The space race

In the wake of the Coronavirus crisis, logistics professionals will be seeking to create supply chains that are far more flexible and resilient.

The typical strategy is to identify a core capacity, probably linked in some way to average throughput over the year. That will be served from the business’ own assets or through long-term contracts with 3PLs and might account for 90% or 95% of annual activity. Peaks that exceed that capacity are accommodated by short-term leasing of emergency warehousing on a spot market.

On the face of it, that may sound like a reasonable strategy. But there are several problems. First, emergency warehousing of that nature does not come cheap. Short leases are expensive, if the peak is for an event like Black Friday or Christmas there will be many other companies looking for space and driving prices up – and available space may not be in an ideal location for efficient transport and distribution.

Additionally, and depending on the profile of the various peaks and troughs and how they overlap, that core capacity may spend much of the year seriously underused. That not only represents capital unnecessarily tied up but may also lead to considerable effort in engaging extra warehouse staff at peak to bring operations up to capacity – before then bringing in the emergency facility as well.

It is also worth bearing in mind that offloading the problem onto a 3PL may not solve the issue. The 3PL has quoted for your business on the basis of clear predictions of volumes and timings. If that suggests, for example, that there is a three-month period where your distribution centre is half empty, the 3PL will almost certainly have offered that capacity elsewhere. If an unanticipated emergency arises the 3PL may not be able to oblige at a reasonable price, or at all. This may not be the 3PL being difficult – it’s how they control costs and leverage their assets.

However, there is an alternative strategy. That is to significantly lower the ‘core capacity’ of in-house or 3PL warehousing, and accept that coping with peaks, whether predicted or not, is far from an ‘emergency’ but a normal way of operating. This approach requires access to a range of sites, suitable in terms of size, location, duration of availability, access to labour, IT and other facilities. By tapping into the network of resources available through an independent space broker, and by working with them on a long-term partnership basis, a coherent plan can be developed that builds resilience into the supply chain. Importantly, the relationship needs to be year-round, not ‘just for Christmas’.

Covid-19 is certainly unprecedented in scale, but the problems in supply chain inventory and storage that it is exposing are pre-existing and, not uncommon. The world is increasingly uncertain, and our ability to manipulate supply and demand to our convenience is much diminished.

For many, core or steady state inventory is a decreasing proportion of the whole: much more is falling into the unpredictable, higher risk segment and that has a big impact on warehousing strategy.

Businesses that win out will take a strategic approach to utilising flexible storage space on a planned, on-going and coordinated basis, creating a continuous dynamic buffer that flexes with the business. They will work with a specialist space broker/facilitator, not to locate a shed at the last minute, but to analyse the supply chain, the inventory requirements and characteristics, as well as the resulting warehousing needs and solutions.

Steve Purvis, operations director, Bis Henderson Space

For more information, visit www.bis-hendersonspace.com