Impact of Mega Distribution Centers in Logistics

Black swan events like Covid-19 pandemic have forced the logistics industry to rethink and replan their warehouse strategies. Before this pandemic, companies managed their warehouse operations using the Just In Time (JIT) principle. It has shaken up the supply chain activities from Just-In-Time to Never on time.   

For a JIT warehouse management to be successful, businesses should have a well-oiled supply chain in place so that everything happens exactly when it needs to. But now, businesses are forced to execute strategies for short and medium term-stocks that can damage the supply chain security. 

Robust warehouse infrastructure and strategy are required for businesses to deal with shocks like Covid-19 pandemic. This has led businesses to turn their focus towards mega distribution centers. 

What is a mega distribution center? 

A mega distribution center is a mothership warehousing entity that can perform multifaceted and multi-tasked inventory operations to fulfill end-to-end logistics demand for any business. These facilities act as the mother distribution centers by serving the needs of mini distribution centers, handling logistics operations in a seamlessly integrated manner. 

Attributes of a mega distribution center 

• A large area of 100,000 sq ft- 400,000 sq ft or more
• Designed for high throughputs of inbound and outbound traffic 
• Capability to handle high truck traffic continuously 
• Should normally operate 24*7
• Requires continuity of service and high volume of operations 
• Require a locational advantage 
• Should be strategically connected to mini and mega markets
• Real-time integration of business enterprise resource planning (ERP) system with storage, retrieval and material handling 

What does a good mega distribution center require? 

Owing to its risks, not every business can invest in mega distribution centers (DC). The start-up problems for the mega DCs are bigger than the smaller DCs. Here are some crucial things that a mega DC requires to make its operations successful. 

• Organizing shipping and receiving processes starting with dock management 
• Make sure trucks are being sent to the right dock
• Well-marked loading and unloading areas 
• Fast clearance 
• Huge upfront investment 

Why are companies opting for mega distribution centers now?

Though the concept of mega distribution centers emerged in the 2000s, its full-scale functioning began after the boom of e-commerce activities (2010s). The concept is still in its early years and will turn into a trend in the near future. Here are some reasons for businesses opting for mega distribution centers presently:

Increase in operational efficiency

The major factors behind companies opting for mega distribution centers are economies of scale in warehouse activities, efficiency, and increase in e-commerce operations. It is the scale advantage and the innovation potential of the mega distribution centers that make them an attractive option for many businesses. 

Shortest possible delivery time 

The Amazon effect has forced many businesses to deliver their products to customers quickly. Customers prefer to continue with logistics services that deliver goods in the shortest possible time. These quick delivery demands require large physical storage space with fast and smart processing in fulfillment centers. This is where a mega distribution center makes itself useful.

Balancing urban congestion and city labor 

The biggest problems for warehouse operations in dense urban areas are urban congestion and city labor. Mega distribution centers store products that are ready for delivery or are prepared for returns. A strategic placement of these DCs help businesses escape urban congestion and benefit from the city labor. 

Rise in big box retail  

Giant retail stores like Walmart, Target, etc. are serving as the one-stop-shopping outlet and omnichannel experience provider for most of the customers. Most of these retail giants sell frequently purchased items to customers week after week. 

Each week, over 265 million customers and members visit approximately 11,500 stores under 56 banners in 27 countries and eCommerce websites. With fiscal year 2020 revenue of $524 billion, Walmart employs over 2.2 million associates worldwide. – Walmart, Q1, FY21 earnings release. 

Target Corporation had revenues amounting to approximately 93.56 billion U.S. dollars in 2020, making it one of the leading American retailers.- Statista, Revenue of Target in the United States from 2005 to 2020.

As these big -box retailers attract a massive volume of sales revenues, businesses find mega distribution warehouses the best option to serve these outlets. Mega distribution centers are the best distribution model to serve the product needs of the big box retailers. 

Effectively handle high volumes of traffic 

Mega distribution centers can make 24 hours warehouse operations economically feasible. They can handle high volume traffic of goods by effectively scheduling truck loading, offloading, and minimizing the driver wait time. They can easily customize their delivery schedules based on highway congestion or real-time traffic.

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What are the impacts of mega distribution centers in logistics?

Many big-scale retailers and manufacturing businesses have started to invest in mega distribution centers. Last year, the US retail giant Walmart spent around $220 million for a three million square foot distribution center in South Carolina to manage their increased demand for products during this pandemic.  

Here are the ways mega distribution centers can affect logistics for the upcoming years. 

Minimize the ‘running out of stock’ situations 

When working with credible, reliable, and trustworthy suppliers, businesses need not worry about ‘running out of stock’ situations. Mega distribution centers effectively facilitate stocking products based on customer demand. This helps many businesses to quickly fulfill the demands of their business clients and customers without many supply chain hiccups. 

Counter supply chain disruptions 

A minor breakdown or delay from one of the suppliers is more than enough to shut down the entire business operations. With the pandemic testing the supply chain resilience of the majority of the businesses, it has become crucial for them to invest in mega distribution centers. 

In this fast-paced retail world, businesses require higher speed, agility, and flexibility in the market than before. A mega distribution center helps firms focus on  tomorrow’s business and effectively meet the changing market needs. This is high time for businesses to recheck their supply chain resilience and make their supply chain robust. 

Facilitates accurate forecasts 

Customer orders surpassing the business estimates lead to shortages causing delays in production and order fulfillment. Hence, there is a need for a good understanding of how much one can expect from customers at any given time. 

Mega distribution centers help supply chain managers predict their customer demand at an aggregate level. More than predictions from smaller markets and regional distribution centers, mega DCs’ forecasts on customer demand will be more accurate. 

Difficulty in finding suitable locations in dense urban areas and suburbs  

Mostly, smaller warehouses cannot always serve large urban populations effectively. Hence, many businesses find that mega distribution centers with around one million square foot building make economic sense. But the availability of land determines whether the businesses can start their mega distribution centers in dense urban areas or suburbs. 

The industrial real estate developers in the US know that some areas are land-constrained, and some areas are land-abundant. 

For example, it is difficult to find large-scale available land in dense urban areas like New York, Los Angeles, Chicago, etc. But lands closer to suburbs like Indianapolis, Dallas, or Atlanta do not have such land constraints. 

With increasing demand for building mega distribution centers, it has become challenging to find suitable locations. 

Contributes to ease of operations 

Mega distribution centers enable businesses to meet customer demand with ease of operations. It benefits businesses in the following ways. 

• Reduces the overhead costs of labor
• Higher productivity per individual 
• Highly enhanced operational safety 
• High throughput 
• Flexibility to phase their client operations
• Accuracy

A mega distribution center with carefully designed infrastructure, automated material handling solutions, and location offers a good value proposition to a business in smart supply chains. 

Increase in demand for automation solutions

The rise in mega distribution centers will increase the demand for automation solutions like automated material handling, dense racking systems, mobile robots, and advanced logistics software that tracks operations real-time. 

A delivery logistics software benefits outbound logistics operations of mega distribution centers. It helps warehouse managers to effectively schedule delivery tasks for drivers based on various attributes like driver skill sets, vehicle capacity, preferred delivery window, etc. This solution dynamically tracks all second-mile and last-mile logistics operations and provides automated route suggestions. 

Conclusion

The biggest determiner of success for a mega distribution center is the adoption of the right technology. Adopting the right technology can improve the operational efficiency of a warehouse. The major differentiator lies in selecting the technology wisely. Here is where Locus comes in with its expertise in logistics optimization. 

Locus delivery logistics software helps businesses to track their goods from warehouse to storefronts in real-time. Its end-to-end delivery management abilities help companies effectively balance higher delivery volumes and short time windows. It helps businesses to optimize their B2B or B2C logistics operations by routing vehicles based on SLAs.  

References

1. https://corporate.walmart.com/media-library/document/q1-fy21-earnings-release/_proxyDocument?id=00000172-29ed-d3ff-a3f6-bded2c350000#:~:text=With%20fiscal%20year%202020%20revenue,over%202.2%20million%20associates%20worldwide 
2. https://www.statista.com/statistics/255957/revenue-of-target-in-north-america/ 
3. https://www.dcvelocity.com/articles/46601-walmart-plans-220-million-mega-warehouse-in-south-carolina