Warehousing dynamics shift as eCommerce kicks in

Businesses have been urged to give serious consideration to warehousing plans in the wake of profound market disruption caused by the growth of online retail, says the eCommerce Logistics Think Tank.

The think tank comprises thought leaders from Total Logistics, Colliers International, UMC Architects and KAM Project Consultants.

The group says a ‘generational shift’ is taking place with online retail changing two key aspects of warehousing. 

The first is a shift to greater single item picking and packing, as opposed to traditional pallet-in, pallet-out operations. The other shift relates to growth rates. With much higher growth rates than traditional retail business, facilities are reaching capacity much more quickly.

The report outlines that it is not uncommon for an online retail business to post 30% annual growth figures, while a more traditional business would grow at something more like 5% per annum. If this business growth is reflected in warehouse floorspace required, a traditional business can expect to need 16% more space by Year 3 and 48% more space by Year 8. In short, after 8 years the business will need about one and a half times the space it started with.

In contrast, if online retail growth rates persist – at Year 3, the business will already need 2.2 times the original space. At Year 8, the business will need more than eight times the warehousing it started with, if the same rate of growth persists.

The report says: “The eCommerce market is fast-moving and a new build can take 12-18 months minimum, assuming a good planning scenario. Specifications need to be flexible enough to future-proof change to avoid new buildings becoming outmoded as growth changes occur.”

The report urges planners to get warehouse design right at the start.

Factors to consider include:

· Site selection – future-proofing ability.

· Phased expansion – options on land next door.

· Floor – loading capacity to support point loads from mezzanines or automation.

· Sprinklers and utilities for expansion capacity.

· Mezzanine – ensuring the height is available to accommodate them.

· Loading regime – allow flexibility for more docks / level access doors.

· Occupiers / tenants should be prepared to pay more rent to get more flexibility incorporated into the design rather than self-fund tenant’s enhancements.

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The report urges developers to plan flexibility into facilities, but also cautions them to be mindful of costs.

“Inevitably, building in future flexibility comes at a cost. It is advisable to undertake a study of how throughput capacity levels could be increased, the day one cost, the present day value of that investment and the estimated increase in throughput. This study will provide focus toward best value for money. The study will require input from the whole team.

“Striving to define mezzanine layouts for an undefined automation layout is impossible to get right and thus the trend is to over provide for flexibility. Realism is necessary, together with acceptance of compromise. For example, accepting the restrictions of a closer mezzanine frame and putting in large base plates may be sufficient to avoid trying to predict pile locations.

“Estimating the costs of flexibility is not the prime issue, it is ensuring that the occupier goes through the process and makes conscious decisions that strive to ensure there isn’t a problem with capacity in a very short period due to exponential growth.”

The think tank also highlighted a number of predictions for the next three years.

· UK will see year-on-year internet growth of c.15% pa.

· Europe will see year-on-year growth in some regions of 20%+.

· 2-man lift / out of gauge items will see large growth.

· Furniture and home will see significant growth.

· Manufacturers of all types are moving into B2C fulfilment.

· Fulfilment time windows will continue to shorten.

· Peaks will get bigger.

· The carrier market will remain at capacity / a capacity limitation.

· Urbanisation – eFulfilment will move nearer cities.

· Cost-to-serve for eFulfilment will represent a business agenda item as multi-channel matures.

· The retail market will continue to change – retail space use will change (e.g. B&Q, Homebase, Argos), the supermarkets will structurally change.

· Pure-play eCommerce businesses’ power will increase.

· For manufacturers, the new landscape becomes very complex for logistics.

· Co-locating retail and eCommerce in the same warehouse may not always be the correct answer.

· Mezzanines and pick towers will become much more common.

· For larger scale operations, mechanisation & automation of either storage or picking will become more common in eCommerce.

A must-read for anyone planning warehousing in the retail arena, you can view the full eCommerce and Warehouse Challenges report here.