THE RISE OF HIGH-VELOCITY DISTRIBUTION CENTERS

Written by: Joseph R. Krusinski

High-velocity or high-throughput distribution centers (HVDCs) represent an increasing segment of the warehouse/distribution center market, and their importance is almost certain to grow because of structural changes in the business environment.

The primary factor promoting the development of HVDCs is the emergence of more complex supply chains with a global reach. Although the average distance that products travel to reach customers continues to expand, the importance of timely, accurate delivery is increasing.

As part of that trend, more and more goods are being shipped internationally, especially from Asia. When products arrive in the United States, either as ocean bulk cargo or air shipments, they are redirected to rail cars or trucks for final delivery. Minimizing delays through efficient handling gets products to customers faster and reduces investment in inventory-an important goal for maximizing financial performance. Currently, transportation and other logistical expenses amount to an estimated 10 percent of the cost of the average product. Businesses with long supply chains are looking at HVDCs as a tool to control or even reduce their handling costs.

Another important factor generating interest in high-velocity distribution is the trend toward rapid product obsolescence, according to Steve Callaway, Senior Vice President of customer alliances for AMB Property Corporation. While this has long been true for some products, especially high-fashion items, it is now more generally the case, especially for a growing array of computer, telecommunications, and other electronic products.

Unlike paper towels or canned soup, these high-value products often devalue quickly in the retail marketplace. As a result, neither suppliers nor retailers can afford to let them sit in warehouses or spend time in transit. In just a few weeks, a warehoused product of this type could conceivably lose half its retail value.

It is the job of HVDCs to reduce that risk or devaluation. Typically, HVDCs are strategically located near major shipping ports or international airports and at key transportation hubs across the nation where major highways converge and intermodal facilities are situated. While some are sited an hour or more from the nearest major metropolitan area to minimize land and labor costs, others are deliberately located in big cities or the immediate suburbs to permit prompt delivery to the retail outlets.

AMB Property Corp., which regularly builds HVDCs, prefers urban in-fill sites so that similar facilities cannot locate nearby. “The underlying strategy,” Callaway said, “is that such a difficult-to-duplicate location will give the building greater residual value should the initial tenant depart.” HVDCs are primarily located adjacent to trucking facilities but may be located adjacent to rail lines or even barge routes. The ability to quickly load and unload trucks is one of the prime characteristics of the modern HVDC.

Broadly speaking, there are essentially two major types being built, although each has a number of permutations.

Type I is an HVDC that handles high-value, short-shelf-life goods as well as other products. A good example is a regional distribution center for a major retailer that handles seasonal fashion items and electronics (short shelf life), as well as paper products and linens (long shelf life). Another example would be a food company that distributes both perishable and non-perishable items. Usually, Type I facilities combine the characteristics of a high-capacity warehouse with those of an HVDC. They are often quite large (500,000 square feet or more), with clear heights in excess of 30 feet to accommodate extensive racking and internal conveyor systems. They usually have a super flat floor to provide added stability for tall racking systems and high-lift trucks, large outdoor trailer parking areas, and a ratio of one truck dock to every 7,000 square feet of floor space.

The Type II HVDCs tend to be smaller and more focused on high-value products, such as computer equipment, or they are used by logistics-oriented businesses, such as freight forwarders. The emphasis in these facilities is less on warehousing and more on rapid redirection of incoming product into outgoing trucks. As a result, clear heights tend to be lower, usually 24 to 30 feet, and conveyor systems are less extensive than in Type I facilities.

Racking systems may be entirely absent. The buildings themselves tend to be smaller and shallower than Type I (usually no more than 250 feet deep), with a higher ratio of truck docks to floor space-perhaps one dock for every 3,000 to 5,000 square feet.