Suffering from order growth overwhelm? I’ve been there. And right now, you might be thinking of giving this new-fangled on-demand warehousing a go.
Storing your products can cause a major headache when you’ve run out of space and you’re running out of money. And while in the past your options were limited to a 3PL fulfilment service or purchasing your own warehouse, there’s now a new kid on the block in the form of on-demand warehousing.
With 24 million online stores in existence, the need for more fulfilment centres is obvious. According to some, on-demand warehousing plugs the gap and has the potential to change the game by making operations more efficient. According to others, it’s not all that it seems, it’s a waste of money – and it should be approached with a huge amount of caution.
This particular writer sides with the latter. But in the pursuit of truth and balance, this article will assess the supposed pros and cons of on-demand warehousing to help you make a better, more informed choice regarding its worth and use.
What Is On-Demand Warehousing?
In a nutshell, on-demand warehousing is exactly what it sounds like: It’s an online marketplace that connects companies who have surplus warehouse space with businesses that need more warehouse space. The catch is that they only need it temporarily and are thus prepared to use the service on a pay-per-use basis.
They’re also prepared to share it whenever they have no need for a huge warehouse space all to themselves, and have the labour capacity to help out with storing and shipping orders. Low vacancy rates are now becoming the norm and businesses want to put their space to good use.
For example, a startup business focused on growth might use an on-demand warehouse centre only in the short term until they outgrow it and require something bigger.
Or, let’s picture an eCommerce company that’s currently stocking their wares in a garage. As demand for their products increases, they need more space and so decide to use an on-demand, pay-per-use warehousing service.
It all works a bit like Uber or AirBnB. You only pay for the space when you need it, and you can use it over the short-term or over the long-term.
Like AirBnB, any warehousing company can apply to advertise their space on the platform. When the space is available, another business can come along and ‘rent’ it temporarily to house their stock. All transactions are run through the platform, and you can use the app to ship your orders and even manage your inventory. Services, meanwhile, are exchanged in real-time.
Pros and Cons of On-Demand Warehousing
When it comes to warehousing, eCommerce store owners have a few options:
- 3PL providers
- Purchase your own warehouse
These are all solid, viable options for most businesses, but growth and innovation has paved the way for on-demand warehousing in recent times.
Let’s take a look at the pros and cons of on-demand warehousing to see whether this is the right option for you and your business.
Pros of On-Demand Warehousing
It “Could” Cost Less
One of the reasons on-demand warehousing is so eagerly hyped us because it’s meant to reduce costs and save businesses money.
However, this is a theoretical claim that may not be true.
For example, all on-demand platforms require a commission for the use of their system. The rates for using warehouses in their network might be lower, but the cost is eventually made up so much in other ways that businesses often end up paying more for an on-demand warehousing service than they would a 3PL service.
For example, let’s say a middleman pays a warehouse $7 per pallet per month. They’ll then charge businesses who use the on-demand warehousing services around $17 per pallet per month.
They’re Apparently A More Attractive Option Than a 3PL
Again, this is an argument that’s been hyped up in order to prove that on-demand warehousing is actually beneficial. The argument is that lead time with a 3PL fulfilment service can easily escalate into months.
Worse still (so the argument goes), demand projections are often needed, as are questions regarding your inventory. For small businesses who simply can’t answer these questions right now, we’re told that a 3PL often isn’t the answer – especially if you want a short-term option that doesn’t tie you into a 1 year minimum contract.
On the contrary, however, you might find that a 3PL can actually fulfil a variety of needs that an on-demand warehousing service cannot. For example, a 3PL is more greatly dedicated to servicing your specific needs so that your orders are customised and unique to your brand experience.
And when it comes to things like lead times, demand projections and other issues, each business needs to ask themselves these questions, as well as put them to any potential 3PL provider they work with. It’s by asking questions that you can work out whether a 3PL is the right fit for you or not.
You Don’t Have To Purchase Your Own Warehouse
Warehouses are expensive and usually require a steep upfront fee. They also require variable costs like packaging supplies, warehouse equipment and labour.
On the other hand, when you use an on-demand warehousing service, you don’t need to take into consideration any of those costs.
It’s A Flexible Arrangement (With Downsides)
One of the best things about working with an on-demand warehousing service is that the arrangement can be super flexible.
Although there are different models to choose from, the most appealing is surely the one where the warehouse provider acts as an all-round fulfilment company. In other words, they take care of storage for you, but they also take care of shipping, packing, picking, stocking and even ordering.
Naturally, they don’t have to handle all of this – it’s really up to you to decide which aspects you want to take care of, and which aspects you want the on-demand warehousing service to handle. But it’s this flexible arrangement that makes on-demand warehousing such an obvious game changer.
Moreover, sometimes your business will need to scale up and sometimes it’ll need to scale down. On-demand warehousing allows for this flexibility.
However, there is a downside to this flexible arrangement, and it’s that you simply don’t know who you’re ‘getting into bed with.’ For example, you might enter into an agreement with a company that has zero experience with the products you sell.
It’s tempting to think that we can store our orders with just about anyone who’s got some space up for grabs, and that the arrangement can be as easy going as casual dating. But just like casual dating, you don’t truly know who you’re getting into this lax arrangement with.
You Don’t Need To Worry About Security
Of course, we all worry that our storage space might get broken into and we’ll lose our stock to thieves. But security and protection is all taken care of by the fulfilment centre you’re renting space from if you choose to work with on-demand warehousing services.
This means you don’t need to spend time hiring security guards or putting in place a security system. Neither do you need to cover the expenses over a long period of time. Instead, these expenses are factored into the pay-per-use service terms you agree to whenever you work with an on-demand warehousing service.
Just make sure you work with a warehouse provider that’s safe and secure, and which has in place the latest and most innovative security systems.
You Could Grow and Expand Without Any Worry (Maybe)
Again, this is another ‘pro’ that’s been used to help hype up on-demand warehousing. But while it’s true that you don’t need to tie yourself into a lengthy contract with an on-demand service and can move on when your business has outgrown the space you’ve been renting temporarily, there is a negative we need to consider here.
Essentially, it’s this: Before you start dreaming of outgrowing a warehouse space and evolving your business, taking on more orders and enlarging your profits, you need to remember that making on-demand warehousing work is a tricky business.
For example, what if you’re not the on-demand platforms priority? It’s you versus other customers who are fighting to be seen and heard.
Secondly, let’s consider how much effort it takes an on-demand fulfilment company to pick your stock, prepare it and ship it out 100 times or more a day. If there isn’t enough idle labour capacity to fulfil all these duties, your business will become an afterthought.
So while you’re dreaming of growing and getting ahead of yourself, your on-demand warehouse service is actually slowing you down in the meantime.
If you tie yourself into a lengthy contract with a large logistics firm, your hands are kinda tied if your business has grown in the meantime and you need more space to stock your goods.
Cons of On-Demand Warehousing
You Have Less Control
While on-demand warehousing can certainly be more advantageous than using a 3PL warehouse provider, there are ways in which the two services are similar.
For example, those who hype on-demand warehousing point out that you’re not in complete control if you use a 3PL. What they fail to realise is that on-demand warehousing works the same way. The difference is that there’s no telling who you’re getting into bed with (as mentioned earlier) if you go with an on-demand service, which makes things worse.
While a bit of spin from the pro on-demand warehousing media can paint this as a benefit to your business, it will count against you if those in charge of the operation are not as professional or as diligent as you would prefer. Or, if you’re not a priority.
Your IT Will Be Less Streamlined
Inventory management is a key part of the fulfilment process. When you keep your inventory in-house, you’re at least in control.
However, the fact that an on-demand warehousing service might not keep tabs on your inventory – or the fact that it simply doesn’t have the tools necessary – can create headaches. For one thing, it may require you to use a separate system and to try and bring everything together as seamlessly as possible – which could be tricky.
If you choose to work with on-demand warehousing, make sure they’ve got the right tools you need.
Mistakes Will Be Made
A fulfilment service is exactly what it says it is – fulfilment service.
An on-demand warehousing service, on the other hand, isn’t as much of an all-rounder. As such, it will likely make more mistakes than a proper fulfilment service that has invested in the latest technologies, and which is singularly focused on fulfilling your orders.
What Other Options Do You Have?
On-demand warehousing certainly has its disadvantages, despite what the media hype is saying. Here are some alternative warehousing options open to you:
Your Own Warehouse
You can buy your own warehouse where you’ll have complete control. The storage space will be all yours and you’ll run all operations. There’ll be no need to worry about contracts, too.
However, purchasing a warehouse requires an initial upfront cost – one that is fairly substantial, and which can damage a fledgling business.
Other costs include packaging supplies, employees, equipment and more.
Otherwise known as a third party logistics provider, a 3PL takes care of your operational logistics for you. It handles warehousing, inventory, shipping, delivery and everything in between. This means you’ve got more time to focus on the core aspects of your business.
Think of it as a crucial link in the supply chain that takes a load off for you when order growth is overwhelming. It’s ideal when you’re fulfilling more than 10 orders per day, have no inventory storage space left and you’re looking to grow.
On-demand warehousing certainly has its pros and cons, and it’s now up to you to decide whether the advantages outweigh the disadvantages – or vice versa.
One thing’s for sure: The gig economy is now surging up the supply chain and online businesses are now able to take advantage of the kind of on-demand services that consumers enjoy on a day to day basis. If something streamlines your business and makes it more efficient, it could be worth considering.
However, on-demand warehousing simply doesn’t stand up when compared to 3PL fulfilment services that prioritize your needs, and which are professional, diligent and experienced.
Will Schneider is the founder of insightQuote, a match-making service for B2B services, and writes informative posts about fulfillment services at FulfillmentCompanies.net. He is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.