The first UCI CRE Breakfast for 2018 held this year was “From Warehouse & Distribution to Logistics & E-commerce: Are You Ready for the Evolution?” It featured Moderator John Condas, partner, Allen Matkins, along with Blake Bearden, regional director, Bastian Solutions; Brandon Birtcher, chief executive officer, Birtcher Development, LLC; and Chris Joyce, director of operations, Goodyear DC, REI. The breakfast was coordinated by NAIOP SoCal as part of its sponsorship of the Center for Real Estate.
Following are some highlights from the breakfast:
How did fulfillment and warehousing really become number one and number two positions among investors? The answer is the fact that the supply chain has been stressed in an unbelievable way. Some of the drivers of this stress have been the impact of fuel costs: We had a $139 a barrel increase over 115 months, between November 1998 and June 2008. This was followed by an $80 a barrel fall for 19 months between June 14 and January 16. Transportation costs are a critical part of the business supply chain. The fluctuations throw havoc into the supply chain manager’s agenda.
Clearly, we’d have to look at the Panama Canal. For the last several decades, our ports have been serviced by ships that have been in the 7,000 to 8,000 TEUs. The newer class ships have been 14,000 TEUs, but most recently, entering our ports are ships in 20 to 22,000 TEU size.
There has been a push to invest in the major ports across America. In just over a decade, the Ports of Los Angeles and Long Beach have both made multi-billion dollar investments in their infrastructure to accommodate an enormous surge in containers, caused primarily by this growth in the capacity of these super Post Panamax Ships.
Internet sales will continue to soar. In 2017, we had $409 billion in internet sales. That’s going to grow by 56 percent to $638 billion in five years.
What’s new in today’s centers? We’re taking advantage of the vertical cue. We’re employing what we call “goods to persons solutions” within fulfillment centers and what these do, which take advantage of primary wastes within a warehouse. These are the extraneous touchpoints that it might take to fulfill an order. I want to touch the order as few times as possible and get it out to the customer. Get it there quickly to fulfill that promise of same day or next-day delivery.
What’s coming down the pipeline? We’re going to see an increasing need for robots within fulfillment centers. You’ll see goods to robot delivery for order fulfillment, so you’ll have robots involved in the picking process. It’s really going to increase the order accuracy.
You won’t have human error. You won’t have worker’s comp claims in the warehouse. It’ll have high order accuracy. These robots don’t have to take a lunch break. They don’t have to sleep. They pick around the clock, and it continues to meet that demand for our clients to get orders out the door on a near 24/7 basis.
We’re actually one of the first companies to go online. REI started as omni-channel. We pretty much started as a retail presence getting product out to people. We had to figure out, how do you scale that? In 2005, we decided that our retail was being underserved on the East Coast by the one distribution center we had on the West Coast. It would take 14 days from when you sold out of something for a store on the East Coast to get that replenished.
In 2005, we said “let’s take care of our retail presence.” Online is growing. Everyone’s claiming each year, that’s the end of retail and nobody’s going to order anywhere but from home again, and yet, our retail continued to grow, and that was our focus. Fast forward to just a couple of years ago, when we decided that we needed to be closer to our customers.
Now the expectation is, if you place an order, it should be at your home within two days. We want to remain relevant to our customers, so we’re going to do that. We engaged firms to help us figure out where our product is traveling from to our distribution center, where are we shipping out to, and where would be the best place to locate a distribution center in order to serve that business.
The choice was customer-focused, because we see that’s where the competitive advantage is. If you can promise a customer within two to three days that their product will be there, they’re far more likely to shop with you, rather than abandon that cart and move on.