How E-Commerce Is Reinventing the Humble Warehouse

Yossi Sheffi
Nov 24, 2020 · 4 min read
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Temporary storefronts called “pop-up” shops are an established feature of the retail landscape, but how about “pop-up” fulfillment centers? Walmart is reportedly adopting the latter as part of its efforts to cope with the holiday surge in e-commerce traffic and maintain high service levels for its fast deliveries.

The transient fulfillment center is symptomatic of more profound changes in last-mile supply chains inspired by e-commerce demands. Nowhere are these changes more evident than in warehousing. The warehouse, a mainstay of supply chains, is getting a makeover as retailers move closer to customers so they can fulfill buyers’ unquenchable thirst for instant gratification.

Warehousing response to online growth

Consulting firm Deloitte forecasts that e-commerce sales will grow by 25% to 35%, year-over-year, during the 2020–2021 holiday season, generating $182 billion to $196 billion in sales. Walmart’s e-commerce sales increased by a huge 79% in the third quarter of this year, while rival retailer Target recorded an increase of 154% in online sales in the same quarter.

This growth trend was underway before the Covid-19 virus erupted, but the pandemic gave it a massive boost. In response, retailers have created various facilities to store products, fill orders, and dispatch them to impatient online shoppers.

As the Wall Street Journal reported, Walmart is creating pop-up fulfillment centers by partitioning off parts of its distribution centers that usually handle palletized goods. This is one of many fulfillment strategies retailers are adopting to ride the e-commerce wave. Adapting existing stores to function as warehouses is another example. Retailers have also established dark stores, facilities that look like stores but are populated by staff who pick and pack items for online customers. So-called warestores represent yet another variation on the theme: small spaces within retail outlets that perform the order fulfillment function.

Trucks are essentially moving warehouses and can be used in this capacity to distribute goods in urban centers. This is one of the concepts we have modeled at the MIT Megacity Logistics Lab. In one configuration, modeled in Mexico City, trucks are loaded at mini-warehouses strategically located near population centers throughout the city. The trucks transport products to proximate areas, where lighter, more nimble vehicles such as cargo bikes complete the final deliveries. The Megacity Logistics Lab has also looked at the use of vertical takeoff aircraft to move products to densely populated centers and trucks equipped with drones that drop off deliveries in rural areas.

The modeling effort was aided by MIT CTL’s Computation and Visual Education (CAVE) Lab. The facility offers sophisticated, large-scale visualization capabilities that enable researchers and company executives to model and visualize complex supply chains. Importantly, teams of practitioners from different disciplines — sales, supply chain, and finance, for example — can model the outcome of scenarios such as different warehouse configurations.

Impact on cityscapes

As I describe in my new book The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19, the changing face of warehousing is helping to change the face of cities.

For example, Walmart converted a shuttered Sam’s Club in North Carolina to a dark store, and even doubled the size of its workforce there. Similarly, shoe retailer DSW started shipping orders out of its closed shoe stores. “We essentially turned them into mini-warehouses to fulfill our increased digital demand,” said Bill Jordan, chief growth officer for the chain’s parent company, Designer Brands, in an interview for the book.

Logistics startups such as Ohi are repurposing vacant urban real estate. Ohi converted a former office in New York City’s Garment District into a micro-warehouse for e-commerce fulfillment. The startup offers related services and software that enable brands and retailers to be closer to customers.

As offices and retail outlets go dark, e-commerce fulfillment activities may fill many of these spaces. Moreover, technological advances such as sophisticated sensing systems for tracking products in storage facilities make mini- and micro-warehouses more efficient and hence more viable.

Warehouse rentals break new ground

The drive for innovative storage and fulfillment solutions is also spawning new ways to access warehouse space.

Warehouse-as-a-service models are emerging that supply industrial storage space when needed and help companies smooth out extreme fluctuations in demand for this resource.

A Seattle startup, FLEXE, has gone a step further by creating what amounts to the Airbnb of warehousing.

FLEXE installed a warehouse management platform it developed alongside existing management systems in over 1,000 warehouses it neither owns nor leases. Its platform finds buyers for underused storage space in this network of facilities. Space becomes available when demand drops off for the current tenants or markets change. Finding buyers for this vacant space relieves the existing occupants of paying for storage they are not using while providing the new tenants with a flexible option for storing their products.

This type of service is increasingly important. Although e-commerce is growing, growth rates vary dramatically from one sector or region to another, making it extremely difficult for companies to plan warehousing space. The Airbnb model provides a convenient solution.

The shape of things to come

The familiar, box-shaped warehouse defines traditional logistics and supply chain management, and it will not disappear. However, this supply chain workhorse is also at the forefront of an online revolution that is redefining retailing.

Yossi Sheffi

Written by

Dr. Yossi Sheffi is a professor at the Massachusetts Institute of Technology, where he serves as Director of the Center for Transportation & Logistics.

MITSupplyChain

MIT Supply Chain is a world leader in supply chain management education, research, and thought leadership.

Yossi Sheffi

Written by

Dr. Yossi Sheffi is a professor at the Massachusetts Institute of Technology, where he serves as Director of the Center for Transportation & Logistics.

MITSupplyChain

MIT Supply Chain is a world leader in supply chain management education, research, and thought leadership.

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