decision of which public warehouse to partner with. Logistics is the backbone of any good product or service. This is manifested in a public warehouse located in a geographical area close to shipping and transportation corridors. Your clients, or other strategic resources’ positioning relative to your warehouse brings untold benefits to your supply chain strategy. Luckily, as mentioned before, public warehouse providers often locate in strategic geographic positions that work well for meeting these objectives.
Most public warehouse companies offer some level of technology integration. However, the level of technology varies from company to company. Not all warehouse management systems are equal. You must ensure that your potential warehouse provider facility has strong process control for you and all their other clients and customers. This technology must fit your specific needs, so be sure to include your leadership team in decisions before making a commitment.
As mentioned before, sometimes the difference between a successful warehousing venture or failure is the capability to scale with you. If your sales and marketing teams have forecast an increase in total inventory consumption, this means growth is required in all phases of the supply chain. Therefore inventory, logistics, fulfillment, and even customer service (sometimes part of public warehousing service agreements) must also grow.
Qualifying this growth mindset becomes especially important if you sign a multi-year contract agreement with your public warehousing provider. You do not want to be stuck in a contract with a company that cannot meet your inventory and logistics needs.
This concludes the question of “what is a public warehouse” with benefits and disadvantages. By now you should have a clear picture of what public warehousing is and how it may work for your business. That said, there are quite a few other types of warehouses that you may familiarize yourself with.
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