Multi-Client Warehousing: Share the Cost, Minimize the Risk

In uncertain times, a multi-client option provides flexibility among other benefits

Multi-Client Warehouse

A dramatic decline in available warehouse space is forcing manufacturers in the U.S. to look for alternative ways to meet their inventory storage needs. Many are choosing multi-client warehousing (MCW) as an alternative solution.

In today's space-constrained market, MCW makes sense because it enables shippers to tailor warehouse capacity to shifts in operational demands. Moreover, they can defray the cost of storage by sharing resources – a key benefit as the cost of scarce warehousing space continues to rise.

Is the rise of MCW a blip? Probably not, given changes such as the growth of e-commerce that are reshaping logistics.

Chasing Limited Volume

A report published in October 2018 by commercial real estate services firm CBRE Group Inc. shows that the availability rate for U.S. industrial real estate declined by 11 basis points in the third quarter of 2018 – the 33rd consecutive quarterly decline. It's the longest streak of declines since CBRE started tracking data in 1988.

Demand for warehouses, distribution centers and other industrial property is outpacing supply, driven largely by increasing e-commerce volumes and the strength of the U.S. economy. "Over the past year, demand has exceeded supply by 34 million square feet," states CBRE.

These trends also have a profound impact on the availability of labor, at a time when unemployment rates in the U.S. are extremely low. For example, The Wall Street Journal reported that in October 2018, the transportation and warehousing industries accounted for nearly 10 percent of job growth in the U.S. during that month. "E-commerce looks to be driving much of the hiring surge: The parcel and warehousing sectors each added 7,600 jobs in October as employers brace for another expected double-digit increase in online sales during the holiday season," says the Journal.

The bottom line for manufacturers is that warehousing space – and the personnel needed to run facilities – is getting more expensive and scarcer. "We are at a point where warehouse vacancies are very low, and rents are going in the opposite direction," said Andy Moses, senior vice president of sales and solutions at Penske Logistics.

While these imbalances are subject to short-term fluctuations such as demand surges during peak holiday periods and monthly ups and downs, overall, the inventory storage market is expected to track this way for some time.

Flexing with the Market

MCW solutions are well adapted to this environment. In this model, a manufacturer shares the same storage footprint with a number of other shippers. Usually there is an anchor tenant that takes the largest chunk of space.

This format is in tune with the concept of a "sharing economy," where a core idea is to maximize the utilization of resources by spreading them across a community of users. MCW captures these benefits in various ways.

More flexible space allocation is one example. Since MCW facilities are occupied by multiple tenants, it is easier to offer individual shippers warehousing solutions that fit their current needs. A manufacturer does not have to commit to a large, dedicated facility and pay for space and associated services it may or may not need.

Lead logistics providers (LLP) such as Penske Logistics that operate MCW facilities make sure that the businesses housed in a warehouse are compatible. For example, "Food grade storage spaces must meet rigorous standards for cleanliness," explained Don Klug, vice president of sales, distribution center management at Penske Logistics. "But consumer packaged goods businesses such as a paper goods manufacturer can occupy a space adjacent to the food company."

There may also be opportunities for exploiting synergies between tenant companies, points out Moses. Two or more shippers might be able to pool truck capacity, for instance. Again, the LLP can pinpoint these types of cost-saving strategies.

Penske also ensures that infrastructure such as warehouse management systems (WMS) cater to the requirements of every tenant – even though each business may have distinct demands in areas such as the use of radio frequency scanners, documentation and communications.

Advanced WMS technology – which LLPs such as Penske Logistics now routinely offer – usually include labor management modules; another area where the MCW model can reduce the cost and improve the efficiency of inventory storage.

"We can allocate labor over multiple accounts, and adjust worker numbers in line with variations in demand for each shipper in the facility," said Klug. Integrated labor modules also perform analytics that identify opportunities for increasing productivity and alert management to situations where the workforce is underperforming.

Favorable Outlook

Klug believes that the MCW segment will continue to experience growth over the next few years. In addition to increasing e-commerce volumes and a robust U.S. economy, the market is being driven by a volatile commercial climate, he explains. In uncertain times, manufacturers appreciate the flexibility of the MCW option.

Don Klug
Don Klug is vice president of sales, distribution center management for Penske Logistics. His responsibilities include oversight of teams that support the company's warehousing operations, which include engineering solutions, startup operations and continuous improvement initiatives. Prior to joining the company in 2016, Klug was the vice president of engineering at NFI and director of distribution engineering for Thermo Fisher Scientific. Klug earned a bachelor's degree in industrial engineering from Ohio's Kent State University. He attained Project Management Professional (PMP) designation through the Project Management Institute.

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