With the supply chain crisis still in full swing, the most unheralded part of the process of getting goods from the manufacturer to the end customer has received a lot more attention than usual: the humble warehouse.
As eCommerce gains a larger share of the total retail market, the demands on warehouses keep growing higher. While the underlying principle of what a warehouse is remains the same, the actual processes run within warehouses look far different from what they did even 20 years ago. Efficiently handling long-term storage, B2B replenishment, and online DTC orders is a tall task for any one warehouse, and rising consumer demand is pushing costs even higher.
Source: JLL Industrial Outlook Q3 2021
What seems like a simple decision – where you should store your products before last mile delivery – can get complicated in a hurry. In this blog post, we’ll walk you through the basics of modern warehousing and give you a primer on how to pick one that’s right for you.
What are Warehousing & Fulfillment Services?
Simply put, warehousing is the term for the storage of inventory before the goods are sold. Warehouses focus on storing inventory inexpensively, securely, and in a way that supports necessary access to the goods. Within that enormous category, there are many, many different types of warehouses.
Warehousing can occur at many steps along the supply chain – manufacturers need to store products, warehouses are often needed to help with middle mile distribution, and then of course inventory waits in a warehouse until it’s ordered by a customer or a business and moves to its final resting place.
In this post, we’re focusing on that last type of warehouse – facilities that store products but also need to fulfill orders. These are the warehouses that have seen the most change over the past few decades, as they’ve had to shift from focusing entirely on B2B orders to being able to fulfill a large portion of B2C orders, straight from their shelves.
How has that shift impacted warehousing & fulfillment operations?
Inventory storage
Much of the floorspace in a warehouse is dedicated to inventory storage, but the way in which inventory is stored has changed dramatically thanks to the shift towards ecommerce order fulfillment.
Warehouses that focus on B2B replenishment store their inventory efficiently in large bundles – think of a full pallet of goods, or a pallet of goods off of which multiple cases can quickly be picked. Relatively little is needed to do in order to receive the goods and put them into storage: if orders are pallet-sized, then they might not even need to be unpacked at all.
Contrast that with inventory storage at a warehouse that fulfills ecommerce orders – goods have to be stored in such a way that they can easily be picked in eaches (or single quantities). When an ecommerce warehouse receives pallets of inventory, they have to unpack the pallet, put away cases of goods, and then open some of the cases so that they can easily access the products inside. The speed with which a warehouse picker can get to the items and pull one or more out becomes of paramount importance, because they have to repeat the process hundreds of times per day.
Source: New York Times
The explosion of eCommerce has been accompanied by an explosion in warehouse automation, as providers try to make their operations ever more efficient. When storing product, warehouse personnel must be able to pinpoint the exact location of all SKUs, count the number of units on hand, and respond to recalls. Each of those tasks can be made considerably easier with the intelligent use of technology, like bar code scanning.
Warehouse fulfillment
Moving from a handful of large B2B orders every day to thousands of B2C orders per day is a huge shift. Just like the change to warehouse storage strategy, the change in fulfillment strategy has underpinned a significant increase in the complexity and cost of warehousing.
Warehouses need to employ more fulfillment personnel and deploy more technology in order to get products from storage, into boxes, and affixed with shipping labels as quickly as possible. Amazon Prime’s continual push to cut delivery times shorter means that warehouses can’t wait to fulfill orders; each customer that presses “buy” needs to have their item picked, packed, and dropped off with the carrier that same day.
Returns processing
eCommerce warehouses must be able to process returns – those that don’t leave their customers unable to provide a critical service to the end customer. Marketplaces again have led the market with super-easy no-fault returns policies, so online merchants of all stripes are under heavy pressure to offer the same on their DTC sites. So, warehouses have to be able to receive returns, assess whether they’re damaged or not, and process them back into available stock whenever possible to minimize loss.
How to Choose the Right Warehouse
Choosing the right warehouse to support your business can be a daunting proposition. There are a huge variety of services provided by warehouses and 3PLs, and it can be difficult to figure out what each company specializes in at first glance.
What are the key criteria that you should keep in mind?
Sales channels
Where are you selling now? What’s your growth strategy?
Many online sellers get their start on Amazon, and rely on Fulfillment by Amazon, or FBA, for their warehousing and fulfillment. It’s only suitable for selling on Amazon, though, so they quickly find that they need an FBA alternative for their other sales volume. The same is true of sellers that rely on Walmart Fulfillment Services for their Walmart volume; their warehouses are for their own channel only. If you want to sell direct, or if you want to sell on more channels than just Amazon and Walmart, you can’t solely rely on their own in-house warehouse solutions.
Stepping outside of the big marketplaces, you’ll find that many warehouses and 3PLs specialize in either B2B or B2C orders, and not both. Picking a specialist provider can be a strong strategy for sellers that are certain they’ll never want to cross over from retail to online sales, or vice versa, but most have ambitions to grow on both channels.
If you’re currently selling both B2B and B2C, or have plans to do so, you should know that there are providers out there that can do both at a high level. Many sellers start out with a warehouse that specializes in the one channel on which they sell (like FBA for an Amazon seller, or a single Shopify 3PL for a DTC brand), and then they add different warehouse and fulfillment companies as they grow to new channels that their existing provider can’t address.
On the other hand, flexible 3PL networks like Cahoot will scale with you and add the warehouse capacity you need for whatever channels you’re adding. Thanks to our peer-to-peer model, we have a dense network of many different types of warehouses – so we can consolidate your fulfillment needs under one roof, and customize our approach to your evolving needs.
Inventory turns
How quickly are your products going to sell?
The faster your inventory turns, the more you can lean towards hyper-efficient B2C warehouses located in expensive real estate directly next to (or in) major population centers. Thanks to their consistent high volume, they also can and should be distributed to 4+ different US fulfillment centers so that they cover the entire country with affordable 2-day delivery.
It’s not so simple, though – most sellers have fast-movers and slow-movers in their catalog. Their hero SKUs generate an outsized chunk of their profits, but they need the “long tail” to bolster their brand and provide holistic value to customers. These slower movers are most efficiently stored in less expensive areas of the country, and moreover they’re difficult to distribute around the country because that strategy significantly increases inventory carrying costs. In short, you want an entirely different warehousing strategy for your slow movers from your fast movers.
Some fulfillment networks like FBA specialize in fast movers only; most Amazon sellers have learned this painful lesson from getting hit with restrictive FBA limits that push all but their best sellers out of the service. Many of the newer tech-enabled 3PLs like Deliverr have adopted similar models, and they all have similar markers: they have strict limitations on the inventory they’ll accept (and in particular they don’t like large items), they charge huge long-term storage fees, and they put punishing surcharges on storage and fulfillment during peak seasons.
You can choose a mixed warehouse strategy in which you use fast-turn-optimized fulfillment centers like FBA for your fast movers, and more efficient, low-cost providers for your slow movers. This can work, but it also requires a large amount of managerial time, and you’ll find yourself frustrated when you have too much inventory in one warehouse and too little in another. Alternatively, more innovative networks like Cahoot bring together warehouses that specialize in fast movers, slow movers, B2B orders, and everything in between. That way, you can consolidate your operations with one provider, simplify your life, and enjoy economies of scale.
On top of these considerations, our current supply chain issues add another wrinkle to your warehouse choice. Many sellers are opting to stock up on as much inventory as they can in advance, because they know that “just in time” shipments from overseas will likely not actually arrive in time. This adds another need for super-efficient storage – if you try to keep 6+ months inventory in a warehouse optimized for B2C fulfillment, you’ll rack up ruinous storage fees. If you’re going to be bringing in more inventory than usual, our advice is to find a long-term storage warehouse in a relatively low-cost area close to your port of entry. There’s no avoiding the fact that you’ll have to pay more to store this inventory than if you brought it in “just in time”, but you can mitigate the cost with this approach. And if you’re stuck with extra inventory and no place to put it unexpectedly (for instance, from cut FBA inventory limits), then you’ll need on-demand warehousing.
Technology needs
Whether you sell online, wholesale, or both, you can’t avoid having a complicated tech stack in the 21st century. Even ten years ago, many warehouses were still operating via Excel spreadsheets – customers would email over previous day’s orders, and the warehouse would get to work shipping them out. Warehouse operations have changed dramatically, though, and you need to carefully understand what technology your warehouse can integrate with.
It starts with sales channels, eCommerce platforms, and order management systems: does your chosen warehouse have a pre-built integration with the services that you use? Does it have an open API and developer support so that you can connect lesser-known channels or custom technology to the warehouse? If you want efficient operations, at a minimum your warehouse should automatically receive orders from you, and then automatically update all of your customer management, inventory management, and ERP software with shipment information. It’s not easy, and many warehouses and 3PLs have struggled to make the digital transition.
On top of that, the technology that your chosen warehouse(s) uses to operate day-to-day can have a significant impact on your total costs. Most warehouses and fulfillment centers make the shipping label decision for you, because the label has to be printed on location. If they’re relying on an older shipping software, they likely have to manually pick shipping labels. This in turn often leads to you paying more than you need to, because they won’t always pick the optimal label. Next-gen shipping softwares completely remove the human from the process and rely on automation to select shipping labels. They will automatically rate shop carriers against one another, and pick the one with the lowest cost that meets your SLA. In this way, your warehouse’s technology impacts the final price that you pay.
Warehousing Services Recap
Your needs for warehousing services can vary dramatically based on what and where you’re selling – from the humble long-term storage warehouse to the highly automated fulfillment center.
Many sellers take a piecemeal approach to warehousing as they grow; they’ll start with a 3PL that meets their initial use case, but they’ll quickly outgrow it and have to add multiple providers. Keeping up with a wide set of warehouse providers is time consuming and inefficient, but new warehouse and fulfillment networks are rising to address the challenge.
Cahoot’s innovative peer-to-peer network has flexibility to cover a wide range of use cases, all under one company (and multiple warehouse roofs).
Cahoot’s fulfillment network is built for the ever-shifting needs of growing eCommerce sellers. We’ll help you delight your customers with a stellar, Amazon-like delivery experience no matter where you sell. We have pre-built integrations with major marketplaces, shopping carts, and eCommerce platforms to fuel your multi-channel growth.
We don’t stop there, though. We’ve expanded our dense network to add significant B2B capabilities so that we can efficiently support retail replenishment.
We can do this while others can’t because our warehouses are operated by merchants just like you with excellent fulfillment operations. There are millions of unique merchants in the country, and chances are that we have a few merchants that know your use case inside and out – because they live it every day.
If you need warehousing services that are built to help you scale into the future, get in touch with us for a free consultation today.
