The warehouse industry can look forward to a strong year. While warehouse vacancy rates are expected to decline, the warehouse management system (WMS) market is set for an upswing. Also surging is regional warehousing, as more companies move toward decentralized distribution.

A new study by ProLogis, a Colorado-based provider of distribution facilities and services, indicates that warehouse vacancy rates will drop this year because of an expected "cyclical upturn" in the warehouse and distribution property markets. The study projects that new construction starts will add up to between 63 to 68 million square feet, up considerably from last year's 58 million square feet. That figure could hit 72 million square feet next year, say ProLogis analysts.

Warehousing space and construction will recover faster in certain areas, the study predicts. For example, the Los Angeles Basin area; Reno and Las Vegas, Nevada; and several New Jersey markets are expected to rebound more quickly than the national average. Meanwhile, San Francisco's South Bay submarket; Louisville, KY; Baltimore; Dallas; St. Louis; Cincinnati; Ohio; and Tampa, FL will take longer to bounce back.

The outlook is also positive for the WMS market. After a few slumping years, the market finally appears ready to rebound because of a number of factors, from a rallying economy to new innovations. "From our experience and indications from industry, WMS users and purchasers are going to be doing a lot more shopping in the next year," Mike Emmerth, project manager at Ohio-based supply chain consulting firm Sedlak, tells What's Working In WMS, a newsletter covering the industry. He expects the improving economy to stimulate capital expenditures in technology. Additionally, companies will be drawn by the enhanced capabilities of current systems. "A WMS isn't just a WMS anymore; it's yard management, transportation management, routing system, etc.," he notes. Moreover, both larger companies and smaller companies are showing interest in these tools.

Also on the comeback trail is the regional warehouse. In the 1990s, many shippers had abandoned regional warehousing in favor of more centralized distribution facilities, which seemed more in keeping with the idea of global supply chains. Now, that trend is reversing, as more companies choose to decentralize distribution. Several factors are behind this move back to regional warehousing. For starters, shippers are reconsidering the concept of extended global supply chains in the wake of recent disturbances caused by weather, labor issues and terrorism. And along with minimizing risk, John Giangrande, president of Pennsylvania-based design/build systems integrator Fortna notes two other advantages offered by regional warehouses that are fueling their comeback—they can trim inbound transportation costs and allow companies to tailor the products they stock to a particular region.

The increasing importance of inventory velocity is also contributing to the resurgence of regional warehousing, a strategy which can allow products to move more rapidly. Consumer products manufacturers are especially concerned about inventory turnover, and it is in this sector that regional warehousing activity will continue to expand the most substantially, says Dr. Thomas W. Speh, a warehousing expert at Miami University in Ohio. An average regional warehouse network in this sector is composed of five to seven distribution centers, with each having the capability to deliver items to customers within a day, says Robert V. Delaney, vice president with St. Louis-based Cass Information Systems.

While regional warehousing is growing in popularity, it is just one of a number of strategies that companies use to serve customers, says Rita Coleman, acting executive director of the Warehousing Education and Research Council (WERC) in Illinois. "What we're seeing today are more and more combinations of strategies," she tells Logistics Management magazine. "Regional warehousing is one; JIT (just-in-time) and direct store delivery are others. If a regional warehouse is part of the strategy, then it may involve buffer inventory, cross-docking or service as a mixing center for assembling single shipments of diverse products. It can involve a combination of all three."

Over the long-term, warehousing space in the U.S. has been on the rise. According to real estate developer CB Richard Ellis, there are approximately over 5.5 billion square feet of warehousing space in the country, an increase of half a billion square feet in the last five years. And it seems that this year, that long-term upward trend will be accompanied by a recovery in warehousing in general, regional warehousing in particular and the WMS market.

Sources:

Study Suggests Warehousing Recovery is On the Way
Logistics Management, January 1, 2004
www.manufacturing.net

The Return of the Regional Warehouse
John Paul Quinn
Logistics Management, October 1, 2003
www.manufacturing.net

WMS Purchases to Pick Up, RFID is One of Many Areas to Watch in 2004
What's Working In WMS, January 2004
www.distributiongroup.com/wms.php

Primer Links

Associations

International Warehouse Logistics Association www.iwla.com

Material Handling Equipment Distributors Association www.mheda.org

Material Handling Industry of America www.mhia.org

Warehousing Education and Research Council www.werc.org

Publications

Inbound Logistics www.inboundlogistics.com

Logistics Management www.manufacturing.net

Managing Automation www.managingautomation.com

Material Handling Management www.totalsupplychain.com

Modern Materials Handling www.manufacturing.net