What’s Best: Shared or Dedicated Warehousing?

Choosing what method of warehousing product is a standard decision for companies. There are two common types of wireless warehouse: shared warehouses and dedicated warehouses. Shared warehouses (i.e., public warehouse or multi-client warehouse) are warehouse facilities that are set-up in such a way that several businesses operate within a single distribution center. The businesses operating within a shared warehouse are able to share labor, handling equipment for materials, and capital equipment expenditures. In contrast, a dedicated warehouse (i.e., contract warehouse) operated under the management of a single business entity. This business often rents or owns the warehouse. Under a dedicated warehouse, all expenditures including labor, technology, equipment, and overall operations are paid by the single business.

Which Type of Warehouse Is Best for Your Business?

The most flexible situation would be operating out of a shared warehouse. This scenario includes shorter terms of contract, typically ranging from one to three years. The provider of third-party logistics typically owns the warehouse structure itself, which is already equipped with technology, warehouse management systems, racking, and capital equipment.

In the scenario that your business operates in a dedicated warehouse, all of the costs of maintaining the operations of the warehouse are charged entirely to your business. Generally, dedicated warehouses require an agreement that spans approximately three to seven years in which the shipping service and third-party logistics contract to work together. Within this contract, the business, shipper, and third-party logistics would agree to service that includes capital equipment expenditures, structure of labor, and management of the warehouse operational process. If the warehouse is leased, the lease can be signed over to third party logistics or the business owner for the length of the service agreement tied to the warehouse.

How Do the Costs Differ?

Within a shared warehouse, the costs are divided in a more equal fashion among the companies that occupy the facility. The costs are usually variable over time and fluctuate based on the activity and volume of the business at any point in time. On the other hand, a dedicated warehouse typically has fixed costs each month that are not dependent on the volume and fluctuation of orders. Within a dedicated warehouse, the rent of the building will remain stable, as well as the costs of labor and maintenance.

There are pros and cons of both dedicated and shared warehousing. Ultimately, there are many factors to consider when making the decision of what type of warehouse you would like to incorporate into your business structure.

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