Some Ecommerce companies or classic trade companies come to the conclusion that it would be more beneficial for them to share warehouse space and simultaneously lower the cost of running their business. This can be done by sharing and joint use of quantity discounts by joining forces with other companies from a similar industry. Cooperative Warehouses were created to meet this need.
Cooperative Warehouse is a Storing space owned by a group of institutions or trading businesses for minimizing storage costs. It also gives them quantity price discounts as they exist as one entity on the market.
This interesting solution on the market is not common but it is very effective and gives many benefits to companies if only they decide to use such a business model. Let’s dive into it a little bit more.
Cooperative Warehouse vs Public Warehouse
In a typical Cooperative Warehouse model, the warehouse facility is built or purchased with the shared money of the member companies. You can also join such an arrangement by buying shares or by some other form of contract.
There are also companies on the market that offer warehouse space rental services in the Cooperative Warehouse model. They are responsible for the building, warehouse operation, goods transfers, and personnel. They select companies so that the industries are common to all tenants. It seems like a kind of VIP selection, but at the same time, it allows them to function in such a model.
In contrast, Public Warehouses offer storage space to all market participants. There are no industry restrictions. Of course, there are some limitations as to the size of the products, but on Public Warehouses shelves you will find products from all industries.
The price offer is also less suited to a given industry, but rather to the overall market.
Advantages of Cooperative Warehouse
Sharing warehouse space by several companies is a phenomenon that we observe in some industries. The obvious conclusion is that if several companies join forces, such a solution must give them some benefits. Otherwise, no one would choose Cooperative Warehouse solutions.
Sharing of storage costs
The main advantage of Cooperative Warehouse is the sharing of storage and operation costs. It is not only the very cost of investing in warehouse buildings. Additional costs that no one takes into account are employee costs, depreciation of warehouse machines such as forklifts or lifts or any automatic gears, and operating costs such as electricity, water, heating or cooling, building repairs, as well as the transport of products itself.
Due to the fact that several companies use a common warehouse, they have lower costs per company.
This works great when the processes of moving and handling products in the warehouse are not time-consuming and it would not pay off to hire full-time employees, because they simply would not have anything to do.
We may only need a few hours a week to accept or dispatch the goods. In such a case, if there are several companies like ours, one employee will easily provide services to several companies at once, and several companies will contribute to the split costs of his employment.
Quantity manufacturer discounts
Suppose you are a medium-sized company and need 5,000 products of a given brand. However, the Manufacturer offers a very favorable discount if you order 20,000 units. In this case, by joining several companies, you buy these 20,000 products from the manufacturer as one business entity.
Thanks to this move, you use the discount offered by the manufacturer normally not available for You and share the profit proportionally with each cooperative company.
Such solutions are also used in agriculture, where a larger group of food producers, e.g. apples, gets better purchase prices than one small farmer.
Same industry – More knowledge
An additional, non-obvious benefit may be the fact that such Cooperative Warehouse most often connects companies from the same industry. Thanks to this, a common “know-how” is a side effect. It is irreplaceable knowledge that you can share with each other and grow even more together.
Disadvantages of Cooperative warehouse
If we are talking about the negative sides of Cooperative Warehouse, often such disadvantages are a calculated cost in such a model of operation. And if, when considering such a solution, you come to the conclusion that there are more cons than pros for your business, it becomes obvious that this is not a business model intended for you.
Companies that operate in this model take the following risks and inconveniences. Every one of them can be labeled “no flexibility”, but let’s see if we can split them into a few smaller disadvantages.
Change of location
It is a very general concept however, we can very easily imagine a situation when we want to change the location for some reason. Relocating such a business will result in a loss of cost sharing and the disintegration of the model, influencing also other cooperatives.
It is highly unlikely that all of the other companies that work with you will be willing to do the same move and change location. Unless it is a decision forced by economic factors that also influenced your “companions”. Then it is the only time you just move the entire warehouse to another location and you will continue to work as it used to be.
This is a strange issue because while it is a benefit that brings discounts and profits, it can also be a disadvantage when looking for companies that would like to enter such a model. Finding companies that want to operate on these principles is difficult, and finding them in the same industry is even more difficult. It is easier to find an existing “community” and join it.
Additionally, if you operate in one industry, you are all equally susceptible to certain changes in the demand for goods or technological changes in a given industry. Of course, this works both ways and whether it is an advantage or not, I will leave it to your individual decision.
The more companies working in the Cooperative Warehousing model, the more entities you have to take into account.
If you suddenly want to introduce some changes in the functioning warehouse system or in a warehouse arrangement or even simple employee work rules, you will have to consult with cooperative companies. They are simply at the same level of decision-making as your company. Usually, it will end up in a vote.
The solution may be to entrust logistic and operational decisions to an external company that will itself make decisions about what is happening in the warehouse and on what terms. It is, however, giving away another piece of the “decision-making pie” and increasing the risk.
The Cooperative Warehouse system is definitely not for everyone. Before You decide whether it is for You or not, always do Your deep research and analysis of Your own niche. No one will know better than You what You need.