by Karl Siebrecht, FLEXE
Retailers, have you ever asked a supplier to hold some excess inventory for you until you had capacity to absorb it in your own warehouse or DC? Suppliers, have you ever asked your retail customers to take delivery earlier than they'd initially requested in order to help manage your pre-peak season buildup? This happens all the time, and is a common example of collaboration among good trading partners in a healthy supply chain. At its essence, this is an example of "sharing" warehouse capacity across organizations.
What if this "sharing" concept could be extended beyond existing suppliers and retailers? Particularly in sectors with sharp peaks and valleys in their sales, this could unlock significant value that is currently trapped in the confines of long-term commercial warehouse leases.
Commercial leases often lock businesses into long-term commitments that don't fit their near-term needs. When signing a lease, do you commit to enough space for peak forecasted capacity required? And if so, what do you do with all that extra space when you're not at peak? Or do you plan for something less than peak forecasted capacity required and, if so, how do you then handle overflows? In either case, how do you compensate when forecasts aren't 100% accurate, whether due to unexpected product hits or duds or unanticipated new customers won or lost? The longer the time of horizon and lease duration, the more likely to over- or under-shoot forecast – that's where you get one warehouse with extra capacity while the one next door is packed to the rafters.
Mismatches between lease durations and inventory variability particularly hurt seasonal businesses like toys, retail, and building materials. They also hurt anyone looking for bulk purchase opportunities, managing surges in returns, or building up inventory for new product launches. Meanwhile, globalized trade is continually forcing businesses to reduce supply chain costs without lowering service levels.
Is there an answer for these inefficiencies, a way to match up all those mismatches?
Due to new internet-based technologies, the answer is now "yes." Businesses with temporary excess capacity can now be matched with those desperate for additional capacity. It's an entirely new marketplace – a "spot market" for commercial warehouse storage. Just as backhaul optimization created a new marketplace for unused trucking capacity, a marketplace for warehouse capacity increases warehouse use and turns typically high fixed costs into manageable variable costs.
This is a logical opportunity for retailers that already have collaborative solutions in place across their value chains. It is built on some of the same core principles of leveraging productive assets that are already in place but underutilized, but extends the partner alignment concept beyond existing supplier/retailer relationships. By tapping into a broader pool of industry assets, companies can turn a greater percentage of fixed costs into variable costs, driving increased productivity and profitability.
This market is seeing green shoots. True Fabrications, a Seattle wholesaler of wine accessories, had grown close to maxing out its warehouse. As fall approached they needed to build holiday inventory. Simultaneously, Fun World, an international wholesaler of holiday goods located in the same area, had significant excess capacity in their warehouse after their Halloween inventory peak. True Fabrications tapped into a software-based marketplace for warehouse space, finding Fun World as a great "match." They found secure, on-demand pallet storage at great rates while Fun World turned dead space into new high-margin revenue. Furthermore, the marketplace's software platform helped streamline pallet deliveries, material handling operations, inventory management and billing between the two parties. The kicker: it required no leases and no long-term commitments from either party.
In a second example, Event Sales Inc., a Minneapolis-based reverse logistics and liquidation company was looking for a way to create more flexibility in its warehousing and logistics operations. They wanted to be able to respond quickly to large buying opportunities and also continue to provide high quality service to both their suppliers and customers. Most importantly, they wanted to limit fixed investments in facilities, including mid- to long-term leases, given the sheer number of geographies that they operated in. They too tapped into a marketplace for warehouse space and were able to create "on demand" capacity in the LA area in a matter of days, thus responding quickly to a great buying opportunity.
Shared warehousing follows hard on the rise of so-called "shared supply chain" initiatives. In addition to optimized back-haul trucking mentioned above, collaborative distribution scenarios like the one between Kimberly-Clark and Colgate-Palmolive share freight resources when distributing to their common retail customer CVS. Scenarios like these make sense for companies large and small because they unlock the value of underutilized assets in the market.
Shared warehousing is the next source of low-hanging fruit in this trend, borrowing also from some of the key principles of other "shared economy" business models like Uber's. Supported by internet-based technologies that layer on top of existing supply chain operations and can now facilitate this model at scale, shared "on demand" warehousing is becoming a critical complement to the traditional leasing model.
Karl Siebrecht is Founder & CEO of FLEXE, Inc., a Seattle-based technology company that is revolutionizing the way that companies optimize their commercial warehouse capacity. A seasoned technology executive from Microsoft and other Seattle-based tech companies, he is also a former U.S. Navy Diving Officer. http://www.flexe.com
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