When it comes to ecommerce there are plenty of exciting business areas and processes to sink your teeth into. But there is no denying that (for most of us) ecommerce warehousing is not one of them. In fact, for businesses that typically thrive off fast-paced workloads, the mention of “ecommerce warehouse” could be met with a collective yawn from your team.
So, why take time to consider it?
Well, like most topics that are considered “a little dull,” warehousing is an incredibly important aspect of your business. In fact, the incorrect execution of warehousing could lead to disaster. On the other hand, taking the time to fully understand and assess your options will lead to success – even potentially helping you to create an edge over your competitors.
In this guide, we walk you step-by-step through everything you need to know about the types of warehousing available to your business. We also offer tips and advice on finding the best one for you.
Prepared to get excited about ecommerce warehouses? Then read on….
Let’s start with the basics. What even is ecommerce warehousing?
Ecommerce warehousing is an essential part of running an online store. It’s everything that is involved with storing your online store inventory. Although this is often overlooked, warehousing can be a huge investment for ecommerce businesses, so getting it right is essential to ongoing success.
For smaller and start-up ecommerce stores, warehousing may be as simple as keeping your stock in your spare room. However, as an ecommerce business grows it will need to assess its options for storing its stock.
There are five main types of warehousing that ecommerce businesses use. Which type of ecommerce warehouse is right for you will depend on your unique circumstances and goals. In this section, we cover each of these warehousing types and help you understand the benefits and potential pitfalls.
#1. Leased Warehouses
Leasing warehouse space can be a smart move for ecommerce businesses. This option sees businesses leasing either an entire warehouse or part of a warehouse from a different business.
There are some major benefits to this approach. For example, when you lease you provide your business with a greater level of flexibility, allowing you to easily upsize as your business grows, or downsize when your business hits harder times – allowing you to minimize costs. Leasing can also be a smart way to better predict ongoing costs, helping with forecasting.
Depending on the size of the space you lease and the duration you lease it for, this approach is typically more expensive than outright ownership. This is because the owner needs to cover their cost and make a profit in order to make the lease profitable.
#2. Owned Warehouses
Owned warehousing is much as it sounds. This approach sees the ecommerce business physically buying the warehouse space for use in line with their online store.
Purchasing your own warehouse can help you gain much greater control over your business in some ways. For example, other methods such as dropshipping and leasing can produce unforeseen price rises. It can also help you reduce costs by allowing you to avoid paying for the profit margins of other businesses and by introducing business-specific tools and processes to increase efficiency.
One downside to this approach is the cost. Although monthly costs will likely be lower, the upfront investment would be significantly higher. It can also lead to future costs and admin should your business grow and the need to expand your warehouse capacity. Equally, if your business shrinks it will be harder to tighten down on costs compared to using other methods such as leasing.
Owned warehousing is typically a better option for large ecommerce businesses that sell high volumes of products. These types of businesses can increase efficiency and spread the cost of purchasing a warehouse, making it more beneficial.
#3. Home Warehousing
Home warehousing is the process of using your own private property for storing your inventory. This may be in a spare room, garage, or outbuilding.
The biggest benefit to this approach is cost, as you typically won’t encounter any additional business costs beyond what you’re already paying for your home. It can also make it easier and more efficient to deal with inventory because it’s within such close proximity to where you live.
The obvious downside to this approach is that inventory can take up a large part of your property. This can be problematic for those in small properties. You may also struggle to insure your inventory when it is not kept in a dedicated space.
Clearly, this approach is best suited to small and start-up ecommerce businesses. Those that sell a large volume of products would likely find this approach stressful and inefficient. It will also limit your ability to improve your warehousing through the adoption of industry tools and processes.
#4. Fulfillment Centers
Fulfillment centers, often referred to as Third Party Fulfillment or 3PL, are similar in many ways to leasing – as far as the fact that you are leasing warehouse space from a separate business. But unlike direct leasing, 3PL companies also deal with the logistics such as shipping on your behalf.
The major benefit of outsourcing to a fulfillment center is the fact that it takes almost every aspect of fulfillment (including warehousing) off your plate. It allows you to rely on well-established warehousing tools and processes to ensure efficiency. Depending on your agreement and your 3PL company’s capacity, it can also offer you a great level of flexibility as your business grows.
Cost is the biggest downside to this approach. As you are outsourcing every part of fulfillment you will pay a premium for the convenience. This is why this approach is most beneficial for businesses that are already making good profit margins, ensuring that they can still remain profitable as a result.
Dropshipping has exploded in popularity in recent years. This approach to warehousing sees businesses outsource the entire inventory management system to a third party – usually a manufacturer or independent warehouse.
Using dropshipping allows businesses to focus entirely on the sales and marketing side of the business, leaving all other logistics to their dropshipping partner. This can help you really target your customers and drive sales.
Of course, this level of convenience comes at a cost. This means it can be trickier to make healthy profit margins with your store.
So which type of ecommerce warehousing is right for you? To answer this you need to answer a few questions about your business, such as:
How much control do I want over my inventory?
Those that want to maintain a greater level of control would benefit from leasing or owning their own dedicated warehouse space. Those with little interest in maintaining ultimate control could explore other options.
How much profit margin do I want/have to make?
Profit is the beating heart of every business.
However, your ambition for profit can impact your warehousing choice. For those that want to keep profit margins per product as high as possible, leasing or owning could be the best option. But for those that don’t mind making smaller profit margins on each product, they can free up their time to focus on selling in volume with methods such as dropshipping and partnering with a 3PL company.
What are my plans for growing the business?
Those with ambitious plans for growth may benefit from more flexible warehousing arrangements. Flexibility can be achieved in almost every option we have covered but will require careful attention to be paid to contracts and agreements.
Although not the most interesting subject, taking time to carefully consider your ecommerce warehousing can be highly beneficial to helping businesses generate better profits, plan for the future and create a competitive edge. Use this guide to help you select the best warehousing option for your business.