Justin Smith is a Senior Vice President with Lee & Associates, and has guided hundreds of CEOs through finding more than 5 million square feet of property worth more than $300MM. He’s worked with multiple Fortune 500 firms, public companies, large privately held companies, and those just starting out.
If there's a way to make industrial real estate trends and logistics fun, exciting and accessible to everyone who needs it, Justin is the guy to do it! He has tonnes of experience and industry knowledge.
Justin is also the author of the new best-selling book, Industrial Intelligence: The Executive’s Guide for Making Informed Commercial Real Estate Decisions. We spoke to him on the eCommerce podcast and this is what we learnt.
You've got your ecommerce business and you're thriving, you have a solid online customer base, but your picking and packing is starting to become a little heavy, you're running out of storage space so you need to start branching out to a bigger warehouse to grow your online store. Working out which is the best distribution channel for your product can be daunting, there’s so many things to consider such as where the product is coming from, being manufactured and where your customers are - where is the endpoint of your product? If you’re starting out, generally you would want to start with a third party logistics company because you’re testing your new distribution model. These businesses will already be working with distribution centres that have the infrastructure for you, they can handle your orders, logistics and help you model where your business need to be. This is going to save money, save you time and make your life easier whilst you’re working out what comes next for your company.
If you’re distributing across the country you may want to look at a warehouse central to all locations for easier and quicker distribution. Granted, using a third party logistics company will probably come in at a higher cost, but as you are growing your online store you can test your model with less risk. These companies already have the infrastructure in place to handle this and this will also allow you to understand the overall running's of a warehouse. You'll also have a baseline to measure from, if you then wanted to find your own ecommerce warehouse eventually.
If this is your own business then you are going to want to maximise on warehouse efficiency. You’ll want to have a keen eye on your processes and figure out where you can invest your energy and which parts can be automated. It's important to be thinking about how you can move products faster within the same four walls. Part of that is coming from quicker shipping times and an expectation that you’ll meet shorter deadlines to keep your customers happy.
But the first port of call is considering how you obtain your goods, how are your products delivered to you? Are you taking in pallets of product and breaking them down and shipping them individually? Are you taking containers of product and then sending out individual pallets to different locations? Or are you distributing big items where they come on their own individual pallet that may or may not be able to be wrapped? What is your order volume? How much warehouse space do you need? Start with the product mix.
Once you’ve got this sussed, you’ll need a material handling specialist or a warehouse manager, the person that specialises in racking forklifts, stock checking and the general flow of goods, this is someone that you have to have on your team. They’ll spend time looking at other people’s operations and setting yours up based on what works and what doesn’t. They’ll see if you have space for trucks, and they can design the flow of the warehouse. They'll know the entire process, and will have a warehouse management system sorted in no time.
Your material handling specialists will be able to help you think through what size product and the amount of daily volume and monthly volume you’ll need to start. Depending on what you’re selling, you’ll have a different set up. If you’re selling toothpaste for example, this is going to look dramatically different to if you’re selling motorcycles. Your material handling specialist will enable you to grow your warehouse, and know how to use your ecommerce warehouse in the most effective way, you’ll always be continuing to grow your set up with them.
When you’re considering moving to a new warehouse, there’s lots of factors to think about. Like the simple ones, how much time do you have on your current lease? That could be days or weeks. Also consider, how stable is your business? How far out in the future can you plan for? And how much time can you commit to the next space? That could be months, or years, or forever. If it’s forever you’d probably want to start considering whether you want to buy the warehouse and maybe use this as a business in itself, could you rent out some of the space to other businesses? Would having your own space give you more flexibility to grow your current business? Could you start a fulfilment company? Will you be looking for multiple warehouses?
If you’re committing to 10 years in a building, you want to be pretty confident in your plan, or at least you’ll be running a very robust business where you can continue to need that space, or use the space. Once you’ve worked out the amount of time on a space, you’ll want to look at how many people will be having a say in this. A CEO? Business investors? Strategic partners? Sister companies or corporate offices? Who will be playing a role in how you fuel the purchase of equipment, or inventory, or of another business?
Of course, you’ve got to think about finances, and what the market is telling you, you need to afford to do what it is you think you're trying to accomplish. One you’ve got these three things figured out; time, people and finances, then you’ll be in a good position to know whether this is something viable to you and your business.
We can all recognise, that the last two years has accelerated the amount of people that are shopping online, and if you're already in the world of ecommerce this may not have been a surprise to you. But for every person that shifts to online shopping, and places something in their shopping cart that's a piece of inventory for you that belongs in your warehouse and no longer in the shops.