Warehouse Capacity Management: Product, Promotion, Peak and Predicament
Although the marketing world quickly evolves, many have heard of the memorable “Marketing Mix 4Ps” – product, promotion, place and price – concepts that still drive business today. In the supply chain management world, we have a slightly different take on the 4Ps – product, promotion, peak and predicament. Let’s take a look at how these four ideas play such critical roles in the planning and operation of warehouse space.
It’s exciting to introduce new products or an existing product into new markets. There is a promise of growth and success and it requires coordinating many people and teams to be successful. But, it also places a unique strain on a supply chain. Because the product or market is new, it is possible that there is no warehousing infrastructure in place. Or more likely, there is infrastructure but because success is difficult to predict, there may be far too little or too much space. Or, space is available but for time periods too short or too long.
In many instances, it isn’t a new product but a new promotion that demands supply chain flexibility. One trigger for a promotion is driven by a bulk purchase made at a great price. That logically requires securing additional, unexpected space to hold this bulk purchase. Promotions are generally time sensitive, demanding extra warehouse capacity for only short periods of time. This also stresses the current warehouse footprint and drives the need to find a short-term solution.
The result of product launches, market launches, special promotions and bulk buys is almost always a peak. Peak inventory periods are a part of supply chain management and not unique. But when peaks are unexpected or when the size of those peaks is larger than expected, warehousing needs to adapt quickly. Beyond that, the frequency and duration of peaks create interesting challenges for long-term warehouse strategy. They drive the question: Should you build warehouse capacity for these peaks or should you build for you average needs?
Here is where it gets interesting. While product, promotion and peak issues will happen, problems only arise if you are unprepared. If you have chosen to build for peak inventory periods, then you must account for the cost of all that unused space in your warehouses when not in peak mode. Alternatively, if you have built for average inventory levels, you need to know how you will obtain additional, short-term space. One of these predicaments is bound to face an organization at some time and both are associated with very real expenses, making them highly strategic business decisions. If you are unprepared for either situation your are scrambling in the last minute at best and losing significant money from the bottom line at worst.
The 4Ps of supply chain management illustrate why incorporating on-demand warehousing into your strategy is so important. If you have built for peak capacity, it provides you the benefits of a sharing economy model to help you monetize your empty warehouse space when you have it. If you have chosen the opposite path, then you can take advantage of an AirBnB-like marketplace to find the space you need, where you need it, when you need it.
Just as you manage owned, leased or sub-leased space to manage your inventory, adding on-demand warehousing into your practice will help you mitigate the problems that can arise from natural product promotion peaks.