Determining the correct location for your third party logistics (3PL) warehouse and fulfillment center is arguably one of the most critical decisions that you will ever make regarding your logistics. Speed of receipt of inbound goods, quickness of delivery of orders to customers throughout the globe, cost of freight and product pricing, avoidance of environmental disasters, and general managerial oversight are all impacted by this one decision. Furthermore, your choice of an outsourced warehouse location is a decision that can’t easily be changed. Switching 3PL companies is highly complex and costly, so getting it right the first time is paramount to success.
But what are the most important factors to consider when choosing the best 3PL location? In this article, we will analyze the following key questions to land the right warehouse location the first time:
- Where is your product coming from?
- Where are your customers located?
- Do you need a company with a single warehouse or multiple locations?
- Are environmental factors going to impact your selection?
- Should the 3PL warehouse be near you?
Where is Your Product Coming From?
Inbound receipt of goods to the 3PL warehouse impacts not only the landed cost of your product (including inbound freight), but also the speed with which the product can be received into the warehouse and prepared for shipping to your customers. For US and Canadian sellers, there are generally two options for sourcing products – either locally sourced or globally sourced overseas.
Locally sourced products are more easily forwarded to the warehouse, as the distance to ship the product is far smaller and there are no other obstacles to receiving the product, such as custom clearance and drayage to the warehouse. Locally produced goods can simply be shipped by LTL or parcel freight from the supplier to the warehouse. In this case, the cost of inbound freight is lower and the timeframe to deliver the product to your warehouse is quicker than receiving containers from overseas. While it might still be worth considering a 3PL warehouse that is closer to the manufacturer or supplier, the choice might not be as impactful as would be the case in globally sourced scenarios.
Globally sourced products bring with them a greater challenge in some respects, as inbound freight costs are significantly higher than when locally sourced and can take significantly longer to forward to the warehouse. It’s no surprise, for example, that merchants who purchase products from East Asia often bring their products into either southern California in the US or British Columbia in Canada. Not only are costs minimized by choosing a location closer to production, but shipping times to the warehouse also decrease, allowing sales orders to be released quicker.
But inbound freight isn’t the only factor to consider, so let’s look at the remaining questions to make a comprehensive decision.
Where are Your Customers Located?
Analyzing your outbound freight costs and delivery time is equally important when weighing your options. If your customers are spread throughout the country, a centrally located 3PL may be best for your business. However, if your customers are concentrated in a certain region or local market or if you heavily invest in regional marketing, choosing a 3PL in that specific area may make more sense. Finally, if you have global customers, there may be a need to relocate inventory in that global market to overcome customers’ objections related to delivery times and costs and to improve your international shipping strategy.
In the case of startups, sales are unknown and therefore must be estimated. Some of the most important ways to make a wise choice when sales volumes aren’t known include market and product testing, and estimating marketing spend relative to the potential geographic sales market.
Do You Need a Company with a Single Warehouse or Multiple Locations?
Multiple location warehousing has become a very popular topic in logistics these days. The theory is that customers have such a high expectation related to delivery time frames that spreading inventory into regional locations helps meet and exceed customer expectations. Thanks to companies like Amazon, customer’s expectations have heightened significantly, up to and including expectations of delivery within days or hours.
In some cases, splitting inventory can be a helpful tool, but for other scenarios it just isn’t as beneficial. Where is a multiple location strategy most beneficial? The below cases are best suited for potentially distributing inventory across warehouses:
- High order volumes per month
- Temperature sensitive products
- Other products with a high degree of time sensitivity of delivery, such as some medical and health related goods
In other cases, such as lower order volumes being shipped per month and non-time sensitive goods, the additional cost of carrying more inventory in multiple locations doesn’t justify the benefits achieved by this strategy. Therefore, for many businesses, using a single, regional 3PL warehouse location is best.
Are Environmental Factors Going to Impact Your Selection?
Environmental factors can have an impact on your ideal 3PL location. For companies with products that can be adversely impacted by extreme heat or cold conditions, locating a warehouse in a more temperate environment is helpful. While there are specialized 3PL warehouses with climate-controlled conditions, this additional level of service comes at a higher cost. Unless the product needs air-conditioned, humidity-controlled, cold storage or frozen storage conditions, finding a warehouse in an area of the country that matches the temperature and environmental conditions needed for your product will save your company money.
Sometimes, companies prefer to have a 3PL warehouse as a secondary backup facility in case of an emergency, in which case they need to locate a warehouse in another area separate from their in-house warehouse or company headquarters. In other situations, companies prefer to use a warehouse in an area that isn’t susceptible to natural disasters such as tornadoes, earthquakes, etc. Taking environmental factors into consideration will help your business make a more comprehensive choice.
Should the 3PL Warehouse be Near You?
Simply put – some companies prefer to be near their 3PL warehouse, while others don’t see the need to take location into consideration. This is more of a psychological factor than anything else. Ask yourself this question – do you feel the need to have more control over your logistics? If so, being near the facility so that you can build a closer relationship with the company and drop by as needed may help ease your mind and achieve the desired level of accountability.
However, others may have no need to drop by the 3PL facility nor do they feel they can’t maintain a similar level of performance without dropping by, especially with the growth of online collaboration tools such as Zoom. After careful consideration, if the best location for your 3PL warehouse isn’t near you, keeping an open mind about having a 3PL in a different area of the country can ultimately help reduce overall transit times and costs.
Warehouse “Fit” is Extremely Important
All of this considered, there is one big caveat to keep in mind. It is wise not to compromise on the right “fit” of a warehouse. For example, if you need a very specific type of fulfillment service and it is in a reasonably close area (not necessarily your top choice) and it is the perfect fit for your company, it might be good to consider it regardless of location.
Top Locations for 3PL Warehousing in the US, Canada, and Europe
Are you wondering where some of the top locations are for warehousing and fulfillment in the US, Canada, and Europe? Below are the most popular areas:
Best US Locations for 3PL Warehouses
- Southern California
- Tri-state area (New Jersey, New York, Connecticut)
- Central US (areas such as Chicago, Dallas, Houston, and St. Louis)
For inbound shipping from overseas, southern California (and specifically, Los Angeles area) is by far the most popular area for a 3PL warehouse, but it isn’t the only popular location. Due to its highly concentrated population, the Northeast US is a viable option as well. Having a central location for eCommerce fulfillment with equal shipping times and costs throughout the US is another popular option.
Best Canadian Locations for 3PL Warehouses
- Toronto area
Because of the heavy population in the greater Toronto area (GTA), it’s no surprise that it is by far the most popular area for 3PL warehouses in Canada. However, for a similar reason as southern California, British Columbia is a great location for minimizing inbound freight costs into Canada.
Best European Locations for 3PL Warehouses
For US and Canadian companies that need additional support for shipping European orders, there are a few popular locations to choose from. First and foremost, due to their English-speaking cultures, both the United Kingdom and Ireland offer convenient customs with the ability to communicate easily with the 3PL staff. Another great option is the Netherlands, as the country boasts a central European location as well as a beneficial business, customs, and tax climate.
After doing your research and carefully considering all the factors, you will be able to pinpoint the ideal location where your 3PL should be situated. Keep in mind inbound and outbound shipping, the optimal number of warehouses, environmental factors, and the need for close physical proximity to your business to make the best decision.