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ASCM Insights

Remodeling Factories into Distribution Centers

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The U.S. economy has been shifting its efforts from manufacturing operations to logistics and distribution services. This trend is fueled by outsourcing as well as the rise of e-commerce and the Amazon culture, which has influenced consumers to expect quick delivery of their online purchases. To accommodate this shift, commercial real estate developers are working to remodel unused manufacturing facilities into new hubs for logistics and distribution operations.

Jon Hurdle of The New York Times reports that sites that once housed manufacturing operations for companies such as General Motors, Ford and Dow Chemical are ideal for logistics and distribution companies. The prime reason coincides with the golden rule of real estate: location, location, location. Many of these sites are near major markets, highways, ports and rail links, giving distribution and logistics companies quicker and easier access to their customers.

For example, General Motors’ former Boxwood Road factory in Newport, Delaware, is within an eight-hour drive of 50 million inhabitants of the Northeast and Mid-Atlantic, near highways and railways and close to the soon-to-be-updated Port of Wilmington in Delaware. Similarly, a former Dow Chemical plastics plant in Piscataway, New Jersey — a rare large commercial space on the crowded U.S. East Coast — is close to New York City; the New Jersey Turnpike; and Interstate 287, which connects New York and New Jersey. These types of sites are more desirable than new developments in suburban or rural communities, which are farther from customers and talent pools.   

Also, because these manufacturing facilities are large, they offer logistics and distribution companies room to grow. Large logistics companies require 600,000 to 1 million square feet, which is about twice the size they needed 10 years ago. The General Motors plant offers 1.1 million square feet, and the repurposed Dow Chemical site will boast 2.1 million square feet throughout five new buildings when they are completed in three years.

Developers have tried to repurpose these factories for modern manufacturing, but, in some cases, that’s just not feasible. Thomas J. Hanna, president of Harvey Hanna & Associates, spent a year trying to reconfigure the General Motors facility for new manufacturing tenants, but he concluded that the costs of manufacturing in the United States, especially in the Northeast, are too high to attract new companies. “Manufacturing is not entirely dead, but it’s nowhere near as robust as it once was in terms of our economy,” Hanna says in the article. The U.S. Bureau of Labor Statistics reports that the country has lost 640,000 manufacturing jobs in the past decade. “Logistics and fulfillment is really the segment of the industrial world that has backfilled the void that manufacturing has left in terms of employment and economic activity,” Hanna points out.  

The logistics of success

When logistics companies relocate to these repurposed facilities, they are geographically positioning themselves to serve their customers, who expect their online purchases to be delivered faster than ever. Being closer to its customers can help a logistics company reduce its transportation cycle time, which the APICS Dictionary defines as, “A logistics performance measure of the lead time required for a product to reach its final destination; the time between leaving a warehouse and arriving at the destination.”

This metric is just the tip of the iceberg for supply chain professionals, who are tasked with leading supply chain organizational transformation and innovation. In fact, we’ve seen how supply chain can drive the overall success of businesses — from procurement all the way through logistics and distribution. To meet these demands head on, we’re transforming our business to help transform yours. On Sunday, Sept. 30, at APICS 2018, I’ll be revealing our plans. Something special is happening in supply chain. For the latest information, visit apics.org/something-special.

About the Author

Abe Eshkenazi, CSCP, CPA, CAE CEO, ASCM

Abe Eshkenazi is chief executive officer at ASCM, the largest nonprofit association for supply chain and the global leader in supply chain organizational transformation and innovation. Prior to this, he was the managing director for the Operations Consulting Group of American Express Tax and Business Services. His leadership roles have included project management, business process redesign, and individual and organizational alignment. Eshkenazi may be contacted through editorial@ascm.org.

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