New technology has always fueled the country’s industrial sector. That hasn’t changed. In fact, advances in technology are playing an even bigger role as retail giants such as Amazon and Walmart continually tweak the way they get their products to their customers or retail outlets as quickly as possible.
Chicago Industrial Properties recently spoke with two commercial real estate experts – Noah Shlaes, managing director of the strategic consulting group with Chicago’s Newmark Knight Frank, and Todd Steffen, managing director of supply chain and logistics with the Chicago office of Colliers International – about the ways in which changing technology is making the distribution process a more efficient one.
Chicago Industrial Properties: All this new technology is a wonderful tool. But can having access to so much of it become overwhelming for industrial users?
Todd Steffen: Technology becomes a much more reliable and productive enabler when you have done the work up front to analyze and plan your network structure correctly to account for future capacity needs and megatrends in areas like omni-channel, digitization of the supply chain, 3-D printing, automation, and labor.
Technology is playing a role in reshaping the supply chains of the future to help meet the demands all companies are facing today of providing better service, more efficient use of capital and operating expenses, and tighter labor markets.
I’m seeing megatrends in technology like cloud computing, SaaS models, and robotics that are making technology much more affordable, implementable, and supportable.
CIP: I know this is a big, broad question, but what are some of the key ways in which new technology is changing the industrial real estate market? How is this new technology changing the way in which users manufacture their products, store them and distribute them?
Noah Shlaes: The most dramatic changes in my mind have to do with the advances in robotics, specifically in robotics involving equipment that picks partial loads and picks individual packages.
The example that comes to mind are robotic units that can break bulk from pallets with packages of different sizes and shapes. Traditionally, break-bulk equipment involved items that were identical or very clearly marked. Now, industrial users can use robots to break pallets that have random packages in them.
CIP: How does this ability change the way companies organize their warehouse space?
Shlaes: There are so many implications for the configurations of warehouses, for the through-put of warehouses. Industrial users can organize their space more efficiently tanks to this technology. They can organize their warehouses so that they can process the greatest amount of materials in a day. It also changes the type of loads they can accept.
CIP: What are some other tech tools that are boosting the efficiency of the supply chain?
Steffen: Inventory optimization modeling is very important today. It’s so important for industrial users to get all the information they can when deciding the number of facilities they need, the location of these spaces and the size of these facilities. They need to focus, too, on transportation cost modeling so that they can meet the demand of the omni channel environment, where customers want to shop a combination of traditional physical stores and through online portals. The shape of the distribution network used to be simple. Now it is complex. Just look at Amazon Prime and the number of nodes that have to be coordinated to meet consumer demand. Companies today need the platforms and software that allow them to model the interaction of all these nodes to meet those demands.
CIP: We hear a lot about 3D printing. How is this technology changing the way warehouses and distribution centers operate?
Steffen: 3D printing is drastically changing the fundamental shape of the distribution model. With 3D printing, there are now more raw materials available closer to end users. Just look at the manufacturers of auto parts. They are definitely being affected by this. The speed to market has improved. If you can print things on demand, you are making it so much easier to forecast accurately on some of the items that have been traditionally more difficult to forecast in the past. 3D printing can make it easier to produce the right number of those slower-moving, harder-to-forecast items.
CIP: Does this new technology have much of an impact on what is actually accepted and stored at warehouses?
Shlaes: Robotics is already driving what is being stored in warehouses. As equipment like this becomes more common, it brings down the cost of breaking down materials and increases the relative importance of last-mile delivery. We can expect the composition of truck loads to become more diverse now. Because you’ll need less labor to pack and pick what goes into trucks, industrial users can lower the overall costs of transporting materials. Think entire trucks of flat-screen TVs being replaced with trucks carrying random items right to the where they need to go.
Steffen: Now we have full visibility of the supply chain. We have that real-time visibility of all the nodes in the network. Users can identify potential bottlenecks and manage the supply chain more efficiently. They can take out lead time, distribution cost, and excess inventory.
CIP: Are we seeing examples of this already?
Shlaes: We are. Trader Joe’s is a good example. Trader Joe’s uses city delivery vehicles with mixed loads only. They don’t rely on large trucks to get their products to their stores. Of course, this is what you can accomplish when you only deliver a couple of kinds of jars of tomato sauce. It’s more complicated for users that carry a wider variety of products. But robotics is changing how items are shipped, and the changes are happening faster.
Steffen: When I was working at Walgreens, we relied heavily on robotics. Using robots to help pick and organize our products more than doubled our productivity and accuracy levels. They reached unprecedented heights.
Picking technology has made a big impact, too. Instead of having pickers walking down long aisles of products, the picking is made directly into mobile carts and totes. Robots bring the outbound totes and the products that need to be picked directly to the picker who is in a fixed location.
If you look at Meijer facilities, they are relying on this incredible, hands-free process to bring in the product, store it, pick it and palletize it for the stores, to put it in a store-aisle friendly sequence. They can then roll the pallet down the aisle and unload it.
CIP: How does technology like this change the real estate decisions that companies make?
Shlaes: My primary focus is on information management for corporate real estate portfolios. It’s about matching up companies’ requirements to their real estate portfolios. As companies look at shifts in distribution strategies because of this emerging technology, how do they make decisions on what real estate to keep? How do they decide where to expand? When is co-locating a sound decision?
Historically, corporate real estate was viewed as something that happened to you, like the weather. The menu of choices to bring to users in a company was never entirely satisfactory. That has now changed. Now we have more information we can share to users, to help them make better real estate decisions. This is especially important in the industrial sector. The industrial sector has one of the shorter development cycles. Having more information about how to maximize the efficiency of the supply chain, then, becomes more important.
CIP: What tech trends do you see that are still in their relative infancy but are poised to have a bigger impact on the supply chain?
Steffen: Technology can have an impact on building maintenance and management, too. Sensors can track humidity in upper racks and in cooled facilities. It can provide full visibility into the movement of goods and orders through the distribution process. Touch screen and adaptive technology have helped to enable additional staffing models so populations of people with disabilities can work at market performance and pay rates that can help in very tight labor markets.