Horizon Blog

When Going Global Means Being More Local [WAREHOUSING & DISTRIBUTION]

Written by Lor Melvin | Jul 24, 2017 10:35:40 PM

It seems that every day we hear some comment about the “Amazon Effect” and how it is transforming all of our lives. When it comes to global fulfillment operations, it is hard to disagree. The undeniable convergence of our consumer expectations for home delivery service levels continues to creep into our business to business expectations. We want our goods when we want them, how we want them, and always with immediacy. In a less than two percent GDP world and a constant hunger for new markets, customers, and growth, how does today’s global enterprise meet these lofty expectations while still delivering the profit margins? As companies seek to address these challenges with their extended supply chain partners, how is the logistics service provider community innovating in ways that enable their customers to utilize their global networks as their own for a variety of origin and destination services?

Business Insider reported that an analysis by Slice Intelligence found that Amazon captures $0.43 of each retail dollar spent on online. This dominant position not only pressures organizations’ margins and profitability, but they more dramatically shape the expectations of all consumers (both at home and at work) to define the online shopping standard. An arms race of service level offerings is in the works. Standard 3-5 day ground shipping is obsolete and has been replaced with “free” 2-day shipping and migrating to same day and one hour, two hour, and four hour services. For many organizations with first-rate supply chain execution capabilities, the echo of “if Amazon can deliver it in two days, why can’t you” continues to haunt their daily fulfillment strategies. Competition among companies is as much service based as it is on product sales price.

The “Amazon Effect” is not the only trend keeping supply chain executives up at night.  

Whether it is Brexit or a new company's first emphasis, there is an inevitable focus and review of more national and regional supply chain strategies despite the world remaining eminently global for most advanced supply chains. This is an interesting dynamic at the national level where protectionist trends and the tenuous belief in multilateral trade regimes confronts a dominant consumer trend of omnichannel and the desire, if not need, to obtain what I want, when I want it and delivered to my preferred location - globally. How do we all begin to service more of our customers’ needs while doing so from fewer global locations in a more economically nationalist environment?

Rising Warehouse Costs
Competing national priorities of new market growth and inward focus are not the only complex dynamics facing organizations today. Regulatory and security (both physical and intellectual property based) considerations remain paramount in the strategic risk assessment of market opportunity and ultimately, the operational facilities, processes, and labor required to manage the operation. A recent CNBC.com article outlined work done by AlixPartners that challenged the accepted paradigm that running retail stores was more expensive than selling the same merchandise online. Finding real estate, leasing distribution centers, making the capital investments in racks, material handling equipment and technology with the ongoing search and management for qualified labor it turns out, is a difficult and expensive proposition. Throw in some recent GAAP accounting changes that require organizations to record their leases as long-term debt and you have some powerful C-suite folks that may not be so keen on entering every market where new customer opportunity might exist. Remaining lean, managing fewer, and developing deeper partnerships with capable partners, becomes and important strategic option.

The Chase for Space
Organizations that embark on the search for new distribution sites are quickly confronted with the reality of today’s real estate and labor markets. Vacancy rates remain at all-time lows. Across the US, industrial vacancy rates are at 5.3 %, a 17-year low according to a report published by Jones Lang LaSalle. In some markets vacancy rates are well below those levels. The competition for grade A sites with close proximity to major metropolitan consumer areas continues to be challenging. Rents remain high, lease terms are longer, and improvement concessions are fewer. Wage inflation, another aspect of the “Amazon effect,” continues to place upward pressure on both temporary and fulltime warehousing wages. The Wall Street Journal reports that in many cases wages have grown in some markets up to 19% over the past few years while the expectation of product fulfillment costs have fallen. These market dynamics should cause all companies to evaluate their global facility and asset investment strategies.

Who thrives in this new economy of changing customer expectations, heightened appetites for order visibility, and increased competition for strategic assets? One perspective is that a premium now is placed on those that can quickly enter new markets with fewer assets at risk while still delivering a consistent, brand-oriented experience to customers that place high value on service reliability, cost competitiveness, predictability, and multi-channel fulfillment capabilities. Operating a supply chain network on a platform that delivers products customized with a wide range of available value-added services for specific customers and localized for individual market delivery expectations creates significant service barriers to the field of global companies searching for expanded market opportunities. In the build, buy, or partner evaluation process many companies are looking to their logistics service providers (LSP) for answers.

The LSP’s of the world are not immune to these same global trends as volumes increase, service expectations rise, and margins compress. The search for growth and opportunity remains a unifying trait of all supply chain participants. To meet the evolving needs of the shipper community, providers need to continue to develop their worldwide network of consistent service offerings capable of delivering safe harbor and passage to their customers in more corners of the world under heightened service levels and more stringent regulatory regimes. This daunting task must also be accompanied with a wholesale review of technology that delivers heightened levels of visibility throughout the end-to-end process.

Complexities & Opportunities
Additional time and attention need be spent on the complexities and opportunities inherent in the first mile and last mile segments of the supply chain. Opportunities for first-mile consolidation, enhanced supplier management, and service level selection more often than not impact the ultimate end delivery experience for business to business logistics flows.  It can be argued that the last mile processes disproportionately affect the direct to consumer channels as they are significantly based on inventory stocking models to achieve short lead time delivery capabilities. Program success is more often affected in the first mile and last mile stages of the delivery process rather than the increasingly consistent port to port movements of the advanced LSPs.

Logistics service providers increasingly focus on a closer alignment of the transportation functions with the warehousing and distribution activities such that a complimentary set of supply chain nodes and locations can be offered to customers that concentrate on fulfilling a diverse set of multi-channel needs and not just high degrees of specialization. A warehousing location may be both a first mile and last mile location based on sourcing and delivery channels, and therefore, a wide menu of service options are required. These may include freight consolidation, value-added services, order fulfillment, pick and pack, returns management, merge in transit, transloaded, or cross dock capabilities. Many of these offerings also require the flexibility to be offered in both bonded, non-bonded, or specialized free trade zone locations. Increasingly, for companies to capitalize on the global demand opportunities, new mechanisms to simplify market entry, importer of record or fiscal entity requirements are needed.

In all cases, greater product cost and margin predictability and fulfillment status transparency is needed across ever increasingly complex operational activities and numbers of locations for customers and providers alike.