Thanks to the popularity of e-commerce, warehouses are some of the hottest properties in real estate. Erica E. Phillips (@EricaEPhillips) reports some retailers were so desperate to find warehouse space this past holiday season they created pop-up warehouses in vacant suburban lots and parking garages.[1] “The explosive growth of e-commerce and the competition among retailers to deliver goods quickly,” she writes, “is running hard up against the scarcity of warehousing near population centers, triggering a land grab for distribution space that experts say is accelerating.” One ironic development is that some empty mall retail space (emptied by the so-called retail apocalypse) is now being converted into warehouse space and e-commerce fulfillment centers. David Sparkman, head of David Sparkman Consulting, reports, “Empty stores and shopping centers are increasingly being converted into warehouse and e-commerce distribution centers, according to the global industrial real estate firm CBRE, which examined in detail two dozen such projects ranging from southern California to Baltimore.”[2] He adds, “Freestanding big-box stores closer to population centers than they are to warehouse districts are the primary candidates for such conversions. These retail structures also typically offer dock doors, ample parking and clear heights compatible with industrial usage. Major retailers who are choosing to expand their omni-channel platforms are transforming underperforming retail properties into e-commerce-driven logistics spaces. Larger-scale vacant retail properties, such as regional malls and community centers, are more often purchased by industrial developers and then demolished to be replaced by new industrial construction that is designed to meet the physical requirements of prospective space users.”
E-commerce is driving the search for warehouse space
Online consumers are getting less patient when it comes to order fulfillment. I think it’s fair to say most customers expect to receive goods ordered online to be delivered in two days or less. These growing expectations have put pressure on retailers to locate inventory closer to large consumer populations. According to Adam Mullen (@AdamPMullen), senior managing director, industrial and logistics, for CBRE Group Inc., “1.25 million square feet of logistics space is needed per $1 billion of annual incremental online sales. This translates into approximately 184 million square feet of e-commerce logistics demand by 2020.”[3] This search for warehouse space could result in warehouse wars. Mark Brohan (@markbrohan) explains, “As business-to-business and business-to-consumer e-commerce continues to grow, manufacturers, distributors web merchants and others are going to be competing for more modern warehouse space.”[4] The simple truth, according to Kate Patrick (@katepatrick_), is, “There aren’t enough warehouses; e-commerce companies, manufacturers and retailers are struggling to find the right kind of warehouse space to fit their needs.”[5] What constitutes “the right kind of warehouse” is still evolving.
The right kind of warehouse
According to Patrick, the right kind of warehouse is big and technologically advanced. “These high-tech, modern warehouses,” she writes, “are much bigger than they ever were before. Today’s warehouses are 143% larger than they were in 2007. It takes longer to build them, and they’re more expensive to rent, driving up the rates and adding pressure to the capacity crunch.” As Mullen explained above, the need for space is understandable. The need for high-tech, however, is being driven more by customer expectations than it is by the increase in e-commerce. Clint Reiser (@ClintReiser), Director of Supply Chain Research at ARC Advisory Group, explains, “Retailer competition has compressed order fulfillment times considerably over the last few years. Expedited delivery, such as same-day or next day delivery, has become a common consumer expectation. These pressures have greatly impacted warehouse automation requirements.”[6] According to Adam Robinson (@AdamRobinsonCDM), head of marketing strategy for Cerasis, five warehouse technologies standout as retailers seek “ways to enhance flexibility and adaptability for both inbound and outbound logistics.”[7] They are:
1. The Cloud. Robinson explains, “By 2020, more than 75 percent of supply chain processes will exist in the cloud, and more companies will migrate their systems to the ever-connected technology.” The cloud plays an essential role in the digital supply chain and digitization is critical to speeding up warehouse operations.
2. Robotics and Automation. Also critical to increasing the speed of warehouse operations are robotics and automation. Robinson explains, “Robotics and automation will continue to reduce physical strain on workers in warehouses and throughout supply chains. Robotic systems will replace the labor demands of pickers, and automated packing and shipping will put warehousing on the forefront of technology. Also, the Internet of Things (IoT) will expand with more mobile devices coming online, including wearables that can be leveraged to reduce equipment costs, risks and problems with visibility in factories and warehouses alike.”
3. Order Streaming, including Picking & Slotting Technology. Robinson writes, “Emerging and established technologies, like order stream for picking and slotting, will drive the time to stock and time to pick for each order down. Enterprises will be able to increase their productivity without increasing their overhead, which will provide greater benefits and investment opportunities in other parts of the supply chain.”
4. WMOS, EOMS, Yard Management and Labor Management Systems. According to Robinson, “The alphabet soup of warehouse management, including warehouse management open systems (WMOS), enterprise order management system (EOMS), warehouse execution systems (WMS), will come to a head as system-wide integration becomes more feasible and easy to manage.”
5. The Internet of Things and Big Data. Robinson writes, “The IoT, big data, and automation will meet at the crossroads of warehouse management technologies to create intuitive, responsive systems. Through increasing, advanced data analyses, processing more information generated than the sum information gathered in human history before the new millennium, and cloud-based computing power, this coalescence will bring forth new technologies and possibilities for improving supply chain standards and best practices.”
In another article, Robinson notes some analysts believe technology will eventually lead to dark warehouses. He explains, “The concept of a dark warehouse can sound like a lights-out facility, saving energy, but its real implication is more profound than that. According to Ben Ames of DC Velocity, dark warehouses refer to the full automation of material handling equipment, warehouse execution systems, and automatic identification of inventory and shipments. The word ‘dark’ refers to the lack of human input in the facility. In other words, automated systems would not necessarily need lights to operate, so that the warehouse could be running in the ‘dark.’ Unfortunately, dark warehouses remain elusive in modern warehouse management.”[8] Dark warehouses might not be as elusive as Robinson thinks. Prototype dark warehouses are already being tested.[9]
Concluding thoughts
Whether warehouses go dark remains to be seen; however, the fact warehouses are getting more automated is no longer in question. Robinson notes, “The investment to achieve 100-percent automation is significant, so companies that view it as an all-or-nothing investment will continue to avoid the concept. However, the opportunities for savings and productivity gains exist below 100 percent. Instead of trying to achieve full automation, warehouse managers should focus on attaining 80-percent automation.” In other words, warehousers could well adopt the slogan coined by National Public Radio personality Tom Bodett, who closed every Motel 6 ad with the phrase, “We’ll Leave the Light On For You.”
Footnotes
[1] Erica E. Phillips, “E-Commerce Companies Get Creative in Quest for ‘Last Mile’ Space,” The Wall Street Journal, 9 December 2018.
[2] David Sparkman, “Retail-to-Warehouse Conversions Are Real,” Material Handling & Logistics, 4 February 2019.
[3] Mark Brohan, “The emerging battle for e‑commerce warehouse space,” Digital Commerce 360, 7 September 2018.
[4] Ibid.
[5] Kate Patrick, “Warehouse space availability continues to plummet,” Supply Chain Dive, 12 July 2018.
[6] Clint Reiser, “How Warehouse Automation is Enabling the E-Commerce Explosion,” Logistics Viewpoints, 24 January 2018.
[7] Adam Robinson, “The Top 5 Warehouse Management Technologies Shaping the Supply Chain,” Cerasis, 15 February 2019.
[8] Adam Robinson, “What Are Dark Warehouses and What Do I Need to Know?” Cerasis, 11 January 2019.
[9] Tim Hornyak, “The world’s first humanless warehouse is run only by robots and is a model for the future,” CNBC, 18 October 2018.
