Supply Chain News / Risk & Compliance / Economic Development

Euro SC Managers Prioritize Managing Costs & Multi-Channel Distribution

September 10, 2012
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  • Pressure to reduce supply chain costs and speed of change in consumer markets are the most important drivers for the logistics sector over the next five years
  • Re-alignment of distribution networks to manage cost pressures, shifting customer demand and increasing multi-channel distribution will be essential to remain competitive according to Jones Lang LaSalle
  • Quality and flexibility dominate real estate strategy

An inaugural survey (PDF - 18 pages) by Jones Lang LaSalle reveals pressure to reduce supply chain costs and speed of change in consumer markets being supply chain professionals top trends on a five-year horizon.

They accounted for respectively 71 percent and 61 percent of responses and were significantly ahead of growth in internet retail (39 percent).

Meanwhile, respondents ranked rising energy / transport costs (95 percent), changing consumer demand (76 percent) and transport infrastructure constraints (66 percent) as the three biggest challenges over the next five years.

“The top three trends and challenges indicated in the survey reflect sensitivity to supply chain risks and a shift towards multi-channel distribution. Cost pressures – further heightened by the Eurozone sovereign debt crisis – are driven by increasing globalization. Companies having moved production to low cost destinations in Eastern Europe and Asia today face increased and volatile transport costs as well as the risk of supply chain disruption and delays due to transport constraints” comments Alexandra Tornow, Head of EMEA Logistics & Industrial Research at Jones Lang LaSalle.

She continues: “Furthermore, shifting consumer purchasing behavior is putting retail companies under high pressure to differentiate offerings, manage shorter product lifecycles and improves speed to market, including a growing home delivery segment. This requires the re-alignment of existing distribution networks to successfully service complex, multi-channel operations”.

Floor space requirements expressed by respondents are highly aligned to achieve the desired results in response to the top trends and challenges. More than 75 percent of respondents require either new build (33 percent) or modern (44 percent) floor space while around 50 percent of respondents require distribution floor space over 10,000 sq m. Furthermore, more than 50 percent of respondents state they do not want to commit to leases longer than five years.

Supply chain managers expectations and requirements are supportive to Jones Lang LaSalle’s view that the logistics real estate market will see above-trend demand for modern logistics units over the medium-term, driven by supply chain re-alignment. This will include rising demand for an increasing range of smaller logistics units such as fulfillment centers for home delivery, neighborhood urban distribution centers and customer pick-up centers located at the fringe of larger cities.

However, with leading economic and sentiment indicators on a downward slide since the start of the year, location decisions might temporarily be postponed. In particular markets where modern available supply remains low are expected to see significantly lower levels of activity over the next few months if compared to last year.

“We expect latent demand for modern logistics floor space to come back to the market over the first half of 2013 when a global economy recovery is kicking in according to latest consensus forecasts. By that time modern available floor space will be in short supply in the majority of markets further fuelling build-to-suit development activity. For equity strong developers willing to be more opportunistic and return to speculative development this could present an excellent opportunity to capture returning demand ahead of the competition” Alexandra Tornow adds.

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