consolidation
Utilizing consolidation warehouses can improve your supply chain’s performance while reducing costs. This form of warehousing involves combining small shipments bound for a similar destination into a single truckload. As a result, you can reduce transportation costs, ship more frequently, and, eventually, boost your profitability.
But before reaping the benefits of utilizing a consolidation warehouse, it is crucial to consider various aspects of this form of warehousings such as when to use a consolidation warehouse and its associated trade-offs.
WHAT IS A CONSOLIDATION WAREHOUSE?
A consolidation warehouse is a third-party storage facility where small shipments are combined into larger and more economical truckloads bound for a similar destination. The consolidated shipments may also go through regional distribution before being delivered to the end-users. Moreover, these facilities are strategically situated to accommodate fluctuating customer demands in a timely manner.
When Should You Use a Consolidation Warehouse?
Geographical Similarities Between Suppliers
If you have multiple suppliers located in the same geographical area, utilizing consolidation warehouses can improve your cost- and operational-efficiency. This is made possible since this form of warehousing pulls together multiple shipments from various suppliers and combines them into larger and more economical loads. These consolidated shipments are then transported directly to the destination.
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Keep Up with Fluctuations in Customer Demands
As customer demands for some products can fluctuate over time, storing them for long periods can reduce their overall value and increase your inventory carrying costs. Through consolidation warehousing, you can source, consolidate, and ship such items per demand and lower your inventory levels.
Benefits of Utilizing a Consolidation Warehouse
Reduced Shipping Costs
Utilizing consolidation warehouses can significantly reduce your shipping costs because consolidation warehousing combines small loads of shipments into full truckloads and ships them directly to the destination. As a result, your transportation costs are shared with other companies that are shipping to a similar location.
More Frequent Shipping
With consolidation warehousing, you can ship smaller orders more frequently while reducing costs. These facilities can facilitate the storage and consolidation of small loads of shipments and their transportation per your customers’ requirements. This results in improved flexibility for your freight shipping needs.
Improved Customer Satisfaction
As discussed in the two benefits above, consolidation warehousing provides you the flexibility to ship goods in a cost-efficient and frequent manner. This enables you to charge your customers less and effectively accommodate their demands, which eventually enhances your customer satisfaction levels.
Minimized Handling and Claims
Since the loads are combined and shipped directly to the destination, this form of warehousing minimizes material handling of goods along the way. With fewer touches, the risk of product damage is significantly lowered, which in turn, reduces the chance for claims.
Requires Lower Levels of Inventory
Since consolidation warehousing involves the sharing of space by multiple suppliers, lower levels of inventory are required to fulfill customers’ orders. This can further result in an easier organization of goods and reduced inventory carrying costs.