By Jennifer Pazour, Associate Professor of Industrial and Systems Engineering, Rensselaer Polytechnic Institute
Agility, the ability to move quickly and easily, is a powerful, and some may say necessary, skill for success in today’s supply chains. This need for agile decision-making is changing how organizations acquire warehousing and distribution capabilities. An emerging, more flexible option is on-demand warehousing, which enables warehouse owners to rent out their extra storage, distribution or fulfillment capacity on a pay-per-use basis and for a short period of time to external customers through an online platform.
On-demand warehousing is thus a business-to-business (B2B) resource sharing system involving (1) a group of lenders, who make accessible a portion of their warehouse and distribution center resources to other customers; (2) a group of rental customers, who need warehouse storage or fulfillment capacity; and (3) an online platform, which manages the interactions between the lenders and rental customers.
On-demand warehousing platforms allow both lenders and renters access and visibility to each other. Each platform regulates these interactions through a set of policies (e.g., booking mechanism, contractual terms), but all work to reduce friction via standardization and technology. For example, many platforms include a cloud-based warehouse management system and use umbrella contracts between warehouse owners and rental customers to reduce the contract agreement time and to create flexibility for the renters to select from a variety of locations with a short contractual duration commitment. This enables agility; companies can update their facility locations and capacities on a monthly or even weekly basis.
While in the past, a company would make and then maintain its facility location decisions for many years, today companies can and should plan frequent changes in their distribution network structure by adopting multiple warehouse types simultaneously to meet their needs. Due to on-demand warehousing’s short commitment durations and low decision-making friction, a company can flexibly adjust where and how much distribution capabilities they have. Being able to change your decision as you gain new and updated information will lead to better utilization of assets and better customer service. On-demand warehousing—with low minimum capacity requirements—can address the mismatch between fixed capacities of leased and self-distribution DCs with a firm’s need to accommodate inventory and storage requirements changing over time. Finally, on-demand warehousing’s pay-per-service model makes more stocking locations, with associated shorter delivery distances and times, viable.