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Lean styles of inventory management that left business scrambling during the pandemic have been slow to come back in style, with a risk-averse approach keeping warehouse demand high.
According to the Australian arm of global real estate services firm JLL, it may be a long time before the “just-in-time” style of inventory management returns, with companies still reeling from pandemic pipeline disruptions.
Instead, they’ve moved to a “just-in-case” approach that’s due both to both the continuing material ramifications – with some supply chain bottlenecks still unresolved – as well as attitude shifts that have caused businesses to reprioritise risk preparedness over the cost of storing stock.
According to JLL, this keeps firms ready to “to meet a sudden surge in customer demand, especially from online consumers, through fleet-footed local distribution centres maintaining healthy volumes of stock, especially of fast-moving consumer goods (FMCG)”.
Peter Blade, JLL’s head of industrial and logistics in Australia, said that the new style has taken hold.
“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,” he said.
“However, this meant supply chains were vulnerable to single points of failure, which the pandemic and its myriad trade disruptions provided in abundance.”
And while manufacturing diversification has also seen firms spread their supply chain across geographic locations, limiting the potential impact from any one point of failure, it seems that securing stock and increasing storage capacity has been a major mitigation strategy for safeguarding business against future risks.
JLL’s supply chain team in Australia reported that the majority of Australian warehouse occupiers are now needing to hold approximately 30 per cent more inventory relative to pre-pandemic levels, with those dealing in FMCG maintaining the highest volumes.
Those relying on domestic supply chains are more likely to be returning to lean inventory management, though Mr Blade noted “a complete return to ‘just-in-time’ remains a long way off”.
And while warehouse demand has clearly remained elevated, the firm recognised that gauging true demand is difficult due to the “choppy” nature of the market and companies’ varying approaches to post-pandemic strategy.
“While some occupiers are hunting for a pre-lease for larger space in the future, others have found themselves with too much space after initially overestimating future requirements,” Mr Blade said.
“Ultimately, while the worst is likely behind us, lean supply chains are simply not possible any time soon. Problems in ports and persistently prevalent bottlenecks in China remain unresolved,” he added.
Despite these challenges, JLL expects occupier activity to eventually normalise to pre-COVID levels.
Mr Blade noted that “a more fluid sub-lease market [is] likely to mitigate some occupier space relinquishment”.
Even so, it is clear that the pandemic has changed the nature of warehouse needs – and indeed how businesses operate – for the foreseeable future.
“The tailwinds exhibited throughout the pandemic, namely e-commerce 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,” Mr Blade said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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