Manufacturing companies have moved their units closer to the shore or even re-shored them due to the traffic and lag in cross-country transport options. As manufacturers are unable to identify the lead time for deliveries, they are creating a buffer stock scenario where they can meet demands. This solution further helps them mitigate various supply chain risks by eating up the existing limited warehousing capacity.
With the heavy reliability on warehouse space, CBRE has predicted that Canada could run out of warehouse capacity by the end of the year.
Increased Costs Due to Warehouse Capacity Shortages
Due to the requirement of last-mile delivery, most e-commerce companies are forced to decentralize their distribution networks and place goods closer to consumers, all while finding warehouses that have the capacity. This results in a cost increase, as the goods are placed in major metro areas. The lack in warehousing capacity and the increased real-estate costs make this a very heavy investment. On average, the warehousing capacity vacancy rate in North America over the last month is less than 6%, with Toronto having less than 0.5% vacancy.
An additional cost angle is involved with the pick and pack operations that are required for e-commerce multi-product order fulfilments. This tends to be more cost-intensive and technology-driven when compared to the former processes of manual packaging and handling of single products per order.
In the absence of a dominant home delivery provider, warehouse operators are forced to ensure that new technology platforms can easily integrate, as consumers have come to expect visibility to their orders from end to end.
For a decentralized and broader inventory management, we are seeing warehouse operations rapidly evolve. They are implementing technology to accommodate the changes in demand. For example, warehouses can take advantage of the Automated Storage and Retrieval Systems (ASRS) to recover up to 85% of existing floor space when compared to standard shelving. This will help increase their warehousing capacity. In the absence of a dominant home delivery provider, warehouse operators are forced to ensure that new technology platforms can easily integrate, as consumers have come to expect visibility to their orders from end to end.
Change is inevitable, and the future is unpredictable
One thing that Covid-19 has taught us is that change is inevitable, and the future is unpredictable. Post-Covid, companies will be hesitant towards contract terms for 3-5 years. The expectation will be lowered to 1-2 years to stay adaptable and react to changes in consumer demand. This means shippers would miss out on the cost incentives that longer term warehouse contracts would provide.
With all this dependence on warehouses, and the warehousing capacity scarcity along with automation inclusions, the leases for warehouse spaces have skyrocketed. Warehouse operators are raising their 2021 rent forecast to 6.5% YoY in the US and 6% YoY globally.
5 Tips to Overcoming The Warehouse Capacity Shortage Using Technology
1. Flexibility and Leveraging Technology
Moving towards flexible plans with high technology dependency seems to be the only way to adapt in an ever-changing supply chain. Technology can enable businesses to have a solid plan A, and quickly implement plans B, C, and D if the disruption from 2020/2021 continues.
2. BIRD
While implementing technology in your warehousing capacity planning strategy, you can take the benefits of developments and applications found within the ‘BIRD’ options. BIRD technologies include Blockchain, Internet of Things (IoT), Robotic Process Automation (RPA) and Data Science.
3. Automation
As labor shortages have continued to plague supply chains, implementing automation in order picking will reduce lead times. There are numerous technology options to identify the lead times required to meet delivery deadlines.
Further, by using trusted blockchains and advanced data analysis, one can identify demand requirements.
4. Batch Size and JIT
Manufacturers have also shifted to running smaller batches with adjusted schedules to meet the ever-changing demand. Implementing JIT (just in time) programs have been common practice recently.
5. Businesses can Partner with 3PLs
Technology, if implemented correctly, will help create less wastage and minimize delays. Businesses can partner with 3PLs and identify the specific markets where they require last-mile delivery and invest only in specific targeted regions.
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