Retail has never been tougher. From Brexit to hyper-demanding consumers, eCommerce to innovative start-up competitors, remaining profitable is incredibly challenging. Agility has become essential in every area of the business.
Over the past decade supply chain optimisation and innovation have transformed retailers’ ability to respond to fluctuations in demand, pricing and customer expectations – except in one, key area: warehousing. While every other aspect of the logistics model is agile and responsive, retailers are, in the main, still constrained by five, ten, even 15 year warehouse leases.
With the retail environment becoming increasingly volatile and if retailers are to survive, they need a contingency plan. The ability to scale up and down on demand is becoming critical to retail success. Here’s why warehousing as a service is delivering essential agility into the retail model.
Business agility has become an essential foundation for 21st century success. Yet for retailers responding to the escalating costs created by Brexit plus an increasingly demanding customer base, there is one element of the supply chain that is creating a significant business constraint: the warehouse. Taking as long as a year to locate and negotiate the lease for a new warehouse hardly supports an agile, responsive business; and being tied to a contract for up to 15 years is a significant business constraint. Just consider how a retail business may have looked five years ago – pre Brexit; or ten years ago – before the financial crisis. How many of the warehouse leases signed over that time are still fit for purpose?
The inflexibility of warehouse deals becomes ever more stark given the incredible flexibility achieved through every other part of an intelligently optimised supply chain. Retailers are able to respond incredibly quickly to changes in exchange rates, demand and market opportunity by shifting suppliers and adapting logistics routes – yet the warehouse operations are still fixed. The result can be huge swathes of expensive, empty space; or business opportunities that cannot be grasped due to a limitation of available space.
This inflexibility within warehousing is also in clear contrast to the flexible business models adopted across other areas of commercial and residential property. From short shop leases, including pop-ups, to ‘pay by the desk’ office space, even Airbnb, the way organisations and individuals can utilise property has changed, radically. Surely it is time to apply similar thinking to the warehouse market.
Today there are large numbers of retailers with spare warehouse space – so isn’t it time to utilise that space, provide some essential income and provide other retailers with access to warehouse facilities? The key is to make that process fast and flexible; to move away from long drawn out searches and complex negotiations to fast demand matching and price transparency.
Cue warehousing as a service. This innovative new solution is revolutionising the way in which retailers consider warehousing space. Essentially, the service matches a retailer’s demands to available spare space and, from size to location and duration, the entire process is totally flexible – a retailer can commit to as little as one month and payment is on demand, on a ‘pay as you go’ basis. In addition to storage, this on demand model also provides access to a raft of other warehousing services, including the movement of inventory, which can also be scaled up and down as required.
This on demand approach transforms the speed with which a retailer can access new warehouse space. Rather than the tortuous year spent locating and negotiating a new lease, a retailer can actually locate, secure and move into a warehouse in just one week. By setting a minimum and maximum requirement, a retailer can then scale up and down the amount of space – and supporting logistics services – as required, in response to seasonality, customer demand or other factors such as Brexit. Not only is the business more agile, but costs are now directly proportional to sales in every area of operation.
Of course, many retailers will remain committed to the traditional, lease based warehouse model. But rather than purchasing warehouse space based on maximum demand – the peak seasonal requirement – why not buy the amount of space required to support standard demand and opt for warehousing as a service to cover peaks? Just allocating 25 per cent of stock to an on demand model can transform costs as well as providing much needed business agility.
By adding warehouse flexibility to the optimised supply chain, retailers can open the door to new business models. Would it be more efficient to embrace distributed logistics and move from large centralised hubs to multiple smaller locations? In addition to cutting delivery times and improving the customer experience, distributed logistics can reduce fuel costs and emissions and cut driver time. Leveraging a warehouse as a service model – one that consolidates multiple warehouses into a single interface, report and invoice – provides retailers with a chance to explore this distributed approach.
What about trialling new products or markets? Rather than long drawn out research projects, why not sign up for a small warehouse space in a new location for a month or so, and try the new product on the ground? The concept can be on the market within weeks, rather than months and the up-front investment is minimal. If it works, scale up; if not, the retailer can quickly move onto the next idea.
In an Amazon dominated retail environment, the fluidity and dynamism of the logistics model is becoming one of the most critical aspects of success. Indeed, fluidity and dynamism are key in every aspect of business operations: business agility is now underpinned by a raft of pay-as-you-go, ‘as a Service’ offerings. Warehousing should be no different – especially given the incredible pace of change affecting retailers globally. Innovation in distribution thinking, in markets, in customers and products is key – and that demands agility at every stage of the retail process. Used effectively as part of an optimised supply chain, this 21st century approach to warehousing is set to transform retail economics.
Charlie Pool, CEO, Stowga
Image Credit: WNDJ / Pixabay