Distribution Center Design and Last-Mile Logistics
December 03, 2021 | By Brion Sargent, Rick Ferrara
As the holiday season approaches, e-commerce sales on everything from groceries to backyard furniture have boomed. While good for the bottom line, the surge in online shopping has put pressure on logistics operations, particularly for the “last mile” — the final, and crucial step in delivery from the distribution center or warehouse facility to the end user.
With global e-commerce growth, coupled with a number of driving factors, the future for last mile retailing looks bright. Brandessence Market Research, reports that global last mile delivery value in the United States was worth $108 billion in 2020 and will increase to $200 billion by the end of 2027, a compound annual growth rate (CAGR) of 9.29% from 2021 to 2027.
The delivery of goods in a last mile scenario remains the least efficient part of the supply chain, making up 28% of the total delivery cost. Additionally, last mile delivery is expensive. Large e-commerce retailers are currently willing to assume these costs to build their infrastructure and to command market share.
Brands face numerous challenges in the last mile, and those seeking to save costs, and to get a competitive advantage, are utilizing strategically placed distribution centers that are essential to the operation. These brands are seeking out distribution space closer to their customers, in predominantly densely populated urban areas.
According to a study by Onfleet, unless the current state last mile delivery is optimized, profits could potentially decline by 26% in the next three years. As a result, it’s critical to find new ways to improve efficiency and absorb the costs that are eroding profit margins. These considerations start during site selection.
For those brands and others, it’s imperative to know specific design requirements for converting or constructing new distribution and logistics centers. Below are five recommendations for effective site selection to meet the challenges in last-mile delivery:
1. Pay attention to zoning and building codes.
Last mile delivery models are centered on 7-9-mile delivery ranges (optimum), and many e-commerce companies finding that available warehousing is tough to find now near customer densities and convenient traffic routes.
Most e-commerce distribution requires three times the logistics space as suitable site requirements are much larger than the traditional warehousing and difficult to find where needed.
Some e-commerce giants are buying up or tying up available properties in or near urban areas and outlying suburban industrial zones. The availability of viable sites is low and a variety of building types, building sites, and sizes, are now being considered if the location is correct.
But these types of conversions bring their own unique sets of complications, from zoning and building code issues to building condition. Converting a building from one use (occupancy type) to another requires a greater level of study. And this due diligence should be done in advance. A lot of time and money can be expended on a transaction that will cost too much to convert or take too long for entitlement.
Despite these challenges, underperforming retail sites have become an ideal option for last-mile warehouse developers. According to CBRE, “The disruption to the retail sector and the growth of e-commerce will continue to increase the viability and payback of retail-to-industrial property conversions.”
2. Consider uninterrupted movement of goods and vehicles on site, to the site, and to the customer.
The successful execution of an e-commerce logistic center relies on the ability for the uninterrupted movement of goods and delivery vehicles onto and out of the property and surrounding streets. Vehicle movements and flow must be carefully considered, mapped with frequencies and durations calculated to ensure that throughput goals can be met. Separate and distinct traffic paths with little or no cross traffic conflicts and avoidance of complex turning maneuvers explain the need for a sizable site.
For example, a typical grocery last mile fulfillment site may need to process 250 deliveries per hour at peak. Loading each vehicle single file would allow only 14 seconds per vehicle, and the line of vehicles would stretch for about a mile. This scenario illustrates the importance and necessity of providing an efficient e-commerce processing solution.
3. Open dialogue with local officials.
With the emphasis on materials handling in these facilities (some do not store goods on site) since they usually do not fit neatly into an occupancy use or zoning district category, starting conversations with local authorities early is critical so they understand the concept and operations. When maneuvering a project through local government approvals, there is no better time spent.
4. Focus on how materials are handled.
Most retailers understand store layout but haven’t considered stocking analytics for efficient order assembly.
The execution of the interior materials handling system must work in coordination with the building vehicle access points. The layout of these systems requires special knowledge, and a high level of understanding of the retailer’s material handling workflow.
The design process can require multiple iterations and evaluations to ensure that the facility meets the metrics required to succeed. In fact, facility support areas such as offices, restrooms, cafeterias, and lockers must be worked in around the material handling space requirements.
Companies transitioning from using app-based delivery services to in-house operations can have a tough time shifting their thinking from their traditional model, where the customer comes to them, as opposed to pushing their product to the customer. Last mile is expensive and can be inefficient if the focus is not on an integrated material handling process.
5. Match location to market
Not all available sites are suitable for a particular market. Grocery delivery is completely different than package delivery. Retailers are branching off into markets such as pharmaceuticals, medical supplies, liquor, and other specialized product lines. As more specialization occurs selection of a site must be tailored to demographics, customer or household income, proximity to customers, turn-around time for deliveries, transportation access, and delivery methods.
As we see more clients moving into the e-commerce space, along with explosive growth of the existing e-commerce players, the pressure to deliver suitable last mile facilities will continue to increase. Successful delivery of these projects demands a knowledgeable team who can rapidly evaluate potential properties prior to site commitment. Given the scarcity of available sites, Gensler and its team of consultants consider these numerous and sometimes competing elements to take a site that is simply available and make it viable.
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