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On-demand warehousing platforms match companies with underutilized warehouse and distribution capabilities with customers who need extra space or distribution services. These new business models have unique advantages, in terms of reduced capacity and commitment granularity, but also have different cost structures compared with traditional ways of obtaining distribution capabilities. This research is the first quantitative analysis to consider distribution network strategies given the advent of on-demand warehousing. Our multi-period facility location model – a mixed-integer linear program – simultaneously determines location-allocation decisions of three distribution center types (self-distribution, 3PL/lease, on-demand). A simulation model operationally evaluates the impact of the planned distribution strategy when various uncertainties can occur. Computational experiments for a company receiving products produced internationally to fulfil a set of regional customer demands illustrate that the power of on-demand warehousing is in creating hybrid network designs that more efficiently use self-distribution facilities through improved capacity utilization. However, the business case for on-demand warehousing is shown to be influenced by several factors, namely on-demand capacity availability, responsiveness requirements, and demand patterns. This work supports a firm’s use of on-demand warehousing if it has tight response requirements, for example for same-day delivery; however, if a firm has relaxed response requirements, then on-demand warehousing is only recommended if capacity availability of planned on-demand services is high. We also analyze capacity flexibility options leased by third-party logistics companies for a premium price and draw attention to the importance of them offering more granular solutions to stay competitive in the market.
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On-demand warehousing: main features and business models
Logistics and distribution need to be more responsive and flexible to satisfy changing and demanding customer requirements due to e-commerce and customization trends. This work focuses in particular on warehousing, with the aim of understanding how emerging business models provide companies with additional ways to acquire warehouse space or fulfillment services. To do so, this work classifies and describes traditional warehouse models. Next, on-demand warehousing is analyzed as an emerging business-to-business (B2B) model that embraces the sharing economy principle of accessing resources rather than owning them. On-demand warehousing companies operate through online platforms connecting companies who have underutilized warehouses or fulfillment capacity to other ones searching for warehousing services. On-demand warehousing enables more flexible resource acquisition, as fixed cost investments are not necessary, and lengthy negotiations are eliminated through a standardized contract between the on-demand platform and the renter. This work contributes to the literature through an improved understanding and description of the main features of on-demand warehousing, representing a starting point for further research on this topic. Future developments are needed on the analysis of the main decisions a lender of space has to make when choosing an on-demand model.
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- Award ID(s):
- 1751801
- PAR ID:
- 10171090
- Date Published:
- Journal Name:
- XXV Summer School "Francsco Turco" - Industrial Systems Engineering
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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