Use this guide to understand warehousing services, prioritize service level agreements, and choose the right warehouse partner for your business.
Use this guide to understand warehousing services, prioritize service level agreements, and choose the right warehouse partner for your business.
What is Warehousing?
Types of Warehousing Services
Warehousing Service Level Agreements
Cowarehousing (The Future of Fulfillment)
Warehousing for Amazon Fulfillment
Understanding Warehouse Management Systems (WMS)
Criteria for Choosing a Warehouse Solution
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Warehousing may seem like a simple concept at first glance, but as the home to your most valuable asset (your inventory) and a pivotal player in your supply chain, warehousing is actually a key function of your brand.
The term “warehousing” refers to the facility where your inventory is stored, as well as the systems and protocols that warehouse staff employ to ensure proper storage, processing, and monitoring of inventory levels.
Download The Complete Guide to Warehousing and Fulfillment for a full overview of warehousing services, including an outsourced warehousing provider checklist.
Traditionally speaking, the term warehouse refers only to the building where items are stored. By this definition, a warehouse would only provide inventory storage.
A fulfillment center (FC) or 3PL provides comprehensive storage, fulfillment, and shipping services. For the purpose of this guide, we’ll refer to a full-service storage and fulfillment center as a warehouse.
The first step in warehousing and fulfillment is getting your inventory from your supplier to your warehouse partner. This process is called inbounding. An end-to-end supply chain partner will offer freight shipping as well as warehousing and fulfillment services. Leveraging a full-service partner like this can simplify and speed up the inbound process.
The quicker inventory is inbounded and stocked, the quicker you can start selling and shipping, — turning your inventory into revenue.
The inbounding process begins with an Advance Shipment Notice (ASN) that details the SKUs and quantities the warehouse can expect in an incoming shipment from the supplier. The ASN is usually sent as an electronic data interchange (EDI) through the warehouse’s warehouse management system (WMS) as soon as the inventory is shipped.
The warehouse uses the ASN to make sure space is available for the incoming inventory and to schedule the appropriate staff to receive and store it. Once the shipment arrives, the ASN is reconciled with the shipment to ensure accurate inventory count, and the items are stocked according to product requirements.
A qualified warehouse partner will prioritize dock to stock time, or the time it takes to receive and store inventory so it’s ready for shipment. A dock to stock time of 48 hours or less ensures more accurate inventory counts and quicker turnaround times so your inventory is immediately able to be sold.
Palouse Brand, a fifth-generation family farm based in Washington State, found that by partnering with an outsourced fulfillment provider with inbound freight capabilities enabled them to ship products cross-country and have them on the shelves ready to sell in under 72 hours.
Not all storage is created equal, and if your products require temperature control, humidity control, cold chain, or serialization it’s important to fully vet potential warehouses to ensure their warehouses are properly equipped for your product requirements.
If you partner with a 3PL network for warehousing, they will do the heavy lifting of inspecting the warehouses and negotiating SLAs. They will also monitor KPI’s to hold the warehouses accountable and work the warehouses to resolve issues and improve efficiency.
The manner in which products are stored is important to the productivity of the warehouse staff. Fast-moving SKUs should be easy to access, and products should be stored in a way that reduces the number of steps taken by pickers as they move through the warehouse. The video below explains why a well-slotted warehouse is an efficient warehouse with fewer mis-picks and better on-time fulfillment rates.
Read more about warehouse slotting here.
Another storage capability that’s important to note: if any of your products are perishable, or if your business follows strict LIFO or FIFO protocols for inventory valuation, it’s important to find a warehouse partner that can support those functions both with labor and with their inventory tracking or warehouse management system.
Picking and packing refers to the process of pulling inventory from the shelves and packing it into boxes once an order has been received. A tech-enabled warehouse will have a WMS system with double-verification for pickers to ensure against mis-picks. This saves you both time fielding customer complaints and saves on re-stocking or writing off returned items.
The warehouse should provide shipping through a reputable carrier, especially considering Amazon’s announcement that carrier names must be added to orders and all tracking information will be verified by Amazon. Carrier pickups should be scheduled on a daily basis, and the best warehouses will have all orders received before the daily cutoff time ready for pickup on the same day.
Proper warehouse packout procedures are vital to ensuring the safety of your products in transit. Items that arrive to customers damaged can result in negative reviews, costly returns, and loss of inventory. Ultimately, your brand equity is at stake when it comes to proper packout procedures. 75% of consumers report that they are likely or very likely to tell friends and family about receiving a damaged item, and 23% are likely or very likely to share their experience on social media.
Hydrogen water brand, HyVida, saw first-hand the effect that damaged shipments can have on Amazon reviews in particular. While Fulfillment by Amazon (FBA) packed and shipped their Prime orders, HyVida’s customers complained that an average 1 to 4 cans arrived damaged in every shipment.
The brand’s only negative Amazon reviews were related to damages, while reviews related solely to their product averaged 4.9 stars. HyVida switched to a new fulfillment provider that created a custom packout solution for them, completely eliminating their damage complaints and garnering them positive reviews on Amazon from customers that noticed the change.
Service Level Agreements (SLAs) should be a major consideration when choosing a warehousing partner. The key SLAs to prioritize should be fulfillment accuracy, dock-to-stock time, on-time fulfillment, and cycle count accuracy. Finding a warehouse that offers competitive SLAs in all of these areas will ensure not only an exceptional customer experience but will help you keep inventory moving rather than eating up margins with storage costs.
It’s often difficult for small to mid-sized merchants to negotiate for top-tier SLAs. Large warehouses often focus their efforts on keeping high volume merchants happy and SMBs may feel lost in the shuffle, if they can get their inventory into a top-tier warehouse at all.
That’s why many SMBs turn to on-demand warehousing partners, who aggregate the Average Daily Volume (ADV) of multiple merchants when negotiating rates. This way, merchants of any size can compete with high-volume sellers for space in top-tier warehouses with competitive SLAs.
Retailers today have a new set of challenges as customer expectations for delivery and in-store pickup options are continually shaped by ecommerce. Motorcycle helmet brand, LS2, discovered that they were missing out on brick and mortar sales because their retail warehousing network was unable to support 1 to 2-day delivery. By optimizing their warehousing strategy they were able to meet customer expectations for in-store delivery, putting them on the path to become the fastest growing brand in America.
Retail warehousing also requires flexibility in transit modes. Small retailers may purchase wholesale items online at wholesale marketplaces like Faire. These small retailers will likely be purchasing pallets or small parcels, especially as they test out your product in their stores. If you’re able to secure a retail distribution partner, you’ll need the flexibility to ship LTL or full truck load, depending on the store and forecasted demand.
Most businesses today, however, do not rely on retail as their single sales channel but take an omnichannel approach. A fully integrated and flexible warehousing solution will have the capability to meet both your retail warehousing and ecommerce warehousing needs through a single network and platform.
Warehousing is clearly much more than just storing your inventory. Strategic warehousing is the key to meeting your customers’ expectation for delivery for both ecommerce and brick and mortar sales channels.
The “Amazon Effect ” and general ecommerce trends have made 1 to 2-day delivery the new customer expectation for fast shipping. And expectations for SMBs are even greater. In a recent consumer survey, 37% of respondents indicated that they expect faster shipping when making a purchase from a small business.
Offering nationwide, 2-day shipping may feel out of reach for many SMBs, but this is where strategic warehousing can be a competitive edge. The most effective way to affordably achieve 2-day shipping is by distributing inventory across multiple locations closest to your largest pockets of demand. By establishing a nationwide warehouse network, you will be able to reach your most profitable customers with 2-day ground shipping. This helps you meet customer expectations without relying on expensive solutions like next-day air, and ultimately lowers your overall cost to serve by eliminating long-zone shipments.
Cowarehousing is one way for small to mid-sized merchants to secure space at top-tier warehouses and 3PL’s. Cowarehousing is an asset-light solution that allows merchants to scale up or down based on their demand. It is a flexible alternative to traditional models that usually require a guaranteed average daily volume (ADV), locking merchants into storage and labor rates in a long-term contract.
In the face of increasing warehousing costs and a changing labor market, many merchants are considering an asset-light fulfillment model to decrease fixed costs in the supply chain. In fact, according to McKinsey, almost two-thirds of retailers have plans to increase reliance on cowarehousing over the next three to five years.
A cowarehousing agreement is usually brokered through a 4PL that will aggregate the inventory and order volume of several merchants when negotiating for rates and SLAs. There are several advantages to cowarehousing, including:
Especially at a time when warehouse labor is in high demand, small to mid-sized merchants may have a hard time negotiating for labor if they don’t have enough daily order volume.
What’s more, with a growing ecommerce base, most SMBs see significantly higher volume on Saturday, Sunday, and Monday compared tot he balance of the work week. Aggregating volume with other merchants diversifies order type and volume, ensuring shipping volume across the entire week and allowing merchants of all sizes to negotiate for top-tier labor, even in tight labor market.
A recent merchant survey revealed that 36% of merchants spent more time managing labor in 2022, making guaranteed labor and simplified labor management a valuable benefit of cowarehousing.
Cowarehousing takes the operational burden of managing warehouse space and equipment off of the merchant, freeing up capital to invest into other areas of the business.
Fluctuation in demand is easier to manage when merchants have the ability to scale up or down their storage and labor usage based on their needs.. With the right Warehouse Management System (WMS), cowarehousing can be a smart solution that actually helps merchants proactively anticipate when it’s time to scale up.
Cowarehousing agreements are typically less stringent than traditional 3PLs. When paired with a network of warehouses across the country, can give SMBs the flexibility to move SKUs in a way that aligns with geographic demand.
SMBs need to build a warehouse network that can consumer expectations for fast shipping. With the right data and warehouse options, most SMBs are able to ship in 1-2 days to 95-99% of the United States without sacrificing margins. A cowarehousing network makes distributing inventory achievable for businesses of any size. By aggregating volume with other brands, merchants can stock a smaller amount of inventory in more locations to improve shipping times without increasing inventory carry costs.
Amazon has become a necessary component of any multichannel ecommerce business. The sheer amount of exposure and marketing tools provided by Amazon make it a great first step for businesses launching their marketplace sales channels. Amazon’s fulfillment expectations are not only some of the most stringent among online marketplaces, but are also constantly evolving as they try to stay ahead of, and ultimately shape, consumer expectations.
There are three main Amazon fulfillment options for third-party sellers: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Seller Fulfilled Prime (SFP). FBA is often the go-to warehousing and fulfillment solution for retail arbitrage and Amazon-only sellers, but multichannel sellers and ecommerce merchants will likely want more control over their inventory and more visibility into warehouse operations and KPI’s.
Sellers who choose to fulfill through FBM or SFP will want to find a warehouse partner that can help them build the right strategy based on their product size and inventory availability. High-volume, standard-sized sellers may be able to support a nationwide 2-day delivery footprint to qualify for standard SFP. Sellers of oversized products qualify for regional SFP and may choose to build a targeted network to reach their most profitable geographies with Prime service levels.
A Warehouse Management System (WMS) is the software that connects your warehouse to your sales channels. It should automate as many processes of your warehousing and fulfillment as possible through direct shopping cart integrations, marketplace integrations (like Amazon and Walmart+), and EDI connectors. Today’s merchants need a digital warehousing solution to keep pace with digital sales channels.
Consumer shopping patterns have unarguably changed. Shoppers are buying more online, and often shop multiple channels before making a final purchase. In response, merchants have had to take a multichannel approach to sales and need a Warehouse Management System that can fully integrate with all of their sales channels and offers a flexible, automated solution to multichannel fulfillment.
When searching for the right Warehouse Management System for your business, prioritize systems that automate processes like order management, warehouse locations, delivery tracking, and inventory management. These automations create a low-touch fulfillment workflow that allows your team to focus on your core competencies rather than managing fulfillment and inventory statuses. The most robust WMS will also be capable of managing multiple transit modes from LTL to small parcel.
The best Warehouse Management Systems will offer both direct integrations and an open API. A digital warehousing system should fit in seamlessly with your current tech stack and operations rather than forcing you to reconstruct your internal systems to work within the confines of the WMS. Depending on your current tech stack, you should be able to either access the WMS through its native dashboard or have it running in the background, accessed through your ecommerce platform or ERP.
Once implemented, the WMS will be command central for your supply chain. You will manage inbound shipments, check inventory statuses across sales channels, check fulfillment statuses, and access tracking information all through your WMS.
eCommerce sellers especially need flexibility in a digital warehousing solution. The technological expectations of ecommerce shoppers is high, for both their online shopping experience and order fulfillment. 93% of consumers check the tracking number of their deliveries, with 29% checking the status at least once per day. Over half of consumers expect tracking information to be up to date within a matter of hours.
A digital warehouse will automatically send order status updates to consumers and include tracking information through a reliable carrier. This will cut back on the number of customer support interactions your team has to process and give customers a sense of security with your brand.
When searching for the right warehouse for your business, it’s important to vet potential partners according to the right criteria. Prioritize the following criteria will ensure that you find a long-term partner to support your business goals.
Find a partner with a vast network to support a variety of product needs and geographic markets. Don’t get roped into long-term contracts or AOV requirements, rather look for a partner that will facilitate seasonal demand and will be able to pivot with you quickly to meet new opportunities in new geographies.
Finding a partner that can scale up with you in terms of volume, geographic footprint, and channel requirements will set your business up for long-term success.
The warehousing industry may not be known for its technological advances, but the industry leaders use a WMS that simplifies your end to end supply chain management.
Be sure to ask potential partners about KPIs (Key Performance Indicators) around on-time fulfillment, dock-to-stock time, damage rates, and inventory cycle counts.
Ware2Go’s warehousing solution combines a nationwide, distributed warehouse network with best-in-class fulfillment technology, including an integrated WMS to support multichannel sales and any transit mode. To receive monthly resources on supply chain and fulfillment strategies from Ware2Go, sign up for our newsletter.
Warehousing is a necessary step in the supply chain to ensure inventory is prepped and ready to pack and ship when orders come in. Some manufacturers offer drop-shipping services, but shipping from a single manufacturing facility increases time in transit and raises final mile delivery costs.
Lean warehousing is a process of warehouse management that strives to use the fewest resources necessary without sacrificing efficiency or accuracy.
The warehousing process begins with inbounding. The merchant sends an ASN (Advance Shipment Notice) with full shipment details. Once received, the warehouse staff reconciles the shipment’s contents with the ASN and stores the inventory according to agreed-upon SOP’s.
Warehouses function to receive and store inventory; pick, pack, and ship orders; send tracking information; and maintain accurate inventory counts.
Most warehouses fall into the categories of full-service fulfillment centers (or distribution centers), a storage-only warehouse, a 3PL or an on-demand warehouse.
The main function of a warehouse is to store inventory according to product needs (cold storage, humidity control, big and bulky, etc.) and keep accurate inventory counts to reduce the chance inventory shrinkage or obsolescence.
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