Created by Kevin Davies.
With over 30 years of expertise in warehouse optimisation, ERA Group recognises the essential role warehouses play—not only within the supply chain but also in enhancing customer satisfaction.
A well-designed supply chain, with an efficient warehouse, balances cost, quality, and service, benefiting both your business and your customers. High service levels from the supply chain can set you apart in the market. Conversely, high costs or inadequate service can harm your reputation and hinder business performance.
Critical Factors for Warehouse Optimisation
1. Integrating Your Warehouse into the Supply Chain
To achieve optimal performance in cost, quality, and service, the warehouse must be seamlessly integrated, both physically and electronically, with the broader supply chain. For instance, if inbound shipments are accurately processed with advanced shipment notices (ASNs), items can be promptly received, stored, and made available for sale or shipping. However, missing components create bottlenecks, raising costs and potential for error.
Generative AI now takes integration further. Receiving schedules can dynamically adjust based on external variables. If an inbound shipment is delayed due to inclement weather over the Atlantic, no problem—receiving schedules can be recalibrated automatically, minimising disruptions.
2. Optimising Warehouse Operations
While integration is vital, internal operations play an equally crucial role. Some warehouses operate well with minimal IT investment, while others continuously advance. Amazon, a leader in warehouse technology, recently announced a $1 billion investment in automation for 2024. This is in addition to the Billions that they have already invested in systems, automation, robotics and AI. Though such investments are beyond reach for many companies, the technology often filters down, enabling broader access over time.
Successful warehouses align their strategies with the overall supply chain approach, continuously assessing technology to meet both current and future needs.
3. Deciding Who Should Run Your Warehouse
A pivotal decision is whether to manage the warehouse in-house or outsource to a third-party logistics (3PL) provider. Around 50% of UK companies currently outsource their warehousing operations.
Key considerations include:
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Outsourcing: |
Insourcing: |
| Cost Structure | Involves paying a management fee to the provider, whether the contract is open or closed book. Many agreements are activity linked, ensuring costs align more consistently with sales. | Requires significant upfront investment in infrastructure (land, buildings, technology, and labour) but can become more cost-effective over time for stable or high-volume operations. |
| Control and Flexibility | Provides less direct control over daily operations but offers flexibility in workforce, storage, and locations—ideal for fluctuating business volumes or geographic expansion. | Grants full control over the entire process, enabling tailored oversight of inventory and handling. However, it may lack the adaptability to handle sudden or seasonal volume changes. |
| Core Competency and Strategic Focus | Frees up resources to focus on core business functions by delegating warehousing to experts, particularly useful if warehousing isn’t a core strength. | Best suited for businesses where warehousing is integral, requiring specialised handling or proprietary processes that directly affect the customer experience. |
| Technology and Expertise | Providers often offer advanced technology and expertise, such as automated systems and inventory management tools, which can be cost-prohibitive to develop in-house. | Allows for custom technology solutions tailored to specific needs but demands substantial investment in technology and skilled personnel for maintenance and upgrades. |
| Scalability and Growth Plans | Enables quick scalability and flexibility for new locations or increased storage capacity without significant upfront infrastructure costs. | While scalable, growth requires considerable time and capital investment in new facilities, potentially limiting agility during rapid expansion. |
| Risk and Compliance | Shifts much of the regulatory, safety, and operational risk to the provider, although due diligence is required to ensure compliance standards are met. | Retains all risk management internally, offering greater control over compliance but increasing the need for dedicated resources to manage these responsibilities. |
| Customer Service and Responsiveness | Relies on the provider’s service quality and responsiveness, making robust SLAs and KPIs essential to safeguard customer satisfaction. | Facilitates direct control over service standards, allowing quicker responses to customer specific needs, though it demands dedicated management efforts. |
| Aligning the choice to outsource or insource with your company’s long term strategy, budget, and service goals is essential. Evaluate these options in the context of both current needs and future growth. |  |
Trends in Warehouse Expansion and Market ConditionsIn the UK, new warehouse builds are a familiar site on any of the main arterial roads in the UK, a trend accelerated by the boom in e-commerce, Brexit, and the COVID-19 pandemic. The majority of these are for 3pl’s to support an industry valued at £19.6 billion in 2023. Whilst the industry is still experiencing significant growth, it’s not growing as quickly as the available capacity. Sadly, this has had inevitable consequences this year with a number of 3pl providers calling in administrators, and quite a few others unprofitable due to under-utilisation. |
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Considering the positive (and negative) impact that your warehouse can have on your supply chain, cost base, service offering and customer satisfaction, it is essential that it is part of your strategic planning. Especially in light of the opportunities that fast moving technology and outsourced service providers can offer.
Contact Kevin Davies
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Kevin DaviesPhone: +447721506127 |