Blog postsApril 24, 2019
Reinventing warehousing and fulfillment with an on-demand model
What is on-demand warehousing and why is it needed?
In the last 20 years, we’ve seen significant advancements in most areas of our lives—how we work, communicate, and consume information. But, one of the biggest transformations has been in the way we consume goods.
Today, we can pretty much avoid shopping in stores altogether. We can order goods from around the world—be as loyal to online businesses across the country as we are to stores down the street. Geography is no longer a barrier.
The internet and eCommerce "placed the world’s inventory at our fingertips". But, the logistics solutions that support the movement of goods—whether that’s to a store shelf or your front door—have been slower to evolve. We’re at an inflection point.
New offerings like on-demand warehousing and other digital logistics platforms have democratized the supply chain. It’s now possible for retailers of all sizes to create distribution networks tailored to their businesses that can help them meet ever-evolving customer expectations for fast, affordable delivery.
But, what is on-demand warehousing and what caused the need for a new approach to one of the oldest industries in the world?
The old model: Store shelves and linear supply chains
With the exception of catalog shoppers, purchases have taken place almost exclusively in stores up until very recently. In fact, the first documented bazaar dates back to 3,000 BCE. For thousands of years, sellers brought goods to centralized markets where buyers could go to shop.
Retail formats evolved to include downtown shopping centers, suburban malls, strip malls, and big-box stores, but the model remained the same: Wholesale goods were made available in a centralized location. Consumers had to travel to the supply.
As a result, a $1.5 trillion logistics industry was developed and optimized to support that model. Companies have spent decades getting really good at moving products from their point of origin to their end destination—typically a store shelf.
The disruptor: The internet and the way people shop
If you compare the last 20 years to the retail and logistics continuum, the internet was like the Big Bang for commerce. It changed operations and customer expectations very quickly.
Today, retail isn’t relegated to store hours, it’s a 24/7 exercise. We can make a purchase in the middle of the night when we can’t sleep, we can buy something from our desk at work in a matter of minutes. Getting the things we need no longer requires a trip to the store.
Over the course of just a few short years, buying behaviors evolved, new retailers emerged, and it quickly became obvious that not every retailer was going to make it.
What’s at stake for retailers and brands?
Everything. Since 2010, there have been 15,000 retail store closures. Of the hundreds of retailers that have filed for bankruptcy in the last ten years, most have one thing in common: Failure to innovate.
Innovation and adaptability have become the key differentiators for retailers and brands. Unfortunately, it’s not a one-and-done deal. eCommerce requires ongoing attention. It’s not like eCommerce happened once and retailers have to adapt to a singular change. We’ve already witnessed what happens to businesses that are unable to adapt their strategies and operations to meet customer demands. A lot of us grew up with Sears and Toys R Us as household names.
But, the retail model continues to change and that change is happening faster and faster. Retailers are beginning to look more like tech and logistics companies than they are traditional retailers or brands.
Consider Amazon. Through its unparalleled logistics network and a ruthless commitment to providing faster and cheaper delivery options, it has spearheaded eCommerce as we know it today. Amazon has single-handedly conditioned shoppers to expect shorter and more affordable delivery times, and, in doing so, has crushed a lot of its competition.
Not getting thrown out with the bathwater
Despite the ongoing store closures and onslaught of news about the “Retail Apocalypse,” a lot of companies are thriving in this new world. They’re turning this massive disruption into an opportunity. And they aren’t just innovating once, they’ve made it an iterative process—woven firmly into the tapestry of their business.
One method of doing this, is looking to your customers for the answers. Retailers and brands like Warby Parker, Glossier, Best Buy, and Target, have invested a lot of time and energy into listening to their customers, using insights to drive innovation, and building an experience that breeds loyalty.
Though eCommerce has increased the complexity of distribution, many businesses are meeting customer demands through incremental initiatives to drive innovation.
Just two examples include: Warby Parker—one of the first digitally native disruptors—successfully added brick-and-mortar stores as a channel when everyone was trying to figure out eCommerce; Walmart, amidst its many acquisitions of popular online brands, also invested in Store 8, an in-house incubator for technology innovation.
The new model: The world keeps changing
Retail in 10 years is going to look very differently than it does today. To succeed, companies have to continually adapt their retail and logistics models. One of the key ingredients is something we call, “structural flexibility.”
Structural flexibility is the concept of taking a business function that, on its own, is static and rigid, but by applying a layer of technology it becomes dynamic. Within your distribution network, structural flexibility provides an alternative to investing in fixed capital assets, connects traditionally siloed data and information, and enables businesses of all sizes to be more agile in the face of change.
Every initiative—from pop-up retail to next-day delivery to BOPIS—requires a different set of operations. Creating structural flexibility within your distribution network makes it possible to test and implement new processes more easily.
Bringing structural flexibility to warehousing and fulfillment
When it comes to logistics, structural flexibility starts in the warehouse. With logistics, you have ships, planes, trucks, and warehouses and fulfillment centers that participate in the flow of goods. The key structural limitation to each step in your supply chain are your warehousing and fulfillment centers.
Think about every other aspect: You can use UPS, FedEx, and DHL, and then Lyft comes along and you can try that, too; you can try Convoy and C.H. Robinson—maybe a combination. The point is that you have options to optimize every other step of your supply chain, except for your warehousing network.
Warehouses are static. Most businesses have built their operations to accommodate their distribution network—having to flow goods to where they are because you’re stuck on a multi-year contract or an even longer-term lease. So no matter how many different trucking providers you have, all your goods are moved through these fixed locations, leaving little flexibility when changes are required.
The solution: On-demand warehousing liberates you from traditional constraints
On-demand warehousing is a flexible alternative to traditional warehousing models. It creates structural flexibility within your distribution network. Instead of requiring long-term leases and having to rely on disconnected warehousing providers, on-demand warehousing provides programmatic access to warehousing and fulfillment services on a pay-as-you-go basis. Businesses only pay for the space and services they use throughout the year.
As a solution, it provides an unprecedented level of flexibility to warehousing and fulfillment, enabling businesses to better respond to market demands by scaling their networks. With on-demand warehousing, you can have a warehouse when and where you need it.
Standardized by a single technology platform, every physical asset in an on-demand network is connected. Every provider in your distribution network uses the same technology, which removes the classic issue of data silos when working with disconnected providers and actually provides aggregate insights across your network.
There are four key tenets of on-demand warehousing:
- Availability: A vast network of warehouses with available capacity and services, even in the tightest real estate markets.
- Flexibility: Variable cost model and standardized terms and services that remove the need for fixed, long-term contracts.
- Standardization: A single technology platform to connect traditionally disconnected warehouse providers (layer of visibility)
- Expertise: A team of logistics coordinators dedicated to managing the day-to-day needs across your network.
On-demand warehousing is a modern logistics solution and addresses the changes and challenges that eCommerce and omnichannel retail have introduced to the supply chain. Decentralized demand, a need for shorter last miles and faster delivery times, and a lack of available warehouse space have created a need for a more dynamic system.
At FLEXE, we help our customers solve these challenges through a sophisticated technology platform, a network of the best providers in North America, and a team you can feel good about partnering with. We are reinventing warehousing and fulfillment so fewer retailers fail and more succeed.