By Jeanne Rogers
Executive Vice President-Arthur J. Rogers & Co.
If you were to ask people why America lost so many jobs to China the past decade or so, the vast majority would tell you wages. And they’d be wrong.
Not too long before he died, Steve Jobs broke bread with President Obama. And over dinner he explained the reason America was being supplanted by China as the world’s manufacturing leader was not so much worker compensation. Salaries always even out in time, said Jobs, and perhaps surprisingly are not the difference-maker when a company chooses where to locate a factory.
Instead, Jobs said that the difference-maker was the gap between China’s supply chain and ours.
In China, when a company seeks a few thousand engineers for a project, it might take a few days to round them up. In this country it might take six months, if indeed it’s possible to find that many engineers at all.
In China, if a manufacturer wants to retool something as simple as a small screw, that entire process takes a day or two. In this country such retooling might take weeks, and more likely months.
And in China, when an executive wants to meet face-to-face with one of his suppliers or component manufacturers, he often merely has to walk across the street. In this country, such a meeting might cost an executive a day of travel time.
That got me thinking about just how critical the American supply chain is to not only the world of commercial real estate, but to the decisions we make every day. What’s more, like that tiny screw in need of re-tooling, one subtle market shift can fundamentally turn the entire supply chain on its ear, and do so before the ink on a deal is even dry.
And if you think I’m crazy and just talking hypotheticals, consider the bare-knuckled thrill ride that the publishing industry has been on these past few decades – a ride that continues today.
It wasn’t that long ago that most book stores were small, independent shops in urban areas trafficking almost solely in reading material. But then along came big box retailers and suddenly a paradigm that existed for well over a century shifted. The small bookseller became a dinosaur, replaced by a few big box retailers who traded on volume and competed on price. What’s more, these super-sellers operated with huge inventories and carried not only books, but night lights, reading glasses, paper products, compact discs and of course, coffee.
From a commercial real estate perspective, the needs of the industry and the supply chain that fed it changed overnight.
But then, less than a decade later, along came Amazon, which taught us you didn’t need a bricks-and-mortar store to buy books. You could do it online, in your bathrobe, with a cup of coffee in your hand. And you could do it 24 hours a day with the click of a mouse. Before you knew it, the big box guys were reeling, struggling to catch up. And the supply chain that serviced them found itself playing catch up too.
But even that wasn’t the end of it, as a few years later Amazon expanded into household products, most of which weren’t even related to publishing. But the volume of goods the company was buying, selling, warehousing and shipping shot up exponentially and, again, the supply chain found itself scrambling to keep pace, and doing so in real time.
Yet it didn’t stop there. In another few years, Amazon’s core business got turned inside out by the digitization of the printed word. Suddenly a warehouse worth of books could fit into a single chip, and rather than monetizing bound and printed books, the company found itself trying to monetize a bunch of ones and zeroes, along with the computers required to read them.
At the same time, the supply chain built to accommodate millions upon millions of books found itself trying to come to the realization that it had to handle only a fraction of that amount.
But even as the supply chain experts continue to adjust to that shift, Amazon has announced plans to make same-day delivery standard operating procedure. I don’t even have to tell you what same-day delivery will mean to the supply chain, but logistic and distribution capabilities that had once been regional, or even national, will soon have to become local.
And last but not least, even as I write this there is a movement by a group of U.S. governors to strip online retailers of their tax-free status and to begin charging consumers local sales tax on products bought and sold online. That movement, should it become law, might mean that one state like Illinois might charge a local sales tax on Amazon-purchased goods, while a second – say Indiana – might not. That difference could radically alter commercial real estate property values along state lines because it would alter the locations of so many key components in today’s supply chain.
Look, people much smarter than I have pointed out the need for brokers like me to make adaptability and flexibility our two newest watchwords. And I’m sure I’ve not told you anything you haven’t already heard or know.
Likewise, I know all of you are fully aware of the vital importance of the supply chain to America’s economy.
But until I started considering the terms adaptability and flexibility in the context of one very real industry, started putting all the radical changes it has undergone into a single timeline, and then put that timeline on a single sheet of paper, I guess I never truly appreciated just how utterly essential those words have become in building not only the supply chain of today, but the one the market demands be ready right around the corner.
Jeanne Rogers, CCIM, SIOR, is a leader in the Chicago-area commercial real estate community, and has been in the business of corporate real estate for more than 30 years. The many corporations, growing businesses and real estate investors who have benefited from Rogers’ expertise include household names such as J.P. Morgan (American National Bank and Bank One), Ingersoll Rand, DHL, Exel, ASSA ABLOY Group, Perma Steelisa and Public Storage. Specializing in finding innovative solutions to complex real estate needs, Rogers has closed more than $500 million in commercial real estate transactions during her career.