Taking these five macro trends into account in your warehouse and DC siting decisions will help you reduce supply chain costs and inefficiencies for years to come.
John H. Boyd is Founder and Principal of The Boyd Co., Inc. Founded in 1975 in Princeton, NJ, the firm provides independent site selection counsel to leading U.S. and overseas corporations. Organizations served by John over the years are many and varied and include The World Bank, The Council of Supply Chain Management Professionals (CSCMP), The Aerospace Industries Association (AIA), MIT’s groundbreaking Work of the Future Project, UPS, Canada's Privy Council and most recently, the President’s National Economic Council providing insights on policies to reduce supply chain bottlenecks.
Picking a location for a warehouse or distribution center (DC) is not a decision to be taken lightly. If a company makes the wrong choice, it will mean increased supply chain costs and inefficiencies for years to come. To avoid this mistake, companies need to be aware of the macro trends brewing on the horizon that could affect a warehouse's future costs or efficiency level.
During our firm's site selection engagements, we consult with a wide range of corporate managers who have input into the many quantitative and qualitative factors that go into location decisions for a new DC or warehousing operation. These include managers in traffic, facilities, finance, logistics, information technology, human resources, legal, engineering, telecommunications, manufacturing, and community relations, among others. It's an eclectic group, and so are the topics of our conversations. Here are the five trends these managers are talking about most in their meetings with us.
1. PRIVATIZATION AND TOLLS
Privatization of highways and bridges is a hot topic now for many of our distribution center clients. In the past, most highway and bridge infrastructure projects were funded by revenues from the gas tax. However, these revenues have been declining for years amid a cutback in driving, a shift to more fuel-efficient cars, and slumping auto sales. Privatization is being pushed by the Obama administration as a way to fund more highway and bridge infrastructure projects without raising fuel taxes. The likely result will be more toll roads, including portions of our interstate highway network.
What we are hearing from the trucking industry is that they hate the notion of a national tolling system. The full-truckload sector especially doubts its ability to recover the additional costs through some sort of surcharge that it would try to pass on to shippers. The parcel express business—with its focus on speed and efficiency—doesn't like it either. Trucking dispatchers are telling us that if the interstates are tolled, they will quickly shift routes to secondary highways, further congesting them and adding wear and tear to those roads.
The upshot of this trend would be more and more companies looking to locate their distribution centers in industrial areas close to rail/intermodal centers in order to balance out increased trucking costs.
2. COST CUTTING
While cost cutting has always been a big concern for warehousing managers, our nation's tepid economic recovery is making costs the "white hot" issue in corporate boardrooms today. At many of our DC clients, finance managers are explaining that the best way to improve the bottom line these days is on the cost side of the ledger, as there is little relief on the revenue side.
As a result, more companies are considering lower-cost locations for their distribution centers. Operating costs for a typical DC can vary greatly by geography, and a less-than-optimal location will result in higher costs, which could compromise the company's competitive position. The table in Figure 1 illustrates how significantly DC operating costs can vary within the United States. This BizCosts.com analysis conducted by The Boyd Company includes all major geographically variable operating-cost factors, such as wages, benefits, real estate, property taxes, utilities, and shipping. The table shows that annual costs for a hypothetical 450,000-square-foot DC employing 150 workers range from a high of $22.2 million in the Meadowlands in northern New Jersey to a low of $15 million in Louisville, Ky., a spread of $7.2 million, or a 32-percent differential.
3. THE NEW "LAST MILE" MARKET
The rise in e-commerce and omnichannel retailing, coupled with Amazon's ongoing quest for same-day delivery, is highlighting the importance of speed-to-market in today's economy. In San Francisco, Amazon is now testing its own delivery network for the final leg of a package's journey to consumers' doorsteps. The new service will give Amazon more control over shipping time and expenses. We expect the e-commerce giant and logistics innovator to roll out similar "last mile" services in major markets like Los Angeles, New York, and Chicago in the months ahead.
Amazon's "last mile" network will surely pose a challenge to express shipping companies like UPS, FedEx, and the U.S. Postal Service. We expect the Amazon experiment—buoyed by surging e-commerce and new ride- and trip-sharing apps like Uber—to open up a new distribution-channel market in major cities as well as create other new growth opportunities within the express shipment sector.
As a result of this trend, a number of new DC sites are emerging on our site selection radar screen. These locations put a premium on proximity to major, growing consumer markets; good transportation linkages; access to a work force with a wide range of blue- and white-collar skill sets; turnkey real estate sites with full utilities; and good cooperation with local municipal officials.
Probably one of the best examples is Robbinsville Township in central New Jersey, which is situated within minutes of Exit 7-A on the New Jersey Turnpike and about an hour from the megamarkets of both New York City and Philadelphia. In July 2014, Amazon opened its first DC in New Jersey in Robbinsville, a 1.2 million-square-foot fulfillment center that will employ some 1,400 workers. The company plans to use this fulfillment center to debut its much-anticipated same-day grocery delivery service, called AmazonFresh. We expect other DCs to be following Amazon to Robbinsville in the months ahead.
Nationally, other sites that we see riding this proximate-to-market trend include: Lehigh Valley, Pennsylvania; Towson, Md.; Dublin, Ohio; Fishers, Ind.; Jeffersonville, Ind.; South Fulton County, Ga.; Miramar, Fla.; Ruskin, Fla.; Sugar Land, Texas; Denton, Texas; San Marcos, Texas; Oak Brook, Ill.; Liberty, Mo.; Aurora, Colo.; Casa Grande, Ariz.; Tualatin, Ore.; Moreno Valley, Calif.; and Tracy, Calif.
4. THE NEED FOR MORE SKILLED WORKERS
The shortage of over-the-road truck drivers has been well documented in recent years. Manufacturing giants like GE, Caterpillar, and Siemens have also been very vocal about skill shortages in the United States being a major impediment to reshoring production jobs back to the U.S.
Not so well known to the general public is the growing shortage of workers in supply chain specialties like data analysis, robotics, engineering, and data security, to name just a few. While not as labor-intensive as call centers, our site selection projects in the DC sector are much more human resource-focused than ever before. HR managers need us to document that an area has a robust supply of technical and nontechnical workers not only at startup but also in the years ahead, especially if the DC is slated to provide additional value-added functions down the road. Our DC clients are increasingly interested in such labor market issues as the ability to hire ex-military, access to public transportation in order to tap inner-city labor pools, the availability of leading-edge skills in data security (a growing concern of our clients), and the tenor of labor-management relations. At the end of the day, labor is playing a greater role in distribution center site selection.
This is due in part to the breadth of jobs, from high-tech to low-tech, housed in today's distribution center, as well as to the rather low profile the logistics industry has assumed in the mindset of many college graduates. While the industry employs some 6 million workers and accounts for almost 9 percent of our nation's gross domestic product, its operations are mostly behind the scenes.
We expect the logistics industry to need to fill some 1.5 million jobs over the next five years. Compounding the industry's low profile among new college and tech school grads is the wave of retirements among the "baby boomer" generation that the industry is now facing. We are seeing a growing number of our DC clients turning to social media sites like LinkedIn and Facebook to search for new workers.
5. MANUFACTURING AT THE DC
In recent years, more and more value-added functions have started to be housed in distribution centers—whether they are blue-collar light assembly, white-collar office tasks, or customer service-related operations. We expect to see an emerging technology known as three-dimensional (3-D) printing, or "additive manufacturing," also being offered at distribution centers.
Three-dimensional printing is a process of creating a 3-D object from a digital file by laying down (or printing) successive layers of material. This new technology is expected to revolutionize production techniques, resulting in a significant proportion of manufacturing becoming localized and on-demand. The reliance on extended and costly supply chains would also be diminished. Our DC clients are telling us that the implications of 3-D printing could be enormous. Warehouse sizes and inventory levels could be reduced as 3-D printing leads to more real-time, custom manufacturing. For example, national parts warehouses would not need to be as large, because replacement parts could be downloaded, 3-D printed, and replaced within hours. Manufacturing reshoring from Asia would be hastened, thus reducing demands on the ocean shipping and aircargo industries.
Only a few years ago, 3-D printing seemed like something out of a science fiction movie, but major supply chain players in the auto, aerospace, and medical technology industries are already producing strong and light component parts using 3-D technology. As more industries adopt the technology, the impact on DC sizes, volumes, and mission will no doubt increase.
A MULTIDISCIPLINARY APPROACH
In order to respond effectively to the great variety of cost factors, human resource issues, and emerging technologies that are affecting site selection, corporate relocation teams need to be much more collegial and multidisciplined than ever before. Everybody—from traffic to legal—needs to have a say in today's location decisions. Additionally, companies may benefit from securing counsel from outside specialists. This may involve contracting with a corporate site selection firm like ours, or even outsourcing the entire logistics equation to a third-party logistics service provider.
This story first appeared in the Special Issue 2014 edition of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include the Quarterly's subscription fee). Subscriptions are also available to nonmembers for $34.95 (digital) or $89 a year (print). For more information, visit www.SupplyChainQuarterly.com.
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Two European companies are among the most recent firms to put autonomous last-mile delivery to the test with a project in Bern, Switzerland, that debuted this month.
Swiss transportation and logistics company Planzer has teamed up with fellow Swiss firm Loxo, which develops autonomous driving software solutions, for a two-year pilot project in which a Loxo-equipped, Planzer parcel delivery van will handle last-mile logistics in Bern’s city center.
The project coincides with Swiss regulations on autonomous driving that are expected to take effect next spring.
Referred to as “Planzer–Dynamic Micro-Hub w LOXO,” the project aims to address both sustainability issues and traffic congestion in urban areas.
The delivery vehicle, a Volkswagen ID. Buzz battery-electric minivan, will feature Loxo’s Level 4 Digital Driver navigation software, a highly automated solution that allows driverless operation. The van was retrofitted to include space for two swap boxes for parcel storage.
During the two-year pilot phase, Loxo’s Digital Driver will navigate a commercial vehicle several times a day from Planzer’s railway center to various logistics points in Bern's city center. There, the parcels will be reloaded onto small electric vehicles and delivered to end customers by Planzer’s parcel delivery staff.
Following the completion of the pilot phase, Planzer and Loxo will build on the program for rollout in other Swiss cities, the companies said.
The partners said the project addresses the increasing requirements of urban supply chains and aims to ensure the “scalability of their disruptive solution.” With largely emission-free delivery, it contributes to greater levels of sustainability for the city as a living space, they also said.
“The uniqueness of this project lies in the fact that it will have a direct impact on society,” Planzer’s CEO and Chairman Nils Planzer said in a statement announcing the project. “We didn't just want to integrate automated technology into existing systems, we wanted to develop a completely new concept and a new business model.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.