Published April 20, 2021
While the COVID-19 pandemic closed many doors over the last year, industrial real estate in North America was immune to the virus, with transactions for large warehouses and distribution centers of 200,000 square feet or more climbing nearly 25% in 2020, according to CBRE. As demand for industrial real estate continues to rise, so too does the cost. According to Cushman & Wakefield, warehouse and distribution center rents hit a record high in Q4 2020, increasing by 5.6% over the previous year.
And it’s not just warehouse demand and rents that are rising. Construction materials costs have also skyrocketed over the last year, with the producer price indexes (PPIs) soaring 62% for lumber and plywood and 20% for steel mill products since April 2020, according to an Associated General Contractors of America (AGC) analysis of government data. Material shortages, price hikes and shipping delays due to COVID-19, tariffs and quotas and the recent Suez Canal blockage have also increased project lead times and costs, making it more difficult for companies looking to quickly ramp up operations to keep up with rising order volumes.
As a result, brands and retailers are testing many different strategies to expand their operations, including leveraging their brick-and-mortar infrastructure for ship-from-store fulfillment. Some companies are also seeking alternative spaces such as shuttered malls, golf courses and even vacant office buildings, but these can present additional challenges like rezoning issues.
If expansion isn’t an option, here are a few ways companies can make the most of their current warehouse space to optimize fulfillment operations:
Drop Shipping
As the industry continues to shift to online shopping, more retailers are beginning to explore drop shipping options with manufacturers. Nordstrom and Foot Locker are just two of the many retailers that have recently implemented drop shipping programs. In addition to freeing up valuable warehouse space, drop shipping enables retailers to expand their product offerings, minimize inventory risk and reduce shipping costs and delivery times.
Vertical Space Utilization
After evaluating inventory practices, the next area to examine is space utilization. With social distancing standards limiting floor-level redesigns and modifications, companies should look at ways to maximize vertical space. The areas above cross aisles and dock doors are frequently underutilized and can be converted into rack sections to increase storage capacity. Another way to increase valuable floor space is by building a mezzanine. Mezzanines can be used as a storage or work area and can improve vertical space utilization by up to 50%.
Intelligent Inventory Management System
Achieving ultimate forecasting accuracy and effectively employing multiple fulfillment strategies like drop shipping and ship-from-store requires the use of the sophisticated inventory management software. Advanced warehouse management system (WMS) solutions provide access to real-time inventory and transaction data across the entire supply chain. These solutions can also optimize warehouse space by assigning inventory to the best storage location based on product activity and unit load dimensions.
There is no universal solution for maximizing warehouse space. Our consultants can help customize a solution to meet your unique needs. Contact us today to learn how to overcome space constraints and increase storage capacity in your warehouse.
