Why Vendor Diversification for Third-Party Warehouse Services is Essential to Boosting Profitability

Placing the responsibility for all warehouse locations in the hands of a single third-party service provider can be risky. Here’s why vendor diversification is particularly valuable in warehouse services.

Merit Logistics Vendor Diversification
Merit Logistics

Vendor diversification is a best practice that should be implemented by every business to help reduce risk and boost profitability. It is particularly valuable in the area of warehouse services.

Many distribution executives are under the impression that their operations are running quite effectively and efficiently with just a single warehouse services provider. However, it is easy to confuse the lack of overt problems with true efficiency. When a business places oversight of all of their warehouse locations in the hands of a single third-party service provider, they run the risk of lowering their overall operating efficiency and profitability. This is for several reasons, which will be discussed in the following article.

The Power of Competition

The inherent benefits of building some competition into your supply chain is somewhat obvious. Having multiple warehouse services providers across your distribution network is an essential to keeping them accountable, striving for excellence, competitive on price and continually improving their services and performance.

The Vulnerabilities of Relying on a Single Service Provider

A successful relationship between a client and a warehouse service provider typically begins with a large amount of communication between the two. This is intended to help the vendor align their focus with the company’s goals, expectations and strategy. When there is only a single service provider though, this vendor is less likely to remain vigilant about achieving the company’s goals and retaining and gaining their fair share of locations. Even worse, warehouse service providers are sometimes owned by a parent company or equity firms, which can direct their attention away from your interests and to their own internal KPIs instead.

Creating Benchmarks for Improvement

Maybe the clearest advantage of vendor diversification is that it provides benchmarks for improvement. Site performance data allows you to compare one service provider to another, and you can see which vendors at which locations are actually raising the bar and which ones are underperforming. This places pressure on providers to solve issues that arise more quickly, because they face the threat easier elimination. With a single provider, however, you’ll need to wonder if your provider is actually performing to their full potential and if you’re being charged fairly for their services.

Enhancing Warehouse Efficiency, Productivity and Operating Margins

If you’re currently using a single service provider across your distribution network, ask yourself this question -- are you getting the maximum value out of your partnership? You can’t really be sure if you are using only one service provider. And, if measuring, evaluating and improving your KPIs is important to your business, it’s time to explore diversifying your warehouse services portfolio. This is a somewhat obvious, but critical strategy for reducing business risk, optimizing vendor performance and boosting your distribution network throughput and profitability.

This article is a production of Merit Logistics, a leading provider of flexible warehouse labor solutions servicing grocery chains and other retailers nationwide. Are you facing a labor challenge? Find out how Merit can help.  www. MeritLogistics.com.