There are two schools of thought on
distribution center trends. On one
hand, those favoring more small distribution centers argue that a number
of facilities spread across the country
are the ideal model. Those favoring
fewer large distribution centers believe
that one million square feet and above is
the best strategy to pursue.
Lindsey Stieve, CCIM, an associate at
Colliers Turley Martin Tucker, stands
firmly in the corner of fewer, larger distribution centers pointing out that million-square-foot facilities are becoming
the norm.
“There are three factors driving the
shift from many smaller distribution centers to several larger ones across the
country: economies of scale, full truck-load shipments and the ability to reduce
inventory levels,” says Stieve.
Smart Business spoke with Stieve
about the advantages of large distribution centers, what mistakes to avoid
when looking for optimal industrial
space and how to go about selecting a
quality broker.
How can a large distribution center reduce
operating costs through economies of
scale?
A large distribution center reduces
operating costs significantly. Instead of
spreading your labor and equipment
costs over 200,000 square feet, you are
spreading your costs over a million
square feet. These are fixed costs for
labor, warehouse management systems,
fork trucks and general distribution center equipment. As square footage
increases, cost per unit decreases. Third
party logistic firms that we have dealt
with in our market believe maximum
operational economies are achieved at
one million square feet.
How can utilizing large warehouses help
reduce inventory?
Let’s use a large consumer products
company as an example. By keeping all
of its lines of product (shampoo, laundry
detergent, deodorant, etc.) in one facility, it can maximize full truckload shipments, which greatly reduces transportation costs.
Inventory is capital. By reducing inventory a company reduces its capital costs.
By housing full product lines under one
roof, a company effectively and efficiently reduces inventory. Efficiency is
achieved by having all product lines in
one building and full trucks can be on
the road within hours. If the inventory is
spread across the country the truck
must wait for the orders to come together from the various locations before it
can reach the customer.
Also, it is important to note that large
retailers — the Wal-Marts, the Costcos —
will not accept LTL (less than truckload)
shipments from large companies. They
want all of their products on one truck at
one time. LTL shipments increase transportation costs and paperwork.
How can transportation costs be minimized?
By utilizing full-truckload shipments
versus LTL shipments, companies can
reduce transportation costs. In addition
to driving down transportation costs, using full truckloads saves time and
products are delivered directly to the
end user. On the other hand, partial-truckload shipments often sit in the LTL
facility for extended periods of time
waiting for a full order to come together.
Not only is time a factor but also the
more times a product is handled the
greater chance of damage.
What are the biggest mistakes companies
make when looking for industrial space, and
how can these mistakes be avoided?
As corporations have become increasingly sophisticated, mistakes have been
minimized. In today’s market, large companies have a strategic plan in place
prior to enlisting the services of a broker
or searching for property.
Companies looking for a suitable location for a distribution center should
make sure there is a decent labor pool.
Once you are there you can’t create
labor from surrounding areas if there is
not a large enough population to pull
from. Also, it is important to evaluate
taxes and other costs associated with a
location.
How should a company go about selecting a
quality broker to help secure optimal industrial space?
The broker should be an industrial real
estate expert who specializes in the
logistics industry. In the interview
process, a broker should be able to fluently discuss operational and real estate
issues. You are hiring a broker for his or
her expertise. If the broker can’t provide
you with the necessary tools to secure
an industrial space that meets your supply chain needs, the person is not doing
his or her job. A good broker is an expert
just as a company is an expert in its
industry.
Additionally, it is important that a broker communicates and works well with
the company’s team.
LINDSEY STIEVE, CCIM, is an associate at Colliers Turley Martin Tucker. Reach her at (314) 236-5459 or [email protected].
Lindsey Stieve, CCIM
Associate,
Colliers Turley Martin Tucker
