Economic Recovery Signals New Direction

Five catalysts that will drive profound change for supply chain professionals.

A multinational company, trading and doing business all over the world, needs an effective real estate strategy to enable its global supply chain operations. Developing an in-depth understanding of the global supply chain, as well as the factors that drive its continuing evolution, is as essential for corporate real estate professionals as it is for their supply chain counterparts to ensure that they can deliver the most efficient and effective solutions for their company and its customers.

Truly global supply chains emerged in the following decades and continue to evolve and change today. Supply chains are longer and more complex, involving worldwide networks of sourcing, manufacturing and consumption. They challenge corporate supply chain and real estate executives to come up with solutions that help companies manage the intricate logistics of today’s systems and plan for the demands of the future.

Focus On Total Operating Costs

Remember the “80-20” rule? When a CSCO looks at the total operating costs associated with a distribution center, real estate, while vitally important, is not a major cost factor. In fact, according to at least one third-party source (Exchange Inc.’s “Logistics Cost & Service Report”), as much as 80 percent of total operating costs are in logistics, including transportation, inventory and labor, so this is where supply chain practitioners understandably focus.

It is obviously important to take the “80 percent” into consideration when de?ning solutions. But, although real estate costs may only represent 5 percent of total operating costs on average, getting the right real estate deal done is critical to “pinning the solution to the ground” and executing the plan.

Transportation: Representing approximately 50 percent of total operating costs, transportation is one of the largest cost buckets in the supply chain. The most significant mode of freight transportation (approximately 75 percent) is via truck. Other modes, such as ocean, barge, rail, air and intermodal, still represent only a small segment today for most companies.

Future Trends' Impact On Commercial Real Estate

As transportation costs rise, what predictions can be made about the supply chain of the future? Today’s growing trend is toward investment in transportation by rail.

What's the attraction of rail? More than investment interest, rail offers several advantages over long-haul trucking. Trains produce 40 to 60 percent fewer greenhouse gas emissions compared with trucks, yielding a huge bene?t in sustainability. Freight costs are much lower, at approximately one-third the cost of trucking. Rail can also be a solution to traf?c congestion. Moreover, railways have become more technology-savvy, better at managing their assets and deploying rail cars.

Rail is the only viable alternative to trucking. Within the United States, for most companies, barge transport is not feasible and airfreight is too costly. Other than trucking, intermodal/rail presents the only real option from a transportation perspective.

Macro Drivers Impacting Supply Chain Networks

Offshoring, consolidation, technology: Today’s global supply chain depends on a wide range of in?uences, including:
• Changes in supply base and/or customer base: The decision to offshore to China or India will affect the supply chain network.
• Mergers, acquisitions and downsizing
• Freight costs will be volatile, due to the unpredictable ?uctuations in oil prices.
• Labor costs will vary according to different supply chain strategies, such as offshoring vs. nearshoring.
• Customer service requirements and demands are changing and intensifying.
• Changes in technology will challenge companies, as well as better enable those that keep up with leading-edge supply chain solutions.
• Sustainability issues have emerged fairly recently and will take on increasing importance.

Looking Towards The Future—Catalysts Of Change

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