John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
As DC Site searches go, Kumho Tire's team had it easy. All they had to do was scout out a facility that was large enough to house the Korean tire-maker's fast-growing distribution operations yet lavish enough to serve as the company's North American headquarters. That might have been a tall order had it not been for the scope of the mission. While some search teams end up scouring the continent, Kumho's team could conduct this search just by driving around local neighborhoods.
Kumho's need to relocate was a symptom of its explosive growth. By 2005, the company, which makes tires for passenger cars, SUVs, and both light and commercial trucks, had simply outgrown its quarters. Its cramped and outdated distribution center in Fontana, Calif., had become an order fulfillment bottleneck. The building bulged at the seams. Its staff could barely keep up with inbound and outbound shipments. There was no room in the yard for additional trailers. Detention charges mounted from disgruntled carriers whose trucks were delayed at the dock.
Eventually, management bowed to the inevitable, and late last year, the tire-maker moved to a spacious building in a nearby community, Rancho Cucamonga. At 830,300 square feet, Kumho's new facility is more than triple the size of the old DC. It currently houses 1.5 million tires, six times as much stock as the old facility could accommodate.
Notably, the facility also features more yard space for trailers as well as 136 truck docks and 144 trailer stalls. The company can schedule outbound deliveries more efficiently, which has led to a big drop in carrier- imposed penalties for loading delays. Kumho doesn't palletize tires for loading onto trailers, preferring to load them manually in order to get as many as possible onto each trailer. "If we used a forklift, we could do it in 30 or 40 minutes," says Scott Thompson, Kumho's logistics manager, "but because we man-handle them, our average load time is two to three hours. Moving to the larger facility has helped us to keep [detention] fees under control because it's easer to get trucks in and out."
As for the site itself, Kumho decided at the outset to focus its search on Southern California's Inland Empire—a rapidly developing region east of Los Angeles and 50 miles inland from the coast. The Inland Empire (roughly San Bernardino and Riverside counties) has become something of a distribution hub in recent years, owing to its easy highway and rail access, relatively cheap land (at least, compared to LA and Orange County) and proximity to the region's ports. In fact, those were the very attributes that had drawn Kumho to Fontana in the first place.
Relocating to another Inland Empire community would allow the company to maintain a DC within a 50-mile radius of the Port of Long Beach, where Kumho's tires enter the country. (Upon arrival at the port, the ocean containers are trucked to Rancho Cucamonga, where workers unload the tires for distribution to Kumho's four regional DCs in North America.) Though the tire-maker could have found cheaper real estate farther inland, Thompson says, higher drayage costs and soaring fuel prices would have eaten up any savings. With 250 containers coming in every week, he points out, even a $20-per-trailer surcharge would have cost Kumho an extra $5,000 a week.
Another draw was Rancho Cucamonga's location in a designated Foreign Trade Zone (FTZ). As a foreign-owned company, Kumho receives tax breaks for locating within an FTZ. A Foreign Trade Zone is a government-sanctioned site where foreign and domestic goods and materials can be stored duty free. The goods' owner can keep them there indefinitely, paying duties only when it ships the materials or merchandise out of the zone to another U.S. location. "If you're in the right kind of business, the savings can be significant," says Cliff Lynch, principal of C.F. Lynch & Associates, which provides logistics management advisory services.
Let's make a deal!
Access to a foreign trade zone and a pro-business climate like the Inland Empire's may sound like incentive enough to attract new business. But few economic development agencies are content to leave it at that, especially if they have a chance to snag a DC. These days, states, counties and even cities engage in all-out bidding wars, vying with one another to offer the most lavish incentive package—tax abatements, employee training, free land, road improvements and the like. Sounds excessive? This is a high-stakes game. Today's high-tech DCs require skilled workers, which means they bring relatively high-paying jobs (and plenty of payroll tax revenues) to the community.
Giant retailers like Wal-Mart, Target and Big Lots, which typically build facilities in the one million-square-foot range, naturally attract many of the most lucrative offers. Big Lots, for example, landed a package worth an estimated $20 million from economic development officials in Durant, Okla., where it built a 1.2 million-square-foot DC in 2004. In addition to 137 acres of free land, Big Lots capitalized on infrastructure improvements like the free construction of a one-million-gallon water tank, land and sales tax credits, and education credits for its staff. But what clinched the deal was the city of Durant's offer to reimburse Big Lots for 5 percent of the DC's total payroll for 10 years.
Still, however generous, incentives alone should not influence a company's decision to locate in a particular region. Saving a few million dollars in property taxes may sound enticing, but not if the location puts you farther away from your customers than you want to be. And those huge labor incentives may be a signal that there's a shortage of educated workers in the region.
In fact, experts who have been through the process often counsel site selection teams to pay no notice to the incentive offers until they've completed a rigorous search and analyzed all the options. "At the end of the day, the location decision needs to be driven by transportation costs," says Mike Peters, first vice president of ProLogis Solutions, which develops industrial distribution facilities. "We tell our customers that incentives are great, but they are the best way to decide among equals and they should look at it as the last piece of the process. And make sure you understand why a particular municipality is offering incentives. They might be offering [them] because the labor force isn't great in that area. [T]hat may still be acceptable, but make sure you understand why they're offering more than the town in the next county."
Steve White of DHL is of the same mind. "The first thing we always look at is the operation and where the hub fits into the network that makes sense to service the customers," says White, who is senior vice president of hubs and gateways at express carrier DHL. (DHL just opened a 262,000-square-foot West Coast distribution facility at the March Air Reserve Base in Riverside, Calif., part of the Inland Empire.) "From there, incentives do come into the discussions at some point, but the real driver has to be network planning and making decisions that are best for our business."
Ongoing effort
Luckily for today's distribution executives, analyzing a DC network no longer means sitting down with maps, piles of printouts and a spreadsheet. The advent of sophisticated mapping and network optimization software has made manual analysis a thing of the past.
But the tools' easy availability doesn't guarantee that companies will use them effectively, warns Ted Newton, a network analysis consultant at Forte and a former Procter & Gamble distribution executive. Newton says the most common mistake he sees companies make is the failure to review their distribution networks on an ongoing basis. It's not enough to analyze your network when it's time to build or lease a new DC, he says. You should evaluate your network every 18 months or whenever a major event occurs.
In Newton's view, network optimization is one of the most valuable exercises a company can undertake. He reports that Procter & Gamble saved upward of $2 billion by running optimizations for its plants and DC network. "It's not just something you do after an acquisition or when you decide to build a new plant," he says. "It's something you should do before any strategic project." To drive home his point, he likes to tell the story of a company that neglected to review its network before installing an expensive enterprise resource planning (ERP) system in all of its DCs. Just months later, it was forced to close one of its DCs and shelve the expensive new technology it had installed.
Of course, optimizing your distribution network is not just about costs. It's about customer service too. That's particularly true of companies that sell medical supplies or perishable goods and need to be within quick reach of their customers. Contrary to what you might expect, these suppliers, which by any normal standard are already close to their customers, often gain the most from an optimization. "I've seen some projects where [companies] reduced the time it takes to get product to the customer by one or two full days," says Newton. "And these were companies that were pretty good to start with."
a Texas-size deal for Wal-Mart
Wal-Mart may have outdone itself this time. Though it's hardly an amateur when it comes to squeezing tax breaks from local economic development agencies, Bentonville appears to have scored the granddaddy of all deals with Baytown County, Texas.
That's saying a lot. Over the years, Wal-Mart has wangled more than $624 million in public subsidies for 91 distribution centers, including a whopping $48 million for one facility, according to a 2004 study conducted by non-profit research center Good Jobs First. That same study notes that Wal-Mart has managed to secure government funding of some kind for 90 percent of its DCs.
The Baytown County story dates back to 2004, when Wal-Mart was looking for a site for a proposed bulk storage facility. Its plan was to build a 4 million-square-foot center, where it would unload ocean containers and then ship the merchandise out to DCs nationwide. A site strategically located just 14 miles from the Houston shipping channel caught its eye.
To sweeten the pot, the Texas General Land Office dangled offers of tax exemptions and an estimated $1 million in infrastructure improvements. But it didn't stop there. It agreed to an unusual arrangement under which it would buy the land and the building once Wal-Mart had completed construction. True to its word, the agency bought the building from Wal-Mart for $100 million and then turned around and leased it back to Wal-Mart.
What does the community gain from the deal? Jobs, of course. The DC will employ up to 450 associates. Those workers will need housing, and they'll bring business to local retailers (as well as expand the community's property tax base). In addition, the Texas General Land Office expects its $100 million investment to earn $338 million for the state's Permanent School Fund over the term of Wal-Mart's 30-year lease.
In turn, Wal-Mart gets a lower tax bill. The DC, which opened last summer, now sits on state land, which means the retailer pays no real estate taxes on the land or the building. (Good Jobs First estimates that the property tax exemptions alone will run to about $18 million.) Wal-Mart also gains certain tax advantages by leasing, rather than owning, the property, though it does pay taxes on the inventory.
"You read about tax abatements all the time, but obviously this is a whole different way of doing things," says Walker B. Barnett, an associate at real estate firm Colliers International. "Wal-Mart is very good at getting these kinds of creative incentives." And infinitely resourceful when it comes to finding new ways to maintain those always low prices.
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.