And How 3PLs Can Adjust with Limited Space

Warehouse real estate is another facet of the logistics industry affected by the current supply chain crisis. Supply chain disruptions triggered by the global pandemic created logistics bottlenecks that not only affected 25% of global trade volume according to the 2022 State of the Third-Party Logistics Industry Report but also contributed to warehouse, driver, and container capacity constraints globally.

Although experts expect inventory levels to stabilize to pre-COVID levels later this year, the ongoing supply chain disruptions offer the perfect opportunity for third-party logistics (3PL) warehouses to reevaluate their real estate usage. One of the biggest issues facing 3PL warehouses is a lack of real estate to expand operations. Especially in large urban areas, there is simply no room to build additional warehouse space, and renovating other types of buildings to accommodate warehousing needs is complicated and costly in today’s real estate market.

Warehouses are running out of space. A report published by Reuters Events states that half of the warehouse operators interviewed were at 90% or higher operational capacity, with 41% in search of new space. Although the search for square footage is dire, 3PL warehouses can instead look to optimize the space they already have to deal with capacity constraints. Racking systems and technology are the keys to utilizing warehouse space smarter, more effectively, and more efficiently.

What is a racking system?

Put simply, a racking system is a way to optimize vertical space within a warehouse. Warehouses can move up instead of out by installing taller racks. We have all seen the storage at Costco or other big-box retail stores where they keep surplus inventory on racks that stack dozens of feet in the air on pallets above the items that consumers can reach and purchase.

Similarly, 3PL warehouses can invest in racking equipment to store inventory at multiple levels high on top of whatever space they are already using. Furthermore, 3PLs can use multiple diverse types of shelving sizes to store different types of items and materials to cut back on wasted space between racks. A next step is standardizing the bins on the racks to store smaller items in a more organized and space-conscious way.

There are many distinct types of warehouse racking systems such as selective pallet racks, drive-in pallet racks, push back pallet racks, pallet flow racks, carton flow racks, and cantilever racks, each with different advantages and disadvantages. You will need to analyze the needs of your warehouse before investing too much money in moving vertical.

Here are some key points to consider when choosing a racking style for your warehouse:

  • Cost and return on investment (ROI)
  • Ceiling height
  • Floor space
  • Item storage methods (e.g., pallets, bins, eaches, etc.) and dimensions
  • Item types
  • Order volume by item
  • Expiration dates
  • Allocation method (FIFO, LIFO, FEFO)
  • Forklift and other vehicular needs
  • Accessibility concerns

Given the myriad ways your 3PL can configure racks to store your inventory, any 3PL can benefit from racking to optimize the space they already have.

What technology can help with limited space?

Racking is not the only solution to maximizing space constraints. Adopting innovative technology like warehouse management system (WMS) software, the internet of things (IoT), and 5G may be more realistic options than reconfiguring your warehouse.

WMS software helps 3PL warehouses with real-time inventory tracking and management, picking and packing orders, shipping packages, receiving inventory, reporting, and automated accounting, but it can also help optimize storage space in the warehouse. Some WMS software offers functionality that maps the warehouse storage locations in three dimensions so warehouse managers can visualize the open space they have.

Many WMS software solutions, including 3PL Central’s 3PL Warehouse Manager, offer directed putaway – which automatically selects the best location to assign items at receipt based on guidelines created for your specific operational needs – that strives to optimize storage space in the warehouse. Other tools like automatic cycle counting, where the WMS assigns inventory counts on a regular basis, ensure that inventory is undamaged, in the right place, and that the software captures actual numbers for inventory so it can calculate space availability more accurately.

A cloud-based WMS like 3PL Warehouse Manager has other advantages when connected to IoT. Defined in the 2022 State of the Third-Party Logistics Industry Report, IoT “refers to any technology, from hand-held mobile scanners to WMS software, connected to the internet,” and these devices can make a major difference in how efficiently a 3PL manages storage capacity. Hand-held barcode scanners are especially useful for cycle counting as they accurately monitor where inventory exists in the warehouse.

Furthermore, IoT can work alongside a racking setup by implementing connected sensors and smart shelves that can keep 3PL operators aware of low stock in certain locations within the warehouse. This way, 3PL operators know where they have room to alleviate space constraints elsewhere in the warehouse. In addition to IoT, the spread of 5G across the globe and compatible connected devices offers similar benefits to IoT without needing an internet connection, which is often an issue in large warehouses with spotty Wi-Fi. 5G has the capability of monitoring location and condition of shipments throughout the inventory management cycle. Despite its newness, 5G could revolutionize supply chains beyond monitoring space limitations in the warehouse.

Even as inventory levels normalize, racking and the technologies of WMS, IoT, and 5G are still important modifications to consider for any 3PL warehouse. In the 2022 26th Annual Third-Party Logistics Study, only 31% of respondents said they were not going to invest in IoT technology, meaning that the majority of 3PLs see IoT as a promising way to increase profitability and deal with the supply chain crisis. Even when the supply chain crisis ends, these trends are upgrades that will futureproof your 3PL and increase profitability.

Want to read about more trends for the new year? Download the 2022 State of the Third-Party Logistics Industry Report to see our predictions for the industry affected by the supply chain crisis.

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