The need for speed in warehousing has never been greater. As consumers we find ourselves in the driver’s seat—with options to select the best price and free delivery,  however, this forces companies to deliver goods faster and cheaper than ever before or risk losing business. Whether you’re a retailer, supplier, manufacturer, or their third party logistics provider, your traditional logistics hubs will likely not support our e-commerce world.

The independent market research company, Forrester, published a report earlier this year that suggests online sales will increase over 54% in the next 5 years by 2020. The shopping experience for consumers has never been easier, and more than 244 million consumers browsed or bought goods online in 2015 (driven largely by mobile devices). The volume of purchases online is forcing warehousing to undergo massive changes, increasing the complexity of supply chain operations, greater utilization of technology, and more training for staff.

Companies with large warehouse facilities in second or third tier suburbs of metropolitan areas, drawn by the lower rents and real estate taxes, are now investing in smaller and more expensive footprints closer to customers to shorten delivery times. This “Last-Mile of Delivery” is a critical link in the supply chain, particularly for retailers offering one-hour delivery times or handling perishable food items. This trend is evolving across the country and in the Twin Cities. Recently, Amazon announced plans to open their second “Delivery Station” to serve the Twin Cities area, a 50,000 square-foot warehouse in Eagan to offer one and two hour delivery service. These last-mile facilities are traditionally older, repurposed flex buildings with lower clear height but offer easy access to major interstates and are closer to population centers. Investing in these types of facilities helps modernize your supply chain, but also comes at a premium.

Meanwhile, companies continue to explore ways to increase efficiencies by opening new warehouses instead of expanding old ones. Warehouse occupancy rates are at their highest across the country since 2000, making today’s industrial market very competitive for these newer, modern warehouses near major cities. These modern warehouse facilities aren’t built with the traditional 20-foot clear heights; users are driving up demand for 32-foot clear height in order to maximize throughput and utilize more cubic space.  By going to a higher clear height and racking four to six pallets high, users can increase their inventory capacity over the same square footage by as much as 25 percent. Many of these companies are investing in the next generation of automation in warehousing, deploying robotic palletizing, new software/hardware applications and high speed conveyor systems, so they can quickly pick and deliver goods to the customer. There is a rent premium associated with these new warehouses with high clear heights, upgraded sprinkler systems, thicker floor slabs, additional steel and higher tilt-up panels.  Users are faced with determining if these additional costs are justified by the efficiency gained.

Before deciding to renew, lease, buy or build new, companies should take a holistic view of their entire supply chain. Not only does this type of study account for rent, clear height, and square footage, but the equally important costs associated with transportation, fuel, and labor. Before you try to modernize your supply chain alone, talk to us about meeting those business objectives in a strategically-sound manner.