Many, perhaps most, manufacturers and retailers experience pronounced peaks in their requirements for distribution centre and warehousing capacity. This may be part of the normal business cycle – ramping up stocks before a seasonal sales peak such as Christmas or Easter, or in advance of launching a new product or range. Bis Henderson Space’s Steve Purvis discusses warehouse strategy.
It may be a strategic response to unusual conditions – stockpiling goods and materials ahead of an anticipated price rise, for example. Or the need may come out of a clear blue sky: an unexpected market change leaving an overhang of unsold stock, perhaps, or supply chain disruption causing orders from the Far East all to arrive on one vessel rather than spread over several months.
Unexpected increases in stock levels may drive a frantic search for emergency temporary accommodation. But there is an argument to be made that the use of temporary or short-term warehousing should be part of the firm’s normal tactical and indeed strategic response to ever-changing conditions.
It can very rarely make much sense for an organisation to scale its permanent warehouse space provision around the highest peaks of demand.
Quite apart from the significant fixed costs of owning or leasing, equipping and servicing, space only to have it operate for much of the year with relatively low productivity, the days when the warehouse labour force could readily be ramped up and down are long gone. And in these days of extreme uncertainty – supply and shipping disruptions, the continuing aftermath of Covid, high inflation threatening recession, the war – it is a brave or organisation that commits resources for the typical multi-year leasing term.
The alternative is for companies to embrace temporary or short-term space as part of their considered, long-term distribution and warehouse strategy. But is that realistic? Surely all available space is being snapped up by the on-line retailers?
That isn’t actually the case. Colliers, the agents, report that in 2022 the shape of the warehousing market has largely reverted to its pre-Covid pattern.
Certainly, the on-line retailers took 33% of new leases in 2020, and 45% in 2021, but last year they were just 11% of what has proved to be a remarkably resilient market (and indeed, Amazon and others are showing some signs of retrenchment), while 3PLs took 43%, followed by retailers/wholesalers on 19%, and manufacturers on 16%.
Furthermore, retailers in particular are releasing space by reducing stocks as part of their response to the cost-of-living crisis: major supermarket chains, for example, are reducing the number of skus they carry by 5% or more: that ripples back up the supply chain and means there are an awful lot of unused pallet spaces becoming available. And as always, there are the many warehouse operators that have scaled for their peaks, and are more than happy to warehouse for other parties during their ’off-season’.
The offer isn’t just room on the shed floor. Increasingly we are able to offer retailers short-term managed storage solutions and warehousing–as–a–service. This is becoming a keen and competitive market with significant benefits for both suppliers and users of space, allowing the former to get best value from their assets through creating an additional revenue stream, and the latter to avoid long term commitment to low-return investment.
So, we would urge retailers, wholesalers and manufacturers to consider using these short-term sources of productive warehouse capacity as an integral component of their warehouse strategy.
Clearly this is easier for planned peaks such as seasonalities or product launches, but often it is possible to identify the early signs of some of the less-expected events and disruptions and plan accordingly. And even where a peak requirement has blown up quite without warning, the robust strategy will have plans and routines, and the business relationships, that will guide the business swiftly and affordably to an appropriate warehousing solution.
Steve Purvis, Managing Director at Bis Henderson Space
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