Today Kaanu Unnu defended his PhD dissertation on “Optimization Models and Frameworks for On-demand Warehousing Systems.” Congrats Dr. Unnu!
As illustrated by Kaan’s slide, his research is timely, with on-demand warehousing starting in 2013 with Flexe and has grown to become a global business model.
The main purpose of this research is to develop decision-support models and frameworks given the advent of on-demand distribution systems. On-demand distribution platforms match companies with underutilized warehouse and distribution center (DC) capacities with customers who need extra space or fulfillment services. These systems provide unique advantages, but also have different cost structures and risks. Therefore, a company interested in adopting these new systems must consider new dynamics, which requires new knowledge and methods for the design and operations of distribution networks.
In this dissertation, first, different options to acquire warehouse and distribution capacities, which have varying benefits but also have varying cost structures, are analyzed. Next, new dynamic facility location models are developed to simultaneously consider acquiring three distribution center types (self-distribution, lease, on-demand) which have different capacity granularity, commitment granularity, and access to scale properties. Then, a heuristic approach is designed to solve such dynamic facility location models for large-scale and national level distribution networks. Finally, from a warehouse owner perspective, new decisions for deploying on-demand distribution are explored, and a framework summarizing its impact on facility design and operations is created.
If you are interested in the on-demand warehousing business model, I would encourage you to check out his research, available at his Research Gate page. Specifically, he has a cost calculator that industry may find useful. His paper, currently under review and available here answers “Is there a business case to be made for the use of on-demand systems, and if so, in what environments?” There’s a lot of great insights in the paper, into when on-demand warehousing models make sense. The short answer, is it depends (sometimes it’s useful, sometimes not as much). Three interesting findings:
- On-demand warehousing is a good supplement to more traditional forms of acquiring fulfillment services. Specifically, incorporating on-demand warehousing into a company’s network design strategy improves the capacity utilization of the build and lease DCs a company uses.
- If on-demand availability is not guaranteed and response requirements are relaxed (e.g., a 250-mile maximum range), lower distribution costs can be achieved with designs not incorporating on-demand warehousing. However, if the response requirement is tight, like for same day delivery, regardless of the on-demand alternative’s capacity availability, on-demand warehousing is cost effective.
- The flexibility provided by 3PL/lease capacity expansion with a premium cost performs worse than using the on-demand alternatives. Thus, 3PLs should offer more granular solutions to their customers – without the overcapacity penalty – to be competitive in the market.
His committee was impressed by his use of a diverse set of tools, combined with data, to provide insights. As a proud advisor, I echo these comments and would like to commend Dr. Unnu on a dissertation I am immensely proud of. It’s been fun to work with him, learn from him, and see him grow.
I wish we could be in person to celebrate his tremendous accomplishments. Be assured, when we are allowed to do so, we’ll host a party in his honor. Until then, congrats!