On-Demand Warehousing to Become a Key Component in the Agile Supply Chain

On-demand warehousing platforms are starting to gather momentum within the logistics sector as several startups and spin-outs jostle for position to disrupt the market. These digital platforms connect warehouse owners with companies needing additional storage space or fulfillment capacity on a short-term basis. Retailers and goods owners are able to easily search by location for available warehouses with the necessary features and facilities, and then complete the necessary administrative processes on the same platform, vastly simplifying the traditional leasing process.

In the United States, companies like Flexe and Ware2Go compete directly, while Stowga has emerged as a leader in the nascent warehousing-as-a-service market in the United Kingdom. They all offer a sleek digital platform and have the same common goal: to provide a more flexible and transparent warehouse leasing process. However, while Flexe and Stowga are independent platforms, Ware2Go was spun out of UPS and offers access to the Third-Party Logistics (3PL) giant’s vast network of warehouse space, in addition to other independent storage and fulfillment facilities. Ware2Go also offers additional services that leverage UPS’s logistics capabilities, such as Warehouse Management Systems (WMS) and end-to-end fulfillment services. Companies like Stowga, which rely on the real estate footprint of other companies, are evolving from being a simplistic Airbnb-type platform toward providing a more end-to-end service that takes into account the intricacies of warehousing leasing and the complex and bespoke requirements on both the supply and demand sides.

For supply chain operators and goods owners, flexible warehousing can be used in the following ways:

• Acquiring additional storage or fulfillment capacity as demand increases due to seasonality or significant events in the market.
• Scaling back storage or fulfillment facilities as demand decreases, thereby saving money.
• Finding emergency storage or fulfillment capabilities in the event of disasters or unforeseen circumstances
• Temporarily relocating low velocity goods to remote locations, where storage is cheaper
• Managing risks and uncertainty caused by slower or faster-than-expected growth

In its current form, the warehouse leasing market is ripe for disruption due to inherent problems that have affected warehouse owners and goods owners for decades. These include lengthy minimum contracts, drawn out and complex negotiation processes, delayed invoicing, under-utilized capacity, and general shortages of storage space, all of which can create risk and be potentially solved with on-demand warehousing platforms.

Supply chain flexibility is becoming more crucial in an increasingly competitive and demanding logistics market. This need for flexibility is largely driven by various predictable and not-so-predictable factors, including seasonal peaks, rapidly shifting consumer demand, adverse weather, disruptive events, and even political uncertainty (e.g., merchants stockpiling medicines in preparation for Brexit). This is making the benefits of on-demand warehousing for retailers and goods owners abundantly clear, with many success stories already emerging thanks to the use of these digital platforms. In 1Q 2018, for example, hundreds of KFC restaurants in the United Kingdom were forced to temporarily suspend operations due to a mix-up by the 3PL contractor, resulting in the inability to store its supply of fresh chicken; a bit of a problem for this brand in particular! In response to the crisis, KFC used Stowga’s platform to find emergency storage space and end the catastrophe.

Of course, flexible warehousing is not just a useful crisis management option in rare circumstances. It also offers considerable value to merchants running every day operations. Being able to rapidly scale warehouse operations up or down as required is an ongoing advantage that enables growing or shifting operations to be successfully executed on time and in full, while also allowing costs to be cut if additional space is no longer required. The traditional model of long lease periods and lengthy negotiation periods simply prohibits this.

Additional value streams will also emerge from the wealth of data generated by digital on-demand warehousing platforms. Companies like Stowga are using their data to help the various stakeholders on both sides of the supply and demand divide in the warehousing market. For warehouse owners, understanding which regions or warehouse types are in demand allows additional facilities to be built or bought with the backing of hard data and evidence, therefore increasing returns on these real estate investments. For companies requiring temporary warehouse space, these digital platforms can provide data related to warehouse spending and other directly associated logistics costs, such as transportation expenses. Having these data available on one platform, rather than spread across several invoices with multiple warehouse suppliers, allows for strategy and cost optimization. It could also be possible for companies to directly feed these platforms and their data into Supply Chain Management (SCM) systems, allowing operations to be optimized, depending on critical factors, such as distance to the customer and cost.

The wider transformation of warehouse operations is, of course, gathering pace thanks to automation and increased productivity facilitated by digital tools, such as robotics, the Internet of Things (IoT), Artificial Intelligence (AI), and augmented reality. Many of these technologies are simply impossible to implement in short-term warehouses rented on an on-demand basis (due to the need for single occupancy locations and the complexity of installation). However, the value of the warehousing-as-a-service model is not about increasing efficiency within the four walls of individual facilities. Instead, it is about enabling the wider supply chain to adapt to ever-changing needs in a fluid and optimized way, while reducing the risks of having capital tied up in long-term real estate contracts.

Flexibility is achievable, thanks to platforms like Stowga, Flexe, and Ware2Go, can potentially tie in with the wider SCM software ecosystem. The increasing sophistication of AI-driven demand sensing and supply chain planning is allowing supply chain owners to adopt more agile logistics practices, as is on-demand warehousing. If combined, these tools could allow goods owners to predict demand, pre-empt logistics planning needs, and then execute a flexible strategy that ensures the right products are in the right place in a more distributed way as needed. Without flexible warehousing, agile supply chain planning relies on the availability of a vast network of warehouse facilities; something only businesses like Amazon, 3PLs, and a handful of retailers possess. Flexible warehousing and the emerging power of prescriptive analytics, what-if scenario planning, and accurate demand sensing in the supply chain could be a liberating force for merchants, retailers, and goods owners.

But this will only happen if deep integration of these tools occurs, because managing warehouses in a silo is highly inefficient. On-demand warehousing platforms contain critical information related to the cost, attributes, availability, and location of warehouse facilities. This translates into quantifiable data that can, in theory, be directly fed into SCM and warehouse management software. Based on these data, AI-enabled scenario planning can automatically determine the optimal location or warehouse type for the storage, fulfillment, or distribution of goods. More importantly, companies using a flexible warehousing strategy can swiftly adapt to changing conditions if the use of alternative warehouses becomes more viable.

Part of the reason why Amazon’s logistics capabilities lead the market is due to its inherent agility powered by its market-leading algorithms and optimization tools, coupled with a vast infrastructure network that can execute supply chain planning on a highly distributed and wide scale. For instance, Amazon can preemptively move goods closer to where they need to be before orders have even been placed. While this is perhaps difficult for other retailers to emulate entirely, companies can at least start to approach higher levels of optimization if they combine flexible storage and fulfillment with powerful analytics and AI-driven supply chain optimization tools.

Warehousing-as-a-service is not viable in every warehouse situation and cannot solve all the problems within a supply chain. However, on-demand warehousing’s ability to integrate with wider supply chain optimization technologies and strategies offers enormous potential in a wide number of critical scenarios. Those that act quickly and build additional value around flexible warehousing models stand to gain, as companies strive for greater agility and flexibility within their supply chains.