Demand Uncertainty and the Value of Flexible Storage Capacity

Businesses are required to make choices in a business climate that comes with a lot of uncertainty. This means that there is no guarantee that a business will know how many products it needs to keep on its shelves, the duration of a project, or how quickly market demand will change. One solution some companies are seeking is flexible logistics, such as renting rail containers for storage. The flexibility of rail containers also creates temporary capacity for a company to either increase or decrease its size depending on its business needs and thus reduce financial risk and create greater operational flexibility.

The economic trends of supply chain volatility and demand uncertainty each have an impact on this movement towards creating flexible logistics. Businesses such as construction companies, retailers, manufacturers, and special event planning companies all have to change their operations from one day to the next. For example, retailers may experience a sudden spike in customer demand during the holidays, while construction companies may require more storage space at certain times or have an unexpected need for additional equipment due to unforeseen project delays. Therefore, because of these uncertainties, many of these companies do not know how much storage space or for how long their company will require it.

These factors then lead to a large number of economic questions. A business needs to make a significant capital investment in long-term storage space (i.e., warehouses or dedicated facilities) in order to meet its storage needs. However, if a company estimates that it will need more storage space than it ultimately uses and builds a long-term storage facility, it will have to pay for capacity that remains unused. Conversely, if a company underestimates how much storage space it will need, the result may be operational disruptions or lost revenue.

Flexible rental storage containers provide businesses with a viable, cheaper alternative to having fixed-capacity facilities. There is an economic benefit associated with flexible rental storage containers, in that they provide additional options for companies that may not know what the future holds. Companies are paying not only for the storage space itself but for the ability to be flexible and resilient as they deal with unpredictable occurrences such as supply-chain disruptions, fluctuations in inventory, and changes in project timelines.

Having flexible storage also relates to how companies deal with risk. Many companies spend money on providing a way to reduce their potential for larger financial losses in the future. With flexible storage capacity, companies can minimize their overall risk related to stock levels, supply-chain disruptions, and project delays.

Construction companies are one example of where having flexible capacity is essential. Construction projects may be impacted by things like unexpected weather, labor shortages, delays in receiving building permits or purchasing items. Once the contractor has finished their construction project and has additional items they need to store for a few weeks, the financial burden of building permanent storage would not be a wise decision; thus, using rental storage containers allows the contractor to add or reduce storage capacity without having tied up a significant amount of money upfront.

Another way to think about managing retail inventory is through seasonal demand fluctuations, such as those associated with holidays, promotional activities and product launches. Some retailers may build permanent warehouse capacity that will be unused when there is no fluctuating demand, therefore creating a missed opportunity to maximize the use of their warehouse facilities. One option is for retailers to use temporary storage systems which only add capacity when needed.

This issue has been compounded by the rapid growth of e-commerce. Retailers have recently seen extreme fluctuations in their sales volumes due to advertising campaigns, viral products and seasonal trends. The uncertainty that these changes create leads to more unpredictable logistics and inventory management issues for businesses. The introduction of flexible storage solutions also offers businesses the ability to respond quickly to fluctuating demand levels without committing heavy financial resources to large, long-term storage solutions.

In addition to the above, the option value provided by flexible storage solutions is also an important consideration. Economists often refer to the value of flexibility and how having the option to choose from multiple alternatives provides businesses with opportunities to make decisions in an uncertain future. An example of this is that if a business is uncertain if it will need additional storage space within the next month, being able to access temporary capacity reduces future risk. Also, the very act of having access to temporary capacity creates an economic value associated with the business having the optionality of using the additional capacity, if needed.

Current world events demonstrate how large the scope of trends looks to exist in today's global economy. Some industrial warehouse markets throughout the past several years have had extremely low vacancies due to increased demand of e-commerce, along with supply chain pressures that cause many industrial warehouse companies to seek more flexible and scalable options than traditional forms of infrastructure.

Current world events demonstrate the scale of these trends in today's global economy. Some industrial warehouse markets throughout the past several years have experienced extremely low vacancy rates due to increased demand from e-commerce, along with supply-chain pressures that have caused many warehouse operators to seek more flexible and scalable options than traditional forms of infrastructure.

The impact of this trend on many different types of companies extends beyond just one single company. Flexible logistics systems help businesses become better able to deal with economic shocks because they allow companies to quickly and efficiently adjust to changing economic conditions. A business capable of quickly growing and shrinking its operations will enjoy a greater level of ability to respond successfully to disruptive elements in the business cycle without suffering a terminally expensive delay, while at the same time being able to satisfy customers during uncertain times.

In addition to the transformation of the way that businesses use their capital, there has also been a shift in the way that businesses allocate their capital. Businesses are no longer spending large amounts of dollars building permanent facilities when they may not always be required anymore, but rather are attempting to maintain or increase their liquidity by converting portions of their cash flows into other business areas (labour, inventory, marketing and technology). From an economic perspective, rental systems reduce long-term commitments while providing businesses with greater operational flexibility and agility.

As supply chain evolution continues and the increase of uncertainty overall continues, many companies have begun to move away from ownership and toward flexible means of creating scalable business models. Rental storage containers serve as a good indicator of the larger trend in the development of scalable infrastructures that allow for rapid growth without incurring the costs associated with permanent excess capacity. A business capable of quickly growing and shrinking its operations will enjoy a greater level of ability to respond successfully to disruptive elements in the business cycle without suffering a terminally expensive delay, while at the same time be able to satisfy customers during uncertain times.

In addition to the transformation of the way that businesses use their capital, there has also been a shift in the way that businesses allocate their capital. Businesses are no longer spending large amounts of dollars building permanent facilities when they may not always be required anymore, but rather are attempting to maintain or increase their liquidity by converting portions of their cash flows into other business areas (labour, inventory, marketing and technology). The complex relationships formed between rental systems from an economic perspective is that they reduce the long-term commitment, while at the same time provide businesses with increased operational agility.

As supply chain evolution continues and the increase of uncertainty overall continues, many companies have begun to move away from ownership and toward flexible means of creating scalable business models. Rental storage containers serve as a good indicator of the larger trend in the development of scalable infrastructures that allow for rapid growth without incurring the costs associated with permanent excess capacity.