---
title: "Should Distributors Outsource Their Warehousing and Distribution?"
description: "This year's wave of FMCG B2B has brought another byproduct: city distribution logistics offering unified warehousing and distribution have rapidly risen across the country. By leveraging WMS, large warehouses, high racks, massive throughput, and bus-like logistics systems, they have reduced clients' warehousing and distribution costs by more than half. This cost reduction is a significant temptation for an agency industry already operating on thin margins, and it raises a new question: should we outsource our warehouses to them? Or should local trading companies join forces to build their own large warehouses for unified warehousing and distribution to lower logistics costs?"
author: "赵波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-07-27"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/should-distributors-outsource-their-warehousing-and-distribution-c24f3377/"
markdown: "https://xinjignxiao.com/en/articles/should-distributors-outsource-their-warehousing-and-distribution-c24f3377.md"
original_source: "https://mp.weixin.qq.com/s/oNCB4Iom3eUDTzlS3MAvlg"
translation: "https://xinjignxiao.com/zh/articles/%E7%BB%8F%E9%94%80%E5%95%86%E7%9A%84%E4%BB%93%E9%85%8D%E8%A6%81%E4%B8%8D%E8%A6%81%E5%A4%96%E5%8C%85%E5%87%BA%E5%8E%BB-c24f3377.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/should-distributors-outsource-their-warehousing-and-distribution-c24f3377/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Should Distributors Outsource Their Warehousing and Distribution?

> This year's wave of FMCG B2B has brought another byproduct: city distribution logistics offering unified warehousing and distribution have rapidly risen across the country. By leveraging WMS, large warehouses, high racks, massive throughput, and bus-like logistics systems, they have reduced clients' warehousing and distribution costs by more than half. This cost reduction is a significant temptation for an agency industry already operating on thin margins, and it raises a new question: should we outsource our warehouses to them? Or should local trading companies join forces to build their own large warehouses for unified warehousing and distribution to lower logistics costs?

This year's wave of FMCG B2B has brought another byproduct: city distribution logistics offering unified warehousing and distribution have rapidly risen across the country. By leveraging WMS, large warehouses, high racks, massive throughput, and bus-like logistics systems, they have reduced clients' warehousing and distribution costs by more than half.

This cost reduction is a significant temptation for an agency industry already operating on thin margins, and it raises a new question: should we outsource our warehouses to them? Or should local trading companies join forces to build their own large warehouses for unified warehousing and distribution to lower logistics costs?

Some distributor friends may not be clear about what city distribution is. Let me briefly introduce it: "Distributors only need to hand over their goods to the city distribution logistics provider, which can offer a one-stop solution covering warehousing, sorting, loading, delivery, returns, and payment collection," and the price is only half of what distributors spend on their own warehousing and distribution.

"**Some might say, 'How is that possible! The value of a distributor lies in warehousing and distribution. If all of that is outsourced, what value does a distributor have?'**"

"**Others might say: 'What if the warehousing and distribution provider becomes an agent for my products and stabs me in the back?'**"

Don't rush. Let me analyze for you what enterprises need from distributors and what functions FMCG distributors actually perform in the supply chain:

**Function 1:**
Warehousing and distribution: Undertake local warehousing and distribution of goods, helping manufacturers complete product distribution.

**Function 2:**
Capital: Both inventory capital and channel capital need distributors to assist enterprises in completing.

**Function 3:**
Sales: New product promotion and terminal SKU expansion require manufacturers to rely on distributors' customer relationships to complete product sales.

**Function 4:**
Service: Terminal merchandising, shelf space improvement, product returns and exchanges, and cold chain management all require substantial manpower.

**Function 5:**
Public relations: Managing local transportation, public security, procuratorate, court, tax, and other government relations; handling KA (key account) and special channel entry; and dealing with customer complaints.

Among these five functions, warehousing and distribution is just one, but the most core is still sales! Manufacturers need distributors to leverage their customer relationships and sales capabilities to quickly distribute products to terminals.

Apart from sales, all other functions are auxiliary means to support sales. Therefore, for distributors, everything except sales can be considered a cost. The principle for costs is: as long as it doesn't affect results, anything that can be cut should be cut. From another angle, a distributor with annual sales of 30 million yuan needs 10 vehicles for delivery. If sales reach 300 million, should they increase to 100 vehicles? This linear scaling is definitely wrong. Once sales reach a certain scale, new models are needed to improve efficiency. This also illustrates that if distributors want to grow, they must change their incremental thinking.

**Problems with Distributors Owning Vehicles and Warehouses**

Main issues with owning vehicles:

A: High costs
Let's do the math. For a food and beverage vehicle, the monthly fixed expenses are:
Depreciation: 2,100 yuan/month; Insurance and maintenance: 600 yuan/month; Fuel: 1,500 yuan/month; Driver's salary + allowances + insurance: 3,600/month; Salesperson's salary + commission + insurance + allowances: 4,500/month.

In total, the basic cost of one vehicle per month is around 12,000 yuan. This is just the baseline. Assuming an average gross margin of 15%, a minimum monthly sales of 80,000 yuan is needed to break even. This assumes no promotional price cuts, no rainy days, no salesperson leave, no vehicle breakdowns, and no product returns. However, a salesperson's typical monthly sales from vehicle-based selling is generally between 70,000 and 100,000 yuan. Few salespeople exceed 120,000 yuan per month. This means that in a vehicle sales team, at least one-third to half of the salespeople are operating at a loss.

B: High risk
When sales scale exceeds 30 million yuan, distributors doing vehicle sales typically own more than 10 vehicles. The total mileage of all vehicles exceeds 350,000-400,000 kilometers per year. It's common for salespeople to be stopped by traffic police for overloading or incomplete documents. Distributors fear most that a salesperson might have an accident. If an accident occurs, it not only delays sales but, if insurance is insufficient, could wipe out half a year's profits.

C: Low efficiency
We know where the greatest value of a salesperson lies: not in loading and unloading goods, but in sales negotiations and terminal services—these are the truly value-generating activities. However, salespeople doing vehicle sales spend a large amount of time on non-transactional activities. Loading and unloading at the warehouse in the morning and evening wastes a lot of time. With the steering wheel in the driver's hands, skipping stores and missing points often happens. There's also time spent loading and unloading at stores, which is non-productive. In reality, the time spent on sales negotiations and terminal merchandising services is very short. This creates invisible waste, making it difficult to improve sales efficiency.

Main issues with warehousing:

A: Loss and waste due to poor management
Smaller distributors typically have their wives or fathers-in-law manage the warehouse, while larger ones may hire professional warehouse keepers. However, management is often not standardized, leading to problems like lost goods, near-expiry products, and returns.

B: Inefficient warehouse utilization
FMCG has a major characteristic: peak and off-seasons are very distinct. During peak seasons, warehouse space is insufficient; during off-seasons, the entire warehouse sits idle. This results in generally low warehouse utilization rates for distributors, with few using double or multi-level racks to improve efficiency, let alone professional pallets, pallet jacks, or forklifts. This is an invisible waste of resources that is basically unsolvable at the distributor level.

**Now Let's Discuss the Pros and Cons of Unified Warehousing and Distribution**

Continuing with the above case, if local distributors join forces to unify local warehousing and distribution, consolidating all goods into one large warehouse and coordinating delivery based on distributors' order sheets, then each store only needs one vehicle per day to receive all its required products in a single delivery. The logistics cost savings are self-evident.

Advantages of unified warehousing and distribution:

A: Lower costs, higher efficiency:
After unification, distribution costs can drop by 30-50%, or even 70%, compared to distributors' self-operated distribution. Because multiple orders are delivered together, vehicle utilization is much higher than self-operated distribution.

B: Timely delivery:
Unified warehousing makes bus-like logistics possible. Phone orders can be placed and delivered at any time, with daily delivery to local stores, improving terminal delivery service standards.

C: Flexible ordering:
Small orders, scattered orders, multi-SKU orders with low value but high labor requirements can be delivered promptly.

D: Wider network coverage:
Previously, the number of stores a distributor could cover was limited by the number of vehicles. Typically, one vehicle could handle 10-15 orders per day including sales and transactions, which was already excellent. More orders couldn't be delivered by salespeople. However, with distributor order-taking, this limit can be easily broken. The number of terminal visits and store coverage can increase by an order of magnitude compared to before.

E: Separation of people and vehicles, eliminating opportunities for misconduct:
Laziness, withholding promotional items, order bundling, splitting orders to exploit package policies, selling at high prices, misappropriating payments... These situations are very common in distributor operations. With unified warehousing and distribution, the separation of people and vehicles eliminates opportunities for on-site misconduct, reducing hidden cost waste.

For example: Ningyang County, Shandong, has a population of 700,000. As a typical agricultural county, the main market is in rural areas. The over 40 local trading companies share a common trait: they prefer to buy their own vehicles to directly control terminals. The local chamber of commerce once counted that there were over 280 delivery vehicles of various sizes. In reality, the total value of goods sold by all vehicles could be delivered by fewer than 50 vehicles. The cost of the remaining 230 vehicles is essentially driving around the city with goods but empty. Behind this, there are also over 40 warehouses with utilization rates below half, along with corresponding management personnel.

The waste of resources is self-evident. If the local chamber of commerce organized these 40 companies to jointly lease a large warehouse, establish a city distribution logistics company, unify warehousing and distribution, have all salespeople switch to order-taking, and outsource vehicles to drivers (converting them from employees to partners), with compensation based on work and survival of the fittest, retaining some excellent drivers for full-time delivery, this model could save 40 warehouses and 240 vehicles. The efficiency improvement is undeniable.

Problems distributors may encounter when joining or building unified warehousing:

A: Salespeople are accustomed to selling on-site; switching from vehicle sales to order-taking may be uncomfortable.
B: Distributor assessments are sales-oriented, neglecting the terminal service function of salespeople.
C: The disposal of existing warehouses and vehicles.
D: Some categories have significant reverse logistics; these returns and exchanges were previously handled on-site, but in the future, they will add extra logistics costs and exchange cycles.
E: Fear of being stabbed in the back: if all logistics is handed over to others, manufacturers could easily replace them.

How to solve these:

A: Change the assessment mechanism from "selling out" to "facilitating consumer purchases."
B: Use the cost savings to appropriately improve employee benefits.
C: The most effective way to avoid being replaced is to achieve performance, firmly control order allocation rights, provide good terminal service, and enhance competitiveness.

**What Products Are Not Suitable for Unified Warehousing?**

Of course, not all products are suitable for unified warehousing and distribution. Categories like yogurt and ham sausages, which are low-temperature, short-shelf-life, and multi-SKU, should be handled with caution.

Warehousing and distribution are infrastructure. Improving efficiency and reducing costs are topics every distributor must consider. Whether to introduce, build, or ally, any method that improves costs, enhances efficiency, and boosts competitiveness is acceptable.

The reason most distributors perform poorly is not the rise of the internet or economic downturn, but that their business models have fallen behind the times and been eliminated by the market. FMCG is a low-margin industry. The thinner the margins, the more important it is to increase revenue and reduce costs. In other words, the thinner the margins, the more important scale, category development and combination, supply chain integration, and internal lean management become. Unified warehousing and distribution is a major trend in the FMCG industry. As distributors, we must not only follow the trend but also stay ahead in the rapidly changing market, seize opportunities, and become pioneers of this era.

## **Extended Reading:**
-END-
The best FMCG distributor learning platform in China
Dedicated to providing professional, practical, and actionable tutorials for enterprises and distributors
Committed to helping Chinese FMCG distributors grow rapidly
**The most professional and practical knowledge base in the FMCG industry**
Reply with the red number below to get corresponding content
Reply with number 1 to view the complete knowledge base
| **001** Excellent Article Selection | **002** Distributor Market Operations | **003** Terminal Visit Management | **004** Sales Supervisor Skills | **005** Sales Improvement Techniques | **006** Channel Expansion | **007** Managing Distributors | **008** Distributor Development | **009** Distributor Internal Operations Management | **010** Team Management | **011** Efficient Distribution Techniques | **012** Sales Manager's Eighteen Skills | **013** KA Operation Methods and Strategies | **014** First Lesson for New Salespeople | **015** Internet and Brands | **016** Distributor B2B Transformation |
[Long press QR code to follow]


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671