December 2000 | Commentary | Viewpoint

This Land is Your Land: Real Estate Cuts Costs

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As competition among 3PL firms continues to increase, finding new ways to reduce your operating costs and maximize supply chain efficiencies becomes increasingly important. A 1999 analysis of the logistics industry found that an estimated eight cents on each dollar spent on logistics can be allocated to the warehouse with the majority, or 59 cents, being spent on transportation.

With real estate representing such a small portion of the entire logistics expense, how much impact does it really have? The answer may surprise you. A well-planned real estate strategy not only ensures lower occupancy costs, it directly impacts critical transportation and labor costs.

In today's competitive environment, the old real estate adage "location, location, location" means more than ever. Done correctly, your real estate will be part of a comprehensive, long-term strategic plan that leverages real estate to reduce expenses while supporting new business development.

Location plays a critical role in determining transportation, labor and information technology costs. The most significant cost associated with transportation is a culmination of several factors including the location of both inbound and outbound freight.

Through sophisticated logistics modeling, a real estate logistics consultant can precisely determine the most efficient distribution network for your operations while maximizing supply chain efficiencies. By understanding your business model and the intricacies of your network, a comprehensive and specific market analysis will allow you a competitive edge in pricing that new account.

As labor becomes increasingly important, the location of the distribution center will become the driving factor for your access and ability to draw from a diverse and abundant labor pool. It is essential that your consultant align itself with a cadre of professionals to pull from, including a labor consultant who can evaluate and offer specific recommendations during site evaluations.

The 3PL Opportunity

Information technology offers significant opportunities for 3PL providers to interact more effectively with you. As 3PLs dedicate additional resources to respond to your expectations, access to fiber optics and redundant power may be an essential part of the bid process, as "smart warehouses" become an integral part of the supply chain.

Due to the specific, and sometimes unique, requirements of the 3PL industry, additional design and engineering enhancements can significantly impact efficiency. High thru-put crossdock facilities offer increased inventory turns—allowing for a reduction in inventory, increased clear heights, expanded truck courts, and trailer storage. As outsourcing continues to drive the growth of the 3PL industry, continued modifications inside and outside the warehouse will evolve.

Competition has forced everyone to become more sophisticated. As a result, you should look into taking advantage of the new tools and strategies developed by logistics consulting firms. When comparing consultants, ask about their multi-market capabilities, and their experience to advise on bondable leases, synthetic leases and build-to-suit opportunities. As your company thinks nationally and even globally, your provider's ability to deliver accurate market information seamlessly and in a timely manner becomes paramount.

Real estate logistics consultants also provide you with information on occupancy costs, labor rates, utility rates, and economic incentives such as tax abatements, infrastructure improvements, worker training, and even free land. By incorporating these incentives into your real estate strategy, you will ensure a competitive response to your Request For Proposal by more accurately determining costs.

These are just a few of the many complex questions logistics companies face today when considering their real estate needs. As a result, many of your 3PLs are turning to specialized consultants that combine real estate expertise with an in-depth understanding of the logistics industry. These consultants present your 3PL provider with a comprehensive, long-term strategic plan to leverage their real estate requirements to support new business development and reduce the total amount spent on logistics.

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