Why on-demand?

In the last post we discussed what is on-demand warehousing. In this post we are going to discuss the pros and cons of the model.

Supply Side

For the warehouses, on-demand is a no brainer. They get sent customers for zero advertising or sales costs. It is bonus cash: money straight to the bottom line. If they already have their overheads - rent, staff, etc - then the aim of the game is to make as much money from their space as possible. If someone is going to offer to bring you customers, which you are under no obligation to take on, and which you only have to pay for if those customers become paying customers, that’s a great deal!

For retailers it’s a way of making money from dead space. For 3PLs the on-demand model is a free sales channel.

The logistics industry is a high volume, low margin business. What you do not want to be doing is spending your money on advertising because it is:

a.) Not your core skill, and

b.) An unknown ROI

In the future, no warehouses will have sales teams because customers will book inventory straight in via an electronic platform. On-demand warehousing will make warehouses far more profitable because it will increase the yield on the space whilst reducing the cost of employing sales people. Unless you work in sales for a warehouse, there is little downside to the on-demand model.

Demand Side

The more complex side of the equation is the customer or demand side.

The first thing to note is the benefit of the on-demand model is that you are not tied into a lease. A lease is a long-term liability, a fixed cost. The on-demand model switches that fixed cost in to a variable cost - a pay as you go model.

The great thing about the pay as you go model is it can scale up and down with your business needs dynamically. This is like the SaaS model and has lots of the similarities with the cloud computing model. In fact, for those of you who are techy we often describe Stowga as the AWS for physical storage.

The flexibility does 2 things:

1.) Acts a buffer against volatility

2.) Allows agility

We have already discussed in a previous blog the effect of Brexit on warehousing. Brexit is a perfect example of an external event that can have disastrous effects for companies with fixed long term costs. Every company who has physical goods should have at least 25% of it’s total warehousing strategy.

The most progressive ones are switching to 100%. We have a well known publicly listed FMCG brand that has switched from 3 large Distribution Centres to 25 smaller regional ones. The benefits of the distributed warehousing model are discussed here in full, but the benefit of the 100% model is that the dynamism gives the ability to innovate, and that is a massive competitive advantage. No longer does a company wanting to enter a new market have to send someone to scope up an area, write a report, find a warehouse, negotiate a lease and then be tied in for years. That’s a big commitment. Instead they can move in straight away, test the market for real and if it doesn’t work out move out and move on. That agility is how today's businesses succeed. It’s familiar to anyone who understands the lean startup approach.

The downside of course is that you are subject to market conditions so at peak times like Christmas your warehousing is likely to cost more.

Buyers can be Sellers and Sellers can be Buyers

These are the really interesting ones. At Stowga we have many customers who are sometimes looking for space, somethings have spare space. They are both Buyers and Sellers. These tend to be big companies and they are using the on-demand model to optimise their portfolio. We had a case where a global 3PL was the buyer and seller in the same transaction! The crazy thing was they didn’t have visibility of their own portfolio so we have since built a dashboard that allows clients to see their entire portfolio in one place so they can easily see where they have spare space and where they are full. Now they can optimise the portfolio by moving things around.

What’s really exciting is that the on-demand model allows for truly elastic warehousing. Goods no longer need to be constrained by physical space, but instead can be stored in exactly the right place, at the right time, for the right price. Suddenly the whole supply chain can become entirely fluid. The whole thing can be dialled up and down and is free from the constraints of having a fixed site or portfolio - and that is game changing for the entire industry.