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Warehousing & Fulfillment

Warehouse & Labor Shortage 2021: Tips for Success for SMB’s

Warehousing & Fulfillment
October 7, 2021
8 min read
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Warehouse vacancy rates are at an all-time low. Learn how to secure top-tier warehouse space and SLA’s without paying peak season premiums or getting locked into a long-term contract.

The 2021 holiday season’s supply chain disruptions have made headlines and attracted attention from merchants and consumers alike. Congestion at the ports and raw materials shortages have led to empty shelves at major retail stores, but as multichannel and ecommerce merchants stock up for holiday sales, there is another challenge facing them once they get their inventory stateside and out of the ports.

Warehouse capacity is at an all-time low, with vacancy rates as low as 3.6% on the west coast. The low vacancy rates are naturally driving up storage rates by 10%-50% depending on the warehouse location, with fulfillment centers near the ports boasting the highest rates. Even Amazon, the world’s largest retailer, has been forced to impose inventory storage limits on FBA sellers to free up space for holiday sales.

Labor is also in high demand. UPS plans to hire a record 100,000 seasonal employees this year, and Walmart hopes to hire 20,000 workers in supply chain positions alone. Retailers and warehouses are offering higher wages and bonuses in order to attract talent, which, paired with premium storage rates will mean increased fulfillment costs for merchants on top of already increased costs throughout the supply chain.

Ahead we’ll examine what led to the shortage of warehouse space and labor this year and how merchants of all sizes can compete for top-tier warehousing space and services while maintaining flexibility in their supply chain.

What’s Causing the 2021 Warehouse Labor Shortage

At first glance 2021’s supply chain problems may seem contradictory. Inventory is stuck at the ports or in short supply, with 46% of merchants reporting that running out of inventory is their top concern this year. At the same time, warehouses are at capacity, leaving 17% of merchants concerned that they won’t be able to find space for their limited inventory, even though supply is limited.

The bottleneck appears to be obsolete inventory. Some industries did notably well during 2020 shut-downs as consumers shifted to life at home. Other industries saw stagnant sales, leaving a glut of aging inventory sitting on warehouse shelves, often at a premium storage rate. At the same time, in anticipation of an earlier and busier peak season, many merchants ordered more inventory than usual this year (43%) or ordered their holiday inventory earlier than ever before (44%). So, as merchants were trying to solve 2020’s slow-moving inventory problem, peak season inventory was already rolling in.

What Merchants Can Control

Merchants looking to free up space within their current warehouse network or turn over aging inventory can take some of the following steps:

  • Drive sales earlier in the season. Many shoppers are already planning to start their holiday shopping earlier this year. In fact, our merchant survey data showed that 35% of merchants were already seeing peak order volume as early as September. Driving sales earlier will benefit merchants in 5 primary ways:

  1. Freeing up more space in warehouses
  2. Decreasing storage costs when rates are high
  3. Generating a faster return on capital investments
  4. Spreading out demand evenly across the season for warehouse labor planning
  5. Ensuring on-time delivery by avoiding holiday carrier pickup limits

  • Prioritize demand forecasting. Last year labor was limited, and merchants learned that they needed to communicate demand forecasts to their fulfillment partners to ensure enough labor would be available. This year forecasting will be just as important as labor is at a premium. Between peak season starting earlier and extended lead times slowing down inbound shipments, warehouses will be inbounding and outbounding holiday inventory at the same time. A clear and accurate forecast will help warehouses schedule labor efficiently and ensure that inbound and outbound shipments get the attention they deserve.
  • Consider “Buy 1, Get 1” deals to clear out aging inventory. Paying for storage on obsolete inventory can eat through margins quickly. Make room for fast-moving seasonal inventory by offering aging SKU’s as an add-on to add perceived value to purchases while decreasing inventory carry costs.

How SMB’s Can Compete for Top-Tier Warehousing

Small to mid-sized businesses (SMB’s) may feel they don’t have the negotiating power to secure space within top-tier warehouses. Just as with ocean freight negotiations, large retailers with higher volumes are more attractive to 3PL’s and warehouses, especially when demand is high. 

Ware2Go’s model of on-demand warehousing gives small to mid-sized businesses a seat at the table when negotiating with warehouses by aggregating inventory of multiple merchants. When presented together, the shipping volume of multiple SMB’s is much more attractive to top-tier 3PL’s and fulfillment centers. On-demand warehousing benefits SMB’s during peak season and beyond in 3 additional ways:

  1. Merchants also pay only for the space and labor they need when they need it. An SMB may only need 3 days of labor per week, but because their volume is aggregated with other shippers, they are able to offer warehouses a guaranteed full week of labor. This allows merchants to scale up their operations quickly during the holiday season and scale back down during the off-season to preserve margins.
  2. On top of already record-high rates, most fulfillment providers will also add a seasonal surcharge for storage and labor. Alternatively, merchants may be asked to sign a long-term contract to lock in rates. In fact, some warehouses are requiring 7-10 year contracts to secure reasonable rates, compared to traditional 3-5 year contracts. Ware2Go, however, does not require long-term contracts and does not charge seasonal surcharges. This flexibility helps merchants protect the bottom line profitability of their business during seasonal demand surges.
  3. Merchants can make strategic decisions when it comes to long-term vs. short-term storage. Ware2Go’s merchants can move aging or slow-moving stock to less expensive regions to realize savings on their storage costs and free up space for seasonal inventory in regions that can better serve their customers with 1- to 2-day ground shipping.

Leveraging Technology and Warehouse Automation

While labor is at a premium, technology is key to automating as many processes as possible so warehouse employees’ time is used as effectively as possible. Ware2Go’s fully-integrated WMS (warehouse management system), FulfillmentVu, digitizes key processes like order inbounding. FulfillmentVu’s inbound process facilitates an instant and accurate transfer of data between merchants and warehouses for the most efficient inbound process possible.

FulfillmentVu’s digitally-routed Advance Shipment Notices (ASN) ensure that warehouses know exactly what inventory to expect when to expect it. Inbound shipments are also scheduled by appointment so the warehouse can plan labor accordingly and ensure that the correct space is available to get inventory off the dock as soon as possible. This automation and standardized protocol help Ware2Go maintain a 48-hour dock to stock time. That way merchants know that once their inventory reaches the warehouse it will be ready to sell within 48 hours.

A WMS will also automate putaway paths and pick paths for warehouse employees. These predetermined paths are created from data inputs such as SKU location within the warehouse, the equipment needed to pick or put away the product, and the paths of other employees in the warehouse. Ware2Go’s new slotting protocols ensure that those data inputs are accurate and contain as much information as possible so pickers are sent on the most efficient path possible and picking errors and damages are kept below industry standards.

Beyond 2021 Warehouse Labor Shortages

Ultimately, supply disruptions are not a new phenomenon, and merchants who have prioritized resilience and flexibility in their supply chain will continue to succeed no matter what the state of the supply chain or consumer sentiment. Warehouse vacancies will likely remain low for some time, with some projections forecasting that the US will need to add 330 million square feet of warehouse space by 2025 just to keep up with ecommerce growth.

Merchants who prioritize flexibility in their fulfillment solution today will not only weather 2021’s peak season warehouse shortage but will have confidence that their business will be able to pivot in response to whatever the global supply chain throws at them next.

Looking for a flexible warehousing solution? Talk to one of our fulfillment experts today.

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