This article delves into the changes that new commercial business models, customer expectations, and technology are bringing about in the logistics environment, focusing particularly on how those changes are impacting the planning, procurement, design, layout, and operation of distribution centres.

Real Estate in the Logistics Industry: A Changing Landscape

The traditional role of the distribution centre is losing relevance as e-commerce continues to become the dominant model for sales operations and penetrates an ever-growing number of markets and industries.

Omnichannel distribution networks require a completely different approach to warehousing, and as a result, the landscape of industrial real estate selection and operation is changing dramatically…

In this article, we look at some of the changes taking place and what they mean for decision-makers when exploring requirements for the new world of industry and commerce.

The Changing Face of the DC

For many businesses, omnichannel distribution brings the distribution centre to the forefront of the supply chain and into the awareness of customers. The retail store is no longer the only primary touchpoint between a brand and its consumers.

In omnichannel business models, the distribution centre might be the last static point at which to ensure an excellent customer experience.

Order sizes are shrinking, and frequencies are growing. Instead of shipping orders consolidated onto pallets bound for retail outlets, the warehouse is the point of origin for small orders dispatched directly to customers’ homes.

Distribution centres must host the execution of value-adding services and processes such as product customization, and support customer-centric material handling solutions. In short, DCs are becoming less about storage, and more about throughput, with speed and quality of service as the central focus of design, layout, and process management.

What’s Happening to Facility Lease Durations?

Technology in the distribution centre is, for many enterprises, at a juncture between the traditional and the new world. For example, a company might have to choose between high-bay facilities with a conventional ASRS to maximize storage space, or commission warehouses of a standard height and invest in more flexible automation, typically utilizing AGVs and robotics to minimize labour costs.

In either case, the costs to fit out a warehouse for automation are substantial, often reaching tens or even hundreds of millions of dollars.

Such high costs might be responsible for the continued trend toward long industrial real estate leases at a time when flexibility should demand shorter terms. One asset management resource in the United States recently reported that average warehouse lease lengths have increased by 50% over the last five years.

What’s tending to happen is that enterprises are taking space for regional distribution centres on long leases, allowing for the time necessary to recoup the fit-out costs. They might also lease local facilities for urban DCs on much shorter terms, perhaps as short as one year, to place inventory closer to customers and improve network flexibility.

The short lease duration for these urban warehouses reflects companies’ awareness that customer demographics and preferences can change rapidly. They know they must apply agile strategies and be able to change the location, scale, and design of their sheds in line with local consumer trends.

Changing DC Designs and Layouts

Omnichannel operations require distribution warehouses to carry more SKUs since, unlike in a traditional retail environment, digital shoppers have no awareness of limitations. They are shopping in a virtual diorama, with no visual cues to indicate constraints in a physical space.

Success in e-commerce retail, for example, depends upon having as many, if not more products available than one’s competitors.

Retailers, therefore, are under pressure to increase warehouse volumes, while also facing high real-estate costs. As a result, the average clear height of warehouses is on the rise, enabling occupants to use vertical space and keep footprint to a minimum.

Where 6-metre clear heights were once commonplace, new warehouses are more likely to have 12 metres of vertical storage capacity, or even more. However, rather than fitting these high-bay warehouses out with automated cranes, operators are more likely to install multiple mezzanine floors for the intricate picking and packing operations demanded by e-commerce practices. They might also deploy robotic goods-to-person systems to gain efficiency.

The Influence of Technology

Indeed, it is the fast-paced, onward march of technology that is having perhaps the most significant direct and indirect impact on the design and layout of distribution centres today.

The indirect effect comes from the digital transformation of B2B and B2C retail, which drives many of the changes already discussed in this article. The direct impact arises from new logistics technologies, which increasingly enable the integration of automated and manual solutions for materials handling.

This integration is spurring a shift—from the segregation of man and machine in warehouses heavily adapted to automation—toward spaces where humans can work safely with autonomous equipment.

The hardware is still expensive to acquire. However, new vendor models, in which AGVs and their controlling systems can be deployed on a pay-as-you-go basis, are improving accessibility, even to businesses with investment limitations.

The Rapid Rise of the Robots

The proliferation of new solutions for material handling can present a dilemma for warehouse operators, as technology quickly advances and robotic dexterity improves. It’s not cost-effective to continually switch solutions to keep up with technological development. At the same time, it’s all too easy to select a system that will quickly fall behind in terms of relative capabilities.

Fortunately, cloud-based software solutions and subscription models for robotic warehouse equipment are reducing procurement risk. As they evolve, they should help operators approach solution design and selection with more flexibility.

Distribution Centres to Get Taller, and Smarter

According to a recent report by ABI Research, the number of robotic warehouses, which stood at just 4,000 globally, will grow by 1,200 percent over the next five years, to reach something like 50,000 by 2025.

That projection is based on the state of current robotics capabilities, which already make autonomous mobile robots (AMRs) a more flexible and scalable solution than fixed automation systems.

In the meantime, warehouse robots are becoming smarter, and smaller. If that trend continues, their growth in logistics could be even more remarkable.

For example, it’s reasonable to predict that new, more versatile AMRs will not be limited to use in large distribution centres. They might be deployable in those small urban warehouses procured on short-term leases. Perhaps they will even become useful in shared or pop-up warehouses used as tactical space for seasonal peaks or to serve special events.

What Will Future DCs Look Like?

Collaborative robotic systems enable companies to speed up their omnichannel distribution operations by helping humans to pack and dispatch high volumes of small orders at a rapid pace. However, they won’t solve the problem of increased demand for warehouse cube—at least, not by themselves.

The distribution centre of the future is likely to be a tall, multi-level environment in which automated equipment brings SKUs to human operatives for final picking and packing. It will meet the need for fast, responsive order fulfillment, provide space for extensive growth in product ranges, and host additional services extending far beyond the role of the logistics sheds of yesterday—and even today.

Is your company planning a new warehouse or distribution centre, with the need to make it future-proof in a fast-changing logistics environment? If so, our warehouse design and layout specialists can help. Why not get in touch with us to find out more?

The Changing Landscape of Real Estate in the Logistics Industry