SUPPLY CHAIN DC MEGA-TRENDS METCASH CAPABILITY MEMORANDUM

Transcription

1 SUPPLY CHAIN DC MEGA-TRENDS

2 10 SUPPLY CHAIN WAREHOUSE MEGA-TRENDS YOU NEED TO KNOW Cash is still king Site selection 2.0 Risky business Speed counts Container jams The robots are.here! Super size me It s Cluster time The Amazon effect Sustainability counts

3 SUPPLY CHAIN IS A BUSINESS, RIGHT? CASH FLOW Maximum inventory productivity SALES Appropriate Product availability MARGINS Maximum cost productivity Supply Chain Operations must contribute to business success. Supply Chain Operations must improve: Cash Flow: - minimize working capital, via a faster moving supply chain Sales: - increase sales through better product availability Margins: - constantly reduce all end-toend costs. DC lease costs are typically <1% of total business costs & <15% of logistics costs PROFIT & ROC

4 TREND ONE: CASH IS STILL KING It is becoming more difficult to justify a new warehouse unless there is more external financial support from developers. Every business can profit from a new network and new DC s, but every business is cash poor and looking to protect their balance sheet, Current incentives from developers to tenants are quite large and are being used by tenants to support the cash needs and the business case for moving to new premises and generating increased profits. To help tenants move to new warehouses, developers are increasingly using their resources to finance equipment assets that are leased to tenants, in a similar financial model to the equipment leasing business. New accounting rules governing the inclusion of leases on balance sheets are being drafted and will apply in the next few years. Lessees and lessors will need to find creative ways to improve profits and ROC from these new rules.

5 TREND TWO: SITE SELECTION 2.0 Site selection for new warehouses has evolved beyond a simple rental comparison into a sophisticated analysis of all the factors that influence relocation and ongoing costs & service, and calculated NPV s for each option. The biggest factor influencing site selection is the current and future employees. To fully analyse this effect requires an understanding of the company strategy, site EBA s and overriding legislation together with future manning, skills and individual travel distances. The quality, skills, language proficiency, culture and crime rates in the community near each potential locations is now also considered. Transport costs are the next biggest factors that affects site selection. Careful analysis of the inbound and outbound transport tasks can lead to surprising location choices that save millions of dollars per year. Direct and indirect incentives offered by state and local governments are rising in importance.

6 TREND THREE: RISKY BUSINESS Supply Chain Risk Index Melb Adel Perth Bris Syd Businesses are increasingly aware of the risk to profit from supply chain interruptions like the recent Brisbane floods, and the Sydney hailstorm. Supply chain managers are actively seeking low risk locations to ensure uninterrupted, stable and sustainable operations to enhance company profitability. Cities and even locations within cities can vary widely in their supply chain risk profile. The TMI Supply Chain Risk Index tracks the influence and scale of natural events, logistics efficiency, socio-economic factors, property markets and input costs for each city. This provides a comparative assessment of current risks across the Supply Chain sector. Melbourne has the least overall supply chain risk while Sydney has the highest risk. Brisbane and Perth rate poorly for supply chain risk primarily due to occurrences of extreme weather.

7 TREND FOUR: SPEED COUNTS Speed of warehouse throughput and the transport delivery to customer is becoming ever more critical. First factor affecting speed is location, get the right location and lead time to/from your warehouse can be halved with associated service and cost benefits. Local area infrastructure, including arterial roads, peak congestion, curfews and high productivity vehicle permits all influence the achievable speed. Warehouse design for speed of throughput is critical. This means multiple warehouse work faces, with large yards capable of handling fleets of trucks and trailers so that the warehouse is never waiting for trucks. Purpose designed and built warehouses are more valuable for speed than common spec builds. Tenants now expect developers to enhance the speed of their operations.

8 TREND FIVE: CONTAINER JAMS Container logjams are becoming a key issue for importers who need quick and reliable access to specific containers as required. Nearly every large warehouse now requires smooth & fast container movements. Each state only has one container port, limiting competition, but some states are better & cheaper than others. Landside cost and congestion for container transport is a huge issue. Rail transport to intermodal hubs has not proven to be a big player, this may change slowly. Warehouse should be located near arterial transport routes, have super-b access, and no night time restrictions. Warehouses require better container handling capability. Large users can benefit from on-site container yards to reduce costs and improve service.

9 TREND SIX: THE ROBOTS ARE..HERE! The future is here, 20,000m2 warehouses now exist with no people, just AGV s Two main robot types: mobile robotics (AGV forklifts ) and fixed robotics (cranes, 3D shuttles and 5 axis arms with flexible heads). For the moment fixed robotics is the domain of the largest facilities/companies. This type is specialised to repetitive large scale tasks and typically requires specialised buildings. Examples include Metcash, CCA. Mobile robotics are finding application in every type of warehousing facility. This is flexible robotics, highly scalable, does not require special building and are easily retrofitted into existing buildings Will have big opportunities for early adopters, & probably some social implications. The pace of change is accelerating, robotics will be very common in a few short years. Every new DC/MHE system we design & build now incorporates robotics.

10 TREND SEVEN: SUPER SIZE ME Now we are seeing construction of ever larger DC s, some with 40+m tall buildings with the latest materials handling cranes and shuttles for large scale specialised tasks. Typically only grocery businesses have the scale to do complete greenfield super size DC s, although consolidating several sites into one super site is increasingly common. The imperative for this is reducing labour costs and improving customer service reliability (eliminating labour disruptions). Land cost is not a factor although land stability is. New locations will typically be a significant distance from the existing DC. Typical leases are 20 years and the equipment capital required for the facilities far outweighs the building cost. Each large grocery business will need to replace their current network with this type of DC. Smaller manufacturers with restricted available land will seek super size DC s to fit existing sites.

11 TREND EIGHT: IT S CLUSTER TIME Businesses are increasingly seeking to locate in clusters to be more efficient. Businesses will cluster into locations for reasons of site efficiency, internal efficiency or vertical integration efficiency. Site efficiency clusters arise when a particular location is more efficient for a particular type of industry, leading to multiple companies within that industry moving to that site. A clear example of this is the courier freight hub at Melbourne Airport Business Park, with new Toll and TNT facilities Internal efficiency clusters arise when large companies usually 3PL s, seek a campus or clusters of warehouses to allow for the rise and fall of demand across a wide customer base. Vertical integration efficiency arises when industries seek to locate near their customers or suppliers to improve costs and service.

12 TREND NINE: THE AMAZON EFFECT Online sales growth rate is very high, leading to constant outgrowing of warehouse capacity. Pure online operations will continue to increase in size and need to expand into new space every few years. Every existing DC business needs to embrace and handle ecommerce operations. Legacy warehouses need drastic reconfiguration or relocation to a new warehouse to handle the new demands of ecommerce. Growth of parcel couriers like TNT, Toll, Startrack Express and others is due to ecommerce, they all require new facilities to cope. Second tier couriers and 3PL s are suffering from rapid growth and require innovative property and MHE solutions to thrive. Ecommerce has a need for speed, same day delivery will become normal, although this will still mostly mean only one DC per capital city due to inventory tradeoffs and scale.

13 TREND TEN: SUSTAINABILITY COUNTS Sustainability of supply chain operations is increasing in importance. This is important for good public & community relations and improving financial performance. Facility location is the overwhelming number one factor for sustainability due to the large impact of transport operations. Get the right location and sustainability can be greatly improved. Net zero energy is becoming increasingly possible using new age solar panels. Involvement in precinct activities such as offsets, sharing and environmental projects is becoming a common occurrence. The impacts on neighbours from air, light, noise and traffic impacts is a key sustainability factor. Smart site location will seek to avoid the presence of any neighbours.

14 10 SUPPLY CHAIN WAREHOUSE MEGA-TRENDS YOU NEED TO KNOW Cash is still king Site selection 2.0 Risky business Speed counts Container jams The robots are.here! Super size me It s Cluster time The Amazon effect Sustainability counts

15 Key takeaways CASH FLOW Maximum inventory productivity SALES Appropriate Product availability MARGINS Maximum cost productivity The DC must be designed to help the business improve profit and Return on Capital. There has never been a better or more compelling time to move to a new DC than now. DC lease costs are a small part of total business costs, make sure you spend enough on the lease to help improve the rest of your cost base. Site selection is critical to control cost, risk and service, use experts to help you get the right site. Take advantage of the latest technology in automation, consolidation, container handling, DC size & height to make sure your DC improves your profit and ROC PROFIT & ROC

16 TM INSIGHT TM INSIGHT S MISSION IS TO HELP CLIENTS CREATE A BETTER BUSINESS THROUGH OUR EXPERTISE IN SUPPLY CHAIN IMPROVEMENT AND INDUSTRIAL PROPERTYDEVELOPMENT. We help businesses adapt and thrive under rapidly changing pressures from growth, customers, competitors, financiers, shareholders, globalisation, suppliers, regulators, and the community. We provide the highest quality consulting and management services, together with bold and innovative solutions to address your challenges and opportunities, ensuring the best possible outcomes for your business. Key services include: Supply chain network, automation and warehouse design & commissioning. Cost reduction & business turn around. Transport optimisation, domestic and international. Strategic planning (growth, new markets, feasibility studies, risk mitigation and market analysis). Operations improvement (quality, safety, service performance, and Lean systems implementation). Corporate finance (M&A, appraisals & valuations, due diligence and financing support). For more information visit our website or call us on the below numbers. Property (needs analysis, site selection, acquisition, development, and disposal ). tminsight ADAM NOAKES Director Supply Chain MILAN ANDJELKOVIC Director Property TRAVIS ERRIDGE Director Property 119. Bridport Street Albert Park. VIC P M E. ADAM@TMINSIGHT.COM.AU P M E. MILAN@TMINSIGHT.COM.AU P M E. TRAVIS@TMINSIGHT.COM.AU