28 May 2019
Fidget spinners. They were one of the hottest toys in 2017 and were lauded for their perceived ability to relieve anxiety.

They’re also the perfect example of the increased demands being placed on supply chains to be agile and react quickly to market changes, which is in turn shaping the future design, development and location of industrial & logistics facilities.

Fidget spinners are a really good example of agility and responding to the market. They came about in a flash. Because people didn’t want to spend more than $9.95 for these items, they were produced at a very low-cost point, imported and distributed quickly to keep up with demand. And now they’ve moved onto the next flash. It’s an example of businesses that are producing and distributing products for consumption that must be able to adapt quickly, but also at a low cost.

Concurrent with the need for agility and speed to market, there are three market forces currently shaping the supply chain industry: omnichannel retail, Big Data and artificial intelligence (AI)/automation.

On the omnichannel front, current forecasts are for Australian e-commerce sales to grow from $24 billion annually to $43 billion in the next four years. 

However, it’s important to recognise that this doesn’t mean sales in bricks and mortar stores are decreasing, rather they are growing at a slower pace than the online sector. 

The importance of this to industrial and logistics infrastructure is that the e-commerce and omni-channel world is saying that if you can provide multiple channels to engage with your consumers they will spend 30% more.

That’s a huge number and that’s talking to your existing customer base, not necessarily new customers. We also know that if you click and collect services, 61% of us will actually pick up additional items when we’re in store.”

On the AI/automation front, 49% of professional service robots being produced in 2018-2020 are earmarked for logistics use to increase the throughput of existing facilities.

The benefits that have already been delivered to retailers are clear, with Alibaba’s smart logistics management system having shortened the time required to fulfil its first 100 million Single’s Day Shopping Festival orders from over a week in 2013 to just 2.6 days in 2018.

These factors are driving retail businesses to look at their network design and how they can deliver on multiple channels - in turning placing an increased focus on the physical infrastructure to support this.

This had been highlighted by a CBRE analysis in the US, which showed that for each additional US$1 billion in e-commerce sales, an additional 1.25 million square foot of additional industrial & logistics space was required.

Translating that to forecasts for e-commerce growth in Australia, this will drive demand for an additional 350,000sqm of industrial & logistics space in Australia each year.

Bearing in mind that 28% of transportation and distribution costs are in the “last mile”, this is also influencing where companies are locating their facilities relative to optimum delivery points.

It is also influencing physical changes in how facilities are designed, with the drive for low cost, fast delivering networks increasing the need for distribution facilities close to densely populated areas.

This is leading companies to consider multi-level warehouses, which are common in Asia but were only just introduced in the US last year, with several now also in the planning in Sydney and Melbourne.

If we follow trends in the US and Europe, disruptors might also influence the market here and bring an Airbnb-style of warehouse concept to Australia, offering companies access to underutilised logistics space and associated software solutions.