We live in a world of evolving technology, with new developments emerging almost every day. It's also happening in aspects of business that we don't necessarily think about very often - warehousing. All this is to increase work efficiency, to calculate the space used more precisely, and finally to price it properly.
From an ecommerce perspective, this became especially important as the problems caused by the COVID-19 pandemic were getting worse (like delays in supply chains), resulting in inventory problems of all kinds. The need for more accurate space calculation led to the development of a solution called the cubic storage model. How does it work? What are the pros and cons? And why is it worth using? Let me try to answer these questions!
Ecommerce warehousing demands
First things first. Here is a statistic that perhaps not everyone is aware of: the warehousing needs of the ecommerce sector in Europe are huge, estimated at around 8.6 million m2 according to real estate consultancy Savills. And... this is not going to change any time soon.
Not only due to the increasing share of online shops in total retail, but also to the growing appetite of the Asian giants to establish themselves in Europe for good, and above all to offer shoppers fast delivery - ensuring that goods are available in local warehouses in advance. The trend of well-organised fulfillment has taken off in logistics.
So we are at a point where it is not only warehouse space that counts, but also its efficient use. To store more, preferably at a lower cost and with greater transparency. It is no surprise then, that the need is pushing forward new solutions, with different storage models appearing among them.
What is the cubic storage model?
It is a concept that has been created as an alternative to other popular storage models such as pallets and racks, widely used in logistics by 3PL companies and fulfillment service providers. But how exactly does it work? Simply put: the dimensions of each item in stock are taken into account to determine the amount of space used. In most cases, cubic feet are much simpler to calculate and thanks to that the rates for the warehouse space are charged more precisely.
As additional information: thanks to the use of automation and a good WMS (warehouse management system) providing more data, the products entering and leaving the warehouse on a daily basis, belonging to one client, are directly included in the space calculation. Thus, the customer only pays for the capacity actually used.
Cubic storage model vs. pallet storage model
There is no denying that the use of pallets in the logistics industry is something standard, both in transport and storage. I would even dare to say that it worked quite well for the latter - at least until the flow of inventory and restocking were regular and keeping order on pallets was not so difficult. However, broken supply chains, delayed deliveries or simple product shortages have shaken up this relatively well-organised structure, causing additional chaos in the warehouses.
So, this brings us to the pros and cons that characterise both models.
Cost reassessment. Once again, pallet storage proved to be a solution with many flaws. First and foremost, it was noticed that the pallet as a unit of measurement for storage space is very imprecise. The variety of types of pallets (from standard pallets, double pallets, double half pallets to half pallets) and their dimensions make it difficult to convert them into exact occupied space. Moreover, it was not just the size or the number of pallets that mattered in this case, but also their positioning (which was the responsibility of the warehouse staff). So the calculation depended to a large extent on the human factor. It's no wonder that this system started to fail.
Exact space occupancy. Another element often cited as a major disadvantage is paying for air above the pallet. Sounds strange? I agree, but I will try to explain it with an example. According to the pallet model, billing for the use of storage space is done at the end of the month based on the number of pallets in the warehouse. So let's assume that a pallet of your products arrives stocked and sells well already at the beginning of the month - there are only a few pieces left on the pallet. Despite this, your bill will include a charge for the space taken up for the whole month, even though the pallet was almost empty for most of that time. Sounds a little unfair, doesn't it?
Well-defined measure. All these issues I mentioned above contributed to the development of a new model - cubic storage, which fills in the gaps of the old one. The cubic foot is a defined measure that does not change with external factors. This makes the valuation of the space occupied by the stock transparent and calculable by the client himself. And this in turn definitely improves the relationship between the customer and the 3PL provider - fairness is easy to verify in cubic storage pricing.
Cost awareness. However, I would like to emphasise that an ecommerce business owner can not only check whether he is paying for the space he is using but also calculate the individual cost of storing a particular product. With this knowledge, he can determine the final price of the item, including the real cost of storage. That allows the company to set the right margin and have greater control over pricing strategy.
Location management. Besides, cubic storage can also significantly boost the performance of the warehouse itself. Mainly through the possibility of better space management, matching the storage locations to the type and size of the goods. This is also very important when looking at fulfillment processes, as it has a strong impact on processing times: the better the space is organised, the faster orders can be picked and packed.
And it doesn't stop there! If we step into the entrepreneur's shoes, we can see that the analysis of storage space and price helps to draw the right conclusions about the inventory strategy and its transparency. Resulting in better optimised costs and greater awareness.
Loss reduction. Plus, don't forget that products piled on pallets and stacked on one another have their own durability. This means that if there are too many items or they aren't stacked carefully enough, they can simply be damaged or destroyed. Consequently, it is a specific, unnecessary loss - that the owner of the goods has to pay for.
The cubic storage model has several advantages, especially over the more common pallets. Although its popularity is not yet so high (as evidenced by the little information that can be found on the Internet, for example), it is likely to grow considerably in the near future.
What are the reasons for this? I believe it is the rapid growth of the ecommerce sector, storage shortages, and the emerging logistical challenges, supported by high customer expectations. All these factors lead to the need for flexibility in logistics and fulfillment services, which will only increase. Clearly, this seems to be one of the biggest concerns!
The cubic storage model seems to act as a rather symmetrical solution here, which benefits all parties in the business. So I think its use will become more and more widespread, and we will see the actual results after a while.