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Prologis on Unlocking Supply Chain Value
Prologis Research says it has developed a new model for estimating the total costs of supply chains, and evaluating the tradeoffs companies must make in their supply chains to optimize costs and address rising demands on service levels. Developed in collaboration with research group The Sequoia Partnership, the new model also factors in the growing influence of e-commerce on key components of end-to-end supply chain spend: transportation, labor, retail operations, and logistics real estate.
The analysis produced several findings that can help future-proof both supply chains and logistics operations, according to Prologis Research. They include the following:
• E-commerce intensifies the focus on distribution center location strategy. “Relative to brick-and-mortar, e-fulfillment requires the re-allocation of 75% of supply chain costs, and prompts an approximate 400% increase in spending on distribution centers and transportation to consumers,” says Prologis Research.
• Decentralized e-fulfillment distribution is the most cost-effective model. “Total cost of supply is about 15-20% less than self-fulfillment in a traditional retail environment. These cost savings are amplified by higher service levels that provide a competitive advantage.”
• New methods of e-fulfillment (e.g., click-and-collect) add to logistics demand in the same manner as traditional e-fulfillment, which is 2.5-3 times that of a pure brick-and-mortar retailer.
• Reconfigured supply chains are intensifying the need for labor and creating significant employment opportunities in local communities.
The Prologis Research report, the second of three parts, also finds that logistics real estate can create value far beyond its cost. Although major upgrades in logistics real estate are a small cost in the context of the total supply chain—less than 5% of spend and 25 to 50 basis points of revenue—they can significantly improve service levels and cost management.
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