Blog postsAugust 10, 2017
The 3 Biggest Problems Your Logistics Teams Will Face in Q4
... and how to solve them with on-demand warehousing.
The holidays are coming. Aside from that being one of your busiest times of the year, the movement to eCommerce and omnichannel shopping has made accurate demand planning impossible and inventory allocation harder than ever.
Predicting where your highest demand will be this holiday season can feel like solving a Rubik’s cube blindfolded. Will your customers go directly to your stores to buy, will they research online and then pick up in-store, or will they complete all of their purchases through your website?
Traditional methods can’t handle the agility required to keep up with today’s ever-changing market. Today’s supply chain has to be flexible. If you’re relying on a static supply chain, then how will you solve for the unexpected?
Between inventory fluctuation and seasonality, making it all fit when it needs to, and general supply chain disruptions, there’s a lot to plan throughout the year.
On-demand warehousing—a marketplace platform that connects retailers in need of warehouse space with warehouse operators that have it—enables retailers to scale their distribution networks as demand, well, demands.
Roger works in logistics for an omnichannel retailer. He’s in charge of inventory management across its distribution and fulfillment network. On top of managing the supply chain infrastructure day to day, he’s also acutely aware that his busiest holiday season is right around the corner.
Roger’s biggest pain point is managing increasing shipping costs for both direct-to-consumer and bulk fulfillment to retail stores, and knows he’s going to hit capacity in Q4 with the impending demand. Roger also knows the right answer is not to invest in more fixed assets or warehousing space, as it’ll leave him with too much capacity after the first of the year.
Any of this sound familiar?
According to our Warehouse Capacity Economics and Trends survey, 74% of retailers cite fluctuation as a key challenge throughout the year. So with Q4 just around the corner, managing both the planned and unplanned inventory fluctuation is critical to keeping everything moving smoothly. And, having an ace in your back pocket for the “Oh S*$t!” moments doesn’t hurt either.
Here are three common logistics problems you can easily solve with on-demand warehousing.
1. Supply chain disruptions
Supply chain disruptions happen. Whether it’s temperamental weather, incorrect or last-minute inventory planning, or there’s a disruption in transportation, you have to be able to solve for whatever happens so that your margins aren’t crushed by what’s out of your control.
You can easily solve for supply chain disruptions with on-demand warehousing. When you’re solving for overflow during your peak seasons, the answer isn’t to buy or lease more space—it’s to find the space you need to solve your short-term problem.
With on-demand warehousing, you get a spot-market solution that doesn’t replace your current distribution network—it augments it when and where you need it. Using a marketplace solution, you can find warehouse partners around North America that have the excess capacity you need.
One retailer found themselves in a pinch when last-minute changes were made to its buying strategy—increasing its imported products by a significant amount. It didn’t have the warehouse space in its network to accommodate the extra capacity, so that meant it would have to store the extra products at the port. It found itself with 200+ containers sitting there with detention rates of more than $125 per container, per day.
Under such short notice, this retailer couldn’t go to its 3PL and find the warehouse space it needed to store the excess goods, but it also couldn’t absorb $25,000/day in port-storage fees. Instead, it turned to on-demand warehousing. Within two days the problem was solved and the 200+ containers were being moved to a warehouse facility nearby that had the capacity to store the goods.
2. Cramming it all in
Over-stocking your warehouse stunts productivity. If your aisles are crowded or if your warehouses aren’t organized, your operational efficiency will decrease, backing you up even more.
According to the Pareto Distribution Model, 80% of activity is generated by 20% of your inventory. As you plan for the holidays, or any foreseen peak seasonality for your distribution network, consider optimizing your warehouse layout to accommodate the 80/20 model.
For example, a lot of warehouses fall prey to “honeycombing”. Honeycombing is when too many clusters of slow-moving SKUs are spread out across the warehouse—making it difficult to organize your fastest-moving products efficiently.
What if this holiday season, you actually moved the majority of your slow-moving SKUs off-site and leveraged your distribution center for your top sellers? That way, you won’t have to cram everything into your warehouses. Instead, you can store and distribute your fast-moving SKUs more easily and treat your slower-moving inventory as a temporary overflow project.
3. Planned inventory peaks
Demand planning isn’t easy—especially for your busiest time of the year and especially now that purchasing happens through multiple channels. But, if you under-plan or inaccurately allocate inventory, that can cost you sales.
The alternative to under-planning, of course, is to invest in more warehouse space than you need and allocate that extra inventory to each location in your distribution network to accommodate peak seasons. However, you’re then left with excess space and goods when the season is over. So how do you get it just right?
The problem is, you can’t. Eighty percent of retailers said seasonality is still the biggest driver of inventory variations and supply chain disruptions even though 62% said most disruptions were “expected”. With a static distribution network, those numbers are too high.
When you rely solely on a static supply chain—either through your own distribution network or a 3PL’s—you lose money. There will either be excess capacity during downtime that’s absorbed as a “sunk cost” or you’ll spend more on outbound costs to get your products to where they need to be.
With on-demand warehousing, inventory fluctuation is solvable—and can be planned for rather easily without those long-term warehouse investments.
As you plan for your peak seasons, you can procure short-term warehousing space to manage your extra inventory by popping up warehouse locations where you need them to be.
Augmenting your distribution with pop-up locations to manage overflow gives you more control over inventory allocation through your busiest seasons and can help you cut costs on outbound shipping and transportation, depending on the context of the project.
The problem-solver: On-demand warehousing
From demand planning to operational efficiency to the unexpected, on-demand warehousing can solve your problems this season (and all seasons for that matter).
The below diagram illustrates your warehouse base capacity and temporary investment in short-term leases, which are almost always longer than what you actually need. It shows two scenarios: One with 1-2 peak seasons and one with three or more peak seasons. In addition to signing a short-term lease, you can also see that for most the year, your base capacity is significantly underutilized, so you’re also losing money by paying for the excess real estate you don’t use.
Now, take a look at the same two scenarios but with on-demand warehousing. If you’re solving for 1-2 peaks throughout the year, not only can you rely on on-demand warehousing for the extra space, but also reduce your total base capacity and save on real estate costs.
On-demand warehousing for overflow is a nimbler approach. It is a solution that can lower your logistics costs, improve your planning strategy, and help you out when the inevitable strikes.
FLEXE Overflow Solutions are designed to make your complicated job less complicated. Get in touch with us if you have any questions. We’re here to help.