On-demand warehouses are increasingly helping direct-to-consumer companies compete and thrive.
Direct-to-consumer (DTC) eCommerce is booming. Like many phenomena of the internet age, this can be traced to removing barriers to entry. Whereas in the past a company would need to open up a physical store, hire a web designer, and commit to a massive ad spend, now you only need a do-it-yourself web page and savvy social media use.
But one fixed cost that isn’t going away is the warehouse. Goods need to be stored, and that gets expensive: inventory storage cost the US a massive $153 billion in 2018.
Despite the high need for warehouse space, it’s a challenge to accurately predict its use. Many companies find it difficult to anticipate growth – and in turn, how much storage space they'll need. This is to say nothing of "surges” that can surround a new product launch or the holiday season, when the need for extra space is temporary but not easily calculated. The result is that as much as 30% of warehouse space lies empty at any one time.
Transport and logistics professionals know this concept is nothing new. Third-party logistics companies (3PLs) have been managing outsourced warehouse space for decades now. 90% of Fortune 500 companies use outside inventory storage, mostly 3PLs. But even 3PLs have idle space, and the new on-demand warehouse companies help them fill it.
Strength in flexibility
What makes “on-demand” more palatable is its agility. 3PLs typically deal with long-term leases on thousands of pallet positions. On-demand manages just 300 pallet positions, or fewer, for six months or less.
How does it do this? The core of the on-demand model is that it uses less space at more facilities, blurring the line between warehouse and distribution center. This enables companies to compete with Amazon (that offers its own on-demand warehouse service, Fulfillment by Amazon (FBA)) and its two-day, one-day and same-day shipping.
But even with the rise of on-demand warehouses, they are unlikely to replace 3PLs, who are remarkably adaptable to new processes. 3PLs' agility and experience with super-high volume means that on-demand will act more as a supplement, helping to fill in the gaps.
Also, as a relatively new entry into the market, their long-term effect on the industry can’t be fully gauged just yet. We’ll be watching this space though.