Contract Logistics vs. Contract Warehousing: Is There a Difference?

Many companies that sell physical goods eventually reach a point when they need to make a major decision: Should we continue to manage our supply chain operations internally or outsource it? 

If your company has reached this critical juncture and you’re exploring available options, you’ve probably encountered quite a bit of new terminology, like third-party logistics, cross-docking services, and transloading services. Two of these terms that often trip companies new to the world of supply chain logistics management are contract logistics and warehousing.

On the surface, the two services appear similar. But there are some key differences between them. Let’s discuss some of these distinctions and the benefits each service offers businesses. 

Logistics: The Science of Acquiring, Storing, and Shipping

At the most basic level, logistics refers to how a company gets the materials it needs to do business, where and how it stores them, and how it ships them between its facilities and to its end customers. 

With contract logistics, companies outsource at least one of those components. Contract warehousing involves the outsourcing of the storage component. They could, for example, partner with a vendor to transport goods from a port to a warehouse the company owns and then from the warehouse facility to their final destination. 

Other services offered by logistics partners include: 

• Order processing
• Inventory management
• Packaging 
• Procurement

Companies opt to outsource different components of their supply chain management function for a number of reasons. Some of these reasons include:

Cost Savings

Managing supply chain logistics internally rather than turning to contract logistics can be costly. For one, businesses need to invest in infrastructure and equipment, such as storage facilities and trucks, to transport and store goods. This not only requires a significant upfront investment, but also ongoing costs. 

On top of facility and equipment costs, companies who choose to manage supply chain operations internally must also invest in personnel, including drivers and supply chain managers. By partnering with a contract logistics vendor, companies can avoid taking on the fixed and variable costs associated with handling supply chain logistics in-house. 

Expertise

Supply chain logistics is a complex area of business. It requires specialized knowledge, including knowledge of various software systems. But perhaps more importantly, supply chain management works best when each individual involved has established relationships with the others. 

When your company chooses to work with a contract logistics vendor, you can tap into this expertise. The vendor can analyze your existing supply chain management processes and identify areas for improvement. 

Focus

Companies perform best when they focus on what they do best. If customers continue to turn to a company’s products because they are reliable and of high quality, that company should devote most of its attention to continuing to improve its production processes. Attempting to be the best at supply chain management, as well, would only divert the company’s focus away from these core activities. 

Working with a contract logistics provider removes the need for your company to be a jack of all trades. You can master one area of business and turn the rest over to the experts. 

So, what separates outsourced logistics from contract warehousing? Let’s dive into it.

Space for Your Items At a Price You Can Afford

When you first launch a business, you can usually store items in your home. Slightly larger businesses may even have office space dedicated to storing products. But, sooner or later, companies need more space than they can immediately access. That’s when outsourced warehousing services come into play. 

Companies that choose to outsource their warehousing function lease space in a warehouse facility. Other companies store their goods in the facility, as well. In such arrangements, the company is typically responsible for transporting goods to and from the warehouse facility. Meanwhile, warehouse employees coordinate pickups and deliveries. 

There are a number of benefits to contract warehousing, including:

Cost Savings

Rather than purchasing a warehouse facility, staffing it, and paying ongoing maintenance and facility costs, companies can instead outsource their storage and only pay the cost of renting only the storage space they need. 

Specialized Services

Earlier, we mentioned cross-docking and transloading. When you partner with a warehousing vendor, your company can reap the benefits of these services. With cross-docking, companies that quickly turnover inventory can have incoming goods quickly moved from an incoming truck through the warehouse facility and onto an outbound truck. And, with transloading, goods are moved from a truck to a different mode of transportation, such as trains and delivery trucks. 

Superior Technology

Many warehousing vendors use inventory management software that allow clients to view current inventory levels and drill into insights such as their average inventory turnover time.

Trust Cummins Logistics for Your Warehousing Needs

Cummins Logistics has more than 50 years of experience in developing warehousing and logistics solutions for companies of all sizes. Learn more about our services today!