On-Demand Warehousing 101: 7 Supply Chain Challenges Solved with On-Demand Warehousing

August 22, 2019

Modern retailers and brands use on-demand warehousing to solve their toughest logistics challenges.

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From fast-growing digitally native brands like Great Jones to established multinational retailers like Walmart, on-demand warehousing is helping retailers and brands of all sizes cut costs, adapt to changing customer expectations, and survive in this new age of retail.

Key Takeaways

  • The differences between traditional and on-demand warehousing
  • 7 ways to use on-demand warehousing
  • Why flexibility is key to retail success

In this second installation of our on-demand warehousing 101 series, we’re digging into the problems on-demand warehousing helps solve, and the possibilities that it opens up for retailers and brands.

If you haven’t read the first article in the on-demand warehousing 101 series, go check out What is on-demand warehousing? And for an even deeper dive, as well as marketplace pricing and trends, download The 2019 State of On-Demand Warehousing whitepaper.

Traditional warehousing vs. on-demand warehousing #

When the internet came along, it changed the way we shop, but the logistics networks that support it failed to change with it. Leaving retailers and brands with solutions that can’t keep up with the demands of today. Here’s how traditional solutions and on-demand warehousing stack up:

Traditional warehousing vs. on-demand warehousing

Traditional Warehousing On-Demand Warehousing
Manually search: Requires time and resources to source and onboard with new 3PL providers; steep startup costs; months-long implementation times; have to repeat if expanding into new markets or adding providers Search is simplified and expansive: Choose from a list of vetted providers that match project scope and requirements; No startup costs; Get started in weeks, not months; Standardized technology, terms, and billing, making adding more warehouse locations super simple
Disconnected technology: Implement and manage multiple technology systems across different 3PL providers; No view of aggregate data across network Standardized technology: Unified technology platform across providers; Centralized visibility and control across your network; Real-time dashboards and detailed reporting
Expensive and rigid terms: Requires fixed investments and steep startup costs; Unused capacity and services are a sunk cost; Terms and contracting vary from provider to provider Pay-as-you-go model: Only pay for the space and services you use; No long-term leases or startup costs; Flexibility to ramp up or down depending on your business needs
Limited: Growth is limited by network locations and capabilities; Service levels drop when volumes increase; Lack of expertise in supporting new channels Flexible: Expansive network includes every major metro area; Broad range of capabilities; Overflow, retail distribution, and eCommerce fulfillment options; Access to a team of logistics experts

You’ve seen how on-demand warehousing is different than traditional solutions, now let’s explore how it solves some of the biggest logistics challenges retailers and brands face.

7 ways to use on-demand warehousing: From immediate to strategic #

1. Storage on short notice

As much as you try and plan ahead, supply chain disruptions are inevitable. But how do you prepare for the unexpected? On-demand warehousing gives retailers and brands a flexible short-term solution for those “oh sh*t” moments like inclement weather issues, unexpected inventory, incorrect forecasting, and more.

Saving on premium storage costs, like port fees

Ace Hardware was able to solve an urgent and costly overflow problem with Flexe on-demand warehousing, saving the company $30K a day in port fees.

Ace made changes to its inventory planning and buying strategy, making it difficult for Ace’s supply chain management team to foresee how the new changes in product supply and the ongoing shifts in demand would impact facility operations in the long run. Within a year, it was running out of capacity.

When a new shipment arrived, Ace didn’t have the capacity required to accommodate the inventory. That’s when Ace found Flexe. Flexe sourced a provider immediately and inbound shipments were scheduled and delivered to the warehouse in just two days.

2. Strategic storage

In addition to short-term storage needed for unexpected supply chain disruptions, retailers and brands can keep on-demand warehousing in their back pocket for new initiatives that require capacity outside their own infrastructure, so as not to disrupt ongoing operations.

Emergency supply chain solution to prepare for hurricane season

After Hurricane Harvey, Ace Hardware recognized an opportunity to create an emergency network to support the 2018 hurricane season. Called Hurricane Heroes, Ace used Flexe on-demand warehousing to add capacity to its network and store the bulkier inventory required to support areas impacted by extreme weather, such as generators, empty propane tanks, and more.

Ace strategically popped-up Flexe warehouses near potentially affected areas. As a result, when Hurricanes Florence and Michael hit, Ace was able to respond to the areas in fewer than 24 hours.

Offsetting impending tariffs

Even more recently, Ace needed another strategic storage solution when it was announced that the U.S. would be implementing a steep 25% tariff on steel. With the tariff fast approaching, Ace quickly imported large quantities of steel products and equipment from overseas and used Flexe as a storage solution to hold the inventory.

3. Handle peak seasons

In The 2019 State of On-Demand Warehousing, we discovered that 74% of surveyed retailers and brands deal with inventory fluctuations, and the number one cause is seasonality. If you’re in the majority of businesses who deal with seasonal inventory fluctuations, a solution like on-demand warehousing can help you better manage inventory levels by adding warehouses or fulfillment centers, as needed, to handle the increase in demand. Once peak season is over, you can “turn off” those locations, instead of being left with excess capacity.

On-demand warehousing for your busiest seasons

Walmart adds capacity and services through on-demand warehousing for eCommerce fulfillment and inventory overflow to help manage demand during peak seasons.

By adding three fulfillment centers, it was able to manage the additional influx of orders during the Black Friday / Cyber Monday events. With additional facilities, Walmart was able to increase throughput and ship out thousands of units during the three-month period, with a 99.9% ship-on-time rate.

In addition to fulfillment, Walmart added capacity across multiple Flexe providers to store and manage its best-selling non-conveyable items, enabling the retailer to better support stores across the country during the 2018 holiday season.

4. Make a strategic move to build your brand

In many cases, businesses face the challenge of being restricted by their existing warehousing and fulfillment system. Owned networks are inflexible and difficult to scale up or down, while solutions like dropshipping or Fulfillment by Amazon can limit your partnership and channel options.

Expand your product line with a more flexible solution for fulfillment

In late 2016, Lull found itself limited by its current fulfillment solution: Dropshipping. Not only did dropshipping limit Lull’s capacity for storage, it wasn’t designed for direct-to-consumer fulfillment and stunted Lull’s ability to source new manufacturers who didn’t offer it.

By creating an eCommerce fulfillment network with on-demand warehousing, Lull was able to regain control over its distribution strategy and had the freedom to explore new partnerships. In fact, shortly after working with Flexe, Lull expanded its product lines and increased its SKU count by 6X.

5. Improve delivery times

It’s no secret that customers have increasingly higher and higher expectations for how quickly they get their eCommerce orders. Just this year, Amazon changed its standard Prime delivery promise to one-day delivery—putting even more pressure on retailers and brands to increase shipping speeds. On-demand warehousing can help retailers and brands meet the ever-increasing expectations by allowing them to position inventory closer to end customers, which creates shorter last miles and decreases last-mile carrier costs.

Shortened delivery times and reduced shipping costs with on-demand warehousing

By moving to Flexe Fulfillment and on-demand warehousing, Lull was also able to shorten delivery times. Lull’s existing solution of dropshipping didn’t give it the ability to improve its delivery promise—a key differentiator for growing brands. By placing inventory in fulfillment centers closer to their customers, it was able to shorten the last mile and reduce delivery times by 51%. Additionally, it was also able to cut its FedEx shipping costs by 30% because the transportation routes were shorter.

6. Scale up, scale back

In retail, stagnancy is a death sentence. Retailers and brands need to continually grow and evolve their business in order to survive. With on-demand warehousing, you can adapt to the needs of your business and your customers. On-demand warehousing gives you the ability to scale your warehousing and fulfillment networks up and down with demand, as well as test new strategies, and keep up with customer expectations—all without fixed costs or long-term contracts.

Product line expansion

A high-growth digital native brand uses on-demand warehousing for eCommerce fulfillment which has enabled it to test and enter new markets, add fulfillment centers for peak season, but also scale back to optimize operations throughout the year. With Flexe, it grew from six SKUs to 500, which wouldn’t have been possible via dropshipping from manufacturers.

The company was able to grow from one to 12 on-demand warehouses in fewer than two years without committing to long-term contracts or having to build out an expensive network of owned facilities.

7. Optimizing CPU

Every product you store in a warehouse has a price attached to it for inbound fees, storage, and outbound costs. Depending on how you organize your inventory, you can build out a strategy that optimizes your cost-per-unit (CPU).

There are two key examples of how to do this:

  1. Allocating different SKU types in different warehouses to optimize operations
  2. Using merchandising to drive optimization by increasing order volume and basket size

Improved operational efficiency through curated SKU allocation

In the Hurricane Heroes initiative, Ace strategically placed bulkier SKUs with Flexe instead of storing those items in its own distribution network. That way, large SKUs weren’t taking up prime warehousing capacity so that everyday operations weren’t interrupted for its hurricane initiative. By storing the larger items with providers from the Flexe Logistics Network, Ace was able to ensure those bigger items were out of the way, but also closer to the hurricane zone to reduce transportation times and costs when they were needed.

Increased order volume while reducing CPU

One Flexe customer was able to drive continuous improvements and reduce logistics costs through high-quality warehouse operations and its merchandising strategy. With Flexe, this company was able to ramp up to meet more than 100,000 orders/month during peak season, while also reducing CPU by more than 30% during that time.

Because this retailer offered free shipping on orders above $35, it incentivized shoppers to buy more products at once—increasing units shipped while decreasing its fully burdened CPU. The fully burdened price includes cumulative costs for inbound shipments, storage, outbound shipments, hourly labor, and supplies. Fewer shipments, with more products reduces the total CPU.

Looking ahead #

What all these challenges boil down to is the need to be able to adapt and evolve. Adding a level of flexibility to your warehousing and fulfillment network is key to competing in the retail world today. With on-demand warehousing, you can react to unexpected disruptions like tariffs or natural disasters, while also allowing for growth and evolving your business to keep pace with customer expectations.