Insource or Outsource? That’s the Question Facing Companies When it Comes to Warehousing.
To insource or outsource your warehouse: That is the question.
Companies face many considerations when it comes to deciding whether to own or lease a warehouse filled with their own employees or hire a third party with warehousing expertise and their own workers.
Exploration of the latter has often caused the phone to ring—or the computer inbox to fill—for Todd Alloway, vice president, Contract Logistics at ODW Logistics. Since 1971—and including the 16 years Alloway has been with the company—the Columbus, Ohio, concern has been providing warehousing, distribution and transportation solutions for hundreds of brands.
Of course, ODW will take all the new business it can get, but Alloway concedes in a phone interview that outsourcing usually makes the least sense to a company that has “a team of logistics people inside the business.”
“They might have a vice president of supply chain who has 10 people under that person and a lot of other staff that are part of the business,” he says. “They may understand more about what they are doing” than a third party could coming in cold.
Alloway says he and his team must understand that before making a pitch to outsource to such a company, admitting it can get delicate if you are talking with someone who may lose his or her job or has buddies in positions that could disappear with outsourcing. “We have to walk that fine line,” he says.
It also might make sense to keep things in house if a company’s services or products are complex or highly specialized, something that can come up with those who are big in the manufacturing world, according to Alloway.
Typically, before partnering with a potential client, Alloway will meet with their leadership “face to face to ensure they are a good fit.” During that initial interview, he will gather information about the business. “I can’t go on and say why ODW will be better until I truly understand your business,” he says. “Upfront research is the first thing we have to do.”
“I tell folks that all the time that you can’t just hand me a price sheet and have me give you a price. There is no blanket pricing or one size fits all for businesses. We find out a lot of times that they don’t even know what they need. We have to find out what is valuable on both ends, we’ve got to find out what’s important.”
In today’s ever-changing modern warehousing, outsourcing may be what’s important. It allows a company to leverage someone else’s expertise in transportation, warehousing, distribution, setting up supply chains and maintaining compliance standards, so the original client can focus again on its core competency.
“A lot of our customers started out doing it themselves,” Alloway notes, but as those companies grew, so did their capital investments in staffing, equipping and maintaining warehouses. Suddenly confronted with the need to consolidate operations and/or become technologically viable, many such companies turn to third-party experts like ODW Logistics.
Another challenge with keeping a modern warehouse in-house is staffing, according to Alloway, who cites as an example his company’s Columbus base, where the unemployment rate currently hovers around 3 percent. Companies with warehouses, he says, must develop strategies when it comes to seeking, training and retaining skilled workers among an ever more competitive labor pool. Faced with the time, effort and cost of staying in the hiring game, many conclude it would be better to farm all that out so they can, again, concentrate on their company’s service or product.
When it comes to logistics, companies that ship to big box retailers also have to know the differing compliance, ordering and fulfillment processes of, say, Walmart, Target and Kohl’s. Concerns like ODW Logistics already thrive in that atmosphere because of experience already gleaned on behalf of existing customers, Alloway points out.
As a for instance, ODW’s Director of Marketing John Meier mentions a health and beauty customer that knew going in that the logistics company already worked with others in the same industry.
“One key differentiator” when it came to snagging that account “was our expertise with Ulta, Sephora, different salons and big box retailers,” Alloway recalls. “Word of mouth is still very big in the industry.”
Wanting to know whether ODW has experience in a potential customer’s industry is often the first question Alloway gets. Another, obviously, is price, “especially from someone new to the market that has done it themselves the entire time,” he says. “They want the new technology and whatever the latest and greatest inventory management system is, but they don’t understand the cost that gets that. A lot of time it is education on our part” that is imparted to the potential client.
Likewise, a company like Alloway’s can figure out the overall savings that will ultimately come from outsourcing, but the one thing he and his colleagues will not do is quote a price until they have completed research of the potential client and its industry.
Today’s “I want it now” shipping culture has challenged companies like ODW Logistics, concedes Alloway, who adds that he approaches a delivery schedule less on speed than on the best optimization of his trucks. “Next day and two day are still important,” he says, “but in a direct consumer market it’s more important how you handle returns.”
After pausing to think more about today’s expected speedy deliveries, he adds, “We have had to put in a valiant effort that last few years.”
However, Alloway also offers that with a new client, landing the account does not always come down to speed, price or even experience. He brings up Handgards, a provider of high quality food safety, food protection, protective wear and food service products. The El Paso, Texas-based company managed its distribution network for half a century before partnering with ODW Logistics a decade ago.
“One of the most important attributes they sought was a cultural fit,” says Alloway. “They are a family-oriented business and when we first went to visit them we quickly understood that, and we were able to help them see how ODW has the business values that would match theirs.”
You read that right: Choosing whether to stay in house or go with a third party can come down to whether you get your new partner and are convinced your new partner gets you. What was most important to Handgards was someone, as Alloway put it, “with a similar feel.” ODW now handles the food safety company’s logistics and warehouse support in a 300,000-square-foot facility.
“The people that I have worked with in the ODW organization have been excellent partners to our business and work diligently on our behalf,” said an executive with Handgards.
“Like with most companies outsourcing for the first time, there can be a fear of change, a fear of how a new one is going to handle a product,” Alloway says. “‘Will they do it like we do? Will they talk with customers like we do?’ We went and visited them, made some research and it did not come down to price. It came down to did they like us and did they think we would be a good business fit together.
“… Sometimes we are not the best fit, somebody else is or they should keep doing it themselves. You just do not know that until you do the research.”