On demand warehousing is when retailers ‘switch on and off’ warehousing services when required, to meet the changing demands of their business. It may primarily refer to storage space but can also include warehouse stock returns and rework.
With on demand warehousing, warehouse operators effectively rent out storage space and contract out related fulfilment and/or reverse logistics services under short-term agreements that can be put in place quickly to meet customers’ developing needs.
Customers benefit from being able to cater for increased demand for their products without having to make long term commitments that they may not be able to sustain.
Warehouse operators, meanwhile, maximise their income by aiming to maintain their warehouse at as-close-to-full capacity as possible at all times.
Offering on demand warehousing is particularly helpful for warehouse operators who have recently moved to larger premises to cater for increased demand, but who do not yet have the regular custom to fill all the newly available space. They can effectively rent out the additional space to whoever needs it on a short-term basis.
On demand vs traditional warehousing
The majority of supply chains were built for the pre-internet era, when stock was sold in centralised marketplaces (i.e. shops). Therefore, logistics networks were built to transport goods to store shelves, not to customers’ doorsteps.
Traditional warehouse solutions tend to revolve around three models of operation. Either:
You buy a facility, fit it out and operate it as part of your own distribution network
You lease a facility, then fit it out and operate it as part of your own distribution network
You lease space and services from a 3PL (third-party logistics) provider on a long-term, multi-year basis, which manages operations on your behalf.
Unfortunately, these traditional solutions often require high upfront investment of time, money, and resources. Growth is limited by the extent of your owned network, or the space and capabilities of your 3PL, and change happens slowly, with significant sourcing and implementation time required.
By contrast, on demand warehousing allows retailers to build a distribution-network strategy that is as dynamic as their business, able to scale in size and capability to match varying demand throughout the year and to react to unexpected events.
The way we shop has changed with the growth of e-commerce and omnichannel retail, there is a pressing need for logistics services to catch up.
With on demand warehousing, retailers can employ flexible, future-ready logistics strategies that allow for the myriad ways their customers shop, whether that is online only, buy-online-pick-up-in-store, omnichannel, pop-up shop, or any other method that may be yet to come.
On demand warehousing: the benefits
With traditional warehousing, retail customers may take on a long-term lease for warehouse space based on sales forecasts, which are often on the optimistic side. If those sales forecasts don’t ring true, they may be left with far too much space. The same can happen when peak sales taper off or demand for a new, highly popular product subsides,
By contrast, on demand warehousing allows retailers to take a conservative view of how much warehouse space they need, and rent any additional space required to meet peak-time and any unexpected additional demand.
The benefits of on demand warehousing for customers are clear; they may pay a little more for that space in the short term, but the ability to be flexible and react quickly to grasp new opportunities or scale back in the event of unprecedented or uncertain times may prove invaluable over the longer term.
With the world becoming increasingly volatile and uncertain, the most successful businesses moving forward will be those that can be agile and react quickly to changing circumstances, both good and bad. On demand warehousing allows retailers to do just that.
Other benefits of on demand warehousing include:
- Speed – Using less space across more facilities shortens last-mile delivery and enables the overlap of warehousing and distribution services, allowing for faster order fulfilment.
- Environmentally friendly – Encouraging resource sharing rather than the construction of new storage facilities uses fewer resources overall, while shortened last-mile delivery distances enable the use of more efficient modes of transportation and lower emissions.
- Success – By connecting warehouse providers with excess capacity and services with retailers needing flexible storage and fulfilment solutions through an on-demand, pay-as-you-go model, everyone benefits from an arrangement that is quick, easy and cheap to implement, and requires no long-term commitments on either side.
When to choose on demand warehousing
On demand warehousing is becoming increasingly popular thanks to its many, wide-ranging benefits.
It is particularly attractive to businesses who are:
- Expanding rapidly but don’t want to commit to a long-term arrangement that they may quickly outgrow.
- Looking to forward-buy large amounts of inventory, such as to avoid the looming threat of tariffs, and need someone to store it in the short term.
- Wanting to expand into a new market and don’t have the resources to handle sourcing, procurement and set-up for new fulfilment centres as a result.
- Want to test new strategies in a low-risk way, such as trialling new delivery methods or creating short-term product promotions.
PALLITE® PIX®: The ideal solution for on demand warehousing
Warehouse operators looking to take advantage of the rising popularity of on demand warehousing will need to create a flexible warehouse space that enables them to be agile, reacting quickly to changing customer demands.
At PALLITE® Group, we developed our range of PIX® warehouse storage bins specifically to help cater for such a challenge.
Made from our signature honeycomb paper cardboard, PIX® units can be supplied to very short lead times and slot together in minutes without the need for any tools, fixings or prior experience. They can also be flat-packed when not in use, meaning they can be put up and down quickly and easily to be used when required.
Dividers can be removed and multipliers added to enable units to flex around the different SKUs they are required to store, ensuring each is adequately separated, safely secured and easily identifiable for efficient picking times and reduced picking errors.