The effects of digitalization and increased customer expectations force logistics leaders to take a critical look at current warehousing operating models. In my previous publication on warehousing, I referred to emerging technologies and how these can be leveraged to upgrade warehousing capabilities. As professionals in the logistics field, we constantly need to explore smarter solutions that could drive greater flexibility and transparency, and secure higher service levels. I would like to share my personal vision on this critical topic.
Acknowledging the Capability Gaps
Most warehouses operate on the basis of dedicated customer warehouses with allocated resources. This operating model has 2 main limitations:
- The physical location of the inventory is often too remote from consumers’ delivery points to enable agile handling. This has a direct impact on customers’ ability to offer competitive lead times.
- The generic terms and conditions such as contract longevity, dedicated assets, minimum volumes commitment, and rigid pricing models put an additional break on service providers’ ability to stay ahead of the curve.
It is no surprise that the current conventional warehousing approach is often lacking flexibility, scalability, and responsiveness to accommodate future market needs. Understanding our customers’ expectations in the digital era is a key prerequisite for improved warehousing capabilities.
“We don’t care where you store our products. Logistics service providers like DHL have warehouses all over and should be able to deliver to every outlet in required lead time.” – Customer insight.
Our customers expect a service level that does not rely exclusively on the location of the physical warehouse. As a matter of fact, the actual storage place of their products looses priority. They need to be able to identify a suitable and highly flexible warehousing solution in a timely and efficient manner. Online search, instant booking of warehousing space, and flexible contract handling are some of the key benefits they expect from service providers. To accommodate these needs, greater transparency on available space and flexible contracts are simply a MUST. This justify the urgency to question our current warehousing practices.
Challenging the Conventional Warehousing Model
So, what needs to change?
Warehousing needs to be turned into a more agile operation. Embedding warehouses in a network will be a key step towards a competitive new warehousing model. The Airbnb approach for warehousing space is making its way into the supply chain field. Startups are beginning to provide open platforms for service providers and customers to easily access and book available storage space. This new model allows customers to move their physical inventory closer to their final consumers, which enables them to reduce their lead times and accommodate short-term peeks in demand.
The “Airbnb for warehousing” concept is without a doubt one of the most disruptive ways to pioneer new operating models in our industry.
Pioneering a New Way
How can logistics service providers anticipate such a disruptive move?
The answer is the Smart Warehousing Cloud (SWC) which combines a cloud solution with predictive analytics. The SWC is a real-time online platform that intelligently allocates warehouse space by matching customer needs for storage with available capacity in a warehouse network. With the help of predictive analytics, demands can be anticipated and planned for. The continuous optimization of the network and the space allocation is performed by the SWC provider.
Such a Smart Warehousing Cloud solution has many tangible benefits. Customers can tap into a broad warehousing network to find adequate storage spaces; they have access to transparent pricing directly linked to their actual usage, and can conclude contracts instantly.
The SWC can equally serve as a system setup. The resulting network of connected warehouses will translate into shortened lead times, higher scalability and service levels, and greater coverage. This is the way forward.
Outlook
For industries with greater seasonality, volatile demand, and extensive portfolio – for example retail, consumer electronics, and fashion – Smart Warehousing Cloud becomes a relevant and viable alternative to conventional warehousing.
But let us be realistic here. New players are likely to continue disrupt the market with open platforms and innovative logistics concepts. It is in the very interest of warehousing and logistics service providers (LSPs) to find ways of collaborating with these pioneering agents. Another alternative is to leverage their own unique position to become a first-mover in smart warehousing solutions. I believe that LSPs have a competitive advantage over startups and are more likely to lead the way. Reasons are their asset ownership and customer data access to inventory levels, volume shifts, transportation patterns, end-customer locations, SLAs and so on.
This is our window of opportunity to smarten up our warehousing model and stay ahead of the curve.
Warehousing is an essential component of our day-to-day business operations with countless avenues to explore to become increasingly future-resilient. I am looking forward to hearing your thoughts on smart warehousing solutions. Join the conversation on my blog, my Twitter or LinkedIn accounts.
In 2018 changes in the our LSP industry will come fast and we need to be ready to evolve and adapt as quickly as they come. Cheers to 2018 and the many innovations that will grow our industry.
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Hi Sabine. Thank you for a thought provoking article. I agree that our warehousing strategies require more agility and our customer agreements, more flexibility. I suggest a limitation to the article is firstly the availability of warehousing locations in expensive city’s and secondly the specific warehousing environments that are required – such as temperature controlled, hazardous material management etc. These type of warehouses are not available in ‘pop up’ form and require some high initial investment. Further, the cost of decentralised flexible warehousing is challenged and beaten, unfortunately and particularly in Australia, by the lower cost of road transport. Despite these challenges your article does highlight the need for space management solutions and the benefits of locating closer to customers.
Hi Sabine!
Great to know your thoughts of Smart Warehousing cloud. Anw, we found difficulties in DSC ID regarding the transparency as mentioned above. We are managing great and fast growing customer as they also challenge our innovation regularly. We are already in open as a partner, give transparency through business to business system matching. But, as time goes, they always learn and slowly develop their own smart warehousing cloud system. To be frankly, sooner or later they will insist for their system to be utilized. How can we treat customer like this properly? Glad to know your thoughts and again thanks for sharing information.
Interesting view…………however, nowhere is is discussed the “transportation costs” re setting up “smart warehousing”.
Many sattelite warehouse many more vechiles required, driver, assistants etc etc etc ??
What is your assessment re % of transportation – loading/unloading/time costs/labour cost – of gross profit……???
Look forward to your response.