On-Demand Warehousing 101: Network Optimization and On-Demand Warehousing

October 9, 2019

How many warehousing and fulfillment centers do you need to create meaningful efficiencies in your supply chain?

Flexe warehouse pallets web resources 3000x1690

Your logistics strategy underpins the success of your business. If you don’t have the ability to continually optimize your network and operations, you’re left with little flexibility to adapt your strategy as things change (and they invariably will).

Network optimization can mean so many different things, but it largely comes down to improving efficiencies across your distribution network to better serve customers and reduce costs. For Flexe, network optimization starts with your warehousing and fulfillment footprint, and assessing how it can be adapted as your business evolves.

In our On-Demand Warehousing 101 series, we’ve covered a lot: Applications for on-demand warehousing, top 10 locations for warehousing and fulfillment, how digital transformation is impacting the supply chain, and now, how to get started and optimize your distribution network. Find the first four installments below:

Warehousing and fulfillment in today’s retail world #

There’s a lot of pressure on retailers and brands: Customers want fast, affordable delivery on their eCommerce orders; retail partners have ever-increasing demands on delivery windows and on-time-in-full (OTIF) compliance, and supply chain disruptions happen that impact storage capacity (or lack thereof).

Amidst the complexity, businesses are faced with building out operations that are increasingly efficient. In warehousing and fulfillment, a lot of costs are poured into the last mile of delivery, or getting your inventory to your buyers and customers.

In that sense, your distribution network, comprised of warehousing and eCommerce fulfillment centers, is a critical piece that connects you with your customers.

Warehousing and fulfillment has changed #

“Flexibility” and “warehousing” haven’t traditionally gone hand in hand. Warehousing has been a fixed cost for decades—requiring resources to build and manage new infrastructure or long-term, fixed contracts with third-party providers. Not anymore.

Modern supply chain solutions like on-demand warehousing have fundamentally changed the game for managing your supply chain. Instead of investing in long-term leases or fixed costs, on-demand warehousing provides flexibility where traditional solutions cannot.

With on-demand warehousing, there are no long-term contracts or startup costs to get started. Flexe has one of the largest networks of distribution and fulfillment centers, and every warehouse that runs a Flexe project uses our technology platform to manage operations for our customers.

This gives retailers and brands that work with Flexe, a single point of entry to one of the largest warehousing networks—you integrate with our technology once, and get programmatic access to warehouses in every major market across the U.S. and Canada.

Network optimization and shortening the last mile #

Using on-demand warehousing to optimize your network can shorten the last mile of delivery and drive down costs in transportation for both you and your customers.

For years, the number one reason online shopping carts are abandoned is because shipping costs are too high—53% of sales are lost because of it.

The only way to reduce last-mile costs is to get your inventory closer to your customers. With inventory placed near your demand centers, not only are you shortening the distance goods have to travel, you’re also able to take advantage of the most cost-efficient carrier options and ground delivery.

The size of your network impacts your delivery promise #

If your goal is to shorten the last mile of delivery or improve your transportation costs, then you may need more warehousing nodes in your network. The best part about on-demand warehousing is that you can add warehousing and fulfillment locations to your distribution network without investing in fixed costs or long-term leases.

How does your current warehousing and fulfillment network support fast, affordable delivery?

Understanding that demand patterns vary, below is a network analysis for a general U.S. demand pattern.

Based on the number of locations in your network, and strategic positioning, it takes 16 warehouses to reach the contiguous U.S. with two-day shipping or faster.

What size of network do you need to support fast delivery?

# of locations Next-day delivery 2-day delivery 3-day delivery
1 19% 53% 100%
2 29% 70% 100%
3 38% 84% 100%
8 82% 98% 100%
11 90% 100%
16 98% 100%

While 16 locations may sound like a lot, consider this:

  1. Amazon has 75 to do the same thing
  2. You don’t have to pop-up 16 new locations overnight
  3. With on-demand warehousing to augment your network, there are no start-up costs, long implementation timeframes, and the same technology platform is used to work with different warehouse providers in the Flexe Logistics Network

Additionally, more isn’t always better. With just three strategically placed warehouses, you can reach 84% of your market with a compelling delivery promise, or 98% with just 8 locations.

Consider the findings of a recent network analysis we did. One customer had one owned facility. After conducting a network analysis, we uncovered that by adding two on-demand warehousing locations, they could optimize their network to save 30% in outbound transportation costs.

Lull Mattress, another Flexe customer, is also saving 30% in outbound transportation costs and reducing delivery times by 51% after transitioning from dropshipping to on-demand warehousing for their fulfillment network. In the last few years, Lull has been able to scale their fulfillment network up and down to find the right-sized network to meet both their business needs and also customers’ demands for fast, affordable shipping.

Getting started with a network analysis #

Whether you’re focused on building your business, or looking for opportunities to innovate your own infrastructure, you can optimize your network with on-demand warehousing.

Of course, the first step is to identify your business objectives—what delivery promise or transportation efficiencies do you want to hit?

With a network analysis, you can uncover optimization opportunities. Each network analysis runs multiple network scenarios to find the ideal configuration.

We take into account:

  1. General demand patterns
  2. Current distribution network size and placement
  3. Number of shipment types, dimensions, and average weight
  4. Modes of shipping

For a typical network analysis with Flexe, we outline 4-5 scenarios to choose from that include varying locations and numbers of warehouses to find the optimal solution for you.

Beyond eCommerce fulfillment: Inventory overflow and retail distribution #

Optimizing your network extends beyond eCommerce fulfillment and outbound parcel shipments.

It can be used to identify key locations to add warehousing for inventory overflow, ensuring that you’re storing your goods close to where they need to be to shorten middle-mile transportation legs when inventory is ready to be moved.

Similarly, for retail replenishment, you can stand up on-demand warehousing nodes close to intake centers to shorten transportation timeframes and ensure goods arrive during the intended shipping window when it’s time to restock.

Today, more retailers that own their warehousing networks are looking for ways to utilize their capacity more efficiently, which can translate to maintaining smaller volumes of goods and limiting the inventory they keep on hand.

Consider Fulfillment by Amazon (FBA).

Not only is Amazon tightening regulations on inventory storage, but they also increase storage costs as they prepare for holiday peaks.

According to Seller Central, average costs to just store goods is:

Months Standard-size Oversize
January - September $0.69 per cubic foot $0.48 per cubic foot
October - December $2.40 per cubic foot $1.20 per cubic foot

If we calculate the costs on a standard-sized per-pallet basis, which is 31 cubic feet, that equates to:

Months Standard-size Oversize
January - September $21.39 $14.88
October - December $74.40 $37.20

Seller Central notes that because standard-sized items require more complex storage requirements, like shelving, drawers, and bins, they can be more costly to store.

With on-demand warehousing, customers that are FBA sellers can store the bulk of their goods with Flexe, save on storage costs, and replenish goods to Amazon more frequently. Though Flexe costs vary throughout the year as well, the average price paid in 2018 was just $8.55 per pallet. You can find out more about average pallet pricing here.

Check out the rest of our On-Demand Warehousing 101 series: #