Edgistfy Innovation Challenge

Case Study 2020

ON-DEMAND
WAREHOUSING

Team Hurricanes: (NITIE MUMBAI)

Vivek Sheoran (vivek.sheoran.2021@nitie.ac.in)
Vishvesh Bisht (Vishvesh.bisht.2021@nitie.ac.in)
EXECUTIVE SUMMARY
As India is a fast-developing country the need for infrastructure will arise, one of the
important infrastructure need will be of warehouse market which is expected to grow at
CAGR 9.5% and reach INR 968 Billion by 2024. The traditional warehousing model is static.
It requires long-term leases and substantial fixed operating costs. In a time when businesses
need to be dynamic and responsive, having to rely on outdated models creates tension and
challenges. Retailers and brands are faced with the choice of either adapting their existing
logistics infrastructure or using solutions that are not designed to handle modern logistics
challenges like omnichannel retail and fluctuating market demands. On-demand warehousing
is a flexible alternative to traditional warehousing models that makes it possible to overcome
tight real estate trends, the challenges of fluctuating inventory, and the increased complexities
of fulfillment operations.
On-demand warehousing is a warehousing strategy consisting of purchasing warehousing
services in a pay‐per‐use model, on an electronic marketplace. This can be the entire
warehousing strategy for a company, or it may be an activity that supplements an existing
network built on long‐term contracts. It allows the companies to quickly adapt to variable
demand and cost conditions. Customers only pay per‐unit costs for the services they use, thus
avoiding capital expense.
E-commerce, agri products storage (Cold storage) and manufacturers are potential customers
for on-demand warehousing services. On-demand warehousing for eCommerce fulfillment
gives retailers and brands the flexibility to scale their fulfillment networks, as needed, to
enhance their D2C strategy. Retailers and brands can pop up fulfillment centers to improve
their delivery promises, test new markets, and create short-term product promotions. Farmers
and agri retailers can use on-demand warehouses (cold storage warehouse) to store their
crops and sell them when prices are high to earn more profit and give push to India’s
agricultural Industry. For brands who distribute their products to retail partners, on-demand
warehousing helps sellers offset inventory storage fees and shorten last-mile transportation by
storing goods closer to intake centers.
TABLE OF CONTENTS

1. PROBLEM STATEMENT SUMMARY……………………………….... 1.

2. SOURCES OF CUSTOMERS AND BUYERS………………………….. 1.
3. MARKET ANALYSIS……………………………………………………. 2.
4. EXECUTION……………………………………………………………… 5.
5. PRICING MODEL………………………………………………………... 7.
6. REFERENCES……………………………………………………………. 8.
PROBLEM STATEMENT SUMMARY

On-demand warehousing is the ability to access warehousing services by an organization as

and when required without the need for long term commitments. It is basically a short-term
warehousing need. You must start a new vertical “On-demand warehousing” and structure it
in Components, Sources, Customers and Pricing Model of On-Demand Warehousing. Do
Market Analysis for on-demand warehousing and derive execution plan and pricing Model
for this business vertical.

SOURCES OF CUSTOMERS AND BUYER

Sources of on-demand warehouse:

Dedicated Warehouses: Renting or owning whole warehouse for on-demand purpose.
Partnership Warehouses: Partnering with existing warehouse owner companies for use of
their warehouse for on-demand services. It is a win-win scenario as warehouse shareholders
will get rent for their unused capacity and we get that capacity to run on-demand warehouse
marketplace business.

Customers for on-demand warehouses

E-commerce: E-Commerce is a booming industry and we can expect a lot of new entries in
this segment. They have vast reach due to easy internet availability, but it takes a lot of effort
to set distribution network to every part of the country. On-demand warehousing can best
serve their needs in this case.
Farmers & Agri Product Wholesalers: Farmers & wholesalers can use on-demand
warehouses (cold storage warehouse) to store their crops/products and sell them when prices
are high to earn more profit. Also there is shortage of warehouses in Grain market during
every season which leads to lot of crop wastage.
Retailers: Big and Modern Trade retailers face problems of warehousing during fluctuating
demand (sale, season, etc.) and find it difficult when expand to new areas as they do not wish
to spend capital in warehousing. For brands who distribute their products to retail partners,
on-demand warehousing helps sellers offset inventory storage fees and shorten last-mile
transportation by storing goods closer to intake centers.
Manufacturers: Manufacturing sector accounts for 80 per cent of warehousing market,
manufacturers face with demand volatility and solution to this can be on-demand
warehousing, also with rise of on-demand warehousing manufacturers can also store products
close to end consumer.
Startups: Startups don’t have high capital to invest in warehousing, they can best utilize pay
per use model for their needs.

MARKET ANALYSIS
• The Indian warehouse market was worth INR 561 Billion in 2018. The market is
further projected to reach INR 968 Billion by 2024, growing at a CAGR of 9.5% during
2019-2024.
• Manufacturing sector which accounts for 80 per cent of warehousing market is
estimated to be at 68 million sqm (739 million sq. ft) in 2019 and is expected to grow to
86 million sqm (922 million sq. ft) by 2024.
• The sector has witnessed massive participation from institutional investors, as well
as developers, who have collectively invested over USD 6.8 billion since 2014, with an
average investment per deal of USD 282 million. The implementation of GST, the
continued government focus on building industrial corridors, the ‘Make in India’ thrust
and 100% FDI rules will further boost investor’s confidence.
• Demand of large sized warehousing in the tier 2 cities is also on the rise and is
showing a big growth potential, it will also cater to needs of MSME sectors and provide
help to e-commerce, startups, etc. to reach to Tier 2 & 3 people easily and shortening
delivery time.
• Companies need more distribution points and need to shorten their delivery times,
this can be answered by on-demand warehousing.
• Organized warehousing is gaining traction in the Indian market and share of 3PL is
on rise as more companies are looking for expertise and specialized service of 3PL and
focus on their core business instead

• In a survey of 158 respondents, more than 75% reported significant inventory

fluctuations throughout the year, 48% of respondents reported having both expected and
unexpected fluctuations.
• Nearly 70% of those that acknowledged capacity exceeds inventory at periods
during the year accept the empty space as sunk costs. That means most warehouse
managers with excess capacity do not have a solution when they have more space than
inventory, Infact only 12% reported subleasing their excess space. This is likely due to the
administrative overhead associated with subleasing.
• The following represents the kinds of solutions used to secure additional warehouse
space during times when inventory exceeds capacity.
 EXECUTION:

The execution of the problem statement will be done as explained by the diagram shown
below:

Marketplace: Setting up of an online marketplace that will connect the buyers and suppliers making the
transactions easy and availability transparent. The owners of warehouses can list the excess space
available on the marketplace which can be easily accessed by the interested customers based on their
requirement. At the very least a medium-term contract needs to be made with seller for a minimum
duration for which he can list the space anywhere near 3 months for smooth operations.

Warehousing: Various companies are venturing into the new markets that can spread out into the varied
geographies of the country. Many customers look into On-Demand Warehousing when they are having
pilot run of a product, penetrating the newer markets or for planned seasonal peaks or unexpected excess
inventory, which enables the retailers and brands to quickly add additional capacity tailored to their
requirement without taking a hit on the front of capital investment.
This entails the setup of marketplace for consumers and seller which provides a bridge between the
excess inventory and vacant spaces lying with the warehouse owners. The operator of the marketplace
does not own any inventory, they present other people’s inventory to a user and facilitate the transaction.
A comprehensive software solution for inventory management is also required to provide the
transparency to the business can cater to the security concern of the consumer. The customer can also
avail the benefit of the already established network of the 3PL transporters to provide cost efficiency as
well as cater to the issue of serviceability in the region.

Fulfilment Services: On-demand warehousing for eCommerce fulfilment gives retailers and brands the
flexibility to scale their fulfilment networks, as needed, to enhance their direct-to-consumer strategy. As
E-commerce is the next big thing in Indian market, the demand for E-Commerce fulfilment is on a rise.
As there are availability of the new markets in this space, retailers and even various brands can use this
facility to come up with warehousing and fulfilment networks to improve their customer reach, delivery
promises, running pilot run for a new programme or even create short-term product promotions.

This provides the necessary help to the new players in the market who cannot setup their own fulfilment
facility due to shortage of the upfront capital investment or to test new waters in the market. This will
require an integrated software platform which handles end to end activities from Receiving order to
Return Order processing which would also include the inventory management at the warehouse. With the
already established network, we can transfer the logistic benefits to the end customer making it the ideal
choice for the business setup for any new player in the market.

Integrated Software Solution: The requirement of integrated software solution is also a required
component in the On-Demand Warehousing to provide the ease in the process of transaction and to
increase the efficiency and transparency of the warehousing activities for both customers and sellers. This
software solution must provide an end to end solution from order processing, inventory management to
return order management if required.

3rd Party Transportation: There is a rising trend seen in the last few years related to the increase in the
services provided by the 3PL transporters due to their expertise in the area and to cater to the increase
demand of faster serviceability. The benefits of no staff and infrastructure requirement with added
efficiency makes 3PL transportation an integral component of On-Demand Warehousing to provide end
to end solution to the logistic problems of the customer.

With significant increase in the distribution network the customer can enjoy the benefit of competitive
pricing along with the reliability of the service provided. This requires developing a long-term
relationships with the 3PL transporters to provide the solution of flexible pricing and to adapt to the
fluctuations of demand.

By stagewise execution of the above-mentioned components the On-Demand Warehousing can be set into
action.

PRICING MODEL

Three different cost components in commercial warehousing are:

1. Inbound Processing- Receiving products into the warehouse, it all starts with an
inbound shipment. It involves verifying seal number, unloading pallets, counting items, quality
checking, putting away each pallet into stock, etc.
2. Storage Cost- Storage Cost reflects the costs for the space itself, plus insurance,
building maintenance, communication systems, material handling equipment, utilities,
trash disposal, security, janitorial, taxes and other expenses that go into operating the
facility. There are generally 3 ways of storing (Stacks, Racks and Floors) and pricing for
each of them differ.
3. Outbound Processing- Picking and preparing orders for shipment. It involves
picking order, checking order, Parcel processing, loading orders, etc.

The pricing models can be divided into 2 scenarios based on the shipment volume from the
customer:
Unit based pricing: If the volume of shipment is variable or low in quantity, the pricing
model can be based on the number of units like per pallet. This model attracts higher margins
on the cost of the uncertainty of the shipment volume received from the customer.
Fixed/Variable pricing: If the relationship with the customer is longer and the shipment
volume is consistent, the pricing model can be based on fixed/variable costing where variable
cost can be charged based on the volume of the shipment processed and fixed cost will be
based on the charges incurred on rental, capital and salaries of the staff. This will be based on
the regional pricing concept as the above-mentioned rates will differ respective to different
regions. The benefit of consistent shipment volume can be transferred to the customer
enhancing the customer relationship.
REFERENCES

1. Economic Times Newspaper:

https://economictimes.indiatimes.com/industry/services/retail/warehousing-logistics-sector-to-
grow-at-35-in-2021-report/articleshow/75704458.cms?from=mdr
2. The Hindu Business Line:
https://www.thehindubusinessline.com/economy/logistics/warehouse-leasing-witnesses-77-
growth-in-fy19-report/article28074070.ece#
3. India Warehousing Market Report 2019 by Knight Frank
4. Whitepaper report: http://www.3plnews.com/reports/FLEXE-Warehouse-Capacity-White-
Paper.pdf