Supply Chain & Logistics has been the most explosive growth area of our economy in the past decade — it has fueled a growth in industrial land use and job creation in Southern California, particularly in the Inland Empire. Driven by e-commerce and globalization, it has variously been called "the invisible network that runs the economy" and "the new manufacturing". Globalization and supply chains originating in Asia, coupled with the rise of e-commerce, have driven an increase in transportation and distribution center growth and development. However, a significant driver of this has been the development and uses of technologies and information systems that enable the Supply Chain. Equally important, in the future, will be the physical network strategies adopted by companies to cater to the increasing service needs of customers and consumers. The development and use of new technologies and strategies span the Logistics spectrum, and will be instrumental in shaping the economic and industrial landscape of Southern California over the next 2-3 decades.
What’s Driving the Supply Chain & Logistics Industry?
There are several intersecting trends driving the Supply Chain & Logistics industry that, in turn, will have a significant impact on the region.
Development of technologies and structures that drive efficiency, speed, and accuracy
The development and implementation of new technologies across the board are having, and will have, a significant impact on the economics, land use, job creation and composition of Southern California. These are explored further below.
Increasing customer demands for service and speed
Customers (both business and consumers) are increasingly connected and communicating more through social media. This trend will only continue over the next several years. This is in part driving an increase in expectations of service, in everything from fast delivery to the point of use to free delivery. Equally important is the expectation of availability – products must be in stock at all times at retail outlets and online warehouse – driving an increase in frequent, small-lot transportation and the stocking of inventory.
Increasing globalization and equalization of operational costs
Globalization will only increase, as will the volumes of ocean shipping to and from different geographies. Container ships are getting larger, port volumes are increasing, and technologies that increase the speed of movement from ports to road and rail are becoming imperative. The equalization of operations costs across countries, coupled with increasing risks in the geo-political environment, is leading several companies to locate final stage operations (postponement1 , packaging, and configuration) closer to the customer. This will result in an increase (and near-shoring) of light manufacturing and returns processing facilities in Southern California.
Increasing role of e-commerce
The dramatic and continued rise of e-commerce lays a heavy emphasis on an increase in customer service, distribution centers and fast deliveries, with a reduction in the presence of large retail outlets.
Environmental pressures and trends
The impacts of all of these trends will be tempered by the increasing regulations around air quality, land use types and emissions. Along with pressures on traffic congestion and expansion of industrial space, these are changing the economics of the business. In many instances, the costs of doing business are increasing and regulations are constricting the abilities of businesses to expand in Southern California.
These trends will continue to shape the economics of the region, company decisions on location and expansion, public policies, changes in types of jobs available and skills composition required, and land use designations.
The Technologies That Matter
A significant driver of the Southern California region is technology and the strategies to respond to these trends. The technologies and strategies that matter can be classified into four discrete but interrelated buckets.
Advanced efficiency and analytics systems
Predictive analytics around customer demand and preferences are driving greater understanding of customer buying behaviors and demand, resulting in far greater precision in stocking, product selection, speed of delivery and transportation. Some of these technologies will substitute machine intelligence for human decision-making. The increased complexity of supply chains requires increased automation and intelligence.
High efficiency systems for distribution center and transportation management are driving greater efficiency and less waste. These technologies include process automation, self-learning systems, warehouse automation, robotics, various tracking & tracing technologies including GPS tracking and fleet management of transportation, and data-driven management of the workforce.
Transportation and fulfillment technologies are changing the shape of the Logistics industry. A number of developments will transform the way products are delivered (short haul, long haul, and “last” mile), improve the efficiency and reduce environmental impact, and potentially have a significant effect on the way roads are built and structured in the future. These include autonomous and driverless vehicles and natural gas vehicles, which will require separate pathways, short-haul, small vehicles for last mile delivery to both congested urban and suburban areas and, assuming some of the reliability and privacy issues are resolved, the advent of delivery vehicles such as drones. The use of mobile technologies will only serve to accelerate this trend.
Warehousing technologies, such as robotics, automation of material handling and movement, “lights out2” distribution centers and the use of mobile technologies for operation and control will be a prime factor in driving the types of jobs, the education required, and the efficiencies of operations of the logistics industry – in Southern California and elsewhere.
Distribution and Risk Mitigation Location Strategies
These strategies, not strictly technological but enabled by technology, will shape the landscape and industrial construction of the region over the next several years. The primary trends and online commerce driving industry practices are moving companies into developing and constructing multi-echelon distribution networks, consisting of some large central distribution centers, middle-sized regional distribution centers, and smaller, more focused urban hubs for “last mile” fulfillment. These would include multi-story warehouses, urban high-rise warehouses and urban hubs for delivery and returns.
These distribution strategies will be augmented by globalization, risk mitigation and costs equalization, which will result in the establishment of localized and “light” manufacturing, configuration and postponement centers. A key aspect of this will be the increase in Service and Reverse and Returns Logistics centers, particularly as these become major components of a company’s economics and corporate social responsibility models.
The implications of these technology developments are likely to be significant especially in the real estate & construction, infrastructure and education systems in Southern California. Much of this development will depend on public policy, tax, environmental and government investment initiatives.
Some of the more critical aspects will include smaller, multi-story warehouses located in urban areas, including facilities shared among multiple companies. There will be a combination of large (“hyper”) distribution centers and smaller, regional distribution centers in the traditional industrial development locations, with the likelihood of shared infrastructure services. There will also be an increase in “light” operations facilities. The result will be increased need for land both in urban areas and in “traditional” industrial areas, particularly as facilities and areas around the ports and major freight airports are getting more and more congested.
The increase in volume of transportation and new technology development will result in segregated transportation lanes for freight and driverless vehicles. These will have to include dedicated lanes or pathways for short- and longer-haul freight, as well as pathways from ports and freight airports to inland areas. Finally, and perhaps most importantly, will be the impacts on the education system and priorities. The relative number of low-skilled jobs will decrease, accompanied by an increase in jobs with higher skill and educational qualifications. The needs of the industry will have to be balanced with the education of the workforce. These education requirements will include vocational training in service and equipment servicing, automation operations, university education in computer sciences, and information technologies, engineering, supply chain & logistics, and mathematics.
Supply chains and the logistics networks enabled by technology will drive a major change in the structure of the region’s economics, level of education and knowledge needed, real estate and investment initiatives in Southern California. Exploiting these to the fullest will require government policies that balance economic concerns, job creation and financial considerations. It will, in short, require collaboration among industry, educational institutions, government and labor.