The question many rapid-growth ecommerce companies have to deal with as they look at outsourcing their fulfillment operations: Should you have more than one fulfillment center?
The process of shipping products from East to West, or West to East, is more expensive and time consuming as your supply chain operations grow. To stay competitive, you must look at options of multi-location fulfillment and how these costs in additional space, technology and labor will affect your future. I'd like to examine both the PROS and CONS of multi-location fulfillment and whether or not it makes sense for your company.
The largest benefit is reduced shipping costs and faster delivery times. With a unified infrastructure across your supply chain and multiple locations, transit times are cut down as you ship from the location closest to your buyer and ultimately putting more money in your pocket.
If outsourced, you will have technology upgrades as well across your network. Parcel systems could choose what location would be best for the cheapest parcel costs, along with inventory accuracy benefits. Certain systems and 3PL setups will allow zone skipping, which is another way to cut shipping costs. A 3PL fulfillment provider will be able to cut investment costs on new advancements in technology and equipment for parcel shipping. Many ecommerce customers expect free or reduced shipping rates these days and providing services from multi-locations allows companies to reduce costs and gain a competitive advantage.
Lastly, companies can focus on growing their business and letting your warehouse partner take care of the other challenges, such as space, hiring and training new employees, and managing additional volumes and SKUs. These details can hinder future growth if not handled correctly. With the right partner, this will be a seamless transition across all fulfillment locations.
The drawbacks of a multiple fulfillment locations are first and foremost fixed costs. Each locations will have its own contract for storage and services. This means paying for double the inventory and increasing handling costs. Without a strong forecast and plan, these characteristics can be difficult for businesses to overcome.
Another factor that can have an effect of the business is working with different 3PLs in each location. You will be dealing with different systems, cultures and potential service levels. Companies must put an emphasis on communication and shared KPIs to ensure success.
The last issue is with technology. As mentioned earlier, more locations improves shipping and inventory capabilities across the network. However, it also means more work on the forefront with planning and coordination which may increase costs.
Companies looking at multi-location fulfillment operations need to look at the pros and cons for their business and to see if they can justify the increase in capital for multiple inventories and infrastructure. Another factor is how growing and working out of more locations will impact the business. At IDS, we are able to look at what the increase in costs would be for a second location by examining the additional warehouse and parcel costs. As a trusted partner, we provide this data so you can make an informed decision on what is best for your business. For more information, give us a call today!