On-Demand Warehousing: Reshaping Logistics By Darshan. K, Assistant Editor, CIOTech Outlook

On-Demand Warehousing: Reshaping Logistics

Darshan. K, Assistant Editor, CIOTech Outlook | Thursday, 30 May 2024, 10:48 IST

In 2017, the world’s largest toy retailer declared bankruptcy after being in business for nearly 70 years. The fall of this company after being a dominant player in the market for so long has been the subject of numerous studies. The most common reasons attributed to its decline are associated with its logistics and warehousing issues. A lot of their competitors had streamlined their logistics to cater to the demands of modern e-commerce, but Toys “R” Us lagged behind with its outdated supply chain and was extremely inefficient in its inventory management.

On-Demand warehousing is a flexible storage solution which can help businesses avoid problems like this. They can rent warehousing space and additional services on a short term basis for a relatively low cost. This model resembles a gig economy, but for warehousing. Companies can scale their storage requirements based on real-time demand without being locked into a long term lease. Growing and established organizations alike leverage the services of this facility for the plethora of benefits they offer.

"By leveraging technological innovations, fostering strategic partnerships, and embracing sustainable practices, India's warehousing sector can realize its full potential as a cornerstone of the nation's economic growth and industrial development," Varun Gada, Director, LP Logiscience.

Scalability

Depending on the locality of the business, acquiring/renting a storage space can be the biggest expense on the balance sheet. And the element of uncertainty of demand for their products can result in buying space which might not be utilized completely most of the year. In on-demand warehousing, businesses can adjust their storage capacity to match their demand. This scalability is beneficial for industries which face seasonal peaks thus allowing companies to avoid overstocking and stockouts. This flexibility prevents them from overcommitting to long term leases.

Lull Ventures, a direct-to-consumer mattress company, faced significant seasonal demand spikes, especially during the holiday season and special sales events like Black Friday. By leveraging Flexe's on-demand warehousing, they could scale up their storage capacity in anticipation of these peaks and then scale down post-season. This flexible approach allowed them to avoid the financial burden of year-round warehouse leases, maintaining a lean operation during slower periods and rapidly expanding when demand surged. This adaptability was crucial for maintaining inventory levels and ensuring timely deliveries, directly impacting customer satisfaction and repeat business.

“Scaling is a process where the product comes first. If there is no product, you have nothing to scale,“ Roopak Naresh Gupta, CEO, mTap Corporation.

Geographic Flexibility

Companies operating away from home on international markets require an inventory space close to their customer base, this can reduce their shipping times and costs. This is vital for remaining competitive in the market. Choosing the right logistics partner overseas can make or break your business. This strategic placement enhances customer satisfaction by ensuring faster delivery times and lowering transportation expenses.

Samsung leveraged on-demand warehousing to strategically distribute its inventory across multiple U.S. locations. This approach enabled Samsung to place products closer to major customer hubs. For instance, during the launch of a new smartphone, they used on-demand warehouses to store devices in proximity to key markets, ensuring that customers received their orders promptly. The reduced shipping times not only enhanced the customer experience but also allowed Samsung to offer competitive shipping rates, which are critical in the highly competitive consumer electronics market.

"Scaling is all about growth and expansion. Any business while scaling up a business, whether small or medium-sized, faces several common hurdles," Rajiv Bhatia, President, Analytix Solutions.

Cost Efficiency

The “Pay-as-you-go model” ensures businesses only pay for the space and services that are utilized. This model reduces overheads and optimizes resource allocation, thus providing significant cost savings compared to traditional warehousing. Warehousing solutions provider Flexe notes in their findings that customers see an average reduction of 12% and save nearly $10 million in warehouse contracts.

Ace & Tate, a European eyewear retailer, utilized Ware2Go’s on-demand warehousing to manage its inventory across different countries. By avoiding the commitment of long-term warehouse leases, they could dynamically adjust its storage footprint in response to demand fluctuations. The savings realized from this model allowed the company to invest more heavily in marketing campaigns and product development. Additionally, by only paying for the space needed at any given time, they maintained a more flexible and financially sustainable operation.

"Supply chain managers with business acumen can analyze costs, identify trade-offs, and pinpoint opportunities for efficiency without sacrificing service quality," Sanjiv Chatterjee, Global Head of Manufacturing, LIPTON Teas and Infusions.

Enhanced Services

Majority of the relevant on-demand warehousing service providers offer additional value added services, such as order fulfillment, kitting and last mile delivery. The availability of these services allows the companies to focus on their core activities. While it is simple to find a service provider who specialize in what they do, what allows them to stay relevant in the market is how they can stand out from other players, and that is possible through offering additional services.

Stitch Fix, an online personal styling service, faced complex logistics challenges due to the personalized nature of its product offerings. By using on-demand warehousing services that included order fulfillment and returns processing, they could streamline their operations significantly. This comprehensive service offering allowed them to manage the high volume of customized orders and returns more efficiently. The ability to outsource these logistics functions enabled the company to concentrate on enhancing its personalized styling algorithms and customer service, directly contributing to its growth and success in the highly competitive fashion industry.

"Organizations need to be flexible, open-minded, and agile when it comes to meeting the ever-growing needs of their customers, and timely evaluate those needs which can provide strong indications of how brands need to adapt to survive," Kapil Lad, Head of Marketing, Azeus Systems Limited.