What did you think a warehouse was before you knew anything about supply chains? People who don’t know any better might imagine big old buildings. They might think there isn’t much to see except for rows upon rows of shelves, and maybe the occasional forklift. They’d be in for a big surprise if they visited a modern warehouse.
The warehouse is a pillar of every effective supply chain, and businesses that invest accordingly gain competitive advantages. Since organizations started to customize their spaces for optimal operational efficiency, multiple types of unique warehouses have emerged. While diving into the nuances of each, it’s also helpful to first consider the differences between public and private warehousing.
Public warehouses are owned and operated by third parties. Some (but not all) public warehouses are third-party logistics (3PL) warehouses, which allow organizations to outsource warehousing, distribution, and fulfillment services. A private warehouse is one that a company owns and operates itself.
There are some benefits and drawbacks to both public and private types of warehouses. Beyond these broad categories of public and private warehouses, there are several specific types of warehouses. The first step is to determine whether a public or private warehouse is the best way to achieve the required capabilities.
The primary reason to use a public warehouse, (also known as an on-demand warehouse) is the initial cost. Instead of investing in your own private warehouse (which included costs associated with purchasing property and maintaining the building, etc.), some companies might want to simply rent storage space in an existing warehouse.
A public warehouse can be a good short-term solution if there’s no time or money to develop a customized solution. They’re popular among businesses that have seasonal rushes or other spikes in demand. It may be more practical to opt for a public warehouse instead of preparing a warehouse for a holiday rush.
It’s also possible to find public warehouses that fit certain needs or offer specialized services. For example, pharmaceuticals might need extra security, or dairy products might need temperature control.
There are also plenty of companies that use public warehouses for 100% of their inventory and supply chain needs. 3PL warehousing for other e-commerce services is actually where Infoplus got its start. Managing 3PL warehouses is complex because many different client needs come into play. For this reason, public warehouses often need to find powerful inventory management software they can rely on.
The main benefit of a private warehouse is control. A company that owns its warehouse can customize the space to enhance efficiency. For this reason, private warehouses are also referred to as proprietary warehouses. With complete control of its warehouse, an organization can make sure the space offers all of the necessary features and meets all operational requirements.
Companies that can afford private warehouses gain advantages over the competition. Every aspect of the warehouse – temperature, layout, equipment, etc. – can be tailored to specific supply chain needs. Companies can combine all of the features they need to create the perfect environment.
The big caveat here is that operating a warehouse is a huge job. Companies with private warehouses need their own people, software, equipment, processes, and everything else. It’s why many companies opt to use 3PL warehouses until a use case forces them to fulfill orders from their own warehouses.
There is a third type of warehouse called a Cooperative Warehouse, or simply a Co-op. These shared facilities are in between private and public warehouses. Co-ops own and operate warehouses together, sharing the costs as well as the facilities. For example, a group of wineries in Napa Valley might store their wine in single dedicated space. Or, to take another example, a co-op of dairy farmers in southern Idaho might all send milk to a cooperative warehouse.
Organizations outside of the co-op may use these warehouses, too, but they’ll have to pay more because they aren’t members of the co-op. A dairy farmer in Wisconsin might want to use a cooperative warehouse to store a short-term surplus of cheese without joining the co-op for the long run. In this case, the farmer may choose to pay a premium to use the warehouse without becoming a member of the group.
Whether a public or private warehouse makes sense, it’s key to know which features are available so you can make an informed decision for your business. There are several unique types of warehouses – beyond the broad categories of public and private – designed to meet various supply chain needs and accommodate different types of products.
The types of warehouses are not mutually exclusive. That is, some warehouses might fall into more than one of the following categories. There are use cases that require a single location to combine features from several types of warehouses. Considering all of the following makes it easier to choose the right type of warehouse.
While it’s first on this list, distribution comes late in the supply chain. These warehouses specialize in short-term storage to reduce carrying costs. This makes them vital to supply chains that require rapid delivery, especially if the goods are perishable. Distribution centers are widely available throughout the United States, especially in metropolitan areas.
Distribution Centers are often public warehouses. Public distribution centers are also likely to include features from some of the other types of warehouses on this list. For example, distribution centers often offer the following features and services:
Distribution centers are common in supply chains for perishable things. For example, all types of food (fruit, meat, produce, dairy, etc.) arrive at a distribution center in the morning. By the end of that same day, the food is divided up and shipped out to area grocery stores.
These warehouses receive high numbers of small shipments from various sources. As the name suggests, these small shipments get consolidated at the facility. Once small shipments become bigger shipments, they can ship out to buyers. Because they accept and combine many shipments, consolidation warehouses have to be able to store large amounts of goods.
For an example of a consolidation warehouse, consider a milk co-op. Several dairy farmers might bring their bottled milk to a cooperative consolidation warehouse. The products get consolidated there and shipped out in large shipments to grocery stores.
This type of warehouse holds a wide variety of items that are often ordered together. When an order comes in, items are picked, packed, and shipped to the ordering party. For example, consider a private warehouse owned by a clothing company.
One of their customers places an order, and staff or autonomous systems pick the items in that order from storage. Then they pack the items, label them, and ship them out. Pick, pack, and ship warehouses help overcome some of the biggest logistics challenges for apparel companies.
Cross-dock warehouses exchange goods between transportation methods to keep the supply chain organized. For example, these facilities might unload, sort, and reload goods in complex workflows involving multiple trucks. The point is that each truck leaves with a full load of goods going to a single location (or few locations). This way, each truck ends up having to make fewer stops.
Imagine two trucks, one carrying milk and another carrying almonds. The milk and almonds both have to get to St. Louis as well as Chicago. Instead of having both trucks drive to both cities, they drive to a cross-dock warehouse. The warehouse staff reorganizes the two trucks such that each contains some combination of almonds and milk. From there, one truck heads to St. Louis and the other to Chicago, reducing the amount of driving each truck must do.
Any type of warehouse can become a smart warehouse. The hallmark is that smart warehouses rely on automated equipment. Conveyor belts, sorting robots, and autonomous vehicles optimize efficiency and reduce the dependence on human labor.
Smart warehouses are expensive and susceptible to malfunction, at least for now. They’re likely to become more prevalent in the future of supply chain management. These warehouses have Internet of Things (IoT) devices moving around and performing functions that used to require humans.
The government may own some stops along the supply chain. The rates are often more reasonable at government warehouses than public warehouses, but there are other considerations to make. One such consideration is that a government warehouse retains the right to sell goods if the owner is behind on rent. Examples of government warehouses include ports where goods go into and out of a country.
Some goods need certain conditions to ensure quality and longevity. Climate-controlled warehouses are often called cold storage because temperature is the most common climate need. Consider the following examples:
Beyond food and art, climate-controlled warehouses are often equipped to address common challenges of cosmetics, medicine, tech components, and more. Climate-controlled shipping takes goods to and from these climate-controlled warehouses.
These facilities must abide by strict safety regulations. The facility itself has to meet high standards to ensure that hazardous materials can be appropriately contained. Furthermore, the staff must have proper training and equipment. HAZMAT warehouses exist for radioactive materials, gasses, weapons, biological hazards, and other potentially harmful substances.
These facilities must abide by strict safety regulations. The facility itself has to meet high standards to ensure that hazardous materials can be appropriately contained. Furthermore, the staff must have proper training and equipment. HAZMAT warehouses exist for radioactive materials, gasses, weapons, biological hazards, and other potentially harmful substances.
There are also other types of goods that require warehouses with special licensing or certification. While not technically qualified as HAZMAT, some materials are still subjected to strict regulations. It’s required to track and control things like pharmaceuticals, cannabis products, and alcohol at every step throughout the supply chain.
Also known as customs warehouses, these are certified to hold imported goods. Duty-free storage of products in a bonded warehouse is allowable for up to five years. During this time, an organization may assemble or otherwise manipulate the products. This gives businesses opportunities to sell imported products before they have to pay duty. When a business collects payment before paying duty, they aren’t as burdened by the expense.
Imagine a company that imports fine wine from Italy. This wine arrives at a bonded warehouse, so the importer doesn’t have to pay duty on the import. Once the company sells wine to local vendors, they pay the customs duty and ship the wine from the bonded warehouse.
Sometimes it’s easy to decide on a warehouse. For example, an ice cream company will almost certainly need cold storage. Some choices are more nuanced, such as is it worth it to invest in a smart warehouse, and will cross-docking reduce transportation costs enough to generate ROI?
Supply chain management will always require difficult decisions, but it helps to know about the different types of warehouses and what the benefits of each are. Each offers its own ways to move products in a fast, safe, accurate, and cost-effective manner. Equipped with a firm grasp on what’s possible, it’s easier to hand-pick warehouse features that benefit a given supply chain.
Learning how to choose the best warehouse simplifies numerous aspects of inventory planning and management:
To learn more about warehouse selection and inventory planning, connect with Infoplus today.
