Increasing demands in customer expectations, the boom of digital technologies and the omnichannel phenomenon (order from anywhere, deliver from anywhere) continues to put pressure on businesses and traditional warehousing models. As a result, warehouse operations now need to incorporate flexibility, improve visibility and drive productivity and proactivity.
The shortage of industrial land and low vacancy across major cities is also fuelling businesses to look at alternative solutions to store their stock, and the concept of ‘co-warehousing’, which we are seeing in the USA and Europe, could be the next major trend for Australia’s industrial market.
Current options for industrial tenants needing space
As the industrial property market stands today, companies requiring warehouse storage space can either buy it, lease it or outsource it to a 3PL partner. When buying is not a feasible option for a tenant/business, a lease arrangement typically offers a rigid and longer-term commitment, similarly to 3PL contracts which also involve onerous upfront transition.
The companies that have leased fixed space, often do not fully utilise it, given the stock holding behaviour and its intrinsic relationship with fluctuations of demand. When consumption volumes fluctuate or a business experiences natural seasonality, the inventory drops or increases accordingly, leaving warehouse managers with underutilised space or stock overflow respectively. The underutilised space is often digested by a company’s P&L as a sunk cost, and off-site storage is considered a costly operative expense.
This challenge requires warehouses to flex in line with seasonality and networks to become high performing, cost-effective or adapt into an agile space allocation network that offers flexible or short-term contract arrangements, seamless inventory visibility and productive operational activities.
The rise of the ‘sharing economy’
The sharing economy has grown across various sectors around the world over recent years. Take for example, Uber, Airbnb, and within the office property sector the rise of flexible workspace operators like IWG and WeWork.
While the sharing economy hasn’t filtered into Australia’s industrial sector yet, it is certainly a growing trend in the USA and Europe fuelled by dynamic collaboration between supply chain participants where companies engage external parties for space and storage options when required, sometimes for short periods of time.
Positioning of warehouses has always been paramount, but in the omnichannel ecosystem, where orders need to be fulfilled from anywhere, it is essential to hold inventory and process orders close to points of demand and/or ports and major infrastructure, aiming for optimised transport and network operations that reduce operating costs. This is a need that has been recognised throughout the USA and companies like Flexe, Ware2go, Stowga, OneVASTwarehouse, STORD, Log-hub and Stockspots are capitalising on.
Co-warehousing (collaborative warehousing), also referred to as the warehouse marketplace or digital warehouse, is driven by the promise of ultra-flexible on-demand engagements between entities in need of storage and fulfillment capability in strategic locations where parties have space and resources available to cater for the demand.
This concept is not limited to filling empty sheds either, it extends to storage, receiving, fulfilment, inventory management and value-add services. The pioneers in co-warehousing have created a platform where, not only the user and the supplier can match their needs and obtain value, but also where the supply chain and inventory flow can be managed.
Co-warehousing also presents an opportunity for 3PL’s to commercialise their idle capacity and allows companies and warehouse owners that have spare fulfillment capability during low volume periods. It is also an opportunity for companies to expand the network of operations positioned strategically close to end consumers and can hold stock and process orders when the demand requires it.
Some challenges to overcome
The shared economy concept for the industrial sector, will involve next generation and technology-supported B2B interactions and will require strong communication between participants, comprehensive planning and strong control platforms to ensure impeccable execution, accuracy, and most importantly flawless customer service.
Users of collaborative warehouses will expect providers to deliver a seamless integration of business systems, excellent service (to both their business and their end customers), and efficient and attractive commercial terms. Agreements will need to be carefully designed by warehouse service suppliers, who will need to provide flexibility and readiness to users while mitigating risk and liability at the same time. Suppliers will be required to train staff quickly to actively fulfil orders from different companies and transition new users in a matter of hours, as opposed to weeks or months.
I expect the co-warehousing concept in Australia will come into effect over the next 4-7 years and be particularly beneficial for companies that experience extreme seasonal demand. Co-warehousing is likely to be well received in inner ring locations where the population density is greatest and where land and rental costs are higher, as this will assist businesses with their last mile logistics function.
After a few years of operation, co-warehousing will grow to be a common means for businesses and 3PL’s alike. So, watch this space and please get in contact if you’d like to discuss further.