Running an e-commerce business means dealing with fluctuating demand, seasonal peaks, and unexpected inventory increases. If you’re locked into a traditional warehouse lease, you’re either paying for space you don’t need or rushing to find more when sales spike.
That’s why more businesses are turning to on-demand warehousing, a model expected to grow past $455 billion by 2034. Instead of committing to fixed storage, you rent space and fulfillment services only when needed.
This article breaks down how on-demand warehousing works, its benefits, challenges, and real-world examples.
What Is On-Demand Warehousing?
On-demand warehousing is a flexible storage solution that lets you rent space only when you need it. Instead of signing long-term leases, you can use an online platform to find temporary storage. This allows you to scale up during peak seasons or expansion periods without committing to a permanent facility.
On-Demand Warehousing vs. Traditional 3PL Services
While on-demand warehousing shares similarities with third-party logistics (3PL) services, there are important distinctions to understand:
| Feature | Traditional 3PL | On-Demand Warehousing |
| Contract Length | Long-term contracts (1-3+ years) | Short-term, flexible arrangements (monthly, weekly, or even daily) |
| Minimum Requirements | Often has minimum volume commitments | Pay only for space and services used |
| Scalability | Limited by contracted space | Highly flexible with options to scale up or down quickly |
| Geographic Flexibility | Fixed network of facilities | Access to diverse warehouse locations as needed |
| Technology | Varies widely between providers | Usually built on modern, cloud-based platforms |
Many on-demand warehousing providers are technically operating as 3PLs, but with a business model built specifically around flexibility rather than long-term partnerships. Traditional 3PLs are increasingly adding on-demand services to their offerings to compete in this growing market segment.
How Does On-Demand Warehousing Work?
Here’s how on-demand warehousing works for a business:
- Finding a Warehouse: You select a storage facility from a network of pre-vetted warehouses. These warehouses offer short-term or seasonal storage without requiring a long-term lease.
- Storing Inventory: You ship your products to the warehouse to be stored. This is useful for managing seasonal spikes or excess stock.
- Fulfilling Orders: When a customer places an order, the warehouse staff picks, packs, and ships the product. Some warehouses also handle returns.
- Scaling as Needed: You can increase or decrease their storage space based on demand and prevent overstocking or storage shortages.
Key Stakeholders in On-demand Warehousing
On-demand warehousing involves three main players:
- E-commerce Brands & Retailers: These are the main types of businesses that use on-demand warehousing. They do it to store products closer to customers, reduce shipping times, and manage inventory without owning a warehouse.
- 3PL Providers and Warehouse Owners: A large range of different types of providers offer on-demand warehousing solutions. See “The Evolution of On-demand Warehousing” below.
- On-Demand Warehousing Platforms: Services like Flowspace and Stord act as intermediaries and connect businesses with warehouses.
Benefits of On-Demand Warehousing
On-demand warehousing lets you place products closer to demand hotspots, cutting shipping times and costs.
Scale Storage Without Long-Term Contracts
You can increase or decrease storage space at any time. This makes it easier to handle seasonal peaks or sudden spikes in demand without committing to a longterm warehouse lease.
Lower Storage and Operational Costs
Traditional warehouses come with fixed costs like rent, maintenance, and labor. On-demand warehousing eliminates these overhead expenses since you only pay for what you use.
Expand into New Markets
You can store inventory in different locations to reach customers faster. This allows you to test demand in a new region before investing in a permanent facility.
Better Inventory Control
Running out of stock can lead to lost sales, while excess inventory ties up capital. On-demand warehousing helps you balance supply by giving you space when needed, preventing shortages and overstocking.
Simplify Fulfillment and Logistics
Running a warehouse means handling labor, inventory, and order fulfillment. With on-demand warehousing, third-party providers can help take care of order fulfillment, inventory storage, packing, and shipping. This allows you to focus on product development, marketing, and customer service so you can continue to grow your business.
Challenges in On-Demand Warehousing for E-Com and Retailers
Here are some challenges associated with on-demand warehousing:
Navigating the Hybrid Nature of Providers
The on-demand warehousing landscape can be confusing because many providers operate as hybrids between traditional 3PLs, technology platforms, and real estate companies. This creates unique challenges because different warehouses and providers may vary significantly in
- service quality and capabilities.
- processes for receiving and shipping.
- WMS solutions and integrations used.
- terms, pricing, and services.
To address these challenges, successful businesses create clear SOPs and tech capabilities for their on-demand partners to vet before committing inventory to the network.
Limited Control Over Inventory and Fulfillment
Since you don’t manage the warehouse directly, order accuracy and shipping depend on the provider. If a warehouse lacks strict quality checks, customers might receive damaged items, an incomplete order or wrong order, or poorly packed shipments that can increase returns.
If stock levels aren’t updated in real time, you could oversell items that are already out of stock. Some warehouses use warehouse automation like barcode scanning and RFID (Radio-Frequency Identification) tags to track inventory movement and prevent errors, but others still rely on manual counts, which increases the risk of mistakes.
Higher Costs Per Unit for Short-Term Storage
On-demand warehousing charges by the unit, pallet, or cubic foot, which can get expensive if you store a lot of products. With a traditional lease, you pay the same rent each month, no matter how much space you use.
But with on-demand storage, costs change based on demand. For example, they can spike during busy seasons like Black Friday or Cyber Monday when more businesses are looking for extra space.
Difficulties in System Integration
Your inventory system needs to sync with the warehouse management system to track stock levels, process orders, and update shipments in real time. If these systems don’t update in real-time, you could face delays in stock updates, incorrect inventory counts, delayed order processing, or missed shipments.
For example, if your system shows an item in stock but the warehouse has already shipped the last unit, a customer might place an order for something that’s actually unavailable. Some warehouses support direct integrations with platforms like Shopify, Amazon, or NetSuite. But if you use custom software, you might need manual data entry or additional setup, which slows order fulfillment and increases costs.
Inconsistent Service Quality
Not all warehouses operate at the same standard. Some may provide faster fulfillment times and better accuracy, while others may struggle with delays or outdated technology. Warehouse automation plays a key role in maintaining speed and precision, but its availability varies between providers.
Availability Issues During High-Demand Periods
Space in on-demand warehouses isn’t always guaranteed. If too many businesses are looking for storage simultaneously, you might struggle to find available space or incur higher costs.
Examples of On-Demand Warehousing Use Cases
Here’s how different industries can use on-demand warehousing to their advantage:
E-Commerce Brands Handling Seasonal Demand Spikes
In 2023, holiday retail surged to $964.4 billion, up 3.8% from the previous year. For e-commerce brands, this kind of seasonal spike means more inventory, more orders, and the risk of running out of space.
Take a toy company, for example. Most of its annual sales happen during the last two months of the year. Rather than locking into a year-round lease for extra space it doesn’t need in the off-season, the company can rent temporary storage from October to December.
With on-demand warehousing, it gets the room to scale during the holiday rush—without burning cash on unused space the rest of the year.
DTC Brands Avoiding Long-Term Warehousing Costs
DTC brands can avoid long-term warehouse leases by renting storage only when needed. This helps them control costs and keep inventory available without paying for extra space.
For example, a skincare brand launching a new product line may see a temporary spike in demand due to influencer promotions or a viral campaign. Instead of committing to a larger warehouse year-round, the brand can rent extra space during the product launch period—then scale back once demand returns to normal.
This way, they meet customer expectations without overspending on space they don’t always need.
Retailers Expanding to New Markets
In 2024, a survey of 31,500 shoppers showed that about 66% expected to receive their online orders within a day. For brands entering a new market, that kind of speed is non-negotiable.
A consumer electronics brand, for example, might test a new region by storing products in a local warehouse near major shipping hubs. With on-demand warehousing, they can offer fast delivery while testing demand—without locking into a long-term lease before the market proves itself.
If sales grow, they can scale up. If not, they can pull back.
The Evolution of On-Demand Warehousing
On-demand warehousing emerged around 2013-2014 with pioneer companies like Flexe creating marketplace platforms to connect businesses with available warehouse space. The concept gained significant momentum between 2018 and 2022, accelerated by several factors:
- E-commerce growth creating more demand for flexible fulfillment solutions
- Supply chain disruptions during the COVID-19 pandemic
- Rising commercial real estate costs making fixed warehousing less attractive
- Technological advances enabling better inventory visibility across networks
What began as a way to monetize excess warehouse capacity has evolved into an ecosystem of networks and platforms. Today’s on-demand warehousing market includes:
- Warehouse Marketplaces: Technology platforms connecting businesses with available warehouse space (similar to Airbnb for warehousing)
- Flex Space Providers: Traditional warehouses offering portions of their facilities for short-term rental
- Hybrid 3PLs: Established logistics companies creating more flexible offerings alongside their traditional services
- Fulfillment Networks: Purpose-built networks of warehouses designed specifically for distributed, on-demand storage and fulfillment
This evolution represents a significant shift in how businesses approach warehouse space, moving from a fixed asset model to a more service-based approach to storage and fulfillment.
How to Get Started with On-Demand Warehousing
If you’re considering on-demand warehousing, you need a clear plan to find the right storage solution.
Here’s how to get started:
Step 1: Assess Your Storage Needs
Before searching for a warehouse, figure out exactly what you need:
- Are you storing extra inventory during peak seasons?
- Do you need warehouses in new locations for faster delivery?
- Are you looking for a short-term storage solution to avoid long-term leases?
By identifying your goals, you can choose a warehouse that fits your business needs.
Step 2: Research On-Demand Warehousing Platforms
On-demand warehousing platforms connect you with storage providers.
Some popular options include:
| Provider | Best For | Key Features | International Fulfillment | Downside |
| Flowspace | Companies needing pick, pack, and ship services with software integration. | Integrates with Amazon, Walmart, Shopify, and more.150+ fulfillment centers.Real-time order tracking. | Yes | Can be costly, and order processing is complex. |
| Stord | Businesses looking for cloud-based supply chain management. | Cloud-hosted supply chain tools.Freight and warehouse services.User-friendly dashboard. | Yes | Less suitable for smaller businesses. |
| Flexe | Businesses needing large warehouse space with added logistics support. | 1,000+ warehouses covering 30M sq. ft.Same-day deliveries.Analytics-based logistics approach. | No | Limited to domestic fulfillment. |
| Ware2Go | Merchants looking for fast, nationwide delivery with flexible storage. | Backed by UPS network.Cloud-based fulfillment platform.One- to two-day shipping. | No | No dedicated account manager, or support via email. |
Step 3: Check Warehouse Locations
The closer your inventory is to your customers, the faster and cheaper it is to ship orders.
Here are some tips to keep in mind:
- Look for storage in high-demand areas based on your customer base.
- Some platforms provide heat maps to help you see where storage is most needed.
Step 4: Understand Pricing Models
On-demand warehousing charges vary based on:
- Storage Fees: Typically charged per pallet, bin, or square foot per month.
- Fulfillment Fees: You can expect additional costs if the warehouse also picks, packs, and ships your products.
- Inbound/Outbound Fees: Some providers charge for receiving shipments and sending out orders.
So, request a price breakdown beforehand to avoid hidden fees.
Step 5: Integrate with Your Operations
To keep track of inventory, your system needs to connect with the warehouse’s software. Some platforms offer built-in inventory tracking, while others require you to integrate third-party software to update stock levels and order status.
- If you use an e-commerce platform like Shopify, Amazon, or WooCommerce, check if the warehouse management system can sync with your store.
- If integration is possible, test it by updating stock levels in your system and verifying that the warehouse reflects the changes.
- Place a test order to see if tracking updates correctly and fulfillment happens as expected.
Step 6: Test & Scale
Before moving all your inventory, send a small shipment to test how well the warehouse operates.
You have to:
- Check how long it takes for orders to be picked, packed, and shipped.
- Monitor inventory accuracy to avoid stock discrepancies.
- Assess customer satisfaction with delivery speed.
A test run helps you confirm that the warehouse meets your standards before moving all your inventory.
Key Takeaways
- On-demand warehousing helps businesses scale storage and fulfillment during busy periods without committing to long-term leases.
- It’s ideal for e-commerce businesses testing new markets who need flexibility in space and cost.
- Integration with your existing systems is crucial to avoid order delays and inventory errors.
- Testing a warehouse with a small shipment before scaling helps ensure reliability and service quality.
Need a warehouse management system (WMS) that helps you track inventory, manage orders, and streamline fulfillment? Book a demo today with Da Vinci to see the software in action.