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News release

Australia

Visiting US Jones Lang LaSalle expert from Chicago says customer demand and the drive for cost efficiencies is transforming supply chain operations

The supply chain is evolving, with sectors such as eCommerce increasing the need for faster, more cost-effective and reliable freight deliveries, and factors including rising transport costs and global complexities coming into play


AUSTRALIA, 10 April 2013 – The role of the supply chain is taking on growing importance and sophistication in businesses, with a focus on increased cost efficiencies and consumer demand set to transform the way companies operate their supply chain functions.

According to Jones Lang LaSalle’s Rich Thompson, Managing Director for the global Supply Chain & Logistics Solutions team, the supply chain is evolving due to factors including rising freight costs, eCommerce challenges and global complexities, with companies moving operations closer to the customer in response – even if this means paying more in real estate.

Speaking at a Jones Lang LaSalle Industrial event in Sydney, Mr Thompson said: “Corporations will always seek out the lowest total operating cost model. Understanding the trade-offs between freight, inventory, labour, and service requirements is critical. The world economy is in constant change, and it is the supply chain practitioner’s job to stay ahead of these changes.
 
“Businesses are responding to customer demand for faster and more reliable delivery times. We predict many companies will re-examine their network of existing Industrial facilities to ultimately be closer to the customer and reduce costs such as transport – one of the biggest costs in the supply chain.
 
“With real estate accounting for as little as 5% of the operating costs of a distribution centre, corporate clients are focusing on logistics cost considerations -- such as freight transportation, labour, and inventory – before finalising decisions on location,” said Mr. Thompson.
 
Jones Lang LaSalle’s NSW Managing Director and Head of Industrial Michael Fenton said that in the Australian Industrial sector, customer requirements will drive a lot of the changes in the supply chain.
 
“Industrial businesses are likely in future to determine the location of their real estate in a reverse selection analysis based on a balance of cost efficiencies and the needs of their customers.”
 
Mr Fenton said that in Australia, we’ll see a trend moving away from one big box facility to a few more centrally located but smaller facilities to meet delivery needs.
 
“In the future, we’re likely to see less of the larger Industrial facilities and more in the 10,000 to 15,000 square metres bracket. With real estate the smallest cost in the supply chain, businesses can save huge amounts of money in transport costs by paying a bit more in real estate to be closer to their customer.”
 
Rising freight costs

Mr. Thompson said transportation can account for as much as 50% of total operating costs for companies – making it a key focus for businesses seeking cost efficiencies, and driving operational decisions.
 
“Freight costs are expected to continue to trend up based on numerous influences – oil prices are only one factor. Increasing transportation costs will drive companies to re-evaluate their supply chain networks, and will propel interest in alternative, lower costs modes of transportation – including intermodal, rail and water.”

eCommerce challenges

Mr Thompson said diversification strategies are becoming more prevalent to mitigate risk from supply chain threats such as natural disasters and to be closer to the customer to meet demand for faster delivery times – particularly with the rise of eCommerce.

“Companies are staying away from putting all their eggs in one basket – instead, they are diversifying their manufacturing and sourcing functions. Rather than having one large hub, they may have several smaller facilities, depending on the needs of their business.
 
“At one time, traditional retailers outsourced eCommerce. Now, they realise it’s not going away. Businesses are building competencies around it and bringing it back in house.
 
“Previously, we went from two to three day customer service delivery requirements. Now, it’s next day or same day delivery. Companies are looking to get closer to the customer,” said Mr Thompson.
 
Global complexities
 
“In the US, businesses are “re-shoring” manufacturing back to the US from offshore locations such as China, where labour costs are growing at 15-20% per year due to the demand and supply imbalance for skilled labour.”   
 
Mr Thompson said the US is still the number one manufacturer in the world, despite the number of people employed in the field declining significantly due to technology advances.  All things being equal, it is always advantageous to be close to your customers.
 
“Chasing after low-cost labour is yesterday’s strategy,” concluded Mr Thompson.
 
-ends-

 

Figure 1: Transportation is one of the largest cost buckets in the global supply chain


 
Source: Jones Lang LaSalle
 
Figure 2: More than real estate – understanding the total operating cost picture is critical


Source: Exchange Inc.: Logistics Cost & Service Report