The rise of new consumer trends, particularly omnichannel e-commerce retail, has driven businesses to seek solutions that tackle the challenges of Logistics 4.0. On-demand warehousing, along with advancements in third-party logistics (3PL), is becoming essential in the industry.
In this article, we will delve into the concept of on-demand warehousing, the factors contributing to its rise, and the sectors most likely to be affected by this logistics trend.
What is On-Demand Warehousing?
On-demand warehousing signifies a shift from traditional logistics providers or 3PL. As companies manage a growing number of SKUs and intricate e-commerce operations—alongside varying seasonal demands—they increasingly need flexibility in their logistics processes.
On-demand warehousing can be defined as the ability to access storage services and order preparation on an as-needed basis, without being tied to long-term contracts. Unlike traditional logistics services, on-demand warehousing allows businesses to outsource operations such as receiving goods, storage, and order preparation according to their volume needs and for shorter timeframes.
Essentially, an on-demand warehousing provider offers transportation, storage, and order preparation services to businesses that cannot accommodate demand spikes in their own facilities. These providers typically utilize advanced technology to accurately manage various clients' goods, relying on a robust warehouse management system.
The key difference between on-demand providers and 3PLs is the duration of the contract. With 3PLs, businesses delegate all or part of their logistics operations to the provider for medium to long-term periods. In contrast, companies engage on-demand warehousing for specific instances to enhance their logistics capabilities.
Applications of On-Demand Warehousing
More businesses across diverse sectors are opting to outsource their logistics services to ensure flexible and efficient deliveries for their customers. E-commerce retailers, in particular, are focused on maintaining adaptable warehousing, as online sales are heavily influenced by seasonal product demand.
The primary benefit of on-demand warehousing is the lack of long-term commitments, allowing businesses to utilize these services when their warehouses cannot meet demand. Here are some scenarios where outsourcing logistics can be advantageous:
- High-Demand Campaigns: On-demand warehousing providers can offer additional floor space and staff without requiring businesses to reorganize their own facilities.
- Omnichannel Supply Chains: Many companies are now implementing omnichannel strategies, integrating physical sales with online order management. Consequently, organizations tend to outsource a significant portion of their orders to providers specializing in e-commerce logistics.
- Overstock: On-demand warehouses enhance storage capacity during periods of excess inventory in primary logistics centers. Although businesses strive to avoid overstocking, the complexities of e-commerce orders with numerous SKUs make inventory adjustments challenging.
- New Product Launches/Market Entry: This trend is not limited to smaller businesses; medium-sized and large enterprises in the US and Europe are increasingly utilizing these facilities to launch new products and enter new markets. This solution is particularly beneficial for storing low-turnover goods, as it removes the need for immediate investment in new storage systems until products establish a market presence.
However, some sectors are cautious about adopting on-demand warehousing due to the stability of the traditional 3PL model. A clear example is the food industry, where product seasonality is minimal, and unit loads primarily consist of pallets. Consequently, these companies do not see the need to adjust their workforce or logistics space based on product seasonality.
Flexibility for Agile and Efficient Logistics Services
In a landscape marked by highly complex operations, omnichannel retailers no longer require extensive storage structures; the seasonality of their products and global marketplace demands necessitate flexible logistics services.
With on-demand warehouses, businesses can effectively respond to high-demand campaigns without altering their facility layout or implementing new storage systems.
Thus, on-demand warehousing is gradually outpacing traditional logistics outsourcing (3PL) by offering more specialized services tailored for specific periods.