Pay as-you-go: Who needs a 300,000 square foot DC anyway?

Pay-as-you-go warehousing, better known as on-demand or dynamic warehousing, might be the new kid on the logistics block, but it's quickly finding a home in some U.S. supply chains.

It's big draw? It adds missing flexibility to businesses' warehousing solutions—turning relatively rigid infrastructure and fixed costs into responsive infrastructure with pay-as-you-go costs.

In the traditional model, warehousing comes in big fixed chunks of capacity, usually accompanied by long- term leases. Inevitably, there are businesses that have too much or too little capacity at any given time. In addition, things like seasonality—selling more water in the summer and more hot chocolate in the winter—is a supply chain issue managers have dealt with since the beginning of commerce.

On-demand warehousing provides a more flexible solution to this age-old problem. It relies on cloud-based software that connects all these disparate warehouse facilities, and allows them to operate together. No more silos!

When on-demand warehousing first hit the market in early 2014, there was a simple scenario that needed solved: Retailer A needed to store some overflow inventory for a few months, and Warehouse Partner B said, “Hey! I can store it over here.”

Prior to an on-demand solution, this was a clunky and expensive process. Adding extra capacity to supplement a short, three-month peak, usually meant over-committing to a full year lease, overpaying a 3PL that wouldn't otherwise take a short term project, or settling for a duct-tape-and-bailing-wire solution with subpar control and visibility of your inventory.

The challenge was to build a solution to allow these two disparate businesses to connect and operate together, and then make the process on-demand.

The solution was an online warehouse marketplace built on a common software platform that brings companies in need of warehousing services together with companies who have extra space, labor and equipment available to provide these services.

The idea was simple. And, it came at a time when shifting consumer demand was putting a premium on fast, flexible supply chains.

An industry ripe for disruption
Shifting consumer demand has fostered an adapt-or-die attitude in supply chain management, making many old practices obsolete and opening the door for new ideas.

Consumers expect more flexible shopping options than ever before. They want shorter product life cycles with higher product variety, same- or next-day delivery, free shipping and an option to order online and pickup in-store.

Simply knowing the number of consumers is no longer enough to accurately forecast inventory peaks and demands. Supply chain managers need to juggle having enough product with the right amount of variety and they must be able to get it to the store or deliver direct-to-consumer in a moment's notice. This means that access to inventory must be more flexible and fulfillment centers need to be closer to customers.

On-demand warehousing doesn't replace traditional warehousing solutions. Instead, it adds needed flexibility to an existing distribution network. And, it gives businesses another way to quickly respond to inventory fluctuations and move more of their goods closer to customers without having to build their own massive footprint of warehouse facilities. They can simply add more capacity when and where they need it, and reduce it when conditions warrant.

On-demand and the Future of Supply Chains
On-demand warehousing is not the only example of a pay-as-you-go solution to address an age-old supply chain problem. Shifting consumer demand plus access to new technologies has created a growing market for a portfolio of on-demand services in the supply chain. Innovative companies, those that are executing what Gartner recommends in their report titled “Disrupt or Be Disrupted – Defining the Bi-Modal Supply Chain”, are augmenting their supply chains with not just one, but sometimes several new technologies in order to add flexibility and gain a competitive advantage.

In order to deliver on a customer promise of free, same-day delivery, a business might use Flexport, a licensed freight forwarder that uses people and software to manage the complexity of international trade, to gain better visibility and control over its imported freight; FLEXE's online marketplace to pop-up a fulfillment center and get product closer to the customer; and Convoy's on-demand trucking solution to more flexibly get the product to the customer on-time.

On-demand services are entering the supply chain at a time when the risk of standing still is high. Businesses who don't make moves to accommodate the “I want what I want when I want it” generation run the risk of losing their customer base quickly.

Adoption of new ideas takes time. There's a threshold that needs to be passed where the risk of trying something new overcomes the risk of standing still. For supply chain executives, the time is now.

Karl Siebrecht is the Co-Founder and CEO of Flexe. He can be reached by email at [email protected].

For more information on on-demand warehousing, read The “Uberization” of Warehousing from the November issue of SCMR.

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