The “Floating Warehouse”
The “Floating Warehouse” strategy has been utilised for several decades by leading Fortune 500 companies, with McDonald’s being one of the first to leverage this supply Chain strategy for competitive advantage. Instead of holding large quantities of products forward deployed in major city warehouses for in-country distribution, the water is used as a giant floating warehouse pipeline where product can be optimally timed for sequential distribution on a just in time basis. Instead of tracking product by container or bill of lading, a product can be broken down to individual pallets, cartons, or SKU’s linked to a specific container unit. Product visibility is then similar to a shelf in a warehouse, except it is linked to a container on a ship. By following the vessels deployment on the water, an individual carton can be visible as 2 days away, 5 days away, 12 days away, etc. If product is dispersed across the ocean with multiple carriers and vessels, it creates a dynamic pipeline product flow where cargo is visible on the water as it is moving towards the port of destination. Each vessel becomes a “floating warehouse” with products dispersed across multiple vessels continuously feeding into multiple ports. This dramatically reduces the product needing to be stored in warehouses as inventory safety stock is minimised and continuously re-supplied on a live basis. A small percentage of cargo can even be diverted in transit through major ports with a small container penalty charge by the ocean carrier. This means that continuous product re-supply is visible on the water and can even be diverted between destinations while in transit to respond to sudden unanticipated surges in customer demand. Optimally, one or two mini hubs within the region will keep a small amount of buffer stock for micro emergency airfreight resupply if any unexpected surge develops. As a result, forward deployed warehouse storage is significantly reduced, product moving on the water is leveraging “free storage” while on the vessel reducing working capital and the risk of stock outs or lost sales are severely reduced. The water becomes the “floating warehouse” pipeline and in-country warehouses become the distribution nodes sometimes connected to sub-nodes for secondary delivery tiers.
McDonald’s was one of the first companies to utilise the “Floating Warehouse” as a competitive tool for market advantage more than 20 years ago. Working with its strategic partners (Including the Havi Group), McDonald’s would take several years of historical data combined with advanced forecasting models to predict individual product requirements for every restaurant within each country of the Asia region. They could place super aggregated orders on global vendors ensuring the lowest price with high quality standards and ensuring a high consistency of product across all markets. McDonald’s food and packaging products would then be deployed across the “floating warehouse” pipelines, with minimal product in each city warehouse and a continuous 24 hour re-stocking of individual restaurants. The super aggregation of orders and a constant flow of product across a global pipeline provided McDonald’s with pricing and quality advantages over other restaurant competitors, while saving millions of dollars in storage costs. With more than 9,609 restaurants in Asia and 37,885 restaurants globally, McDonald’s continues to be an innovator in leveraging optimal logistics strategies as a leader in the fast food industry.
Today most companies leverage the “floating warehouse” pipeline as an essential supply chain efficiency tool as technology makes product visibility optimal. McDonald’s was ahead of its time and experimented with new logistics concepts before the technology was available. In the current era of continuous disruption and Artificial Intelligence many new supply chain models will evolve.