Inside the virtual four walls

From the July-August 2023 edition of Supply Chain Management Review.

July-August 2023

Most business people have heard the phrase “move fast and break things.” But how do you move fast, break things, and remain profitable? Inside this issue of Supply Chain Management Review are the answers—we…

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As digital technologies spawn new possibilities, they fuel innovation for new business models and business operating model functions across the value chain to generate differentiating capabilities, transformed processes, and a superior customer experience. The ecosystem e-commerce market is disrupting traditional warehouse operations offering both opportunities and challenges, especially in the 3PL market.

As the broader value chains enter hyper-innovation cycles, the warehouse management function also sees its fair share of innovation. It is generally thought to be a unique “inside the four walls” operation that is operationally quick to respond and slow to innovate. Market evidence suggest a slow pace to digital transformation by shippers. However, as digital technologies converge and the retail market shifts more rapidly to e-commerce, failure to adopt and adapt can be disruptive to the 3PL market and even existential.

Market leaders are leveraging digital transformation to innovate servitization opportunities

One such innovation is the pay-per-use servitization of warehouse space, resources, processes, and information. Digitalization of logistics is emerging as warehouse as a service (WaaS) offerings (see Figure 1).

The market conditions and evolving customer requirements advancing logistics to this new WaaS frontier are as follows.

• Small start-ups to mid-size B2C/B2B businesses seeking ways to set up and expand omni-channel distribution/fulfillment capabilities without having to focus on locations, facilities, warehouse labor recruitment and training, etc., preferring to concentrate on their products and effectively marketing them to build sales while minimizing distribution assets.
• Service expectations and double-digit growth of B2C and B2B e-commerce are driving the need to position products more flexibly and dynamically based on a customer’s pickup/delivery preferences. Research suggests that consumers prefer time-definite delivery performance over speed.
• WaaS is not solely used for B2C. Large organizations with a defined network are looking for storage to support seasonality, adapt to omni-channel, or are evolving their physical distribution network to support omni-channel fulfillment transformation. They are looking to test new service offerings, for example less than one-day delivery lead time or launching a brand into a new geography.
• With the growing digitization of supply chain ecosystems and non-linear product flows, WaaS can offer the flexibility to dynamically position products for optimal customer service and performance.
• Pandemic-like disruptions are illuminating the mandate for organizations to build a set of resiliency capabilities deemed critical to keep customer-promised SLAs. As part of the resiliency strategy, the latency and contractual obligations often inherent in expanding their private distribution network are no longer acceptable.
• Constrained labor availability and growing costs are prompting organizations to pursue advanced automation and robotics in their warehouse operations. This can be hard to contemplate for cash-strapped businesses to undertake independently.

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