All Things Shipping
Oct 18, 2023

Choosing the Right Warehouse for Your E-commerce Business

Choosing to integrate warehousing into your e-commerce fulfillment operations comes with many benefits — but it’s certainly not a decision that should be made lightly.

If you find that your e-commerce business is struggling with misplaced inventory, incorrect orders, overflowing storage space, stock-outs, or excess deadstock, it may be time to invest in a warehouse. Here’s everything you need to know about the types of warehouses that exist today, how to choose the right one, and how to balance your inventory across your new locations.

Benefits of Fulfilling Orders From a Warehouse

Generally speaking, warehouse management in e-commerce refers to the process of housing some or all of your inventory in a warehouse facility.

When your business is small, your “inventory warehouse” may be your garage or basement. But once you’ve grown, integrating standalone warehouse spaces — either owned and managed by you or by a separate provider — offers several benefits.

  • Lower shipping costs: Warehousing can lower your shipping costs in several ways. Placing warehouses in strategic, centralized locations throughout the country (or world) can minimize your shipping costs by decreasing the distances your orders travel. Access to specialized fulfillment services: If you choose to outsource your warehousing to a third-party logistics (3PL) provider, rather than self-manage an internal warehouse, you can leverage the partner’s skilled teams, resources, and processes — rather than having to build them yourself.
  • Stronger organization: Compared to managing inventory within your home or office, external warehousing facilitates stronger inventory organization. When paired with proper inventory management technology and appropriate workflows, inventory tracking accuracy improves, and losses due to misplaced products decline.
  • Supports growth and scalability: A solid warehousing strategy — especially in partnership with a 3PL provider — makes it much more manageable to scale up or down the space needed for both your active inventory and safety stock. 

Types of Warehouses To Consider

As you evaluate e-commerce warehousing solutions, take the time to understand the distinction between common warehouse types.

Fulfillment Centers

The terms “fulfillment centers” and “warehouses” are often used interchangeably. However, fulfillment centers commonly include fulfillment services and value-added support in addition to warehouse space. Warehouses, on the other hand, may include only the physical space needed to store inventory.

Smart Warehouses

Smart warehouses utilize technology to automate operations and perform functions. These facilities may leverage hardware (such as Amazon’s Kiva robots used to pick orders or move items), software (including automation programs used to manage warehouse inventory and track packages), or both.

Public Warehouses

Public warehouses offer shared space for rental by multiple businesses. Space is typically rented from the facility’s owner by the square foot, and fulfillment services may be offered for an additional fee.

Private Warehouses

Private warehouses — also referred to as proprietary warehouses — are owned by a single retailer, distributor, manufacturer, or wholesaler, for their exclusive use. Opening a private warehouse requires either purchasing an existing facility or building one from the ground up, as well as staffing its operation — all of which represent a major investment.

Cooperative Warehouses

Cooperative warehouses (or “shared warehouses”) are operated in partnership by two or more companies that agree to store their goods together. This warehousing approach reduces costs for participating businesses, and is most commonly used by farmers, small retailers, wineries, breweries, natural food cooperatives, and other similar merchants.

FDA-Certified Warehouses

FDA-certified warehouses include facilities that have been registered with the FDA and receive periodic inspections in order to maintain their certification status. Any facilities that “manufacture, process, pack, or hold food for human or animal consumption in the United States” are required to register with the FDA under the Bioterrorism Act of 2003, meaning that this type of warehouse is most commonly used by those handling food products, pet food, supplements, and raw ingredients.

Bonded Warehouses

Bonded warehouses, or customs-bonded warehouses, are facilities where imported goods and materials can be stored before any required taxes, duties, or other customs charges are paid. Bonded warehouses can be operated by government entities or be privately operated, and bonded goods stored within them can be inspected, manipulated, and even manufactured before import fees are paid. However, goods can’t leave a bonded warehouse for consumption until inspections are completed and fees are paid by either the importer or the customer.

Government Warehouses

Government warehouses are owned and operated by the government — however, their usage isn’t limited to government entities. Although local, state, or federal agencies can use government warehouses to store supplies, emergency equipment, and other inventory, private businesses can also lease space in these facilities.

Distribution Centers

Like fulfillment centers, distribution centers combine warehouse space with order fulfillment services for storing, picking, packing, and shipping finished goods. That said, distribution centers tend to work in bulk, commonly sending out items less frequently and on pallets. However, they can still be a good solution for e-commerce sellers that have grown into physical stores and have employees on-site who can fulfill orders.

HAZMAT Warehouses

HAZMAT warehouses provide safe, secure storage for volatile chemicals, fuels, waste products, and other potentially dangerous agents. Because of this, HAZMAT warehouses are tightly regulated and closely inspected, and they often offer features such as advanced ventilation, fire suppression, and material segregation systems.

Cross-Docking Warehouses

Cross-docking warehouses facilitate the rapid — even immediate — transfer of finished goods from suppliers to retailers. Because cross-docking warehousing is a lean supply chain model, these facilities feature very little shelf space or storage. Instead, imported goods move directly from the inbound dock for processing in the cross-docking warehouse, before being loaded directly onto an outgoing shipment at the outbound dock.

Reverse Logistics Warehouses

Reverse logistics supports the movement of goods from customers back to the e-commerce seller; for example, as part of a return or merchant recycling program. Warehouses can support the reverse logistics process by providing storage space for returned goods until they can be inspected and restocked (or disposed of).

Contract Warehouses

Contract warehouses are 3PL facilities that receive and store goods for their clients. Contract warehouses can be either dedicated or shared and offer clients a greater level of warehouse inventory control than public facilities (but at a lower cost than private warehouses).

Consolidation Warehouses

Consolidation warehouses bring multiple shipments together in order to consolidate them for delivery to different destinations. These types of 3PL facilities can be especially helpful for merchants who experience fluctuations in demand, as they keep holding costs in check while balancing warehouse inventory across locations.

What to Look For When Choosing A Warehouse for Your Business

When evaluating these different types of warehouses, keep the following considerations in mind:

  • Understand your specific requirements: Do you need an FDA-certified warehouse? A bonded warehouse, or a HAZMAT warehouse? If your inventory has special storage requirements, narrow down your list of warehouses or 3PLs based on this criterion first.
  • Map your customers’ locations: Ideally, your warehouse locations should cut your deliveries’ transit times. Make sure any warehouse you’re considering is positioned advantageously according to the geographic areas where your customers are clustered.  
  • Anticipate your storage needs: How much of your inventory will you move to warehouses? Storage volume requirements play a big role not just in the type of warehouse you should select, but what you’ll pay for access as well.
  • Plan for flexibility: Depending on your company’s growth trajectory or seasonal variability, it can be especially helpful for e-commerce sellers who are new to warehousing to choose a solution that offers flexible contract terms and storage access. If possible, pursue arrangements that make it easy to scale your storage up and down, rather than locking you into a set amount of space.
  • Evaluate skills and technology: Are you looking for a warehouse or a fulfillment center that offers warehouse management services? Is it important to you that any warehouse provider you partner with uses technology that integrates with your systems? Clarifying your needs ahead of time will reduce time spent evaluating poor-fit partners.

Best Way to Distribute Inventory Across Multiple Warehouses

As your warehousing strategy grows in sophistication, you may find yourself needing space in not just one facility, but multiple warehouses. And although growth is good, it comes with a challenge: how do you ensure your inventory is distributed appropriately across each location?

Both 3PL providers and warehouse management systems (WMSs) can be helpful here. Because 3PL companies operate many warehouses, they typically have the technology in place to provide visibility into the location of your inventory — as well as the mechanisms to redistribute it as needed. Some 3PL offer warehouses located in strategic locations so that you can limit shipping times to just 2 days across the U.S.

If you want to go it alone, WMSs or warehouse inventory management systems are software programs that allow you to execute the same types of operations on your own. If you’re self-fulling orders, Shippo can also help by integrating with your tech stack and helping you print discount shipping labels for each parcel you send out of your warehouse.

A third option comes in the form of 4PL, or fourth-party logistics. In contrast to 3PL providers — which focus on order fulfillment — 4PLs manage a company’s entire supply chain. This includes not just warehousing and order processing, but the management of other 3PLs, transportation, freight forwarding, and last-mile logistics, among others. These are aimed more at enterprise level businesses which might be too advanced and too expensive for those looking into their first warehouse partner.

Ultimately, there’s no single right solution for every merchant’s e-commerce warehousing needs. Carefully evaluate these and other considerations before choosing the right warehouse for your business.

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Sarah Gage
is a Michigan-based freelance writer covering business, marketing, and technology topics. She is also the owner of Content Conquered, a B2B-focused content marketing consultancy.

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