We've been hearing about the supply chain issues since the pandemic first introduced major interruptions to production, transportation, and consumer demand — but what's going on with the situation now? Mainly, how is this affecting the commercial real estate industry?
Let's take a deeper look at how industrial real estate is being impacted by the supply chain challenges, and what companies are doing to combat these issues.
Mapping Out the Supply Chain
Before we begin, it's important to keep in mind that the supply chain is exactly what it sounds like — a line of interconnected systems that interact along a continuous network.
Here is a basic map of the supply chain journey:
- It all starts with manufacturers, who create the supply chain goods in industrial facilities.
- Next comes distributors, who move the goods created by the manufacturers into the market by transporting them to wholesale purchasers.
- The wholesale purchasers that receive the supply chain goods are retailers, who put these goods on the market for consumers to purchase.
- Finally, the consumer purchases the product, which has been handed down all the way from the manufacturers.
This may seem relatively simple at first glance, but on a global scale, it can become increasingly complex — and with a pandemic, things get complicated quickly.
Considering Supply Chain Delays
The main lesson to keep in mind here is that small delays in one area of the supply chain can slow down the transfer of goods from one player to the next. Small halts in one area can cause a traffic jam within the greater supply chain.
For example, what happens when the manufacturer can't get a critical component to build a finished product. In this case the process start is delayed indefinitely. Or how about, if the shipping ports are closed, the goods need to be stored until they can get shipped out. With the rapid schedule of departures racking up, and the new products being created with nowhere to go, that quickly takes up all of the space in the ports.
At this point, it can take a long period of time to get the system flowing according to business as usual. When these issues arise, the individual units of the supply chain can see massive losses.
The Impact on Industrial Real Estate and Strategic Solutions
Different types of delays make a different impact on real estate. Here are a few of the issues that the commercial real estate's industrial sector faces, and the creative solutions being leveraged by forward-thinking manufacturing companies.
Health Risks Take Workers Off the Warehouse Floor
Disruption related to the pandemic's risks to health and wellness may impact the manufacturers at factories since they cannot have workers on site. The impact here is that the industrial facility is not able to keep up with its production quota and ultimately falls behind on business.
The key solution to this type of issue is to navigate with caution. After learning this lesson, many factories and warehouses are supplying their workers with advanced personal protective equipment like masks and gloves.
Companies began to require workers to conduct regular testing and health and wellness tests on the job site. Another way to mitigate this risk is to deploy strict sanitation requirements, helping to keep the facilities clean and workers safe.
Delays in Distribution
Another type of disruption that can occur is distribution delays.
During the pandemic, we saw borders close to limit the spread of contagious elements. When this happened, there was no place for the industrial facilities to send off their newly produced products. In most cases, industrial production facilities do not have the storage capacity to keep days, or weeks, worth of goods once completed.
While this was a lesson hard learned for manufacturers that took a loss due to distribution errors, companies are now realizing that they need additional storage facilities in case of emergencies.
Having ample storage space to hold their goods in case the distribution network falls behind will allow them to continue producing their products and store them safely until the issues have been resolved. We are moving from the optimized efficiency of "Just in Time" to realities and flexibility of "Just in Case".
Industrial Remains a Strong Commercial Real Estate Sector
All in all, the last few years have forced innovation within commercial real estate's industrial sector. Preparing for the unexpected and being ready to pivot at a moment's notice are now the norms of the warehousing business
Despite the disruption, it remains clear that the industrial sector is a crucial asset class. To become stronger in the future, industrial is taking the lessons learned and transforming them into actionable strategies to mitigate potential issues on the horizon.
To keep up with more commercial real estate news and trends, explore more articles on the RealNex Blog.