What Is Contract Operations And What Value Does It Bring?

Business is all about focusing on your core competencies to deliver value to customers. Savvy owners know this, and can quickly determine what functions to keep in-house and which ones to outsource to an expert. This is why companies choose contract operations.

Contract operations basically means turning over warehouse or distribution center operations to a third party — someone skilled in such activities. This distribution expert will take on recruitment and management of staff; purchase of MHE and racking; implementing warehouse management systems; and is responsible for all storage, handling, and shipping. Contract operations could be provided at a company’s own facility or delivered at an off-site warehouse.

Advantages of such an arrangement include:

• A lower, more predictable cost structure. Capital expenditures (MHE, racking, etc.) are built into a fixed rate schedule that simplifies budgeting.
• Improved warehouse performance. An expert approach, well-defined and implemented SOPs, and advanced technology in warehouse management systems combine to yield better efficiency and greater productivity.
• Location assistance. Often, providers can assist in identifying the optimum location for a warehouse to help reduce transportation costs. Such a service is valuable as transportation is the biggest supply chain expense, at five times the cost of storage.
• Better allocation of resources. By not having to manage warehouse operations, companies are able to focus on their core competencies that deliver value to customers.

For many companies, contract operations is a good fit. However, they must select a service provider who understands their unique needs. This is particularly important if the stored items are food products, which require specialized knowledge and SOPs.