E-COMMERCE EVOLUTION ON SUPPLY CHAIN REQUIREMENTS

There is a broad range of e-commerce business models, varying in many ways such as size of the operation, product focus, product value, retailer model (ie – pure e-tailing or omnichannel).  These business dimensions affect the types and locations of logistics facilities that are needed.  The following information was obtained from Prologis, the leading owner, operator, and developer of industrial real estate.

Requirements for the organization of e-commerce fulfillment centers typically falls within one of the four categories:

 Combined operations.  In the beginning, e-commerce fulfillment tends to be a modest operation.  The size and growth of the concept is only in the early stages.  The requirement can reside alongside in-store distribution within a single logistics facility.  As the e-commerce expands a different logistics will be required.  For those retailers engaged in only e-commerce that are in the start up stages, they will typically utilize leased space within multi-tenant facilities.

Shared facilities. As demand grows, ecommerce requirements can become expensive and cumbersome within small and shared facilities.  At this time the real estate footprint will grow, either leasing more space at a multi-tenant warehouse facility or to an outsourced logistics provider thqat has existing warehouse infrastructure in place, with specialized e-commerce fulfillment requirements. 

Dedicated facilities.  As the e-commerce requirement reaches scale, fulfillment many require one or multiple dedicated facilities.  Initially, a single fulfillment center may suffice, often in centralized locations (which consolidate inventory).  Retailers using this model recognize that online fulfillment and distribution to stores have distinct needs and challenges.  This strategy is particularly relevant for midsize and larger retailers, who have the scale to separate stand-alone in-store distribution and online fulfillment.

Distributed fulfillment. As the e-commerce concept grows, and fulfillment requirements increase, multiple facilities are needed.  At this scale, retailers pursue a disseminated fulfillment strategy, using multiple facilities and locating closer to their customers, such as we see today with larger retailers.  The benefits of this approach are faster delivery times, more responsive service and lower transportation costs.

E-commerce is global, but real estate is local.  Consumer preferences are rapidly changing across the globe, requiring logistics facilities to locate closer to end-consumers as they demand faster delivery times.