How industrial tenants can optimize their network to save capital
Four strategies to balance customer needs and operational costs through real estate
The legendary “Amazon effect” has undoubtedly had the most significant influence on logistics activities in the last decade.
Juggling rising customer expectations for speedy fulfillment and a greater variety of in-stock inventory has led industrial tenants to ponder how they can control costs while meeting consumer demands.
In a study cosponsored by JLL, nearly 75% of companies said they expect customer service preferences to become the most critical challenge by 2030.
So how are you expected to meet these preferences while containing costs? You can start by creating efficiencies in your supply chain. With logistics-related expenses accounting for over 80% of operations costs, this is the best place to begin saving capital.
Here are four questions your company can ask to ensure you’re providing superior customer service at the lowest landed cost:
1. Have you diversified your supply chain?
Companies across industries are starting to diversify as a form of risk management. One major discount retailer, for example, is adopting a four-corners strategy to utilize different ports of entry to ease supply chain disruption. Others are nearshoring and reshoring to move goods closer to their final destination to minimize complexity and shipping costs.
2. Are you prioritizing transportation and labor?
Transportation and labor costs are among the single largest line items in the distribution business and solving pain points related to both of these functions will reduce costs. Once again, diversification is key. Nearly three-quarters of goods are currently moved by truck, but driver shortages, along with many other factors, have increased trucking costs and expanded delivery timelines. Using an intermodal strategy with both train and truck can help you reduce costs and offset transportation challenges related to tight trucking capacity.
3. Are you looking to the future?
The world is evolving rapidly, and while it is important to solve today’s problems, anticipating obstacles and embracing proactive strategies is critical to network optimization. Sustainability is at the top of that list. Facility-related sustainability initiatives are not currently driving supply chain decisions, but with transportation accounting for one-third of greenhouse gas emissions, it’s quickly becoming a pillar in a network optimization strategy.
4. Do you view real estate as part of your logistics costs?
Real estate decisions don’t typically come first in network optimization strategies. Warehouse and distribution facilities are the last links in the supply chain, and they account for approximately 5% of logistics expenses, so there isn’t much of an opportunity to impact overall costs. However, national industrial supply shortages are transforming real estate into a rare commodity. Being close to the consumer is essential to network optimization and reducing logistics costs, but for the first time in the history of supply chain dynamics, finding real estate close to customers is a real challenge.