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Supply Chain News: On-Demand Distribution Center Market Gaining Momentum

 

Walmart Rents 1.5 Million Square Feet of Space for 2018 Peak Season through Flexe Platform

Jan. 1, 2019
SCDigest Editorial Staff

In 2016, a start-up called Flexe began offering on-demand warehouse and distribution space, raising tens of millions in investment. (See Airbnb for the Warehouse Market Raises Big Money.)

The idea is this: at any given time, in a given market area, some companies have more warehouse or distribution space than they need, and others are looking for additional space, perhaps on a temporary basis.

Supply Chain Digest Says...

There have been 3PLs for decades willing to lease space in “public warehouses” on a short term basis. But finding and contracting that space wasn't always easy.


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Put those things together, and you have the potential for a new business, similar in a sense to the way Airbnb connects travelers looking for a place to stay with dwelling owners with a home or room for rent, but instead connecting those in need of warehouse space with those companies or facilities that have some extra space they can profitably rent out.

The concept appears to be gaining some momentum.

The Wall Street Journal, for example, reported last week that for 2018's peak holiday season, Walmart used Flexe's platform, which connects warehouse operators with businesses in need of storage, to secure about 1.5 million square feet of temporary space that it used for ecommerce fulfillment.

The idea is coalescing under the term "on-demand warehousing."

Under the arrangement, the warehouse operators that Walmart found bring the labor and manage other administrative tasks for the pop-up spots. Walmart reportedly leased DC space across three facilities in Pennsylvania, Illinois and Nevada, space which Walmart dotresn't need for most of the year.

"Retailers and manufacturers are trying to position goods closer to customers without getting locked into long-term contracts or multi-year leases when rapid changes in buying patterns and trade conditions have made forecasting demand more difficult," the Wall Street Journal notes.

Commenting on the strategy at an industry conference last year, Justin Schuhardt, senior director of operations for Walmart ecommerce, observed that "You don't always want to build the church [just] for Easter."

In August, UPS got into the game, launching a digital platform to match merchants' warehousing needs with available capacity. UPS said the platform, called "Ware2Go," is designed to provide small to mid-size ecommerce merchants with warehouse and DC space when they need it, and to give warehouse operators a channel to fill space that might otherwise sit vacant.

As leading industrial real estate companies continue ro report, industrial vacancy levels are at or near all-time lows. But that data tracks space that has been leased, not space that is actually used.


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Flowspace, a recent entrant in the segment, said earlier this year that of the warehouses that have listed on its platform, about 20% of their space, on average, is vacant. UPS' research has found that many warehouse operators have difficulty leasing smaller amounts of space, and thus will let the space sit vacant – creating an opportunity to lease it for shorter term needs.

While peak season provides the most obvious potential need, there are other possibilities. New products introductions provide one such opportunity, especially if the new product is being launched into or tested in select markets.

The Wall Street Journal piece noted that Ace Hardware used Flexe to stage generators and other disaster-relief items during the 2018 hurricane season after scrambling in 2017 to get supplies to regions damaged by Hurricanes Harvey and Irma.

One Chinese solar panel maker used on-demand warehousing to bring in large volumes of imports to beat the date new US tariffs were scheduled to go into effect, requiring space across multiple facilities to accommodate the import wave.

On-demand warehousing also enables companies to get a better feel for the market before making major investments or signing long-term leases.

Companies don't want to commit to multiyear contracts "without knowing how consumer demand is going to shake out," Adam Mullen, who leads real estate firm CBRE's industrial and logistics business for the Americas, told the Wall Street Journal. "They know they are going to see peaks and valleys, and they're tired of making investments over the whole year."

Of course, there have been 3PLs for decades willing to lease space in "public warehouses" on a short term basis. But finding and contracting that space wasn't always easy. The new platforms such as Flex and UPS are offering address those issues, and can also make available space from non-3PL companies that are not fully utilizing the space they have under their control.

On-demand warehousing isn't a panacea. Orders most likely are communicated in simple ways, such as spreadsheets and email. Picking approaches are almost certain to be low tech, and be high on a relative basis.

But for now, on-demand warehousing is certainly on an upward trend.


What do you think of the on-demand warehousing concept? What are the key issues? Let us know your thoughts at the Feedback section below.


 
 

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