Bimodal Warehousing

In a world that is rapidly changing, uncertainty is a given.

We’ve talked about uncertainty in a previous post, but what we want to do now is link the concept of uncertainty to the themes of disruption, change and complexity - topics that seem to be getting a lot of attention in the media at the moment (for some reason?!) and then link those themes to logistics.

Technology is a key driver of change, and like it or not, the pace of change only accelerates. We have to accept that, and learn to not just live with it but to embrace it and thrive on it.

As technology opens up new markets, systems, networks, objects opportunities… even people, it also creates more complexity - and exponentially so. In our sector, warehousing, we have seen warehouses evolve from oversized sheds to fast-moving, high-tech, logistical operations. Ever-increasing consumer power is demanding ever-increasing operational excellence. Expectations are high. Throw in e-com and omni-channel shopping, IOT, robotics….wow… it quickly becomes mind blowing! It’s an incredibly complex multi-dimensional network; like a living organism made up of people, buildings, machinery, stock; multiple platforms, technologies, sensors and stakeholders meshed together by innumerable nodes of connectors.

Added to the complexity of modern-day logistics is the chaos of every day life. We live in a rapidly-changing world subject to uncontrollable forces and turbulence that every business now has to contend with. Everyone needs to be prepared.

Volatility can be your friend

Every trader knows when times are volatile, it’s the best time to make money. Businesses should think like this too.

Don’t complain. Don’t get comfy. Do something about it.

…Because you can bet your bottom dollar someone else will!

When you’re operating in a world where a vote, a hurricane….even a 140 character tweet can change everything, you need your businesses to be set up for volatility. You need to build in optionality.

Optionality allows you to manage risk, and when supply chains are involved we are principally talking economic (i.e. you don’t carry unnecessary liabilities) and reputational (remember customer expectations?) risk. Progressive supply chain thinkers talk about running a bimodal supply chain strategy. Basically this means running two strategies, the purpose of which is to manage risk Vs return:

Mode 1: Designed for stability and operational efficiency.

Mode 2: Designed for agility and innovation.

There’s lots of info on bimodal thinking, but the big 800lb gorilla in the room as far as the supply chain is concerned is warehousing. Pretty much every element of the supply-chain is short-term and flexible - the planes, trains and automobiles, but what messes up everything is the warehouse.

Imagine: Brexit happens and your country’s currency drops 20% in value overnight. The line of Levi jeans you’ve been importing from the US are now uncomfortably expensive, you can’t pass that cost on to the consumer so what do you do? You stop ordering them. Great. No more jeans, cancel the ships and the lorries, but oh - what’s this? I can’t cancel the warehouse because I signed a 5 year lease.

That’s a liability.

And a big one. That is going to be a big expense. Stuck with you. For a long time.

What you need is a bimodal warehousing strategy. You want to run a long-term strategy built for stability and a short-term strategy built for change - a strategy built for reality, but also for advantage.

Companies will be able to run parallel strategies enabling them to balance risk and return. Running a parallel process allows companies to be able to rapidly adapt to change as and when required. Crucially, to be able to adapt means to be able to evolve: remember Darwin:

“It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself”.

Baseload Vs Peak

How power distribution works is a good analogy for how we think about space and warehousing services at Stowga.

During the day we don’t use as much electricity as we do in the evening. In the evening we all go home and turn the lights on, the TV, the oven, etc. Power surges, and that’s ok because the national grid has been set up for this. There are big coal fired power stations that are always on that provide what’s called baseload power - the power we require as a minimum, then smaller generators that can be switched on as and when we need additional power to supply the surges. That’s called peak power.

The above image is illustrative of power demand over 24 hours, but a similar shaped curve could be used for warehouse demand over a year, or likewise the demand for a commodity, sector or service.

The biggest driver of under-utilisation of space in warehouses is seasonality - the natural seasonality inherent in the products being stored in warehouses due to supply/demand dynamics over time. In the past companies ‘bought for the peak’ - i.e. making sure they took on leases for warehouses that had enough space to cope with peak storage requirements. The result is that for the most of the year they have spare space.

A far better solution would be to ‘buy baseload’ - i.e. have enough space to cope with normal conditions, but then have the option to buy more as and when in order to cope with the peaks.

At Stowga we see a future where companies will be able to switch on additional warehousing capacity like power companies can switch on peak power. They will always need baseload warehousing (Mode 1), but a proportion of their strategy should be geared up for Mode 2 — whether that be for short-term seasonal spikes, or reacting to changing business environments, or experimenting with new products or supply chains.

Businesses ought to be able to react immediately to change and build or break dynamic supply chains in order to position inventory in exactly the right place, at the right time, at the right price. Seasonality is predictable so on an abstract level companies ought to buy space now for the future surges. They ought to be able to sell that space if they don’t need it. In other words, there should be a futures and options market for space where companies can hedge their warehousing liabilities.

“If you don’t like change, you’re going to like irrelevance even less.”
General Eric Shinseki, Chief of Staff, U. S. Army

Fight or Flight

Companies face multiple strategic choices and of course with multiple stakeholders involved decision making is never black and white, but the risks to companies that don’t choose to adapt are very real. They will face extinction because they will not be able evolve in line with changing economics and changing customer expectations.

The funny thing about logistics is that most people don’t notice it. It’s in the background. When it’s going well it just happens. Your parcel arrives. Have you ever stopped and thought about how that parcel got to you? A huge amount of moving parts are in the background and someone has to think about all this.

We at Stowga are thinking about it a lot, and we are building the tools for companies large and small to be able to manage that multi-dimensional mesh through one unified platform and experience. Our goal is to remove the complexity and enable our clients to be able to manage the ups and downs of a changing world. We want to enable our clients to adapt, and ultimately to thrive.

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