Why small manufacturers are shutting down distribution centers

Small manufacturers are opening more of their own operations rather than hiring out, with many saying distribution costs have risen and even impacts from disasters like 9/11 still felt.

Many small companies that remain operating under a warehouse or that use middlemen say they’re looking to bring manufacturing in-house, either through their own employees or trained outside contractors. But there’s a lack of skills-training programs. And uncertainty about a future trade war, foreign tariffs and other trade disputes are creating a business challenge companies can’t ignore.

Many small companies have experienced shortages of products or have had difficulty getting parts from third-party distributors. In the past year, many have increased their purchases of their own items or signed up for transportation services on their own.

“Many small manufacturers have been deluged with demand and finding the trucks that can do that inventory of goods has been a big challenge,” said Tim LaPointe, an IT consultant and the owner of Printersville, Maryland-based Mr. Logistics, which takes large jobs such as online orders, and helps with logistics and fulfillment.

Production shifts away from third-party companies into small manufacturers’ own or trained contract staff. Just as they get more of their own orders in, though, they may begin to consider shipping some to customers of the third-party company that did some of their shipping when they were more busy. That leaves them in a bind.

“Small manufacturers trying to do a lot of the work themselves are getting caught with the burden of some of the third-party companies they utilize to get these goods to where they are,” said Virginia Sulley, an independent shop manager in New Market, Maryland. “They’re creating a little bit of a backlog on their website. It’s just a huge frustration for small businesses, but it’s not a business problem, it’s an access problem.”

Ms. Sulley’s clients are asking her to get rid of some of the third-party warehouses and start working directly with small manufacturers that can supply the work for their existing operations. She’s being asked by larger clients to enter into contracts with small manufacturers to provide warehousing, but companies could have built that setup before the WTO case.

“It’s not feasible for many small businesses to start dealing directly with the large retailers,” she said. “That’s a very difficult environment to work with that size of customer. They have wide selection and they’re very competitive. They have the buying power to deal with as many manufacturers as they want and still have the same availability.”

Many of the small companies she works with are hiring contractors to help with their duties. Others are turning to services like Supply Chain Solutions, based in Weehawken, New Jersey, which, among other things, takes warehouse management work that would normally go to a third-party intermediary and makes sure inventory is in and priced correctly.

“They’re servicing one-of-a-kind items,” Chief Executive Alex Schiavo said of third-party warehouses. “They’re pretty much the last, best hope for the smaller suppliers because of the nature of the products.”

When it comes to increased shipping costs, many small manufacturers who previously relied on more than one of those providers are shopping around, and many of them are not happy with the prices being offered, said Katie Dobbert, chief executive of TMS Warehouse, a supplier of warehouse management services in Leesburg, Virginia.

Leave a Comment