In today’s world of more flexible working, on-demand warehousing has grown in popularity with platforms such as Flexe and Ware2Go. Will Schneider, Founder of Fulfillment Companies, weighs up the increased flexibility and lower costs versis the loss of control these new platforms bring.
Picture this – you’ve started a small business that focuses on selling swimwear through the Internet. That industry is well-saturated, but following a growing trend, you’ve come up with an innovative idea – selling eco-friendly swimwear. Through the year, you’re selling a predictable amount of products per month, but before you know the summer season sneaks in, and demand for your products drastically surges.
You’re facing the following scenario – customers want your product, but a surprising surge of demand left you unprepared, and your in-house warehouse doesn’t physically support a current rise in demand. Since you’ve been focused on growth, you’ve neglected the scenario that your garage won’t be able to stock enough products to fulfill a summer season demand. What to do if you ever face that scenario?
Well, you have a few potential solutions, and one increasingly popular choice is called on-demand warehousing. What is it, and why should you (or not) consider that option for your business?
What is On-Demand Warehousing
If you’ve ever used renowned platforms such as Airbnb or Grab, then you’ve already heard about the term on-demand warehousing. It’s a platform where service providers offer a variety of services, in the example mentioned above, accommodation or transport. Because of the short-term nature of demand, providers offer their services on an ‘as needed’ basis. For instance, you’re living a digital nomad lifestyle and continually changing places while working remotely. You’ll need a short term place to stay during your time in one place, and that’s where Airbnb comes in handy.
The same goes for on-demand warehousing. To keep it simple, it’s an online platform that serves as a marketplace which connects businesses that seek for extra warehouse space and providers that offer surplus space. Nowadays, warehouse providers don’t only focus on fulfilling seasonal needs but providing complete warehousing services such as picking, organizing, packing, and shipping for companies that focus on other aspects of the business. There are a few reputable on-demand platforms such as Flexe and Ware2Go, where all transactions are arranged through the platform. On the one side, space providers can advertise their services and ‘renting’ options. At the same time, businesses in need can use services such as storing, packing, inventory management, and final billing.
Advantages of using on-demand warehousing services
Nowadays, learning about the product’s features and buying has never been easier. With just a few clicks, your order is in the processing phase and after several days, you can expect a package at your home address. According to Nasdaq, around 95% of purchases will be completed through the Internet by 2040. It’s not surprising why on-demand warehousing becomes a viable option for storing the products, and managing the inventory. Everyone can start an ecommerce business today, even without advanced technical knowledge and skills. Platforms such as WordPress and Shopify made a whole process of setting up a beautifully designed store effortless, and you can have a running store in a matter of hours.
You may wonder how on-demand warehousing can support businesses to cope with increasing demand. Let’s discuss the advantages of using on-demand warehousing.
1- Enhanced flexibility
As the ever-changing market and demanding customers evolves, the business needs to adapt, which requires enormous flexibility. There are a few effective models of on-demand warehousing to choose from, depending on your current needs. For instance, if you’re running a business that prioritizes product development and rapid marketing, you might not have enough resources to focus on inventory management, packing, or shipping. Depending on your current needs, you can choose between different levels of service a warehouse provider provides. If you just need extra storage to support a seasonal demand, you can rent an extra storage. On the other hand, if you don’t have resources to manage inventory and handle shipping on your own, you can outsource these services as well from specialized companies.
It’s all about scaling and adapting to challenges, and on-demand warehouses tend to offer needed flexibility that supports productivity.
2- Reduced costs
Nowadays, it’s easy and cheap to start an ecommerce business, and it’s a fact that companies face an uncertain future. Even if your business fails, without investing in an expensive physical warehouse and possibly getting in debt, on-demand warehousing serves as an effective and flexible option with low costs. Having your own warehouse comes with an excessive upfront fee and variable charges, such as investing in warehouse equipment, packing supplies, and workers on the payroll.
Since the majority of warehouse providers list their vacancies on the platforms that cut a commission fee, the prices are higher than having a direct deal with the warehousing provider. For instance, a warehouse provider charges $10 per pallet plus a commission rate for the platform. Before you know, you’re not paying an original $10 per pallet, so be careful when choosing the platform and space providers as costs can rapidly add up.
3- Increased security
Storing expensive products comes with many downsides, including security risks and costs of personnel and supporting systems. If you have your own warehouse, you have to make sure that no one can break in and steal your products. Costs increase further as you have to invest in security workers and systems that protect your warehouse. On the other hand, while renting an on-demand warehouse, the fixed cost of the rental already covers the security cost, so for the fee of storing, you also get high-security levels.
Before choosing the warehouse provider, it’s recommended to read the reviews or consult with businesses that already used the services related to security levels.
Disadvantages of using on-demand warehousing services
Depending on your business needs, on-demand warehousing can serve as an all-in-one solution, but you should be aware of potential downsides.
1- You’re giving away control to a third-party company
Unless you’re investing in your own warehouse, you’re practically giving the responsibility and control to a third-party company that manages your inventory. The low costs of on-demand warehousing is a huge benefit for companies in the beginning stages, but it comes with a downside of giving trust to other companies with your assets. People who handle your products aren’t necessarily professionals, and your products might not be their priority since they often manage a handful of clients. Be sure to check what technologies they use and read available reviews before taking the risk.
2- Inefficiency caused by the lack of IT infrastructure
Managing inventory and logistics require advanced IT systems for tracking and reducing operational costs. However, renting an on-demand warehouse doesn’t guarantee that the service provider uses advanced technology for inventory planning, tracking, and reporting. Sometimes, you’ll need to invest resources in matching with the tools and systems your warehouse provider uses, which can be a headache. Make sure that company uses the right tools that will make the whole process productive and profitable on your end.
Kickstarting your businesses never comes without the risks
On-demand warehousing has its advantages and disadvantages and depending on your business model, it can make it or break it. Starting an innovative online business has never been easier and cheaper, and on-demand warehousing can help to scale your business.
Whenever you’re thinking of moving the part of your businesses to another company, make sure to do your research. If you need a prioritized service that manages your inventory and logistics, there are better options worth exploring, such as 3PL services. The key is to do your research, evaluate possible risks, and choose a reputable service provider.
Will Schneider is the founder of insightQuote, a match-making service for B2B services, and writes informative posts about fulfillment services at FulfillmentCompanies.net. He is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.