Free land! Tax incentives! Payroll assistance! Companies out scouting for DC sites are demanding and getting all this and more. But there's more to finding the right site than squeezing breaks from the locals.
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.
It's a deal that would quicken the pulse of even the most jaded real estate broker. To get Todd A. Noethen and Hal Wilson to sign on the dotted line—thus committing their company, Big Lots, to build its fifth distribution center in Durant, Okla.—economic development officials offered them the sun, the moon and the stars—or at least their site selection equivalents. In exchange for locating their new $70 million distribution center on Durant's fertile soil, Big Lots was promised free land—137 acres' worth, to be exact—and a host of infrastructure improvements. What's more, the county would throw in some needed road work and foot the bill for the construction of a one-million gallon water tower.
And that was not all. The city of Durant and Bryan County sweetened the pot with tax incentives. For example, Big Lots gets a five-year property tax abatement, sales tax exemptions on construction materials used at the site, a land tax credit that allows Big Lots to accelerate the depreciation on its investment by 40 percent, and a sales tax exemption on utilities. There's also an annual inventory tax exemption, meaning Big Lots won't be taxed on the products stored in the DC at the end of each year.
But wait, there's more: Big Lots' new employees will be trained at no cost to the company. Its new hosts will pick up the tab. In addition, the city of Durant took the highly unusual step of agreeing to a "quality jobs cash payment." Under the rare agreement, the city will reimburse Big Lots for 5 percent of the DC's total payroll on a quarterly basis for 10 years.
All told, the incentive package from Bryan County and the city of Durant totaled $13.3 million for the sprawling 1.2 million-square-foot DC that opened three months ago. And the tab's still running. Durant officials expect the total incentive package to reach $20 million when the costs for all of the infrastructure improvements are tallied.
Welcome to the world of economic development incentives. In what amounts to a war between the states, counties, cities and even rural hamlets, local economic development authorities are vying with one another to create the most lavish incentive packages. And the breaks aren't just offered to small players and startups, which might actually need the assistance. They're going to the big players, like Big Lots and Wal-Mart, as well. In fact, a recent study estimates that Wal-Mart—the king of retailers—has received more than $624 million in economic development subsidies to build 91 distribution centers, including a whopping $48 million for one facility. The study, conducted by non-profit research center Good Jobs First, states that 90 percent of Wal-Mart's DCs have received government funding of some kind.
Competition is particularly intense for DCs. Unlike retail stores, distribution centers require highly skilled workers, which means the jobs they bring to a community pay higher wages. Big Lots, for example, guaranteed the Durant community a starting wage of $10 an hour, including benefits.
Get the big picture
It's easy to see the appeal of all those handouts to Big Lots, purveyor of everything from cut-price fruit cocktail and tortilla chips to living room furniture. To compete in the white-hot deep-discounter market, the Columbus, Ohio based retailer, which operates 1,400 stores in 46 states and reports annual revenues that exceed $4 billion, has to land not only the best deals on the products it sells—everything from packaged food to sofas to row boats—but the best deals on building new distribution centers as well.
That's not to say that Big Lots made its decision based solely on incentives. Before selecting the Durant location, Noethen, who is vice president of distribution support services, and Wilson, who is senior vice president of logistics, conducted a rigorous search, investigating dozens of sites in several states and analyzing a detailed transportation model. In the end, "Durant met our strategic plan for our existing store base and future growth," says Noethen.
In fact, Noethen cautions that as enticing as they may be, incentives are only part of the site selection picture. "People tend to focus on the multi-million dollar incentive package but overlook the bad news—you need to spend $3 million to make the site usable," he says. "The incentive package can't be the single deciding factor. You need to understand the entire site development impact, and consider how much site work will be involved." A $15 million incentive package might not be such a great deal if excessive infrastructure work is required on the site, resulting in increased construction costs and delays in completing the facility.
For example, almost all sites require soil grading, and it's imperative to rule out sub-soil issues. Noethen suggests hiring geotechnical professionals to assure the site is DC-worthy, with no hidden rock ledges that could require costly blasting. In addition, you need to make sure there are no drainage issues or even protected wildlife in the area that could lead to a costly battle with environmentalists.
Another potential hitch is the availability of labor. In the end, no matter how highly automated the facility, it takes people to make a DC run. And unlike the Field of Dreams, you can't assume that if you build it, they will come. Therefore, it's important to research the potential labor pool before deciding on a location for your next DC.
Big Lots, for example, wasn't content to simply accept verbal assurances concerning the Durant area's labor pool. Because it's so dependent on labor availability (as the chain continues its expansion, the workforce in Durant is expected to double from its current 250 associates to nearly 500), the company contracted with Kurt Salmon Associates to conduct a thorough examination of the employee base in Durant and the surrounding communities. The company contacted 15 other employers and inquired about average wages, the presence of unions, insurance claims, how long it takes to fill job openings, and the overall work ethic of employees. "A dependable labor pool is one of the top issues," says Noethen. "You need a good employee base; it's one of the top decision factors."
A well-educated workforce is essential for operating some of the state-of-the-art material handling equipment installed at the Big Lots facility. Big Lots expects the Durant facility to become the most efficient of the company's five DCs, based largely on the sortation conveyor system from Intelligrated Inc. The system operates at a rate of 630 feet per minute, which Noethen claims is the fastest of its kind when it comes to a carton sortation operation. With 40 shipping lanes, the facility can process 235 cases per minute, or 14,000 cartons per hour. "Nobody is running that fast," says Noethen. "Others will be soon, but nobody is right now."
Despite the rapid throughput that many DCs achieve, site selection experts emphasize that it's important to choose a site that will allow you to expand. Quite often, it's economically advantageous to add on to an existing facility, as opposed to opening a satellite operation. All too often, however, companies purchase sites with existing requirements in mind, only to find they've become land-locked when it comes time to expand a few years later.
2010's closer than it may appear
Stuart Rosenfeld may not own a crystal ball, but he does have an unusually clear vision of the future. Even though automotive parts retailer Pep Boys just broke ground for its fifth distribution center in San Bernardino, Calif., Rosenfeld, the company's vice president of distribution, is already at work determining when another DC will be needed and where that facility should be located.
"When it comes to building a new distribution center, you need to be two to two and a half years ahead of the curve, including construction time," says Rosenfeld. "I'm already looking out as far as 2010."
Rosenfeld is in the process of analyzing Pep Boys' current distribution network, which also includes sites in Atlanta, Dallas, Indianapolis and Chester, N.Y. Aside from factoring in future store expansions, Rosenfeld runs several models to predict how growth at existing stores will affect square footage at distribution centers.
In doing so, Rosenfeld will need to take into account the efficiency gains expected from the DC now under construction in San Bernardino. The 600,240-square-foot leased facility will consolidate three separate sites in the Los Angeles area and provide nearly 175,000 square feet of additional warehouse space. The additional height of the new DC (30 feet versus 24) will equate to a 63-percent increase in cubic capacity. The facility will also have 25 additional loading docks, allowing for a substantial increase in throughput—meaning the facility will service 165 stores, 151 in its existing service area and 14 additional stores in the Phoenix market.
"I factor all of that into my forecast," says Rosenfeld. "You've got to have a clear understanding of where and when you need to expand. To me that's critical."
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.
According to Vanderlande, the global logistics landscape is undergoing significant change, with increasing demand for efficient, automated systems. Vanderlande, which has a strong presence in airport logistics, said it recognizes the evolving trends in the sector and sees tremendous potential for sustained growth. With passenger travel on the rise and airports investing heavily in modernization, the long-term market outlook for airport automation is highly positive.
To meet that growing demand, the proposed transaction will significantly enhance customer value by providing accelerated access to advanced technologies, improving global presence for better local service, and creating further customer value through synergies in technology development, Vanderlande said.
In a statement, Nuremberg, Germany-based Siemens Logistics said that merging with Vanderlande would “have no operational impact on ongoing or new projects,” but that it would offer its current customers and employees significant development and value-add potential.
"As a distinguished provider of solutions for airport logistics, Siemens Logistics enjoys a first-class reputation in the baggage and air-cargo handling areas. Together with Vanderlande and our committed global teams, we look forward to bringing fresh impetus to the airport industry and to supporting our customers' business with future-oriented technologies," Michael Schneider, CEO of Siemens Logistics, said in a release.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”