Turning Point Ahead in Supply Chain

Change is afoot in the supply chain real estate arena, according to Jones Lang LaSalle.
Richard Thompson, JLL

Richard Thompson, JLL

Change is afoot in the supply chain real estate arena, according to Jones Lang LaSalle. In a new report, Perspectives on Supply Chain, the commercial real estate services firm concludes that although the Great Recession is in the rearview mirror, caution is key, as positive economic conditions could result in challenging supply chain issues.

Companies that tightened their belts enough to survive the recession are well-positioned to reap the rewards of being a streamlined company with an efficient supply chain in an improving economic environment. However, per the report, the good times could have some negative effects on operations.

“Supply chain executives need to act now to manage rising costs in the future,” Richard Thompson, Global Head of Supply Chain & Logistics Solutions at JLL, said in a prepared statement.

JLL cites five issues that companies need to monitor, one of which is customer service expectations. As noted in the report, the culture of the 7- to 10-day delivery is a thing of the past and, in the not too distant future, today’s norm of next-day delivery will evolve into expectations of same-day delivery. Therefore, new warehouse networks will be required; companies will need more regional distribution centers to accommodate customers’ delivery demands without adding major fees in return.

Another issue that JLL anticipates will come to the forefront concerns rising interest rates and their impact on inventories. To contend with the subsequent increases in carrying costs, companies will need to “lean out” inventories.

A third concern is transportation costs, which will cause a greater emphasis on alternative means of transport. Trucking capacity is forecasted to tighten with the continued economic recovery, so reliance on trucks–which account for as much as 75 percent of goods transportation–will evolve into a greater dependency on rail and other transit options.

Additionally, JLL points to the issue of global outsourcing and the fact that global manufacturers will increasingly seek to develop and/or source products in the same region of the world where they are consumed in order to cut transit times as well as costs and risks.

Simply put, Thompson told Commercial Property Executive, “The future supply chain and site-selection decisions will be focused on reducing freight costs, which means close proximity to population centers; improving customer service for next-day/same-day service and mitigating risk through locations within close proximity to alternative modes of transportation including intermodal.”

Higher customer service expectations, increasing interest rates, growing transportation costs and global outsourcing–it’s all related to industrial real estate. And a final issue raised in the JLL report directly concerns real estate; rising real estate costs, to be precise. As noted in the report, industrial occupancy levels are at a high, with absorption having increased nearly 30 percent over the last year. Under these conditions, property owners are profiting, as users face higher rents–and lower flexibility for supply chains. JLL advises that time is of the essence under these conditions and that companies should analyze their leases, locations and square footage now, not later.

And today, there can’t be a discussion of supply chain without addressing e-commerce.  “E-commerce facilities are now accounting for 30+ percent of demand,” Thompson added. So developers will be increasingly aware of this growing call for such space as they consider any speculative projects.

When it comes to supply chain, JLL reiterates in the report the importance of timing. “Like a competitive bike race, the biggest lead changes happen on the toughest inclines. Similarly, we believe those companies that make the right operational changes today will be in a leadership position tomorrow.”