Summer, SKU proliferation drive contract storage
Contract storage, a growing option for beverage companies
As summer draws closer, many consumers daydream of sitting by the pool with a drink in hand, and that’s exactly what those in the beverage industry are daydreaming of too. Coming into the summer season, the beverage industry sees what has been deemed “the 100 days of summer” on the horizon. “The nature of the beverage industry is very seasonal,” says Ned Bauhof, principal and vice president of York, Pa.-based Precision Distribution Consulting In, (PDC). “[During] the ‘100 days of summer,’ from Memorial Day to Labor Day, there’s a large amount of inventory, because for most of the world, it’s the summer season when people are consuming more beverages.”
These few months can make up a significant amount of a beverage company’s sales, so there often is significant preparation in the few months preceding the season, including production efforts to increase inventory, sometimes beyond their own warehouse capacities, Bauhof says. However, this means that beverage-makers need to figure out how to store all of this extra inventory, he notes. In order to best manage the additional summertime inventory, several beverage companies turn to third-party storage options, he says.
There are two types of contract storage options, Bauhof says. First, he says, there is third-party logistics. In these instances, a third-party company provides storage and warehousing operations for a company that does not have its own warehouses. However, this is not a very common practice within the beverage industry, he notes.
The second option is contract storage, which is much more common in the beverage industry, Bauhof says. “Most beverage companies want to maintain their own warehouses,” he says. “They will rent space when their inventory exceeds their warehouse capacity.” Companies can rent space for relatively short periods of time to cover inefficiencies in their own warehouse capacities, he explains.
Echo Global Logistics offers third-party logistics solutions to beverage companies. “Most often beverage companies seek out a partnership with Echo because we provide seasonal surge capacity, high levels of service, rapid response and adaptability, and year-round shipment/volume execution at a predictable cost,” Sean Burke, senior vice president of business development, says. “While many of our relationships begin with beverage companies seeking seasonal surge capacity, they quickly evolve to strategic relationships based on not only capacity, but also in-depth knowledge of the industry,” Burke continues.
Although the seasonal nature of the market has played a role in beverage companies’ use of contract storage, the year-round trend of SKU proliferation also has created additional need for these types of services. “In the beverage industry, SKUs have really started to explode in the last three to five years,” Bauhof says. “[Companies] were able to weather the storm for the first couple years of that, but it’s gotten to the tipping point in many cases.”
As the number of SKUs has skyrocketed, many companies are looking to expand their warehouses, Bauhof explains. However, this is a long process and requires planning and funding, he notes. So, in the short-term, companies turn to outside storage options, Paul Lomas, vice president of sales for Miami-based Ryder Systems Inc., notes.
PDC’s Bauhof says that the benefits of contract storage in general start with the storage format’s flexibility, because they’re very market dependent. The cost for contract storage and that for warehouse construction can be very different from one market to the next, so, in some cases, storage contracts can provide flexibility for those companies who only need expanded space for a few months of the year, he explains.
Contracted storage also can be beneficial when testing a new market, he notes. As costs of building a warehouse in a new market can be high, using contracted storage for a short time lets a company test the waters of the market before investing more into it, he says.
Although contract storage options offer many benefits to beverage companies, there are a few factors a company should consider before using contracted storage and warehousing, Ryder’s Lomas notes. First, a beverage company should consider if the storage provider has the capabilities, space, staff and technology to get the work done, he explains.
The second factor to consider is whether the storage provider can bring any innovation to the partnership. “Do they have the kind of capabilities in-house to develop new approaches, [or] does [the provider] have the visibility to practice in other industries that might be a basis for bringing new ideas and innovation?” Lomas asks.
The third factor to consider is whether the storage provider has an understanding of “the customer’s customer,” Lomas says. “When [the storage provider] does the work in the warehouse, does he or she understand what the downstream expectations are of the customer’s customer, so that he or she brings ideas and innovation,” he explains.
Lastly, Lomas says that the beverage company should consider whether the provider is positioned in a way that it facilitates collaboration by being a good cultural fit with the beverage-maker. “Can they work together and do it in a way that they can push each other and make each other better?” he explains.