Question

Compare and contrast owning verses outsourcing a distribution center.

Owning a Distribution Center comes with 4 major considerations. What are they?

Answer 1

Distribution is the most important aspect of the supply chain for any business. Distribution including Order processing, warehousing, packaging, and transportation may be through own warehouse or outsourcing it to a partner. Following would help decide whether to own or outsource:

FACTORS	OWNING	OUTSOURCING
INITIAL INVESTMENT COST	HIGH DUE TO ADDITIONAL COSTS OF RENTS, BUYING & MAINTENANCE OF EQUIPMENT, STAFF RECRUITMENT & TRAINING, RACKING INSTALLATION	LOWER INITIAL INVESTMENT
CONTROL	OWN CONTROL OVER RESOURCES	OUTSOURCED SO NO CONTROL OVER INVENTORY/STAFF
TIME	MORE CONTROL OVER TIME. FASTER OPERATIONS	OPERATIONS ARE FAST BUT CANNOT BE CONTROLLED EASILY AS DEPENDANCE ON EXTERNAL PARRTNER IS THERE
EXPERTISE	EXPERTISE CAN BE HIRED AND COSTS CAN BE SAVED IN THE LONG RUN BY RECRUITING/TRAINING	EXPERTISE COMES AT A HIGHER COST
QUALITY	IMPROVED QUALITY IN THE LONG RUN. SERVICES CAN BE IMPROVED EASILY	QUALITY MAY FLUCTUATE DEPENDING ON OUTSOURCING PARTNER

Four considerations of owning a distribution center:

1) Cost: Includes investment cost, operational cost, compliance costs, training cost, maintenance cost. The cost needs to be thoroughly assessed before setting up.

2) Location: Strategic location and proximity of the Distribution center to save on transportation costs

3) Expertise: Expertise of Staff is required in operations, management and technology to increase processing time and distribution.

4) Type of Industry: Type of the industry to which distribution center will be catering to will decide costs, storage space, racking installation, training, time and profitability in the long run.