On-Demand Warehousing Takes on the Space Crunch

The historic level of port congestion playing havoc with supply chains is grabbing loads of attention; but, at the same time, a massive warehouse space crunch is going on. It can’t be visualized like port congestion with a fly-over, but it’s for real, especially for key logistics nodes and lanes used to import consumer goods.

According to research from industrial real estate company CBRE, the United States will require an additional 330 million square feet of distribution space by 2025. The continuing e-commerce boom, along with the supply imbalances linked to the pandemic, have a lot to do with that need.

“While there is a sizable construction pipeline in the United States, much of that new space is already leased to meet the demand of the past few years,” James Breeze, senior director and global head of industrial and logistics research for CBRE, said in explaining the CBRE space estimate. “Moving forward, the challenge in many U.S. and global markets will be to produce enough new facilities to meet this rapidly expanding market. It’s important to bear in mind that e-commerce is only a portion of the overall demand for distribution facilities. Traditional retailers, third-party logistics [3PL] companies and others will also be demand catalysts.”

Other researchers also predict an acute need for more DC space. Interact Analysis estimates e-commerce growth will trigger an additional 28,500 warehouses to be brought into service globally by 2025.

Given that new warehouses often take well over a year to build and bring online, and many companies are eager to either hold more inventory now or revamp their networks to position inventory closer to e-commerce customers, the times are ripe for providers who fall into the “warehousing on-demand” services segment or otherwise provide warehousing services.

The warehousing on-demand segment has been around for several years, but the current market conditions are presenting these companies with a unique moment: high e-commerce growth, a shortage of space and all sort of retailers, brands and consumer goods companies scrambling to get better at e-commerce fulfillment.

Of course, 3PLs that offer warehousing stand to benefit from the same pressures, but the newer players say they differ when it comes to characteristics like paying for services as needed, Cloud-based software support and aggregating demand across warehousing partners.

The value prop

These on-demand players have differences, but one thing they mostly have in common is that they bring in 3PLs or other operators as partners to build up the network reach they can offer. Importantly, this funnels new business to warehouse partners and helps them achieve better space utilization, explains Karl Siebrecht, CEO of Flexe, a pioneer in the on-demand category.

With warehouse space being tight, many organizations are “gobbling up” existing space, even if the warehouse is bigger than initially needed, Siebrecht says, which leads to the irony of underutilized facilities during a space crunch.

“There is a tremendous amount of underutilized space in some of these warehouses, but … in a world with the Flexe model, that underutilized space can be monetized immediately,” Siebrecht says.

For shippers/brands, the value of the on-demand model is that they don’t have to build out or lease warehouse space of their own, which can be highly challenging to plan and budget for given the difficulties of accurately predicting demand over a multi-year horizon.

Yet, by tapping into an on-demand partner, they can achieve the network they’re after, says Siebrecht, without having to negotiate with 3PLs who insist on long-term contracts. On-demand warehousing, he says, is an alternative and nimble way to achieve the desired network.

“We’ve created a third way to do this, which is programmatic logistics, enabled through our tech platform that is connected to a broad open network of operators so the customer can plug in once to the tech platform and have access to warehousing and fulfillment anywhere. Also importantly, they achieve this on variable cost basis, or pay for what you use, so it’s inherently flexible,” Siebrecht adds.

Flexe’s platform includes warehouse management system (WMS) capabilities, used by both network parties—for the DC operators who need to manage inventory and pick, pack and ship process, as well as costs; and by the shippers, who want to know inventory levels, order fulfillment metrics and ensure that end customers are getting the service levels they expect.

“A big part of our technology platform is WMS functionality,” says Siebrecht. “We built our own WMS from scratch because we needed it to deliver on the design principles consistent with our model: first, to be fast and light to deploy; and second, that it’s multi-tenant on both sides—meaning, it’s a single Cloud-based WMS used by hundreds and hundreds of customers and hundreds of different operators simultaneously.”

Flexe relies on 3PLs to be its DC operators, with no DCs of its own, though its technology platform provides visibility into fulfillment performance and service level agreements (SLAs). “We, as an extension our customers, can have really clear and strong operating control to make sure there’s the expected efficiencies, the quality is there, and our customers’ SLAs are being met,” says Siebrecht. “It’s the same set of metrics that the customer is seeing, that Flexe is seeing, and that the operator is seeing because it’s the same system.”

Fulfillment prowess

For these providers of outsourced fulfillment networks, software capabilities are an outsized part of their value. For Stord, which describes its fulfillment services as amounting to a “Cloud supply chain” because of its Cloud software foundation, the market needs go well beyond space, says Mario Paganini, head of marketing.

“How efficiently you are able to move your products through your supply chain, and how smart you are about what products you put where, and the ramifications that has for how quickly you reach your customers, is at least half of the battle,” says Paganini.

When clients engage with Stord, the first step is to analyze order data and data on where orders get shipped in Stord’s software to figure out the best nodes in the network to tap into and inventory levels needed to service end-customers in desired delivery time frames. After clients engage with Stord, the software can be used to monitor and adjust inventory levels. “We’re offering our customers much more than space—we’re offering them intelligence and we do that through our software,” Paganini says.

Stord has hundreds of DC partner warehouses, but also has built a few of its own. According to Paganini, the Stord sites aren’t meant to be better than the partner sites, but rather, serve as test beds for innovation, without needing to trouble partners with piloting new functions.

At Stord’s Atlanta fulfillment center, for example, autonomous mobile robots (AMRs) from Locus Robotics have been implemented. Paganini adds that Stord isn’t prescriptive with its operator partners in terms of specific types of materials handling automation they need to use in servicing Stord’s clients, as long as they can provide visibility to end clients through the Stord platform and hit expected service levels.

For the clients who use Stord’s network, the Cloud software functions at a supply chain control tower level, Paganini says, helping them see how well the network is performing. “Our clients have that one unified view across their supply chain network. They’re seeing both inbound and outbound orders in their network, and inventory levels, and from there, it becomes much easier to make smart decisions,” says Paganini.

Ware2Go, a UPS company, is able to help with everything from global freight forwarding to network design and warehouse services to small parcel shipping, with its distributed network of certified warehouses and supporting software, says Chris Domby, Ware2Go’s chief supply chain officer.

“Our goal is to simplify the supply chain for businesses of all sizes, so we provide an end-to-end solution, not just one component,” Domby says.

Ware2Go’s network currently includes more than 30 warehouse partners. For these operators, the benefits include greater business volume and space utilization without having to land new clients, and use of Ware2Go’s WMS to support their work as part of the network.

For the shippers or clients of the network, explains Domby, the key benefit is that by engaging with Ware2Go, they can quickly achieve a fulfillment network through one partner, and hit the one- or two-day delivery windows that many consumers have come to expect.

“With us, you can put your inventory in just three warehouses and get to 98% of the U.S. population in two days,” says Domby. “Your inventory doesn’t have to be in seven or eight different warehouses, it can be as simple as just using three.”

Ware2Go’s FulfillmentVu software provides the warehouse partners with a platform that covers WMS, transportation management systems (TMS), and order management functionality, and the platform ties into the client’s e-commerce storefronts or enterprise systems so there is no “heavy technology lift” to service the additional business, Domby explains.

The software platform also feeds order fulfillment and inventory visibility functions for client companies, while another Ware2Go application called NetworkVu is used to perform network analysis that answers questions such as which warehouses should be used, and the inventory levels needed. Domby says Ware2Go is working on adding enhanced functionality for inventory management, which uses artificial intelligence (AI) rather than min/max logic, to maintain optimal inventory levels.

Different clients have different network needs, Domby says, so there’s no single driver for the on-demand model. Lately, some clients are running low on space because they have built up higher inventory levels than normal to mitigate the risk of stock outs given pandemic-related supply disruptions, but the longer-term driver is that companies are doing more e-commerce, and their existing DCs or 3PL arrangements may not have been put in place with e-commerce fulfillment in mind.

“Many traditional retailers are having to shift over to more of an e-commerce distribution model, and while they may have been very good at store replenishment … they aren’t necessarily set up to be good at e-commerce,” Domby says. “And that is where our sweet spot is. We can connect into the e-commerce platforms and handle the fulfillment process for them in a way that meets consumer expectations. Really, Amazon is driving a lot of the expectations, which drives the need for having distributed fulfillment networks.”

Transportation counts

Using a fulfillment network partner makes sense for companies that need to expand quickly or lack the capital and expertise to build out an effective network of their own, says Shaun Rothwell, CEO of iDrive Logistics, which offers warehousing and fulfillment services but is not an on-demand warehousing vendor in the sense that it does not recruit 3PLs or other operators to provide the nodes for its network.

However, Rothwell sees warehousing and logistics changing, with it becoming increasingly challenging to manage an omni-channel fulfillment network, including the running of the warehouses, and arranging for cost-effective transportation.

“One of things we’re doing, with some of our clients that have their own warehousing, is that we’ll actually go in take over the running of their current facilities for them,” Rothwell says. “For some companies, trying to run their own warehousing is the most painful part of their business. They want to produce products and focus on sales and marketing and the supply chain fulfillment piece is really the least desirable part of their business.”

In some cases where iDrive comes in to run a warehouse, and a significant amount of unused space is available, it has turned the DC into a multi-tenant facility servicing multiple customers to get higher utilization from the building. “I think there is going to be an industrywide build out of more facilities, but that will involve significant lag time, so in the meantime, we as an industry need to find ways to maximize space utilization,” Rothwell says.

To run its fulfillment network, iDrive Logistics uses its combined WMS and TMS software, called ShipCaddie TWMS, which the company has begun offering to companies who want to deploy it internally. This software expertise, as well as iDrive’s expertise in carrier audits and transportation consulting, help users of its fulfillment services achieve effective results, Rothwell says.

Most fulfillment networks lack a fully integrated WMS and TMS foundation, Rothwell adds, so clients might not be able to tap into the best transportation options. “There are some real void points in the technology that exists today, and that is the reason why we built what we built,” Rothwell says.

For example, says Rothwell, it’s important that a network’s TMS tie into the full range of services and routes available from carriers and reflect what the full costs will be, including accessorial charges that carriers often charge. “Our network is different because we have built and overlaid our own, proprietary software,” he says. “Then around this software, we’ve built all the analytical tools to provide the right strategy for an e-commerce shipper to utilize the right carriers and provide the right price, and the right time-in-transit, to the end customers.”

Of course, major 3PLs have expertise in both warehousing and transportation, and some have unmatched global reach as well deep technology expertise, so it’s not as if the newer providers of fulfillment services have the need for more warehouse space locked up for themselves. Ultimately, there is likely enough demand for warehouse capacity to go around for the major 3PLs and the newer players.

Another good bet is that the motivation to rapidly create effective fulfillment networks will remain a high priority to compete with the biggest player in fulfillment: Amazon.

“Everyone has to figure out how to compete with the Amazon model,” Rothwell concludes. “To be competitive in this Amazon world we live in, you really need to be able cover the map with a one-to-two-day time in transit, and you have to have the technology and the transportation solutions in place to be competitive.”