The Power of a Consolidation Warehouse: Strategies for Big Savings on Small Spending

Table of Contents

Get the latest e-commerce industry news, best practices, and product updates!

Reading Time: 12 minutes

In the new age, where one brand often produces more than one type of product, navigating the rough waters of warehousing and shipping can be challenging. Additionally, with over 80% of shoppers wanting same-day delivery, it can be tough to ship quicker.

So, if you’re in the e-commerce business and have several products to service the many needs of your customers, a consolidation warehouse might be precisely what you need.

However, including it in the supply chain requires some work. Moreover, it is an intricate and nuanced process that warrants a clear understanding of your existing offerings and customer patterns.

Join us as we break down how a consolidation warehouse works, its use cases, its many advantages and disadvantages, and its best practices. 

What is a Consolidation Warehouse?

Simply put, consolidation warehousing involves combining many small shipments into one large shipment using a third-party logistics company. One function of a distribution warehouse is consolidation. Therefore, a consolidation warehouse is the space where this shipment is stored. These warehouses often use hi-tech infrastructure to track and combine small orders to send them out as one large consignment. This allows retailers to deliver a larger number of orders with fewer shipments. 

To demonstrate, let’s assume that a brand has 1000 individual orders for a coffee tumbler. 400 need to go to a distribution center in location A, 250 need to go to location B and 350 need to go to location C. Instead of shipping all 1000 items individually, the business could consolidate each batch of orders with other business’s orders headed to the same locations.

This allows all products headed to similar locations to be shipped out quickly, efficiently, and all at once, saving costs and fuel. More importantly, this eliminates any additional labor.

What Does Consolidation Mean in Shipping?

Consolidation in shipping bridges the gap between many smaller shipments by grouping them into one large shipment. The load or the inventory traveling out is called a consolidated shipment. 

In shipping, transloading refers to the means of the shipment, which may include truckload, barge, rail, or any other form of transportation. In shipping consolidation, however, all the goods procured are obtained from a consolidation warehouse. This is especially beneficial for any LTL or less-than-truckload shipments resulting in cost efficiency.

Most small businesses opt for this form of consolidation shipping, for it helps cut down on the number of shipments and ensures quick and efficient delivery.

Use Cases for Consolidation Warehousing

Consolidation warehouses have several use cases. Some of their most common utilizations have been listed below.

  • Addressing demand fluctuations: Demand is inconsistent and changes as per season or over time. Using a consolidation warehouse to store stock can prevent inflation of holding costs, keep inventory levels consistent across warehouses, and eliminate deadstock.
  • Group orders according to location: Simplify order fulfillment by shipping goods headed for delivery or to retailers in the same area to a consolidation warehouse. Then, these goods can be sorted and sent off to fulfillment centers. Similarly, customer goods headed to similar destinations can be dispatched simultaneously.

Who Needs a Consolidation Warehouse?

Consolidations warehouses are for anyone with a business. However, they do fit specific business models more than others. If your business faces any of the following issues:

  • Larger order volumes
  • High concentration of customers or suppliers in one area or close proximity.
  • Have objectives related to reducing carbon emissions.
  • Sell products that may be expensive to ship using regular postage systems.

Nevertheless, certain e-commerce businesses or retailers may be adversely affected when opting for a consolidation warehouse. Therefore, you may want to rethink your plan in the following cases:

  • Geographically varied customers
  • Cheaper to ship individual shipments
  • Unable to accommodate any shipping or fulfillment delays 
  • Lower order volumes

Advantages of a Consolidation Warehouse

Having just one warehouse could be hampering business. But how exactly can employing consolidation warehouses be beneficial for your business? Read ahead to explore the many advantages of a consolidation warehouse.

  • Optimized warehousing

The primary advantage of a consolidation warehouse is that all your shipments arrive at one location. This can immediately contribute to optimizing warehousing. If all your suppliers are similarly placed, consolidation simplifies processes even further, eliminating your need to travel between warehouses to manage shipments.

Warehouse consolidation allows you to manage all your warehouse processes in one place. It also reduces shipment collection and delivery turnaround time. With these aspects covered, you can then focus on the things that really matter in the growth of your business.

  • Improved inventory management

Since inventory management becomes a shared responsibility among multiple suppliers, it simplifies inventory management. With consolidation, businesses can store lower levels of inventory. This, in turn, eases the process of inventory management.

This is also an excellent option for a supplier who only requires storage for smaller amounts of inventory.

  • Reduced transportation costs

Supply chain issues are always a given when it comes to managing an e-commerce business. But with a consolidation warehouse, companies can avoid losing significant amounts of cash on transportation.

By consolidating many individual shipments and LTL freight using a consolidation warehouse, businesses can reduce billable transportation costs and labor costs too. Moreover, since shipping costs are divided between a few different suppliers, transportation costs are reduced further, saving you money.

  • Efficient order fulfillment

As discussed before, consolidation warehousing ensures that orders go out on time. But this happens due to the streamlined functions at the consolidation warehouse itself. Run by a team of professionals who employ extremely advanced warehouse management systems, order fulfillment is an efficient and smooth process at consolidation warehouses.

  • Improved customer service 

In any business, the customer is king. In fact, over 89% of customers are likely to come back to a business after having a positive customer experience. 

If you cannot offer efficient customer service, you risk not only losing your current customer base but any business that could come to you via word of mouth. 

With a consolidation warehouse, you can ship things faster and tend to customer demands quickly. Moreover, given that your team will be able to perform far more efficiently, it will free up time for you to brainstorm and refine business processes further. 

Disadvantages of a Consolidation Warehouse

While the benefits outweigh the disadvantages of a consolidation warehouse, it is crucial to make a note of them to have a plan of action in place to rectify them when the situation arises. Some of the risks associated with consolidation warehousing have been listed below.

  • Complexity of managing multiple shipments

The communication between a shipper and the carrier or the 3PL is usually very high in the utilization of a consolidation warehouse. Therefore, there is always a risk of miscommunication, potentially leading to errors in transportation and fulfillment.

  • Potential delays and disruptions

The process of warehouse consolidation itself is an added step in the shipping process that takes extra time. Therefore, if fast shipping is why your company stays at the top of the game, there may be better options than warehouse consolidation. 

  • Human errors

Consolidation warehousing is also a task that involves the swapping of additional data on top of other data exchanged within a logistics system. Moreover, given that human beings are responsible for dealing with this data, there is always a chance of human error. Furthermore, these errors can be much harder to address. 

The Process of Adding Consolidation Warehousing to the Supply Chain

The process of consolidation warehousing differs between businesses. How and where it might come into play within the supply chain relies entirely on the product type and category, business size, warehousing space, etc. 

Nevertheless, most consolidation warehouses perform the following functions. 

  1. Product receipt and sorting

When shipments arrive at the consolidation warehouse, the first step is the product receipt process. This includes checking the shipment against the accompanying documentation, verifying the contents, and ensuring that the products are in good condition. The consolidation warehouse staff then performs sorting of the received products based on various criteria, such as destination, product type, or specific requirements.

  1. Storage

During this storage phase, products are typically temporarily assigned designated areas or zones within the consolidation warehouse. The storage process includes arranging products to maximize space utilization, ensure easy accessibility, and minimizes the risk of damage. Efficient storage practices, such as proper racking, labeling, and inventory management systems, help maintain accurate stock levels and optimize the consolidation process.

  1. Handling of product

The handling phase in consolidation warehousing involves various activities. These include:

  • unloading shipments
  • moving products within the warehouse
  • preparing products for consolidation

Warehouse personnel use equipment like forklifts, pallet jacks, or conveyors to handle products safely and efficiently. During handling, it’s crucial to follow proper handling procedures, ensure product integrity, and minimize the risk of damage or loss.

  1. Batching

Batching refers to the process of grouping products or orders together to create consolidated loads for transportation. In consolidation warehousing, products are batched based on specific criteria, such as destination, delivery schedules, or customer requirements. 

  1. Dispatch

Once the products are sorted, stored, and batched, they are assembled into complete loads ready for dispatch. This includes activities like verifying the accuracy of the consolidated shipments, finalizing documentation, labeling the shipments, and coordinating with transportation providers. 

The dispatch process ensures that the consolidated loads are correctly prepared and promptly delivered to their intended destinations, maintaining the efficiency gained through consolidation.

Functions of a Consolidation Warehouse

  • Product receipt and sorting
  • checking shipment against the documentation
  • verifying the contents
  • ensuring that the products are in good condition
  • Sorting based on the destination, product type, requirements, etc
  • Storage
    • Proper racking
    • Accurate labeling
    • Implementing inventory management systems to monitor stock levels
  • Handling of product
    • unloading shipments
    • moving products within the warehouse
    • preparing products for consolidation
  • Batching
    • Grouping of products according to destination, product type and requirements
  • Dispatch
    • verifying the accuracy of the consolidated shipments
    • finalizing documentation
    • labeling the shipments accurately
    • coordinating with transportation providers

A business can choose to implement these steps at any point. However, they should ideally outsource these processes to a 3PL to offload any extra burden and focus on other growth factors instead.

Best Practices for Working with a Consolidation Warehouse Firm

Whether it is at a consolidation warehouse or any other process, certain disadvantages and limitations are inevitable. However, in most cases, the advantages often outweigh the drawbacks. Nevertheless, it is pertinent to take precautions and adopt best practices to reduce their negative impact. Here are some tips to ensure your warehouse consolidation process is implemented smoothly.

  • Implementing technology and automation

Ensure that the 3PL service you’re using has access to the latest version of the WMS technology used in optimizing consolidation warehousing. Moreover, it has to integrate with your warehouse’s existing system. This will be responsible for three crucial things that will drive your business efficiency:

  • seamless communication
  • real-time tracking
  • improved inventory visibility 

Additionally, this can help you cut costs, expedite order fulfilments and even minimize errors. 

  • Streamlining processes and workflows

Efficient workflows form the crux of the consolidation warehousing process. Hence, it is crucial to audit and analyze the current strategies and determine the areas that may require improvement. These include:

  • Streamlining receiving, sorting, packing, and shipping procedures to reduce bottlenecks. 
  • Standardization and documentation of workflows to ensure consistency and enable training of new staff members. 
  • Reviewing and refining processes based on performance metrics and feedback from the consolidation warehouse provider.
    • Optimizing inventory management

Accuracy in maintaining inventory levels is often one of the most critical parts of any business. However, inventory management can become a hassle when you outsource specific processes. Consolidation warehousing requires you to not only implement a WMS but also use it to its efficient best by regularly monitoring stock levels and locations. 

Moreover, consider investing in demand forecasting tools to prevent stockouts and excess inventory. Additionally, implement inventory classification methods to optimize storage space utilization and conduct cycle counts to ensure inventory accuracy.

  • Creating a solid partnership with your consolidation warehouse provider

Fostering a robust alliance with the consolidation warehouse-providing entity is crucial to maintain transparency and ensuring consistency within the organization. Here are a few ways you can establish effective communication with your provider:

  • Establish communication channels to trade information, address concerns, and collaborate on improvements. 
  • Review performance metrics and discuss areas for optimization. 
  • Establish your expectations regarding service levels, timelines, and reporting. 

How Can Locad Help with Your Consolidation Warehouse Needs

By implementing the right technology, streamlining the workflow, inventory optimization, and fostering a strong partnership, you give your company a chance to extract the best out of your warehouse consolidation efforts. 

A consolidation warehouse can be why your firm experiences reduced costs, enhanced operational efficiency, customer satisfaction, and a robust supply chain. 

However, you cannot do this alone, and Locad can be just the partner for you. 

We offer you access to some of the foremost technology in the arena of storage, shipping, and inventory management. Moreover, our well-trained warehouse staff ensures that you don’t have to invest additionally into staffing. We also ensure inventory visibility and the processes within the warehouse. 

With Locad, you can trust that you will experience operational efficiency like nowhere else. So, what’s the hold? Sign up with us today for all your consolidation warehouse requirements. 


Who is a warehouse consolidator?

A warehouse consolidator is a third-party logistics company or a 3PL responsible for undertaking all the consolidation services that an e-commerce firm might require. They specialize in combining smaller shipments from multiple suppliers or customers and operate warehouses where the sorting, packing, and shipping are done. 

What are the different steps of consolidation?

Consolidation generally has five steps: 

  • Stocking
  • Storage
  • Sorting
  • Batching
  • Dispatching

The order of these steps can either be shuffled or eliminated based on the processes within each individual consolidation warehouse.

What is the consolidation process?

The consolidation process in shipping is the gathering of several smaller LTL freights into one large freight to optimize costs and earn preferred shipping rates. 

What is the difference between consolidation and break bulk warehousing?

Break bulk warehousing is the consolidation of different parts from several suppliers to build one product. In contrast, consolidation warehousing involves the combining many fully assembled products to ship them to similar locations.

What is consolidation’s place in the supply chain?

Consolidation warehousing is placed at the stage of shipping and delivery. The deliverables arrive at one common location and are dispatched across various different areas along with other shipments headed in that direction.

Experience fulfillment by LOCAD

Grow your business through Locad’s simplified and automated fulfillment solution

  • Unlimited and scaleable warehousing
  • Pay only for what you store
  • No hidden fees or lock-in periods
  • Zero inbound costs
  • Wide integration with marketplaces
  • Automated logistics and delivery
Get the latest e-commerce industry news, best practices, and product updates!

Don't miss out on the latest news!

Get the latest industry news, best practices, and product updates!

Up to $250K USD Credits for Locad Customers!

Sign up today and accelerate your growth with Locad’s Partners. Unlock deals across SaaS, Agencies and more.

Exclusive benefits to ace your e-commerce game this 2023 with Locad’s desk calendar!