Posted On May 24, 2021
Outsourced distribution has been on the rise for years.
As companies strive to decrease shipping times, improve their customer experience and keep supply chain costs low, more and more are turning to outsourcing for their distribution management. The pandemic has only increased the trend, with companies realizing the benefits of utilizing distribution services to reinforce their supply chain against unexpected challenges.
But what is distribution management, and what does it mean to outsource your distribution?
Distribution management has been around (and outsourced) for decades, but things really kicked into high gear thanks to a little business called Amazon.
With free, 2-day shipping, the company disrupted the e-commerce industry and set a new standard for consumer expectations. Suddenly, e-commerce and startup companies around the world needed a way to keep up. Enter outsourced distribution management.
Distribution management is the process of moving products through the supply chain from start to finish—from raw goods supplier to manufacturer to wholesaler/retailer and eventually the end customer. Along the way, those products might end up at a distribution center—a warehouse or order fulfillment facility that houses the products before they make their way to the next stop in the journey. A distribution network is the framework of those facilities and transportation systems that move the products through the supply chain.
Some companies do this all themselves—but for many, including small and medium businesses, outsourcing is more efficient and cost-effective. Outsourcing warehousing and distribution typically entails partnering with a logistics company or 3PL provider to set up warehousing or distribution locations around the country to store goods and ship out orders.
Keep reading to find out whether outsourced distribution management services are right for your company, and how to optimize your distribution model.
The Benefits of Outsourced Distribution Management
The biggest benefit of outsourcing distribution is, of course, faster transit times. With product kept closer to retailers and customers, orders can be shipped from a state or two away, instead of across the country. In an age of instant gratification, fast shipping times are vital to customer service.
Less distance between goods and their destination is easier on the wallet, too. While outsourcing distribution services comes with additional costs, the shipping costs from the new facilities are typically lower, resulting in a minimal increase—if any increase at all. Even when adding distribution channels leads to higher costs for distributors, the decreased shipping time for customers is well worth it.
Outsourcing the distribution process can be like a co-op for smaller companies with limited resources. Instead of needing to lease an entire facility, staff it with full-time labor and cover all of the overhead associated with a warehouse, outsourced warehousing and distribution allows companies to only pay for what they need. For example, a company with only 10-20 shipments a day can partner with a logistics company to set up an order fulfillment system in an existing warehouse—paying for just a couple hours of labor a day and a fraction of the total space.
But to take that example a step further, what happens when the season changes and the distributor gets busier? Suddenly, they might have 50 to 100 shipments a day. The right 3PL provider will have the flexibility to keep up and make sure business doesn’t get backlogged. And when the season is over and orders decrease again, the company’s monthly invoice can, too.
Potential Drawbacks of Outsourcing Distribution
But there’s a potential repercussion that can come with outsourcing distribution, just like anything else that’s outsourced: the distributor loses control. With warehousing and order fulfillment being handled by someone else and out of sight, the quality can suffer. That’s where choosing the right distribution partner comes in.
Finding the Right Distribution Partner
No matter the location, product or market, setting up an outsourced distribution management strategy should always start with one thing: outlining your needs.
What are your reasons for outsourcing? Do you need warehousing just for temporary storage, or a distribution center for order fulfillment? And does your product require specifications like temperature-controlled environments or hazardous material handling? Are you shipping appliances that need hundreds of thousands of square feet or watch batteries that can fit on a single shelf? Five SKUs or five hundred?
Also consider any other services you’ll need in the distribution channel, like returns processing, reverse logistics or the ability for customers to pick up goods directly from the facility.
Outlining the necessary solutions will help narrow the search in finding potential partners—and also give 3PL companies the information they need to provide accurate cost estimates upfront.
There’s one other factor you’ll want to consider before signing on with a partner, and it’s probably obvious: location.
When we’re onboarding new clients for our warehousing and distribution services, Flat World performs an audit of the company’s shipment data from the past twelve months. The audit gives us insights into where shipments are going and which product needs to be where.
With regional trends nailed down, we’re able to determine the best location for warehousing—but it’s not always where you might think. Often, the cost of business in a hub city might negate any savings, so setting up warehousing a city or state over is more efficient. Take Los Angeles as an example. A company might send hundreds of shipments there each week, but be unable to afford to store goods in a facility there. Instead, the business can house inventory in a warehouse in Reno or Las Vegas for a fraction of the cost, while still guaranteeing next-day shipping for their L.A. customers.
Optimizing Distribution Management Strategies and Ensuring Distributor Standards Are Upheld
Ok, so you’ve partnered with a 3PL to set up distribution channels that fit your needs, and your customers’ needs. The job is done—right?
Not so in the world of logistics. The hardest part might be over, but there’s always room to streamline your supply chain.
Data from your supply chain technology can uncover opportunities and solutions, like items that are commonly shipped with other products, and ensure inventory remains stocked. Integrating your logistics provider’s warehouse management system with your ERP, or enterprise resource planning system, will ensure you can pull inventory information at anytime.
Still, the fact remains: outsourcing your distribution means relinquishing some control over your supply chain. But that doesn’t have to be a bad thing.
The trick lies in finding a 3PL that will handle your company’s distribution with the same level of care, attention to detail and efficiency as your internal team. Providing process manuals with descriptions and requirements can set expectations from the start. And frequent communication can help prevent issues from popping up, or find solutions quickly when prevention is impossible. At Flat World, we invite our clients to stop by the warehouses whenever they can, so they can see the shipment execution for themselves, and feel confident knowing the company standards are being met.
If you have questions about Flat World’s warehousing and distribution services or need help setting up additional distribution centers, reach out! We’d love to do an audit and provide suggestions on how we can help.