When is a parking garage not a parking garage? During the busy holiday shipping season, the answer is, “when it’s a retail distribution center.” In the drive to fulfill increasing volumes of order deliveries, as well as achieve the same- or next-day shipping promises that retailers increasingly offer, both retail firms and logistics operators are getting creative in the design and localization of their supply chains.
Thus a parking lot becomes a distribution center. The company that owns the massive parking structure underneath Chicago’s famous lakefront Millennium Park has discovered
that it can fulfill parking demands with less space than it originally anticipated, so it is converting some of the facility into a last-mile logistics hub. From this enviable location, logistics companies are in close proximity to millions of businesses and consumers. Furthermore, the design of the space already allowed for large trucks to pass through the garage, so the transformation to a shipping hub was relatively easy, in an operational sense.
But not every city has extra parking capacity underground. Instead, Amazon finds vacant fields and pitches huge tents to hold products for last-mile delivery. Especially during holiday seasons, it also turns to Amazon Flex drivers—an on-demand fleet of people who work their preferred hours (similar to Uber or Lyft drivers), pick up items from the nearby tents, and deliver them to homes and businesses in the same area.
Not all retailers can establish such extensive operations on their own though, so new entrants to the logistics market specialize in resolving last-mile challenges. Some of them facilitate deliveries, but another addition to the supply chain functions more like a broker. Service providers such as Flowspace and Warehouse Exchange negotiate short-term deals between warehouse owners and tenants that need that space for a limited duration. Thus a retailer might rent a few thousand square feet in a warehouse during the holiday season, near where most of its customers live, to ensure that it can get products to those buyers quickly.
Such innovations represent a sharp contrast from traditional approaches to warehousing and distribution, which have historically involved finding relatively remote locations, where land was cheap, and building massive distribution centers. Instead, the drive today is to find space in densely populated areas, a radical change driven by consumer demand, the growth of e-commerce, and the competitive moves of various logistics and retail trendsetters.
Discussion Questions:
- How are retailers changing their supply chains to get merchandise to consumers faster?
Source: Jennifer Smith, The Wall Street Journal, October 15, 2018; see also Kimberly Chin, “Sears Expands Kenmore, Die Hard Brands with Licensing Deals,” The Wall Street Journal, November 1, 2018.