People sometimes ask me, “Why do you work for a commercial real estate firm? You’re a supply chain guy.” The answer is that in the industrial real estate sector—which includes factories, warehouses, and distribution centers—logistics costs can make up as much as 75% of total operating costs. If you don’t understand supply chain, you really can’t be a trusted adviser on industrial real estate.
Industrial real estate has traditionally offered very little flexibility. Meeting the exact space requirements is almost impossible and you’re dealing with large, fixed assets that are typically owned or steeped in long-term lease agreements.
In the industrial real estate sector… logistics costs can make up as much as 75% of total operating costs.
Despite those challenges, there’s the continual need and pressure to keep those assets working efficiently—is your network the right size, in the right locations, and are you optimizing for cost and service? Because industrial real estate is a fixed asset, many businesses have viewed their distribution networks as cost centers, not strategic or agile.
Aside from managing what you have, businesses also have to anticipate growth. While 200,000 square-feet today may be sufficient, that 20% growth initiative may require you to double your footprint in the next five years. So what requirements will meet your needs today and get you to your goals tomorrow? How far out should you forecast and plan?
In retail, this has always been particularly difficult. Seasonality creates peaks and valleys throughout the year that leave warehouses either jam-packed or empty. Managing that fluctuation puts a lot of pressure on the supply chain to accurately project what’s required to manage inventory, shipping schedules, and raw material deliveries.
This isn’t a new challenge for retail. It’s a puzzle retail supply chains have been trying to tackle for years. But today it’s even more difficult. The advent of eCommerce has created new challenges and is fueling one of the tightest real estate markets we’ve ever seen.
The advent of eCommerce has created new challenges and is fueling one of the tightest real estate markets we’ve ever seen.
There have been a lot of technological advancements and improvements to meet these new challenges. But, for all the hype about drone deliveries, driverless vehicles, or underground train tunnels that are going to move freight faster, those improvements could take decades for mass adoption. Supply chain professionals are constantly seeking better solutions for the here and now.
One promising technology-enabled strategy is to enhance collaboration and visibility across the supply chain. Never before have we had access to so much data and tools that enable companies to improve processes throughout different supply chain functions—from warehousing and distribution centers to shipping and trucking.
Collaboration with regard to distribution facilities has not been feasible in the past. The only way to secure short-term space needs quickly in various locations would involve the help of a third-party logistics (3PL) firm.
A flexible and more collaborative distribution network is an opportunity for companies to generate revenue on extra capacity during down seasons or with facilities that are underutilized, and find needed space when capacity is tight.
Ultimately, better collaboration drives greater productivity and efficiency, helping companies better serve their customers. Luckily, these innovations are happening today…
There’s quite a lot of industrial space that could be made available if it were allocated more efficiently. As information technology gets integrated into warehouses and other supply chain components, it allows companies to monitor inventory more effectively, enabling a more flexible, adaptive business model.
Ultimately, better collaboration drives greater productivity and efficiency, helping companies better serve their customers. Luckily, these innovations are happening today, and the opportunity to collaborate will only expand in the years ahead. That makes it easier for my customers to maintain healthy real estate portfolios and make adjustments that help them stay competitive in the era of eCommerce.