Could a real estate consolidation strategy be right for your business?

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In recent times, we’ve seen businesses within the industrial sector become far more sophisticated in the way they manage their business and the way they occupy space. We have witnessed automation and other new technologies drastically alter supply chain networks– improving efficiencies, eliminating down time and reducing headcount. 

At the same time, occupiers of industrial space, particularly along the east coast of Australia, have faced steep increases in rents and capital values largely driven by an uplift in land prices. This has forced them to pay greater attention to their supply chain networks and the way they utilise space in a bid to remain competitive in the global environment. 

Generally speaking, as a business grows (organically or through acquisition) so too does its real estate footprint. So, when a business reduces its footprint through site consolidations, many view this as an indication the business is contracting – an observation that is often quite the contrary. Consolidating sites is a strategy for growing businesses to streamline their supply chain network, reduce occupancy costs and mitigate risk.

Factors contributing to businesses (and tenants) consolidating industrial operations

 Australian businesses across all sectors have never been more exposed to global challenges, whether it be keeping at the forefront of innovation, currency risk, managing global supply chain networks or those affected by the US and China trade war, (you can read more on the trade war and what it means for occupiers here). 

There’s no doubt the nature of business, particularly in the eCommerce sector, has shifted rapidly with the introduction of reverse logistics, omnichannel retail, same day delivery and automation to name a few. Customer’s expectations on delivery are higher than ever and today’s eCommerce landscape leaves no margin for error when it comes to the last mile; in fact, 54% of consumers said delivery now defines who they shop with. These dynamic advancements are placing constant pressure on business to re-think how and where they store products. 

Site consolidations can present many benefits and opportunities to help create a competitive advantage, free up capital and mitigate risk.

How to assess consolidation opportunities?

We’ve put together some suggestions to help you identify opportunities for consolidation within your real estate footprint.

Network strategy & optimisation - ensure your company minimises capital and operating expenses without compromising customer service. 

Our experienced team assist in determining how many and where your facilities should be located. This is particularly important for organisations involved in merger, acquisition, divestiture activity, or simply if your business has changed due to market forces. Our structured methodologies, analytical support and systems help determine:
Whether your organisation has too many facilities
Whether they are positioned in the right areas
Whether there is enough capacity to meet future demand.

Cost to serve optimisation - high logistics costs indicate inefficiency and waste. Our research shows that an efficient organisation has logistics costs below 10% of the total cost of sales. 

By performing a deep dive analysis into an organisations operating costs, our team identify key improvement opportunities and provide a baseline for supply chain strategy development. Outcomes from cost-to-serve optimisation may involve:
Rationalisation of supply, range or segmentation,
New capabilities for channel fulfillment and reverse logistics
Transition to third party logistics (3PL).

Warehouse solutions design - optimise floor space and flow of material and resources for your greenfield and brownfield sites. 

Our team help businesses design an option-based matrix of alternate facility layouts and flows for evaluation of cost and suitability for your business. The key considerations for industrial occupiers when looking at facility design include:
Purpose –high velocity flow-through or long-term storage
Functions and volumes –handling requirements, product quantities and attributes
Technology and systems –equipment selection, automation options.

In this competitive global environment, which we all now find ourselves in, businesses should be constantly reviewing their supply chain network and looking for opportunities to deliver better, faster service to their customers. 

Every business is different so there’s no ‘one size fits all approach’ to your real estate strategy. As industrial occupier advisors, we specialise in the needs of industrial corporate business/tenants; to understand how you can reduce occupancy costs, improve efficiencies and uncover competitive advantages feel free to get in touch for a chat today.

Nick Greenwell
Mobile: +61 421 948 800 
Email: nick.greenwell@colliers.com