Table of Experts: The business of distribution and logistics
April 9, 2021
How has the pandemic affected the world of supply chain and logistics?
Scott Hothem: COVID had a dramatic impact on the global supply chain. In the early days of the pandemic, the economy and customer demand stopped, and inventory built up in warehouses due to slow consumer demand. In response, manufacturers cut back on production, and brick-and-mortar retailers were forced to temporarily close locations, while others were forced into bankruptcy.
The pandemic probably accelerated the consumers shift toward ecommerce by more than five years — such that global supply chains are now having to adapt to meet this new reality, which will be a boon for third-party logistics companies and the Memphis economy.
Chrissy Geibel: As we all know, the “stay at home” influence on our industry of supply chain and logistics has been intense. With online shopping expanding and intensifying, the volume has risen dramatically — and along with it are elevated expectations of performance.
That shift in purchasing has increased the volume of imports and is the catalyst behind the demand for capacity as well as increasing rates. The consumer demands delivery in a timely manner, and the supplier must perform or risk the repercussions. The confluence of these factors elevates the necessity of reliable, flexible, trustworthy, and experienced partners.
What challenges do you face in particular in the Mid-South?
Geibel: Memphis is a major hub for both domestic and international freight. There are universal truths that face our industry including: increased rates, equipment shortages, and demurrage/detention issues along with qualified labor shortages. But I believe the challenges are best seen as opportunities for our industry as well as Memphis.
Memphis’ unique set of transportation assets from air, rail, road, and water coupled with our “roll up our sleeves” culture, puts a spotlight on our city’s important role in the industry, but also highlights high-performing logistics companies headquartered here.
Hothem: Hiring qualified labor is a continual challenge, where we have more companies chasing a smaller pool of talent, which is causing wages to rise. Wage inflation is a real concern for all companies, and that cost pressure is not going to abate anytime soon.
Regarding real estate, vacancy rates for new warehouses are in the low single digits, which is pushing NNN rents (triple net) higher and higher. Prologis estimates online brands require 1.2 million square feet of distribution space for each $1 billion in sales, which means e-commerce requires three times the space as traditional distribution centers. The Memphis area is a geographic hub for ecommerce logistics; however, these wage and fixed-cost pressures may push fulfillment centers to other areas of the country.
Talk about workforce; what are the areas of opportunity or obstacles?
Geibel: Our industry workforce is under the same pressures as the industry itself — limited supply and intense demand. Qualified drivers are scarce and in high demand. Warehouse and distribution centers are also challenged to find qualified support. These challenges, again, have presented competitive pressure on businesses to provide a great working environment that goes above simply pay, but now includes an emphasis on workplace environment, COVID protocols, and employee benefits.
For office workers, we have seen similar trends as others. The initial fear of lost productivity by working from home has been replaced by a welcome productivity, more focused execution, more committed performance, and a new culture of teamwork.
Hothem: Labor wage and salary costs have continued to rise, and competition for qualified labor is intense nationwide. Increases in direct-to-consumer volumes have only exacerbated the issue of staffing and recruiting in the warehouse.
Wage inflation is a major concern to 3PLs (third-party logistics), and to date, that cost has been largely absorbed. Going forward with increases to federal and local minimum wages, that cost will start to be passed along in the form of rate increases. For this reason, warehouse automation technology will gain more acceptance to reduce the reliance on temporary labor and wage pressures.
What is the future of supply chain and logistics?
Hothem: The future of supply chain and logistics is in automating tasks within the warehouse to reduce reliance on variable labor during peak shipping seasons. The rapid shift toward direct-to-consumer fulfillment has increased the adoption of autonomous robots or “co-bots” to speed order fulfillment, the use of drones for cycle counting — and use of other technologies in the warehouse to increase order throughput will be deployed as companies realize they can no longer just “throw bodies” to get the work out the door.
When companies cannot find the people to hire or people come at a higher cost than companies are able to afford, then more companies will turn to technology to solve for this problem.
Geibel: The future of supply chain and logistics becomes increasingly more important as time passes. One only has to look back at the past couple of years for examples. First, we had the tariff issues with China, which led to many companies scrambling to move production and supply chains elsewhere — and quickly. Then, COVID hit and gave great insight into where supply chains have failed to keep up with evolving needs.
For years, the focus has been on optimizing supply chains, minimizing costs, and maintaining inventories with just-in-time replenishments. However, these recent pressures have shined a light on the gaps and vulnerabilities of systems and operations. Organizations are intensely evaluating, adjusting, and elevating their supply chains to make them stronger, more flexible, and resilient for the future. Their businesses depend on it now more than ever.
Are there any other issues facing your industry that local business leaders should be aware of?
Geibel: Creating stronger, more flexible supply chains and solid contingency plans are key to weathering future supply chain disruptions. Customer satisfaction will never change, and expectations will only increase, so one needs to invest in thoughtful plans and committed partners to be prepared to meet or exceed their expectations given any environment.
ABOUT THE PANELISTS
Scott Hothem, Senior Vice President, Customer Solutions at Barrett Distribution Centers
Scott has held executive leadership positions with global, national, and regional logistics companies for over 30 years. His areas of expertise include sales, operations management, third party logistics, B2B distribution and B2C fulfillment services for the apparel & footwear, health & beauty, consumer packaged goods, food, and retail industries.
Chrissy Geibel, Senior Vice President, Global Logistics at Dunavant
Chrissy is responsible for leading and growing the division by providing superior solutions through best-in-class service to customers. Geibel has 20+ years of logistics experience and received her Bachelor of Business Administration, Logistics, Materials and Supply Chain Management from the University of Memphis.