Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
In a supersized world where the sandwich of choice is the Big Mac and the drink the Big Gulp, it probably shouldn't come as a surprise that DCs, too, are living extra large. It's too early to call it a trend, but some of the biggest names in the business are trimming back their distribution networks, consolidating their operations into a few mega facilities that like the Great Wall of China, are probably visible from the moon.
One after another, giant retailers and consumer goods businesses are commissioning giant facilities: Home furnishings company IKEA recently moved into a 1.8 million-square-foot DC in Bakersfield, Calif. Office supply giant Staples recently opened an 815,000-square-foot facility in Hagerstown, Md. Wal-Mart now runs a 1 million-square-foot DC in Hurricane, Utah; a 1.2 million-square- foot facility in Raymond, N.H.; and another 1.2 million-square-foot DC in Hope Mills, N.C.
But it's not just a retail thing. Following its acquisition of Lever Brothers, Cheseborough Ponds and Helene Curtis, consumer goods heavyweight Unilever Home and Personal Care consolidated 15 DCs into five. Once the project is completed, Unilever HPC will operate 4.8 million square feet of distribution space in Georgia, Pennsylvania, Texas, Illinois and California. Operating out of these large—or perhaps we should say, economy size—DCs could save the company serious money. ProLogis, a distribution facilities and services provider that oversaw the project, estimates the move will cut costs by about $20 million annually.
Even investors have not been immune to the supersizing bug. NAI Logistics Group, a Chicago-area company specializing in building and land acquisition and financing for logistics, represents a number of investors that are now building colossal distribution centers on speculation, particularly a long the Intersta te 55 corridor around Chicago. "Four years ago, the largest spec building was about 350,000 to 400,000 square feet," says Daniel P. Leahy, executive vice president of the company, whose clients include Sears Logistics Group, The Home Depot , Motorola, Caterpillar and IKEA. "Now, we have 650,000- and 700,000-square-foot [DCs] coming up out of the ground within two miles of each other."
That speculation's probably not as risky as it sounds. The explosive growth of third-party logistics (3PL) services has created a large pool of prospective tenants. Once a 3PL lands a contract, it usually has to get up and running quickly. "A lot of them don't have the luxury of waiting for a built-to-suit," Leahy explains.
Like the big retailers and manufacturers, 3PLs are drawn to the mega-facilities by the prospect of labor savings and inventory benefits. "If you've got three or four facilities that have been around, you can combine them and get more operating efficiencies out of a new facility," says Gil Mayfield, national director of distribution and real estate services for Carter & Burgess, a Fort Worth, Texas-based civil engineering consultancy whose clients include Wal-Mart, Staples and Toys R Us. "You're just able to handle things more quickly and more efficiently."
Location, location and location
Where are these mega-facilities going? Though economic development agencies from every corner of the country will make a pitch for the business, it's generally the familiar names—and typically, large urban hubs—that prevail: New Jersey, Atlanta, Dallas, Chicago and the Southern California Inland Empire. "Why are those the winners? A lot of it has to do with transportation infrastructure," says Leahy.
Leahy notes, however, that although metropolitan areas may be the most attractive locations, that doesn't necessarily mean downtown. Breaking ground even 50 miles from the city center gives DCs access to labor and transportation and other infrast ructure. And in that range, there's land to be had. "You can still find vacant farmland with utilities at or near the site," adds Leahy.
That infrastructural advantage creates something of a marketing hurdle for economic development agencies in areas outside the main hubs. These agencies, to borrow a phrase from Uncle Sam, want you. To be precise, they want you to locate your distribution center in their town or county, bringing jobs and investment to the region. And they 'll offer all kinds of inducements to make that happen. For example, Mayfield reports that Carter & Burgess has been able to negotiate tax, real estate and other incentives worth $10 million on average on behalf of clients planning large projects. What the communities get in return are as many as a thousand new jobs, he explains. "These are projects that most communities are anxious to have."
One of those incentives may be cheap land. But Leahy, for one, cautions managers about what he calls "the free land paradox." When you look at real estate, he warns, don't focus on what it's worth right now, but rather, what it will be worth in the future. You don't want to be saddled with a white elephant when changing distribution patterns make it necessary to revise your network. "If you build in the boonies," he says, "it [makes things] tougher from an exit strategy point of view."
Time to dig in?
Wherever the site, it would be hard to find a better time to build than the present. Interest rates are at historic lows and commercial construction's hit a lull. "You can build a new building in some markets for less than you can buy a building for," says Leahy. "With developers and contractors very hungry for work, they're being very aggressive on the construction numbers. It's the best time we've seen in the last 15 years to purchase or lease."
The flip side is that the soft economy that makes investment attractive now is also what makes it unattractive. In the case of these construction projects, timing is everything: Invest too late and the network won't be ready when the turnaround comes (DC construction projects take 24 to 30 months from inception to completion); invest too early and you tie up valuable capital.
"It's a mixed picture," Mayfield says. "We're seeing some companies begin to make commitments. Some are in the early design stages. They're at least willing to spend design dollars." But though construction may not exactly be roaring along like a hurricane, he says that he's still more optimistic than he's been in some time. "We're seeing some pretty decent activity right now."
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.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist 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.