Last week, the warehousing start-up FLEXE raised $14.3m in its latest funding round, bringing the total amount of funding in the Seattle-based company up to $20.8m since its founding in 2014.
As mentioned in a previous post, FLEXE represents a timely solution to an increasingly significant supply chain issue: the rising cost of warehouse rents. According to Prologis’ latest Industrial Business Indicator, US industrial real estate utilisation rates are within 0.4 percentage points of their all-time high, which was itself reached in December. Moreover, CBRE reported that for Q2 2016, this market expanded for a 25th consecutive quarter, logging 63.9m sq ft of positive net absorption.
Despite considerable growth then, there still isn’t enough warehousing to support demand. The solution offered by FLEXE is that what is already occupied can be utilised much more intensively. The company points out that much of what is occupied is in fact not fully used, with seasonal trends, and the resulting sparse utilisation of space, masked by occupation data.
The company offers a marketplace for asset-owners to rent out their warehousing for short durations, thus offering an option to companies that are not prepared for the financial investment of a long term lease. Turning a fixed cost into a variable one has its risks, particularly when demand peaks in the fourth quarter. For companies looking to scale up quickly or try out a new product line however, flexible warehousing could provide a useful solution.
A common problem for growing e-retailers is the need to expand fulfilment to accommodate demand. Not only can this process be quite volatile, but in a country like the USA, with an immense geographic scale, it can also cause immense expense. Companies are often faced with the choice of charging customers for shipping, or subsidising shipping costs. This leads to great expense, whilst the obvious solution, a move towards a network of regional distribution facilities, is often prohibited due to the scale of initial investment, and the commitment to long-term durations.
By adopting a flexible warehousing approach though, retailers can afford to test the water before diving in. Moreover, if the environment were to shift from a scarcity of capacity to an abundance, supply chain operators could theoretically balance fixed and flexible warehousing capacity in the same way many 3PLs balance their transportation fleet.
This represents an alternative to the common approach applied currently, whereby many retailers adapting to the Omnichannel environment contract out their expanding need for e-fulfilment to 3PLs. These logistics providers then deploy support through large-scale multi-client facilities, until such a time as the client chooses to move on; for example, when the scale of their operation necessitates a dedicated facility. It is important to state that this story of expansion is by no means an iron law; both Walmart and Target are aggressively expanding their e-commerce capabilities through intensive investment in-house, but these two giants are, of course, exceptional cases.
The FLEXE halfway house between ownership and outsourcing is not without its weaknesses. Beyond the major contract logistics providers like DHL Supply Chain and XPO Logistics, dedicated e-fulfilment providers such as Ingram Micro’s Shipwire provide a compelling sales pitch, offering to exploit their access to global markets through freight forwarding, thus fulfilling cross-border sales which are currently unobtainable through the FLEXE approach.
Another confounding factor is control. FLEXE operates its own WMS, which can be integrated into client ERP systems. However, the actual fulfilment operations within the warehouses supplied through its platforms are controlled by the seller, not the buyer. That means that whoever owns the warehouse will be fulfilling the buyer’s operations, regardless of their specific needs.
Nonetheless, the concept is clearly fulfilling a niche, and may signal further changes to come. FLEXE is currently operating only in the USA, but the company may choose to scale internationally, which as illustrated by the Shipwire example, opens up new possibilities.
With the intense pressure of changing consumer behaviours and exploding warehousing demand, new technology-driven solutions are becoming more viable. For more on this topic, look out for the upcoming Ti report, Global Logistics Networks and Real Estate.
