In a flexible warehousing arrangement, the hiring company—often an e-commerce or omnichannel retailer—hires a warehousing provider to handle distribution and fulfillment operations. As the name indicates, the difference between flexible warehousing and standard contract warehousing has to do with the flexibility of the arrangement. While contract fulfillment services or contract warehousing usually require a contract spanning several years, flexible or on-demand warehouse providers offer short contract terms and the ability to scale rented space up or down based on fluctuations in demand.
This concept has gained popularity, with multiple start-ups focused on flexible warehousing services popping up over the last few years. In addition, the COVID-19 pandemic has also driven interest in the flexibility offered by this warehousing model as businesses clamor for overflow space to store excess inventory or safety stock.
Pros and Cons of Flexible Warehousing
Flexible warehousing offers a variety of benefits for businesses seeking short-term storage or fulfillment space. The most significant advantages of flexible warehousing include:
- Scalability on demand. With a flex warehouse, shippers, manufacturers, and retailers can quickly scale up or down based on seasonal demand or other fluctuations. Flexible warehousing provides a valuable inventory management solution for businesses with extreme shifts in inventory volume at different points in the year.
- Temporary warehousing. The short-term nature of flex warehousing contracts makes them convenient for a variety of purposes. During the COVID-19 pandemic, for example, many businesses turned to flexible warehouse providers to store unsold inventory and parts, store safety stock, or serve new markets while looking for permanent warehousing.
- Potentially affordable storage. Flex warehousing providers bill for the space used and spread operational costs across multiple tenants. This capability keeps businesses from paying for unused space or taking on the expenses of an entire warehouse they don’t need.
- Existing workforce. Using an on-demand warehouse also means using its existing staff, which will typically be trained with some general industry best practices so they can quickly adapt to your fulfillment and distribution needs. Having warehouse staff already in place is critical for businesses looking to expand quickly.
Though flexible warehousing offers a viable option for quickly expanding storage or fulfillment space, the model does have some notable drawbacks, such as:
- Limited technology infrastructure. Full-service fulfillment 3PLs invest in the latest technology and spread the cost over multiple years in a contract. Without the guarantee of long-term business, flex warehouses have much less incentive to invest in software or hardware. This unwillingness to invest in technology may pose considerable challenges for businesses seeking to use flex warehousing to expand existing distribution or fulfillment activities. For example, the hiring company may have to learn to deal with flawed or missing inventory data delivered on spreadsheets or other outdated technologies.
- Higher error rates. With less technology and a lack of dedicated staff, a flex warehousing provider will generally make more mistakes than a fulfillment 3PL. Errors may be only a minor concern for some business types. However, for online sellers, the fulfillment experience can make or break a customer’s willingness to buy again from the brand.
- Lack of specific experience. Warehouse workers at flex facilities typically only work with specific brands or industries for a few months. The short-term nature of the business relationship makes it difficult to build expertise in any given area. Businesses with inventory that requires special handling should be wary of most flex providers. Additionally, specialty services like kitting or custom packaging may not be available given this lack of niche capabilities.
- Poor communication. Since flex warehouses have minimal technology in place and serve numerous customers from each location, it may be challenging to communicate with your flex provider and get answers when something goes wrong.
Flexible warehousing offers a valuable service in the logistics sector, providing a viable option for businesses with very basic storage or fulfillment requirements. However, entering a more sophisticated agreement with a 3PL is better for more complex storage or fulfillment needs.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.