There are a lot of reasons to consider cubic storage pricing over pallet pricing when it comes to inventory strategy.
Supply chain backlogs, COVID-19 delays, and the bullwhip effect have created a complicated challenge for many eCommerce brands, especially when it comes to inventory. Some companies are struggling to source goods and fill shelves, while others have reached overstocked levels with items spilling onto spare pallets and floors. That range, which can shift dramatically as soon as a container lands or a store reopens, creates significant concerns over how companies pay to store their inventory and how fulfillment partners use these goods.
As the industry struggles to balance just-in-time and just-in-case inventory strategies, we need to look at pricing and management to ensure that companies get the support they deserve. This moment may be one opportunity for a categorical pivot away from pallet – and rack-based storage costs to cubic foot storage models.
A focus on fairness
There are a lot of reasons to consider cubic storage models. For this option, the 3PL or warehouse determines the volume of each SKU and tracks total inventory counts, typically monthly. You’re charged a rate based on the total volume that you use within a warehouse. Cubic foot storage is easier to calculate and measure in many cases, making pricing more predictable. Charging based on a daily volume average means you’re less likely to get hit with a high storage cost if inbound freight lands on a particular day. And so on.ll
However, the most important metric is how providers apply cubic storage fairly and consistently. Brands like yours only pay for space used, which can be calculated and verified by both you and your 3PL. Tracking existing inventory, inbound shipments, and orders gives you a quick way to check their work and pricing. It’s also fair because it doesn’t rely on a warehouse team member’s expertise with one of our favorite pieces of equipment: pallets.
Pallet stacking can be a beautiful art or a haphazard mess from a cubist’s nightmare. You shouldn’t have to worry about what you’re getting or be charged more if that staff just can’t get the Tetris game right. When the inventory was orderly and inbound regular, it was much easier for companies and 3PLs to pack and store on pallets properly. Now, everyone is running, and many struggle to keep up every day.
Your company shouldn’t pay for pallet stacking — especially given the discrepancy in sizes across regular, double, half, and double half pallets. And no one should pay for the air above a pallet when selling items regularly throughout the month. “Pallet” is an inexact term and space amount, but the cubic foot isn’t.
Other advantages of cubic storage pricing
Shifting to cubic foot storage gives both sellers and 3PLs some core advantages, making a beneficial model for both in the days where inventory fluctuates. First, for you, cubic storage gives you straightforward and transparent pricing. You pay just for what you store each day, and you can easily see how costs are calculated. Knowing how much you’re selling and your inbound schedule, predicting future costs is also much more straightforward.
On the operations side, cubic storage pricing allows warehouses to slot your goods in the best possible location. They may be able to move items closer to packing stations, spread goods out across shelves and racking, or adjust pallet stack size to make it easier for pickers. The warehouse can position your goods so that they can best fill orders. This often coincides with reduced stress on pallets and other equipment due to stacking — and it can even reduce damage or shrinkage from trying to get as many items on a pallet as possible.
A small change ahead of larger shifts
Adopting practices like cubic foot storage models will rise in 2022 as the country adapts to warehousing shortages and logistics challenges. The flow of goods is swinging wildly and creating storage problems that don’t have many short-term fixes. Building a warehouse takes time, so there’s a need for flexibility in how companies can hold and use your inventory.
The upside to cubic storage models and similar changes is that they make warehouse actions and costs more predictable for you while ensuring warehouses have the flexibility they need. Fulfillment providers are most successful when they can actively fill orders. Better storage opportunities are just one way to maintain efficiency as they adapt to the ebb and flow of today’s supply chain.
Organizations like yours should look for guarantees that support decisions like adopting cubic storage. 3PLs should maintain low shrinkage numbers and high order accuracy during any shift. Demand that they continue to meet and exceed service level agreement (SLA) metrics and fully explain any changes made. Your 3PL should continuously focus on change and improvements and give you clear justification for any shift, like adopting a cubic storage model.