You’ve just pulled into your driveway after a trip to the grocery store. Now, you have a decision to make: will you…
- Bring in your grocery bags one by one?
- Try and carry them all at once, so you only have to make one trip?
If you’re tempted to choose B, then you already understand the appeal behind consolidation warehousing.
Consolidation services may be helpful for retailers and ecommerce businesses looking to optimize their supply chain logistics and transportation costs. However, you’ll need to weigh the benefits with the risks, and have a plan for securing and managing a consolidation warehouse.
In this article, we’ll break down what consolidation warehousing is, how to know if it’s right for your business, and tips for executing the strategy in your supply chain.
What is a consolidation warehouse?
A consolidation warehouse is a third-party storage facility where several small shipments are gathered together and sorted into groups based on destination, so that each group can be sent out as one larger, consolidated shipment.
For example, say a retailer receives 600 orders for their product, with 300 orders going to Location A, 200 going to Location B, and 100 going to Location C.
Instead of sending our 600 individual shipments, the retailer could use a consolidation warehouse. Once each order is picked and packed (usually at the consolidation warehouse), those orders — along with other retailer’s orders that are also headed to Locations A, B, and C — are grouped according to destination.
Each of those groups is then sent out as a one big truckload shipment. Ultimately, this means that retailers are able to deliver the same number of orders with fewer shipments.
What are consolidation warehouses used for?
There are several different use cases for consolidation warehouses.
Reacting to demand fluctuation
Demand for certain products can change over time, or depending on the season. However, storing these products for long periods of time while waiting for a spike in demand can increase your inventory carrying costs.
Sending stock to a consolidation warehouse on an as-demanded basis helps balance your inventory levels, prevent deadstock, and ensure that your holding costs don’t inflate too much.
“Spikes in order volume can happen at any time, so knowing that our 3PL partner is able to manage huge peaks in business and fulfill thousands of orders in a short time if needed is priceless.
With ShipBob, we’re not afraid of going viral! We’re not afraid of blowing up, because we know that ShipBob will be able to handle surges in demand.”
Juliana Brasil, Director of Operations at Food Huggers
Order grouping for similar geographies
Whether you have multiple suppliers located in the same area, or multiple orders headed for the same region, you can simplify order fulfillment by directing these goods to a consolidation warehouse.
Once there, goods from different suppliers can be sorted and sent to a variety of your business’s fulfillment centers. Alternatively, customer orders bound for destinations in the same geographical area can be picked, packed, grouped, and dispatched — though some may have to go through a second regional distribution process before landing on a customer’s doorstep.
By consolidating individual or even LTL freight shipments into full truckloads at the consolidation warehouse, wholesalers, retailers and ecommerce businesses can often reduce their shipping costs.
Fewer loads to ship also means fewer billable transportation hours, which could reduce labor costs as well.
Who uses consolidation warehouse?
Consolidation warehousing is a very good fit for certain types of businesses, including those that:
- Have several suppliers in one area, or high concentrations of customers in close proximity to each other (i.e. customer hubs in major cities or states)
- Are looking to reduce their carbon emissions
- Sell products that are expensive to ship through regular postage (such as heavy products)
- Have high order volumes
A notable example of this is the retail giant Walmart, which opened a 400,000 sq. ft. consolidation center in August of 2022 (the second of its kind in Walmart’s supply chain).
However, this strategy won’t work for every retailer or ecommerce merchant. You may want to reconsider consolidation warehousing if:
- Your customers are extremely geographically dispersed
- It’s more cost effective to send shipments individually
- Your order volumes are low
- Your need to get orders to customers as soon as possible, and cannot afford fulfillment or shipping delays
Benefits of warehouse consolidation (+ risks)
There are many things to consider before adding a consolidation warehouse to your supply chain. Here are some of the top benefits of warehouse consolidation, and a few drawbacks.
Optimized storage and warehousing
By utilizing a third party’s consolidated warehouse, you open up space in your own warehouses and storage facilities. This gives you more room to stock up on popular products, increase safety stock thresholds, or spread out warehouse operations.
Smarter inventory management
With warehouse consolidation, you can afford to store lower levels of inventory. This, in turn, reduces carrying costs and makes inventory management easier.
Lower transportation costs
Apart from lowering storage and warehousing costs, consolidation warehousing can further optimize supply chain operations by reducing transportation costs.
Small shipments from multiple retailers or businesses are collected at the warehouse and shipped to their destinations via trucks. Thus, shipping costs are split between several companies that are all sending their goods to the same location.
Streamlined order fulfillment
Since inventory is sent first to the consolidation warehouse, order fulfillment is much more organized. A consolidation warehouse should also use a top-quality warehouse management system (or WMS), which should help increase operational efficiency and fulfillment speed.
“Logistics is something you never think about until it stops working, and we’ve never come to that point with ShipBob. Everything just works. We are super happy with ShipBob and very impressed by how well they’ve pumped out our large volume of orders.”
Sergio Tache, CEO of Dossier
Consolidation warehousing improves your ability to ship orders cost-efficiently, which can increase your profit margin and, in turn, enable you to reduce the cost of your goods. A well-oiled consolidation warehousing partner should also get accurate orders to customers quickly, which helps attain and maintain customer satisfaction.
Consolidation warehousing risks
While the benefits are significant, achieving these benefits requires meticulous planning and oversight. Some of the top risks of using consolidation warehouses are:
Complex supplier-exporter coordination
For warehouse consolidation to pay off, all suppliers and parties involved in your supply chain must work in seamless synchrony. If one supplier or manufacturer is delayed or makes an error, it will throw off your supply chain velocity.
Human error (as a result of extra and fluctuating data)
Consolidation warehousing is complicated, and it’s easy to get confused. With additional data that’s changing hands constantly, errors are more common — and often harder to correct.
The warehouse consolidation process takes extra time. So if your business relies on fast shipping to maintain product integrity or keep your customer base, you may want to consider a different strategy.
How to add consolidation warehouses to your supply chain
Consolidation warehousing may look different from business to business, depending on a retailer’s product category, business size, available warehousing space, and more.
In general, though, most consolidation warehouses perform some iteration of the following steps:
- Product receipt and sorting – The consolidation warehouse receives your products, logs them, checks their quality, and places them in temporary storage.
- Stock storage – Your products are moved to their permanent storage location.
- Product handling – Items are weighed, picked, and packed.
- Order grouping – Orders from multiple retailers or businesses are grouped together based on their destinations, and prepared to be sent out as one shipment
- Goods dispatch – A group of orders is loaded onto a vehicle (usually a freight truck) and sent to their next destination.
While a business could implement these stages in their own warehouses, consolidation warehousing is usually best left to 3PL providers.
ShipBob adds consolidation warehouses to your fulfillment arsenal
Adding consolidation warehousing to your supply chain is tricky — but partnering with ShipBob can make the process much easier.
With access to ShipBob’s network of over 40 fulfillment centers around the globe, you can secure seamlessly-run warehouse space closer to your customers quickly and cost-effectively.
Once you distribute and store your inventory, ShipBob’s proprietary WMS will take care of the rest, processing your orders across different channels and directing our teams to fulfill every order to specification.
But we don’t stop there — rather, ShipBob gives merchants and retailers full visibility into their warehousing logistics through our analytics dashboard. That way, you can gain insights through real-time data that help you further reduce transit times, optimize for costs, and decrease stockouts.
ShipBob even provides an entire App Store of integrations (and dozens of more partners in the ecommerce ecosystem), which can help you automate returns, secure short term loans, forecast inventory across multiple locations and seasons, and much more.
Altogether, ShipBob’s technology and expertise can be used to create a consolidation warehousing setup that streamlines order fulfillment and takes shipping efficiency to the next level.
Consolidation warehouse FAQs
What is a consolidation facility?
A consolidation facility is a large warehousing space in which multiple retailers’ shipments are sorted according to their destination. Then, orders headed towards one common geographical area are shipped together in larger, bulk shipments.
Where does consolidation fit in the supply chain?
Consolidation can take place after procurement or as part of the fulfillment process.
If you have multiple suppliers in the same area, you can use a consolidation warehouse to ship all products bound for the same place (be it a retail location, fulfillment center, or even end customer) more cost-effectively.
Consolidation can also occur at the end of the fulfillment process, by collecting finished orders ready for end customers into larger freight shipments.
What’s the difference between order consolidation and warehouse consolidation?
Order consolidation is when you send out several individual items from an order in a single shipment. When one order includes multiple SKUs, sending all those SKUs together (rather than as multiple shipments) minimizes shipping cost.
Warehouse consolidation is when multiple orders bound for the similar or proximal locations are sorted at one facility and sent out as a single shipment. This minimizes shipping costs as well, but on a much larger scale.
What other types of warehouses are there?
There are many different types of warehouses, including distribution centers, fulfillment centers, smart warehouses, cold storage warehouses, on-demand storage locations, cross-docking facilities, and bonded warehouses.