Drive-thru warehouses, crowd shipping, drone deliveries and micro-fulfilment centres are all considered in Colliers recently launched The Industrial Property of the Future whitepaper. MHD sits down with the lead authors of the study to find out more.
The consumer of today look very different to ten to 15 years ago. Technology has enabled shoppers to purchase items at the click of a button from a mobile phone, desktop, shop or tablet.
Millennials are savvy online consumers, and they know what good service looks like. They have demanding criteria around choice of delivery, speed of delivery and flexibility. This has placed increased pressure on supply chain and logistics.
According to Malcom Tyson, Managing Director – Industrial at Colliers International this shift in consumer behaviour has caused the biggest transformation in the industrial sector in 15 years.
“This consumer trend is continuing to grow, and businesses have to respond. It’s put huge pressures on supply chains that have simply never been felt before,” Malcom says.
Considerations around where a warehouse should be, how it should perform, what technology should be introduced a
re all decisions that are more critical than ever, Malcom says.
At the heart of this shift in requirement for industrial property, experts from the industrial team at Colliers have come together to produce a deep dive into what this means for the future in their new white paper The Industrial Property of the Future.
While the initial concept of the paper goes back 18 months, Malcom says COVID-19 has accelerated the radical change in the industrial sector. “Disruptions around COVID-19 have shaken up the supply chain again, and we’ve found many of our customers in this space are looking to gain further efficiencies from their property assets,” Malcom says.
It has also highlighted the need for resilience. “COVID-19 started to squeeze every drop out of the supply chain. It was more important than ever to be able to pivot quickly and ensure that you could adapt your operations, and property plays a huge role in this,” Malcom says.
Is online shopping here to stay?
With online shopping set for year-on-year growth of upwards of ten per cent even before COVID-19 hit, Monica Velez, National Director, Logistics and Supply Chain at Colliers International says this change in consumer behaviour is here to stay,
However, she says the challenge for many businesses is how they manage to orchestrate the physical product flows to get the product to the customer wherever they may be.
“The consumer can shop from anywhere now, from both physical and digital points of contact. So, the retailers have to ensure the customer has the choice while the internal processes need to be set up to meet customers’ expectations. This is challenging and as companies are trying to shift to a truly interconnected omnichannel operation, they are exploring different technologies and infrastructure to cope with this increasingly complex environment” Monica says.
Technologies such as blockchain and machine learning come into play to ensure visibility and stock efficiency in the supply chain.
“To gain a meaningful integration between digital and physical worlds, machine learning can offer interpretations for what inventory needs to be held where and can offer very helpful solutions to predict demand fluctuations” she says.
For Tim Edwards, National Director – Victoria at Colliers International, COVID-19 caused online shopping to move from a discretionary service, to an essential one.
“People were forced to use online for basic needs. When bricks and mortar stores closed, online was the only way to go. This has shifted how people will continue to shop. It’s no longer about discretionary spending, but now about using online for essentials like groceries and household goods,” Tim says.
What does this mean for property?
If consumer habits are transformed, what will this mean for the future of the warehouse? Monica says that warehouses will need to become increasingly customer friendly. “The warehouse is really reinventing itself as an asset. We might start to see options whereby the customer can pick up the item from the warehouse if that’s more convenient to them. So, we need to rethink how our warehouses will operate. Will that mean having a drive-thru customer-facing area for consumers to drop-by?” Monica asks.
A major driving factor in the innovations taking place for property, is the challenge of last-mile delivery. “From a supply chain perspective, one of the biggest costs you have is transport. And the biggest portion within that is often the final mile. If you can fulfil orders closer to your customer, then you can significantly reduce overall cost,” Monica says.
There is a number of opportunities and approaches to get closer to the customer. Some may adapt their warehouses and present them as a showroom and have some areas as customer-facing. Others have started to utilise micro-fulfilment centres closer to populated areas.
“There are different schools of thought here depending on the operation you are running. Take Coles and Woolworths for example. Woolworths is fulfilling online orders in store using the micro-fulfilment model. But Coles, is fulfilling online orders from larger centralised warehouses. Both have their benefits and challenges,” Monica says.
While millennials may have developed a reputation as the instant gratification generation, flexibility is also a core value for this group, and Monica says that choice will dominate the retail landscape of the future.
“Companies will open up different delivery service levels at different costs. If you want it in two hours, you pay a premium price and then next-day or in two to three days will come at a cheaper cost. This scalable approach and multiple pricing approach will be on the rise over the next few years,” she says.
Sustainability options could also come into play here, where the consumer can make a decision based on the environmental impact of the delivery. “You might be happy to accept that your delivery will arrive later if you know that it has less of an impact on the environment,” Tim says.
Technology: automation and crowd-shipping
Underpinning this shift in consumer behaviour is the technology that is enabling businesses to pivot and react quickly to meet the demand.
Monica highlights automation as a driving force for logistics and supply chain. “We are seeing our occupier clients implement discrete automation solutions to address the biggest pain points or strategic objectives within their warehouse operations. Whether that be efficiency, safety, speed to market – they are addressing them with automation whenever feasible and viable.”
We are seeing fully automated warehouses in the FMCG industries, , but industries such as fashion retail and others are behind and Monica predicts that we will start to see an increase in the uptake of automation over the next five to ten years in these areas.
While some of the more futuristic technologies such as drone deliveries are yet to be utilised on a large-scale when government regulations are overcoe, Monica says the technology is ready.
“Drone deliveries are happening now. In Canberra there is a trial taking place for drone deliveries. The technology is here but currently it’s about waiting for government regulations to be developed and rolled out. My prediction is that it will be around seven to ten years before we see this kind of technology being implemented freely,” she says.
One area of technology that Monica says will become more commonplace is crowd shipping. Much like an UberEats or Deliveroo delivery, Monica says this kind of delivery model will also increase its uptake into the freight sector.
“Anyone with a vehicle will be able to become a courier driver and consumers and retailers will have access to a huge network of couriers on demand,” Monica says.
A positive outlook for industrial
Despite the economic challenges that many industries have faced during COVID-19, Malcom says that the outlook for the industrial property market is positive.
“The industrial asset class is front and centre. Prior to this boom in online shopping and consumer demand, people didn’t really understand warehousing and logistics. They had a view of residential, retail, office and hospitality but they never really considered logistics,” he says.
However, this is changing. Throughout COVID-19, supply chain and logistics has been front and centre. With distribution centres being more critical than ever.
“There’s a greater understanding of the industrial market, and that has been accompanied with a lot of investment both onshore and offshore. We think this sector is going through a rapid transformation and we’re all really excited to see where we end up,” Malcom says.