Warehouse Economisation continues to remain an immutable fact

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India is evolving as an economy. In such a climate of stratospheric demand and delivery time constraints, when consumers want their products to be delivered in a jiffy, no company can afford to overlook the vitality of the optimisation of warehousing process.

Saurabh Sharma

Hardly a decade has gone by, when even a decrepit building or a godown used to be considered as warehouse, but the rapid evolution in online retail, blooming E-commerce, and development in logistics infrastructure have utterly flipped the dimensions.

As warehouses are generally the colossal structures, those require a huge capital and workforce in order to manage the multiple processes associated with them. Timeliness of any consignment shall always have the direct bearing on the warehousing processes.

Market Scenario

As the E-commerce companies has inundated the market and lifted the expectation of consumers to a point when they want their consignment delivered before the time it takes a butterfly to open its wings, circumstances like this necessitate an efficient warehousing in the country. Apart from E-commerce, the next big sector of spaces will be the electronic and white goods that command significant warehousing spaces in urban and semi-urban locations.

According to Prakhur Mehta, Director- Leasing, ESR India, “The burgeoning E-commerce industry has made way for dynamic changes in the warehousing sector, developing them into sophisticated stockrooms with advanced, real-time tracking mechanisms and several other state-of-the-art facilities”

“E-commerce is driving the demand for warehousing space. The efficiency of time is crucial in this industry, which is to achieve same day delivery. E-commerce has led to robust planning and optimisation in this segment, driving the need for creation of warehouse ‘hubs’ in strategic locations to service on-going customer demand. The bigger players are focusing on delivering a wide range of goods to have competitive advantage and this has led to the growing demand for efficient, large format, smart warehousing spaces,” adds Prakhur

Fulfilment of demand, storage and inbound are the key profit drivers for E-commerce industry, but then it is hard to distinguish one factor from another, as they are interdependent and part of warehousing management system.

“Warehouses that are bigger in sizes with advanced and modern inventory management capabilities can increase efficiency and frequently help save on time and money, rather than doing it all by yourself.  Besides, third-party logistics (3PL) could assist in managing costs and multiply E-commerce business sans glitches. Hyper-local and last-mile deliveries are on a roll to transform better convenience,” explains Ramesh Venkat, Head, Industry Partnerships, Logistics Sector Skill Council.

Emerging Trends

Globally, owing to the paucity of space in densely populated and up-market areas, change in the architecture of warehouses is seen from single storey structure to multi-storey buildings. A multi-storey warehouse consists of more than one floor and is designed to increase the available floor space. It results in better land utilieation rate and enhances operational efficiency. Multi-storey warehouses have been successful in countries where acquirement of land and construction require a humongous amount of capital, predominantly in Asian countries such as China, Japan, Hong Kong and Singapore; they have small site areas and limited industrial land.

Talking about the economisation of grade A warehouses, Ramkesh Jangra, Head of Supply Chain-SCC, Ericsson suggests, “Though state governments are continuously working towards consolidation of logistics infrastructure, more warehouses and logistics parks need to be built to catch up with the surging demand. At present, supply chain players can keep smaller size warehouses in A grade area. Well, this can be managed by having fast turnaround time of material movement and keeping very less floor life of inventory. Sharing the facility with business partner organisations is another way out. Any buffer stock should move to other nearby location.”

Needless to mention, warehousing market is still highly fragmented in India with most of the warehouses having less than 10,000 sq ft area only. Almost 90 per cent of warehousing space in the country is under the control of unorganised players, managing it with limited mechanisation and shoddy management systems. As most of the unorganised sector labour force includes weavers, handloom workers, leather workers, plantation labourers, toddy tappers, etc. it becomes a hard nut to crack, streamlining the supply chain processes in such sectors.

“We are well aware that the market could be Agriculture and/or Industrial one- based on the sectors; also into different segments such as- private, public and bonded warehouses depending on the ownership/ leasing in general, specialty and temp-conditioned warehouses- depending on the type of products stored/ distributed. All the important aspects are to be covered in the warehouse market from the macro level to micro level industry performance, considering key market drivers, transformational trends, challenges and other value chain analysis, etc. The growth potential is talking at a hectic pace with high demand for skilled workforce. USD 1.1 billion of private equity has been infused during the last two years and would lead the growth to over USD 215 billion by 2020 clocking 924 million sq ft of warehousing space by 2024,”informs Ramesh Venkat.

Shared vs Dedicated Warehouses

Given the scarcity of available space in the vicinity of industrial clusters, as companies consolidate operations in large warehouses, they can cut down on cost. Larger warehouses also lend themselves better to automation, which implies a quicker turnaround. The spurt in demand has led to real estate prices and rentals rising in some regions, like that on Tauru Road of Haryana and Bhiwandi in Maharashtra. The demand for quality warehouses is far outstripping supply at the moment.

Sharing is one way to reduce the cost incurred on acquirement of warehousing space. Many Companies and consumers often prefer to pay for temporary access to goods and services rather than take on the ownership of assets and their long-term costs. The ‘Sharing Economy’ is the order of the day in the world of trailers and logistics through shared warehousing, real-time freight brokerage and trailer pooling. Shifting of the warehouses near demand hubs will also help reduce the cost and expedite delivery.

Discussing the nuances and implications of establishing warehouses near industries, Ramkesh explains, “It depends upon the nature and type of business requirement. For instance, if the supply chain player is dealing with raw materials/components or finished goods manufactured in that industrial belt then having a warehouse in the nearby area do have certain benefits, like increased working hours, low transportation costs, lesser turnaround time, efficiency in operations of the factory as well as of the warehouse, increased production, etc.”

For a dedicated warehouse, company bears all the fixed costs of running a warehouse, regardless of whether you are using its space to full capacity or not. By adopting a shared warehouse model, the ongoing operating and maintenance costs are spread across the different companies using the warehouse and their activity levels. Many of the costs become variable. The warehouse owners will manage the storage space rental and often be able to provide fulfilment services.

Challenges and Initiatives

As warehouses are generally colossal structures which require a huge space, it takes a great deal of skilled workforce and automation to run the processes in seamlessly integrated manner. Firstly, acquisition of land with all its legal compliances and formalities is in itself a grueling task for any developer, as rightly asserted by Prakhur. “Construction of large-scale warehouses requires 40-50 acres of land. Acquisition of legally compliant land parcels with accessibility tends to be a challenge. Developers should also focus on joint developments with landlords or joint ventures to share development risk. ESR has recently partnered with Lodha Group to build a best-in-class industrial park as an extension of Palava City, the first Greenfield integrated smart city in India,” says Prakhur.

Apart from land acquisition, there are other challenges related to the warehouse management process mentioned as follows:

  • Time Management: To effectively manage time, guesswork in the location of stock must be eliminated by the use of RFID enabled systems.
  • Warehouse Inventory Accuracy: Keeping an accurate count of inventory items is one of the most challenging problems in managing warehouse systems.
  • Efficient Warehouse Layout: The correct design should suit one’s own specific operation and the way the work flows through the system. Each industry can decide its own needs with regard to accessibility of products in the warehouse.
  • Picking Optimisation: Picking is one of the areas of warehouse operations that can easily disrupt an inventory control system because the tasks and decisions taken during the operations are often done in a hurry.

“Government of India is very serious in developing infrastructure to boost manufacturing, increase share in global business trade and to better logistics performance index of the country. Mega industrial corridors, highways, rail network and ports are being built as rapid pace. All these are creating big opportunities for private players to invest in warehousing and logistics set ups, as demand on warehouse, transportation & logistics services are getting increase,” explains Ramkesh.

Bottom Line

With better infrastructure through efficient use of technology and manpower and initiatives like ‘Make in India’, the warehousing industry is bound to play a larger role in the growth of the Indian economy.  “Over the past few years, the government has undertaken several reforms to promote and provide an exit route to real estate investors via the Real Estate Investment Trusts (REITs). Currently, the market for REITs in India is at a very nascent stage and it would take time to evolve. Once the market for REITs matures, the institutional investors would be able to get a credible exit avenue to gain from their warehousing investments by listing their warehousing assets through REITs,” says Prakhur.

“We will see more tech-driven rollouts to enhance greater customer experience, while re-skilling, cross-skilling and up-skilling will be rampant. The GenX will rule the roost with newer, better and meaningful implementation,” predicts Ramesh.

Automation, EVs, better ports and terminals, ICDs, CFS, SEZs, connected roads for deliveries, e- transactions are bound to bridge people, places, time, while reduced costs, wastages, green initiatives will help cut the GDP to a single digit. Investments and FDI has already commanded the interest of investors. Besides, there is a huge potential in this sector in terms of creating employment opportunities, as more players will be coming in the future.

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