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Why is the warehouse performance plateau a new issue?

Article by Megan Gee

What is the warehouse performance plateau? In a nutshell, it can be understood as follows:

Warehouse performance plateau: When neither enhancement nor adjustment nor expansion of existing business practices can improve a company’s overall performance

Is this a new problem? After all, stagnancy in business growth and has all kinds of causes for all kinds of reasons. Why the sudden specific phrase and definition to explain things?

Because different conditions have created a new situation.

Previously, the warehouse performance plateau wasn’t talked about because most businesses never became big enough to reach this. When they did it was just a stepping stone onto greater things.

Currently, market conditions make this a much bigger problem. More businesses are finding themselves stuck there sooner, and staying there longer. To discover the long, medium, and short term forces that have shaped the market in this way, keep reading.

Long-term cause – Digital marketplaces and niche expansion

The ecommerce revolution has accelerated the problems of the warehouse performance plateau. The accessibility of online shopping means that more businesses can compete for a larger and larger open market.

In earlier times, many businesses were simply too niche and specialist to be supported by a single town or even city. Organic rhubarb jam or monogrammed ivory tie clips might have a substantial market sector when considered across an entire country, but stores selling only these items are a much harder commercial proposition with only individual towns as a market.

Through the ease and accessibility of online shopping, retailers of all kinds can attain and retain a loyal customer base from anywhere. Selling everything from T-Shirts decorated in slogans from obsolete TV series to custom-engineered tandem bikes, weighted blankets, and bejewelled Venetian blinds. This is just the B2C sector. B2B businesses used to need to be close to their customer base. The internet lets anyone anywhere sell to anyone else, anywhere else.

With more businesses successfully operating in the B2C space without costly town-centre real-estate, the warehouse sector has become much more competitive. This creates an expansion crunch, which leads to the warehouse performance plateau. When the internet drove demand for warehouse space to the point where expansion cost more than the growth needed could provide, this issue only impacted the biggest of big businesses. Now, however, the market is very different.

Medium-term cause – Expectation shifts and the Amazon effect

The change in expectations caused by the Amazon effect is a giant challenge for the warehouse sector. When Amazon made next-day delivery seem more normal than special, the marketplace shifted in a way that was difficult for small to medium-sized businesses to deal with.

Suddenly, the amount of investment and energy needed for elite-tier customer service lacked a corresponding ROI. Smaller outfits were ploughing extreme effort and expenditure into higher-end progression and efficiency to get their product out the door as fast as possible, but all that would come of it is being considered ‘normal’.

The bar has been raised so high and so fast that efficiency and effectiveness are more vital than ever. Thus, a growing number of businesses are losing out when they cannot compete. In times past, such businesses would merely have been smaller, whereas now they are simply not viable. Thus greater volumes of resources have to be pushed into a wider range of companies to make products accelerate towards despatch even faster

With logistics efficiency increasingly competitive and more important than ever, it was only natural that the warehouse performance plateau would emerge as a highly serious problem for a larger number of companies. Unfortunately, the Amazon effect did not consign itself to merely elevating logistics expectations.

Medium-term cause – Warehouse market strangulation

It is bad enough that warehouse related costs have risen so dramatically due to the ecommerce boom. It is even worse when a single company is the only one with enough purchasing power to make headway.

Amazon is consuming an ever-growing share of the UK’s warehouse space. In summer 2020, the take-up of British industrial/logistics warehouse space reached 22.4 million square feet. That’s 66% above the long term average. An estimated 36% of this is Amazon.

Thanks to the confluence of Amazon’s growth and NHS contractors utilising extra utility from 3PL providers and others, not is only warehouse space more costly, there simply isn’t enough warehouse space. For businesses that might need to expand to fulfil their business growth potential, both expense and property availability are uphill battles.

Previously, the warehouse marketplace had more balance. Larger companies existed, but they did not occupy over a third of an entire nation’s commercial storage real estate. With Amazon consuming an ever-larger percentage of available warehouse space, expansion is being stifled and businesses are finding themselves stuck atop the warehouse performance plateau. Unable to expand, yet needing greater space to realise growth.

Short-term cause – COVID-19 and ecommerce

COVID-19 has caused a dramatic surge in ecommerce sales of all kinds. Between June 2019 and June 2020 it’s estimated that global ecommerce site hits rose 35% from 16.2 billion to nearly 22 billion. Similar stories are seen in the UK specifically, with Britons estimated to have spent £141.33 billion online in 2020, a 35% increase from the same figure in 2019.

When high streets closed, the internet took up the slack. This created both massive ecommerce growth, and an urgent need for many B2B operations to re-design their outputs for the B2C marketplace. Too many businesses found that COVID-19 left their B2B client base deeply inactive.

The ecommerce side of this seems more like a permanent pivot than a temporary issue. Surveying by Kantar found that 60% of French, British, and German shoppers won’t be returning to previous brick-and-mortar shopping habits post-outbreak.

With so much extra demand on ecommerce, the competition for warehouse space is driving expansion costs far past the point of ‘prohibitive’. Without the ability to expand, the flat top of the warehouse performance plateau will become a familiar homestead for an increasing number of businesses. Pushed upwards by increased demand, but flattened down by forces of economics and market conditions beyond their control.

Why the solution is a revolution

Once you hit the warehouse performance plateau, the place where enhancement, adjustment, and expansion won’t help, there is only one course available to you. Revolution. A dramatic and different approach is needed if you want to make the most of the next steps that your business needs to take.

Industry 4.0. Flexible automation. The next generation of robotics. All these and more are the answers to the question of where you need to go once you have hit the warehouse performance plateau. To discover exactly how that can work for you and your business, speak to Wise Robotics today.

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