There are a variety of warehousing options available to businesses of all sizes. Some build and maintain their own spaces while others opt for leasing.
But you need a large amount of capital to buy or build your own warehousing space. Your costs can include:
- Site Renovation
- Facility Design & Construction
- Facility Staffing
Contract versus public warehousing
Two popular alternatives to building your own storage facility are contract and public warehousing.
Public means anyone, even your competitors, can lease space at the warehouse. The public warehouse’s contracts are usually month to month.
A contract warehouse, on the other hand, implies a more significant agreement and, typically, a longer, often multi-year commitment.
“Larger corporations contract with a warehouse to provide them the services they need,’” Roy Drake, owner of Dakota Warehouse, said. “So if we contract with any corporation, they’d say, ‘this is our warehouse.’ That means that corporations customers actually use our services.”
A contract warehouse’s benefits include:
- Guaranteed periods of service
- Lower costs
- Lower capital investment
Services commonly provided by contract warehouses include:
- Order “pick and pack”
- Bulk packing
- Packaging, including custom
- Order consolidation
- Returns processing
- Inspection services.
Drake said they have a nice mix of public and contract clients at Dakota Warehouse. The contract clients include both small and large businesses.
“We provide service to large businesses, small ones and everything in between from ‘soup to nuts.’ When you blend them together, you have a viable business model,” he said.
Contractual Obligations and Protections
For large corporations and their multitude of vendors, the warehousing contract with Dakota Warehouse is the way to go. The scope of work provided by Drake’s warehouse was determined and defined in the contract, as were costs, restrictions and many other factors.
With contracted space like at Dakota Warehouse, you know you’ll have access to it for a specified period of time. Whether you intend to use the space for one year or five, the contract protects your and Drake’s company from unexpected expenses.
Any warehousing contract should specify:
- Annual or monthly cost
- Possible changes over the contract period.
- The process for extending the contract period.
Knowing your real customer
Drake has a contract customer with a large amount of warehoused dry, powdered whey from overseas. The whey goes to a blender up in Spearfish, SD, on a recurring basis.
But, as he points out, the blender owner isn’t his customer.
“My customer is the person who controls the whey and its space in my warehouse,” Drake said. “That person works out of Chicago. So, with contract warehousing, it’s not always a local person who’s the actual customer.”
Contract warehouses often provide extra packaging and distribution services. These are useful to a business if it expands or experiences sharp increases in demand.
Right now, Dakota Warehouse stores carpet for Black Hills Power, which is in the middle of building a $70 million facility. Drake said the carpet for the project was five truckloads.
“It was purchased through a small local contractor and of course he doesn’t have room for five truckloads of carpet,” he said. “So he stores it here until they need it down there. Then we ship it in smaller quantities, say half a truckload at a time, as they need it.”
Partnerships with staying power
No matter how large or small your company is, choosing the right kind of warehouse space is really important. Remember to:
- Make the smart choice.
- Limit your expenses.
- Define a specific service period.
- Provide increased service through reliability.
Creating long-term relationships with reliable partners is important to the longevity of your business. To create such ties requires both entities working together in an atmosphere of trust.
Contract warehousing is an option that can help.