- 'Just-In-Case' delivery method increasing warehouse demand
- Covid lockdowns exposed vulnerabilities, driving increased inventory levels
- Manufacturing diversification and higher inventory requirements reshaped supply chains
Covid lockdowns shone a light on supply chain fragilities, and now, Australian warehouse occupiers are moving towards a ‘Just-In-Case’ delivery method to better protect themselves.
According to JLL, the Just-In-Time delivery method used by most businesses prior to 2020, is now seen as being too much of a risk as businesses look to build adequate stock levels so as not to be caught short.
JLL’s Head of Industrial & Logistics Australia, Peter Blade said the previous approach left businesses vulnerable.
“Before the pandemic, it was routine for most supply-chain managers to try to become as lean and as efficient as possible, finding a cost-effective manufacturer to help accomplish this,” said Blade.
“However, this meant supply chains were vulnerable to single points of failure, which the pandemic and its myriad of trade disruptions provided in abundance.”
Manufacturing diversity
According to Blade, the ‘Just-In-Case’ model allows companies to meet a sudden surge in customer demand, especially from online consumers, through efficient local distribution centres maintaining healthy volumes of stock, especially of fast-moving consumer goods (FMCG).
After Covid lockdowns brought businesses to a halt, manufacturing diversification has allowed supply chains to be spread across different locations while limiting the number of any single points of potential failure in terms of transportation and distribution.
However, operators are going even further.
According to a study by business academic Atif Saleem Butt in the United Arab Emirates, retailers are using a number of different measures to reduce the risk on supply chains.
As well as securing required demand, preserving cash flows and redirecting inventory, the retailers have added capacity to their distribution centres, becoming more flexible and widening delivery options for their suppliers.
The same type of trends are also being observed in Australia, with JLL’s Supply Chain team finding that the majority of Australian warehouse occupiers are now needing to hold approximately 30% more inventory compared to pre-pandemic levels, with FMCG players having the highest requirements.
“Domestic supply chains – thanks to their natural agility and the trend towards onshoring of manufacturing – are less reliant on the ‘Just-In-Case’ approach,” said Blade.
“Nevertheless, they, too, were adopting inventory levels higher than they did pre-COVID. This was expected to ease over the medium term as normality returned.
“But a complete return to ‘Just-In-Time’ remains a long way off.”
Demand for industrial space
Recently, there has been a huge demand for industrial space as businesses try to secure their inventory.
According to JLL Research, both the Retail Trade and Transport, Postal and Warehousing sectors exceeded their previous record national annual gross take-up for their sectors during 2020 (by 59.4%) and 2021 (34.2%).
However, they said that the market remains choppy with the historically tight vacancy environment making it hard to determine the true levels of demand.
JLL said that some occupiers are hunting for a pre-lease for larger space in the future, while others have overestimated their needs.
Easing supply chain bottlenecks are expected to improve availability across the industrial market and reduce stress on overflow storage facilities, according to Blade.
“Ultimately, while the worst is likely behind us, lean supply chains are simply not possible any time soon.”
Peter Blade, JLL’s Head of Industrial & Logistics Australia
“Problems in ports and persistently prevalent bottlenecks in China remain unresolved.
He said despite this, occupier activity is expected to normalise to pre-COVID levels, with a more fluid sub-lease market likely to mitigate some occupier space relinquishment.
“The tailwinds exhibited throughout the pandemic, namely eCommerce adoption, are likely to be structural, with many groups deriving a larger share of their revenue from online sales, supporting the holistic strength of the industrial sector over the medium-to-long term.”
