The third-party logistics and warehousing industry has been in a period of significant growth, and based on the latest forecasts, this growth does not appear to be slowing down. Among the many reasons for this is that manufacturers are looking to add new locations to be closer to their customers while also saving on freight costs.
So as an established 3PL, what is the best method for entering into a new warehouse location? While the answer may differ for each company, it is important to understand the options a 3PL has and the associated benefits and risks.
An acquisition is when a company purchases an existing business and acquires all of its assets. It offers a faster entry into the market as you gain an established location, customer base, staff, etc. This approach can be especially beneficial for a company that is looking to expand rapidly.
However, successful acquisitions depend heavily on proper due diligence. 3PLs must carefully evaluate the existing facility condition, technology systems, customer contracts, financial health, and more. Additionally, managing the culture of the acquired business is critical for smooth operations.
A contract expansion involves winning an RFP and being awarded a business from a new customer. This can either occur at a location you already do business in or an entire new city/state. This method also usually involves leasing a building, as the location will only be occupied for as long as the customer contract lasts, making sure there is no long-term risk for the 3PL.
The potential downside is that someone you have never done business with can be harder to build trust with and can cause significant growing pains during the startup process. Adapting to a new operation requires bringing on a skilled workforce and implementing training programs for everyone involved.
3. Customer Expansion
Entering a new warehouse market through current partnerships allows 3PLs to expand with people they already have relationships. This collaborative approach usually facilitates shared benefits and risks to set up the operation for long-term success. Customer expansion is generally thought of as the most likely to be successful because a 3PL already knows its customer's business well.
However, putting too much of your business' stock in one client can be risky as the loss of a single customer can be more detrimental for your company. It puts even more emphasis on the 3PL providing great service to that customer to ensure operations run smoothly and growth continues to happen.
4. Greenfield Project
A greenfield project involves constructing or purchasing a new warehouse facility with no or few customer commitments. This approach provides 3PLs with the advantage of complete control over the facility's design, layout, and technology. The clean slate also provides an operation to be tailored to specific client needs in the most efficient way.
However, greenfield investments require substantial capital and time commitments. Permitting processes, construction timelines, and unforeseen challenges may extend the time it takes to start operations. 3PLs choosing this approach must conduct thorough market research to ensure the investment aligns with their long-term strategic goals.
At Spartan, we are always open to discussing potential opportunities and building mutually beneficial relationships. Looking for 3PL solutions? Contact the team at Spartan today.