Environment Will Drive Major Logistics Real Estate Shift

One can’t turn around today without seeing the growing impact rising environmental consciousness is having on both consumer choices and by extension business practices. As companies become more environmentally astute, either through brute force of customer will or in combination with the leadership of key employees, all aspects of the business will be driven to reduce carbon outputs.

As this process unfolds, it will become readily apparent that approximately 75 percent of most companies carbon output emanates from the supply chain, with the key generator of this carbon output being transportation. Many network consolidation programs have resulted in major increases in transportation which process may now need to be at least partially reversed. As well, many of the warehouses and distribution centers in these networks are outdated, or have been built to significantly lower environmental standards than are currently emerging through the LEED, Leadership in Energy and Environmental Design program. Read on to learn how both of these drivers are going to result in a major shift in Logistics Real Estate playing out over the next several years.

Those who are familiar with logistics network strategy over the last two decades will be familiar with the trade-offs between the number of facilities in a national network, transportation costs and overall inventory levels. For example, a company which chooses to have one or two national warehouse distribution centers will have much lower facility, warehouse and inventory costs and much higher transportation costs. Compare this to a regional network with six, ten, twelve or even more facilities, and although facility, warehouse and inventory costs are much higher, overall transportation costs and requirements are much lower.

So major logistics facility consolidation has occurred as the result which has saved on facility and inventory costs, but driven up the cost and sheer amount of transportation, thereby also driving up many companies carbon outputs through this process. As well, much of this past consolidation activity happened when fuel costs were not at the records we are now experiencing, so rerunning these network strategies, with Carbon as an additional variable in concert with Warehousing, Transportation and Inventory will in most cases reveal the need for more regionalized logistics networks and the addition of new facilities to accomplish carbon and transportation savings.

This is where the second factor fueling this logistics real estate shift comes into play, these major logistics facilities can have a much lower impact on the environment by following the LEED, Leadership in Energy and Environmental Design standards, to replace current buildings. There are four levels of excellence in this case moving from Bronze to Silver, Gold and Platinum and this previous article from the SCN site will provide you with more background on LEED.

Suffice it to say that LEED looks not only at designing buildings to be energy efficient in all aspects of operation ie; heating, lighting, refrigeration etc., but they also look at opportunities for energy generation within the facility, on the roof etc and potentially the creation of carbon sinks as offsets. See the Green Roofs For Healthy Cities North America article for one example of this and the video on Patagonia’s Reno Distribution Center where an expansion was done on the site with LEED retrofit of the existing portion and LEED design for the expansion.

As you will see from the video, LEED even goes to the level of reducing groundwater impacts and also you’ll be interested to know that logistics is also a component of the standard to minimize the logistics and materials impact of construction based on how far materials need to be sourced for building purposes and also the environmental impact of the creation of those materials, not to mention reduction of waste and reverse logistics programs for any waste remaining.

So individually, both of these factors have the potential to drive the need to shift your Logistics Real Estate into the direction of more regionalized and LEED efficient operations. However, when you look at the dual impact of both these drivers there is no doubt at least in my mind that major shifts in both the regionalization of networks operated within new LEED certified facilities is coming.

Probably the wisest first step in coming to grips with the potential impact this may have on your company is to calculate your current carbon footprint. However when you do this, I would highly recommend it be done in the context of an advanced logistics network strategy model, as if you use a basic spreadsheet you’ll get a basic total, but won’t have the flexibility to then begin designing and testing various scenarios and alternatives to determine your best course of action.There is no doubt that such a shift will take years to complete, however those companies which analyze these options sooner and begin to react will have the advantage of more time to ensure they are optimally positioned when changes come from customer buying power or through the legislative and regulatory control of carbon emissions now on the horizon.

Jeff Ashcroft

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