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Buffer inventory, e-commerce growth buoys warehouse demand

During the pandemic many companies saw a major shift to e-commerce as people could not, or chose not to, shop in store. This means that some companies may shift away from the just-in-time method of stocking to a more resilient form of just having higher levels of inventory. Shifting to this method would mean that companies would have to expand their warehouses greatly. It was reported that an estimated 125 million square feet or more will be needed just to keep up with the current level of e-commerce demand. Although e-commerce may see a slight step back with the rolling out of vaccines and people wanting to get the in person experience again, many companies still expect it to grow in the long run. “ ‘We don’t think e-commerce sales as a percentage of retail sales will decline, which means continued supply and demand imbalances,’ UPS CEO Carol Tomé said on the company’s earnings call last month.” This shows that many companies do not think that e-commerce will not necessarily decrease. Companies like Amazon, Target, and Walmart are all putting more money into the fulfillment networks as well as their logistic networks. “A survey from Gartner published in December found that 87% of respondents want to build more resilient supply chains within the next two years, and 58% said their executive leadership understood the cost associated with making that happen.” This shows that it will be a costly method to implement, given that higher inventories tend to correlate to higher costs. However, having more inventory could work out better for the companies that choose to do this. Always being stocked could increase your demand as consumers will find you more reliable. This shift towards keeping higher inventory levels as well as expanding warehouses and logistic services will impact many groups. It will impact commercial real estate because of all of the new space needed to hold and package all of the excess inventory. It will also effect logistic companies like UPS and FedEx. As e-commerce begins to grow more and more we could see them get more and more business. However, some companies may decide that it is worth it to stop outsourcing this task and start creating their own logistic services like Amazon has.

Arjun Mahanty

References:

https://www.supplychaindive.com/news/warehouse-resilience-ecommerce-supply-chain-logistics-real-estate-pandemic/596697/

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