Warehouse Buying 101: A Guide to Scalability

“Necessity is the mother of Invention.”

–Plato, philosopher

“When Necessity rapidly consumes the globe in a pandemic, Invention calls its brother Fulfillment.”
–ShipHero, fulfill-osopher

While our shipping quotes may be better than our written quotes, the principle holds true: a good product is only as good as its ability to reach customers. A bird in the hand is worth two in the bush… okay, no more proverbs.

At its onset, the global pandemic caused a shortage of goods that people relied on with no way of receiving them. But then came the shift to digital, and the ecommerce industry saw tremendous growth. When more people started sending more things, we in the ecommerce fulfillment industry experienced growth of our own.

Fulfillment as a Service (FaaS) companies like ShipHero began partnering with online brands to provide fast and reliable fulfillment services powered by SaaS-based fulfillment software. In under a year, ShipHero became trusted by over 4,000 ecommerce brands and 3PLs every day to get their products in the hands of their customers, on time and on budget with their Warehouse Management Software (WMS).

How did we obtain and manage such high-speed growth? The answer lies in our steadfast set of criteria that we developed to know when the time has come to expand our operations, and through what means. Let’s dive into this Warehouse Buying 101 guide, so you can understand when and how to grow your own network of warehouses.

Know When To Expand

We’ve found that taking a data-driven approach is essential to know when to expand your operations. Through real-time data monitoring and executive oversight, we get the right data to the right people to make the best possible decisions. 

We know it is time to expand our operations when one of the following occurs:

  • We reach physical storage limits for inventory
  • We reach shipping capacity, in terms of the number of orders that can be shipped in a day
  • We recognize regional bottleneck trends, e.g., a distribution center on the East Coast is frequently shipping to the West Coast

We let our business tell us when it is time to expand, not the other way around. 

Make sure you are tracking the right data, like ‘Miles Travelled per Order’ or ‘Time to Fulfill’ in order to assess the state of your operations before expanding. Because adding new warehouses to your network can be expensive and very difficult to undo, you need to ensure that there are no simple fixes for your current fulfillment woes.

Expansion Strategy

Once you are certain that it is time for 3PL to grow its network of warehouses, the next step is to analyze your options and choose the strategy that best satisfies your needs. It is through in-depth research and quality information that allows ShipHero to make smart decisions.

Step 1: Determine Location

Location, location, location (technically not a proverb).

For ecommerce fulfillment, choosing the right location for your warehouses makes all the difference. Having a widespread network of warehouses improves the cost-efficiency and speed of your order fulfillment, but having multiple operations in one area provides resiliency.

Understand where your brand and your brands’ customers are located. What is the competition in that area? Is there an airport nearby and how are the road conditions for trucks? Does the area have an adequate talent pool to employ and run your operations smoothly?

By determining your location, this allows you to set a more defined area to search for expansion opportunities.

Step 2: Understand Timing

Are you looking for immediate expansion to solve an urgent need, or is this a long-term decision to ensure future success? Why are you expanding now? What are the underlying forces that are driving your growth, and will they still be there in the future?

By understanding your timing, this helps you align to your long-term business goals and mitigate risks caused from short-term thinking.

Step 3: Set Expectations for Cost

How much are you willing to invest? How much free capital can you afford to spend? Think in terms of proportions of your current and projected orders.
Knowing where you want to expand, how quickly, and how much you are hoping to spend will give you all the information for the final step.

Step 4: Execute Expansion Method

With the above considerations in mind, the final step is to execute your desired expansion method. ShipHero has employed a blend of the following strategies to successfully and quickly grow their network of warehouses:

Build from Scratch
The first strategy is to set up a brand new warehouse. As the most time consuming option, ShipHero is able to spin up a brand new warehouse in 30 days, which we did recently in our Pennsylvania warehouse (now hiring). It is also the most costly option, but allows for the greatest level of autonomy in running your operations.

Partnership with Existing 3PL
Existing 3PL companies that have additional capacity to spare may contractually agree to fulfill your customers’ orders for a percentage of the profits. Partnering with an existing 3PL is the fastest way to add capacity to a certain region, so if you are in a time crunch to start getting orders out the door, this is a smart way to go. 

Keep in mind, with regards to quality of service, your company will wholly rely on the existing 3PL to deliver, so make sure you partner with the 3PL that matches your standards of excellence.

Buyout an Existing Operation
If there’s a suitable candidate, buying an existing operation is a great way to expand your network. For example, ShipHero recently purchased Radio Shack’s DFW Fulfillment Center, and because they already used our software, we began fulfilling ShipHero orders practically overnight. 

Transitioning an existing operation to suit yours is less costly and time-intensive than building a warehouse from scratch, and it allows more autonomy and capacity than a partnership. So keep an eye out on your existing partners or your clients, as they may become a good target for acquisition.

This concludes our Warehouse Buying 101 tutorial, and we hope that you can use it to expand your operations and effectively fulfill on behalf of your online brands and retailers. And if you’re looking to unlock your ecommerce fulfillment superpowers, ShipHero is a leading provider of SaaS 3PL software for ecommerce fulfillment. We give you the tools to quickly master your ecommerce operations with a cloud-based software solution trusted by ecommerce and retail brands of all shapes and sizes.

Learn more about ShipHero’s industry-leading warehouse management software.

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