On demand warehousing is challenging the traditional models of 3PL and in-house fulfillment solutions. Learn how you can free up working capital and grow your business with an on demand warehousing partner.
On demand warehousing is challenging the traditional models of 3PL and in-house fulfillment solutions. Learn how you can free up working capital and grow your business with an on demand warehousing partner.
On demand warehousing is a fulfillment model based on partnerships between warehouses looking for new inbounding merchants and an on demand warehousing provider with a roster of merchants in need of affordable warehouse space and premium SLAs.
On demand warehousing services negotiate with multiple warehouses on behalf of their merchants to build a nationwide fulfillment network to reduce shipping costs and streamline fulfillment so merchants of all sizes can reach customers within 1 to 2-days and create efficiencies in their fulfillment process.
The result for merchants is a customized solution based on their business objectives and inventory requirements that enables them to compete and scale at an enterprise level. Ahead we’ll examine the top ten business outcomes merchants can expect when they abandon legacy fulfillment models for a flexible and scalable solution.
On-demand warehousing solutions are managed by a neutral third-party, often referred to as a 4PL (fourth-party logistics). The 4PL builds a roster of small to mid-sized merchants and aggregates their shipping volume. This lends greater negotiating power to merchants who normally would not have the average daily volume (ADV) to negotiate for space and labor at top-tier warehouses or 3PLs on their own.
A recent merchant survey revealed that many fast-growing businesses see on-demand warehousing as an effective way to scale up their fulfillment operations without taking on additional assets as well as gain access to better supply chain technology and storage rates they could not access on their own.
In fact, nearly three quarters of merchants believe that the future of fulfillment is shared warehousing models like on-demand warehousing.
LS2 Helmets needed a new fulfillment solution to meet their customers’ changing delivery expectations. As they weighed their options they determined that an in-house solution would require too much overhead, traditional 3PLs were too expensive and inflexible, and negotiating lower freight costs on their own was unfeasible. After extensive research, they discovered on demand warehousing.
Consumers have come to expect 2-day shipping guarantees for all ecommerce orders, regardless of vendor. In fact, recent survey data shows that 37% of consumers expect even faster shipping from small businesses than major retailers, and if your business is selling on marketplaces like Amazon as part of a multichannel selling strategy, meeting the delivery expectations of Prime and similar membership programs is key to winning the buy box.
According to McKinsey, on demand warehousing enables merchants to have a broader footprint with their inventory — stocking multiple warehouses across the country to get closer to their end customers and lower time in transit (TNT) on final mile deliveries. Often, SMBs are prohibited from distributing their inventory due to higher inventory carry costs. With on demand warehousing, they are able to share warehouse space with other merchants, giving them a smaller footprint within each warehouse.
When children’s toy and furniture provider, ECR4Kids, began selling direct-to-consumer on Amazon marketplace, they found that their in-house fulfillment model was unable to meet 1 to 2-day shipping expectations. They soon discovered that by outsourcing fulfillment to an on demand warehousing they had a nationwide network of full-service warehouses, allowing them to offer 1 to 2-day delivery to 97% of their ecommerce customers.
The supply chain disruptions of 2020 made many retailers rethink their approach to supply chain strategy and begin prioritizing resilience over efficiency. Merchants who entered the COVID-19 pandemic with resilient supply chains already in place not only survived the volatile market, but many pivoted their sales channels quickly enough to take advantage of record ecommerce demand and ultimately grow their business.
Fitness recovery drink, O2, accomplished just such a pivot with their on demand warehousing partner. When their retail sales channel was shut down, they found a new customer base through their ecommerce storefront. This required their fulfillment process to shift from largely LTL retail shipments to small parcel D2C shipments practically overnight. Because their on demand warehousing partner was equipped to handle multiple transit modes they were able to make the transition smoothly and grow their overall sales by five fold.
Aside from large-scale market disruptions, many vendors experience seasonal demand that requires a flexible fulfillment solution. On demand warehousing allows merchants to pay only for the space they need when they need it so they’re not paying exorbitant fees in the off-season that can eat into their overall profitability. By scaling resources to match demand, seasonal merchants can double down on sales and marketing efforts during their busiest seasons without fear of their overhead being too high when demand slows down.
It can often be difficult to negotiate affordable rates with traditional 3PLs without meeting a certain ADV (Average Daily Volume). Even if your business can afford storage fees at one of these 3PLs, lower volume merchants might be lower priority when it comes to maintaining acceptable on-time fulfillment and delivery rates.
However, by aggregating the inventory of multiple merchants, on demand warehousing providers can negotiate rates and SLAs typically reserved only for high-volume sellers. For instance, Ware2Go guarantees all of its merchants 98% on-time fulfillment and delivery, including same-day fulfillment for orders received before the daily cut-off time. For a detailed rate quote for your business, reach out to one of our fulfillment experts.
Building a 2-day fulfillment network is complicated and requires in-depth analysis of sales cycles, shipping data, and storage requirements. A qualified on-demand warehousing partner will become an extension of your team — not only guiding you through an initial network setup, but regularly combing through data to understand patterns in your sales cycles and suggest new efficiencies in your end-to-end supply chain.
Most SMBs find that their core competencies lie in product development, sales, and marketing. Siphoning valuable internal resources to supply chain and fulfillment can become a burden on business operations, but outsourcing fulfillment to an on demand warehousing partner frees up those resources to focus on your areas of expertise.
If high-level supply chain strategy is already a function of your organization, having an on demand warehousing partner enables your team to become even more strategic by offering automated reporting that presents your team with real, actionable insights that drive profitability.
On demand warehousing is anchored by its cutting technology, which automates traditionally manual processes. New fulfillment technology fully integrates your sales channels with your supply chain and gives you full visibility into your inventory levels at all warehouse locations and across all sales channels. It also allows the flexibility to migrate inventory to feed more profitable or higher volume sales channels. Additional visibility into fulfillment and delivery statuses ensures that service levels are being maintained and that customers can be regularly updated on their order status.
Survey data shows that 65% of merchants saw increased cart conversion rates of up to 25% when 2-day shipping was offered at checkout. And with integrations like Google’s Free & Fast shipping annotations, on demand warehousing providers enable merchants to advertise their fast shipping promises earlier on in the buyer journey. Google’s early findings revealed that these annotations increased top of funnel conversion rates by 9% overall.
The flexible nature of on demand warehousing agreements enables your business to convert more fixed costs to variable costs, minimizing your risk exposure. This kind of freedom allows you to invest in the areas of your business that will drive the most profit — whether that be inventory, marketing spend, or strategic hires. Reducing fixed costs also lowers the risk of testing new products and sales channels, giving you the flexibility to quickly reverse course should a new venture prove unprofitable.
Streamlining multichannel fulfillment through a single fulfillment provider allows you to monitor and manage all sales channels through a single platform. It also creates a seamless and consistent brand experience regardless of the channel customers are purchasing through.
Partnering with an on demand warehousing provider will drive top-line revenue growth, more satisfied customers, and opportunities to expand into new markets and geographies. This growth will be supported by a fully scalable fulfillment solution that can support any transit mode, order mix, or level of demand.
To learn more about Ware2Go’s on demand warehousing network, can help you grow your business, check out our solutions.