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Supply chain management is industrial property management

  • Property and supply chain management interact, and should be approached together, not siloed away in different segments of a business
  • A holistic approach will yield benefits for the company as a whole
  • Property seems like one of the most significant costs for a business, but in reality, normally accounts for just 5% of budget. It can, however, create costs in the supply chain that eclipse any savings made
  • Industrial property can drive or inhibit change and growth, so requires strategic planning not just a cost-cutting mindset.

Supply chain management encompasses everything from the point of manufacture right through to the point of consumption, yet in many businesses key aspects of this process are siloed away from one another. In particular, property is often considered separate from supply chain, with different people and parts of the company responsible for each. This set up can cause significant inefficiency and increased costs: Supply chain management is industrial property management, and the two need to be looked at together for truly successful outcomes. A holistic approach will drive transformation through increases in efficiency and lowered costs, because the best decisions for the company as a whole will be in focus. This helps to prevent unintended negative consequences that one department can have on another.

Structure matters

In a typical business, property reports to finance, while supply chain reports to operations. Property is seen as a cost, while supply chain is seen as a function. This is a flawed set up that fails to take a holistic view of the company. By focusing on cutting costs on property, the impact on supply chain can be left out of consideration. This may mean, for example, that a distribution centre or warehouse is procured in a less desirable location to keep rent low, without anticipating the increase in transportation costs that results from such a decision.

While real estate is often perceived as one of the most significant costs of doing business, in reality it usually accounts for just 5% of supply chain costs. Savings made in this 5% are quickly absorbed by ballooning costs in other parts of the supply chain (transport, inventory, labour) if all factors are not taken into consideration. Innovative businesses are increasingly restructuring to ensure that property and supply chain work together, or are managed by the same personnel. One solution is for property to report to supply chain, or to work collaboratively with them.

Industrial property can drive or inhibit change

Efficient network design and location planning, along with procurement of property that make sense in context, can save time and money, ultimately leading to increased satisfaction for customers. Whether dealing with one warehouse or a large property portfolio spread across a global supply chain, these choices are crucial for the health of the supply chain.

Property can be an enabler or an inhibitor of growth and change in any business. Leases on industrial property are typically very long and require a long-term commitment, which can leave many companies feeling trapped and without the flexibility necessary to keep pace in a rapidly changing industry landscape. Long leases also increase the pressure on decision-making, requiring business leadership to take a confident long-term view when considering potential properties.

Property and supply chain challenges come in a range of forms. Many businesses are carrying legacy leases, looking to mitigate lease tails to derive the best possible outcomes. There are a number of ways to address this, from subletting property to negotiating payouts. Another common concern is temporarily extending a lease in order to allow sufficient time to procure a new facility when the current lease is up. With a holistic approach to managing a property portfolio, there are a number of solutions that can be employed to address these issues. These might be overlooked if the focus is on cutting costs on property alone, but when those costs can be recouped across the supply chain, many new options present themselves.

Proof in experience

At XAct Solutions, we have seen firsthand the results of taking this holistic approach to industrial property. Our knowledge of industrial property and supply chain management positions us perfectly to assist clients with managing their property portfolios, designing and managing their networks and procuring new warehouses, with full insight into the supply chain as a whole, not just one aspect of it. We measure results by looking at the impact on the entire business, not just costs saved on rent.

Our real-world experience means we know the right questions to ask at each stage, from identifying priorities and strategic planning right through to fitting out and finalising the chosen location. We have decades of industry experience, combined with superior benchmarking capabilities, and systems to support our work with clients. This practical experience is invaluable, and goes far beyond a simple spreadsheet or report. As a third party, we are ideally positioned to secure the best outcome for our clients. While most in the industrial property landscape are managing the interests of multiple parties, or looking to sell something, we simply advocate on behalf of our client.

We deal with clients facing a number of different challenges and different stages of business, and have seen how a holistic approach to supply chain management and industrial property management can apply to all. From helping a client who is operating out of five distribution centres to consolidate, cutting down on duplicated costs, to assisting those halfway through a lease but outgrowing their current space in assessing the best way to expand, property itself is only half the picture.

All businesses can benefit from recognising that supply chain management is industrial property management, and taking a holistic approach to their operations and network design.