High consumer expectations, a storage shortage and disruptions from trade tensions are increasingly revealing the shortcomings of traditional distribution models. But these challenges bring opportunity: companies that seek innovative solutions that deliver greater agility, automation and intelligence will not just thrive, they’ll also gain a significant competitive advantage.
Customer expectations are high and rising
In the new expectation economy, consumers are demanding faster delivery and greater quality. Meanwhile, the biggest companies in the world continue to invest resources in reducing shipping times even further, ensuring that customer expectations will remain high, and likely increase, in 2019.
To meet these high standards, shippers must position inventory near their customers to speed delivery and lower last mile costs. Unfortunately, traditional distribution models lack the necessary footprint, and therefore, reach to achieve these goals.
Warehouse availability is shrinking as demand rises
What’s more, finding storage space is increasingly difficult. The industrial availability rate (a prominent measure of vacant space) fell to 7 percent at the end of 2018 in the United States, its lowest point since 2000. Demand outpaced the supply of new warehouse construction for the year by 29 million square feet. Space is even more difficult to find near major population centers like Los Angeles, lengthening delivery times and raising transportation costs in markets with the most customers.
There are a number of reasons warehouse space is increasingly harder to come by. Growing populations in urban areas mean greater demand for products, as well as increased competition for land. In addition, companies like Amazon are expanding their footprint of owned warehouses, leaving less space for everyone else. These factors will increase in the year ahead, forcing shippers to look beyond traditional distribution models that offer limited space and little flexibility.
Disruptions from trade tensions will raise costs
Trade tensions, and the threat of new tariffs in particular, disrupt supply chains. Last summer, retailers scrambled to move inventory from China to the United States to avoid new tariffs resulting from trade conflict between the two countries. These sudden imports caused a logistical bottleneck at the Port of Los Angeles and overwhelmed the local warehouse market. Shippers had to move further inland to find storage space, increasing transportation and drayage costs.
Since trade agreements and the global market have become less stable, shippers have to be prepared to avoid and navigate potential disruption in the months ahead. Companies will need the ability to identify areas where they are most vulnerable to disruption and make quick adjustments to their supply chains this year. And — as we saw last summer — they’ll need much more visibility and flexibility than traditional distribution models can offer.
Innovation will determine the winners
Because traditional distribution models are ill-equipped to meet the challenges of 2019, innovative solutions — those that offer greater agility, velocity, automation and intelligence — are needed.
- With a more agile distribution network that can dynamically add and subtract capacity in markets across the country, shippers’ supply chains are more resilient to storage shortages and disruptions of all kinds, including those resulting from trade tensions. And, shippers can achieve the faster speed to market and shorter delivery times needed to be responsive to customer demand.
- Through workflow automation, shippers can collapse the time and effort required to manage inventory and orders, enabling significantly greater scale, reach to markets and proximity to customers — all without increasing operational cost.
- Actionable intelligence provided by smarter distribution platforms can improve decision-making, helping shippers optimize costs out of the supply chain and perfect the customer experience.
In the year ahead, we’ll see many different approaches to the big challenges in warehousing. Winning strategies will look beyond traditional distribution models and toward greater agility, automation and intelligence. Companies that embrace innovation will adapt to the present, prepare for the future and strengthen their competitive advantage.