Observations on warehouse requirements

Transcription

1 Observations on warehouse requirements ECOMMERCE LOGISTICS THINK TANK SEPTEMBER 2015

2 ABOUT THIS REPORT This report was compiled by the ecommerce Logistics think tank, comprising of members of: Martin Brickell Total Logistics Supply Chain Consultants +44 (0) Steven Mitchell Colliers International +44 (0) Doug Uncles UMC Architects +44 (0) Kevin Sims KAM Project Consultants Ltd +44 (0) ECOMMERCE LOGISTICS THINK TANK 1

3 CONTEXT Retailing is changing Internet sales are growing and will continue to do so We are in a generational shift The millennials are now becoming buyers and will be the buying powerhouse of the next decade Pure play continues to grow and established retailer are increasingly seeing the online channel as the only area are of growth Manufactures are now entering direct to customer space Warehouses are no longer just storage for store supply there is a shift to despatch for customer ecommerce / internet order fulfilment is a key driving force shaping new space requirements WAREHOUSE OCCUPIER NEEDS THE INDUSTRY CHALLENGE! ecommerce is growing ecommerce has a very different set of characteristics to retail store replenishment supply ecommerce is also very reactive to PEAKS ecommerce has peaks for Xmas, Black Friday, Mother s day, January clearance, Xmas returns, midweek sales, flash sales, new releases etc. ecommerce peaks can be 7 to 10 times average volumes and last for several weeks. Traditional retail replenishment warehouse peaks where only a third of this as the stores buffer the daily peak away from the warehouse ecommerce is growing year-on-year in activity in reality both in order volumes and nearly always in number of SKU s This means that there is a unique and different challenge to ecommerce warehouses beyond the traditional perspective of less dynamic storage warehouses ecommerce is underpinned by growth ECOMMERCE LOGISTICS THINK TANK 2

4 Years UNDERSTANDING GROWTH It is well understood that internet sales are growing recently reported numbers include asos +21%, John Lewis +23%, and amazon 39%. Generally internet volumes are expected to grow in double digit year on year in the UK for the foreseeable future The table below provides a simple illustration of annual growth (compounded) over time and allows an illustration of the impact of ecommerce growth. A traditional retail replenishment warehouse may expect to grow by 5% per year. If from project inception to occupation of a new warehouse facility was in year 3 (assuming today is year 0) then the facility would require capacity for 16% more activity than today at the start and after 5 years occupation need approximately 50% from capacity than today. On the same timescale an ecommerce business with 30% annual growth would move in with over double the business size and need capacity (not all floor space but processing capacity) for eight times (i.e. 800%) business activity by year 8. This is the ecommerce challenge Annual Growth Rate 5% 10% 15% 20% 25% 30% 35% Year Year Year Year Year Year Year Year ECOMMERCE LOGISTICS THINK TANK 3

5 A traditional National or Regional Distribution Centre (NDC/RDC) for retail supply or manufacturer warehouse can be designed for a life of 10 years operation quite predictably. ecommerce warehouses have not generally been designed for this timescale this means ecommerce warehouse often need to and often have to expand for growth sometimes simply outgrowing the facility The challenge for the property sector is timing, the ecommerce market is fast moving and a new build can take 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 Occupiers need to also think ahead and plan for this change themselves, even if this involves greater levels of tenants enhancements initially and more costs it could save money in the longer term and avoid operational disruption WHAT S THE SOLUTION FOR ECOMMERCE OCCUPIERS? - THE PROCESS AND OPTIONS TO GROW Step 1: Understand the growth understand the business data set and model growth Step 2: Define growth timelines what s the planning horizon? How long does the new facility have to serve the business for? Step 3: Understand the physical aspects how long does it take to get permissions and approvals? How long does procurement and installation take? What are the practical aspects? How does this fit existing property portfolio? What s the likely change in business operations and products? Step 4: Define what s growing storage or processing? People, machinery or automation? Step 5: Understand the options for warehouse capacity growth the table below provides in indication of options available to an occupier ECOMMERCE LOGISTICS THINK TANK 4

6 Table to illustrate warehouse capacity growth options Option Benefits Issue / Impact Move to another facility Automate storage Add mezzanine Add pick tower Increase building height White space allow white space at design stage Phased expansion, e.g. extension Flexibility Provides required space Controlled change / disruption Higher density = more storage capacity Increases usable floor space within given building Increased pickface and processing footprint Increased storage capacity Increased building cube More mezzanines Future proofs the building at the start Operations remain on-site Allows planned growth as business develops Operations are consolidated and retained on site Get it right first time? Lease times Building disposal Large change Diligent in design & detailing at outset Retrospective installations can be very restrictive if floor is weak (small column grid) Installing into live operation causes disruption Only possible at build stage Has to form part of design / site requirements End extensions avoid disturbance of existing operations Costs consideration Adds cost later but cheaper at Day 1 Cost per location higher but saves building footprint and may mitigate need to move Relatively cheap assuming floor has capability to take load Other costs for fire protection etc. required Can be part of base build and rent if done at start Adds cost but relatively inexpensive as addition, as foundations and walls are already there. Adds cost initially and means carrying some initially Can the land owner hold space as empty / not developed for a period of time? Building / design considerations Ensure new building / yard incorporates flexibility for a changing and developing market Building must be suitable specification (floor, height) at start Power requirements need to be sufficient Rentalised or not, permanent or temporary Floor loading / specification Sprinklers / Fire strategy Floor MHE lift height proportional to floor flatness Floor load re mezzanines Rack layout MHE widths change depending upon lift height Planning requirements Not free if within building at day 1 but simple to do Site configurations Securing options on land is more difficult now in an improving market ECOMMERCE LOGISTICS THINK TANK 5

7 GETTING THE WAREHOUSE DESIGN RIGHT AT THE START - FUTURE PROOFING 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 Graphic to illustrate ecommerce warehouse expansion options THE COST OF FLEXIBILITY Inevitably, building in future flexibility comes at a cost. The graphic identifies the key opportunities for providing flexibility in order to increase throughput. 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 ECOMMERCE LOGISTICS THINK TANK 6

8 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 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 key consideration for an occupier / tenant is the cost of expansion versus the cost of moving or operating from multiple sites. Moving operations is time consuming and disruptive. Running multiple sites increases operating costs and complexity ADVICE / CONSIDERATIONS FOR LANDLORDS, DEVELOPERS & WAREHOUSE MARKET In new build developers / funds should cost out the price of future physical growth flexibility and seek to fund more of what ordinarily may be considered tenant enhancements in return for a higher rental if it can be shown that the changes add value and seek to widen the market for potential occupiers. These actions will increase the applicability and life of the asset for both landlord and tenant and make the property more resilient to change On speculative schemes, please consider flexibility in your specifications. Whilst development costs may be increased, there are benefits in attracting occupiers to your buildings. Features offering flexibility can include: Where possible, design floor slabs to accommodate the point loads for possible mezzanines or pick towers (or automation) Consider raising the clear height where planning permits, as this will also give flexibility for mezzanine, pick towers and automation installations If site proportions allow, design provision for future expansion of the buildings and service yards. If access configuration works, build extension at Day 1 and consider shortterm leases for this area Keep the loading areas as flexible as possible. Allow the occupier to easily adapt buildings to increase loading dock or level access door numbers if required i.e. don t spend money on this initially if they are not to be used by the ecommerce occupier (i.e. most ecommerce occupier don t need one dock door per 10,000ft² and often consider them a negative aspect in that regard so save the installation cost) If space permits, consider deeper yards for flexibility Increase car parking ecommerce fulfilment operations are generally much more people intensive than a pallet store replenishment warehouse ECOMMERCE LOGISTICS THINK TANK 7

9 FINAL COMMENT ECOMMERCE LOGISTICS MARKET SHORT TERM TRENDS NEXT 3 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 Manufactures 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 multichannel 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 manufactures the new landscape becomes very complex for logistics Collocating 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 ECOMMERCE LOGISTICS THINK TANK 8

10 CONTACT DETAILS Colliers International Steven Mitchell Director, Industrial & Logistics Tel: Dir: All information, analysis and recommendations made for clients by Colliers International are made in good faith and represent Colliers International s professional judgement on the basis of information obtained from the client and elsewhere during the course of the assignment. However, since the achievement of recommendations, forecasts and valuations depends on factors outside Colliers International s control, no statement made by Colliers International may be deemed in any circumstances to be a representation, undertaking or warranty, and Colliers International cannot accept any liability should such statements prove to be inaccurate or based on incorrect premises. In particular, and without limiting the generality of the foregoing, any projections, financial and otherwise, in this report are intended only to illustrate particular points of argument and do not constitute forecasts of actual performance.