Industrial Tenants: The Importance of a Gap Analysis before a Lease Renewal
Identifying Gaps to Improve Warehouse Operations Will Impact Your Next Lease Renewal or Relocation Decision.
When a warehouse occupier evaluates a real estate decision such as a lease renewal or relocation a critical component of this process is a Gap Analysis of their existing operation. Simply put, this analysis will help a company identify and execute on opportunities to eliminate waste in all its forms—inventory, labor, movement, etc. When occupiers must renew a lease or move to a new facility, their decisions are sometimes based on anecdotal observations, assumptions, or historically inefficient operating models because ‘that’s just how we do it’.
Occupiers must turn to a Gap Analysis to measure how much efficiency can be gained with improvements to layout, racking, material handling, receiving, and operating in their existing facility. The analysis will also help a warehouse operator avoid a continuation of dysfunction (lease renewal), prevent the transfer of inefficient processes to a new facility, or relocating to a building that is not a suitable size for their operation. Any of these mistakes can lead to costly long-term liabilities. A company benefiting from Gap Analysis will be able to pinpoint ROI as a result of change. It will also enable a company to scale current operations efficiently which will lead to higher capacities of production, storage, and lower labor costs. Let us now look at some of the common areas of warehouse facilities and operations we analyze in a Gap Analysis.
Typical Gaps found in Warehouse Operations
Racking Layout Companies will often grow organically into a space or install racking that does not align with their material handling equipment. Drive aisles that are too wide will lead to fewer pallet positions and wasted space, which translates to unused capacity and increased per pallet cost.
Clear Height We frequently identify warehouse occupiers who fail to evaluate optimal clear height—either by paying for unused clear height or having insufficient clear height. Another common observation is when a company misses optimal capacity by not designating proper rack level heights for changes in pallet size or material needs.
Material Handling Changing material handling equipment will lead to gains in efficiency to racking design and layout. For example, a deep reach forklift will allow for double stacked racking configurations— We find companies who own forklifts reluctant to change when gains in narrower rack aisles far outweighs the cost to lease or buy new equipment.
Heavyweight Racking Capacity Warehouse occupiers will sometimes underestimate the need for heavyweight racking capabilities. Installing heavyweight racking equipment will help companies free up floor space. This floor space—which is usually found near dock doors—is critical to maintain circulation and optimal material flow throughout a facility especially during peak delivery times.
Material & Product Flow Gap Analysis will identify any inefficiencies with product flow and rack layout. Changing the inbound and outbound loading door designations can cut down on forklift hours, subsequently lowering labor costs.
Directional Signage Helping forklift operators move around a floor efficiently with directional signage will eliminate forklift hours, prevent accidents, and help keep material flows organized. This is a very simple improvement that can lead to optimal material flow and throughput.
Dock Positions How a company receives freight, volumes, and velocities will all impact which docks should be designated inbound, outbound, or both. We find that validating each dock designation can create shorter distances, improved throughput, and better circulation.
Dock Equipment Building owners can’t make dock equipment decisions because load capacities are determined by each occupant/tenant. For this reason, we almost always observe companies with insufficient loading equipment to handle peak inbound and outbound freight. This is especially true in older buildings. The identification of this gap can create an opportunity to minimize accidents, improve loading, and time receiving freight.
Warehouse Visibility Providing warehouse managers with mezzanine access or camera access to the warehouses will help them monitor material and employee movements. This will help warehouse occupiers continually improve and change their operating procedures in ‘real time’.
Building Shape Warehouse operations can be highly inefficient if the width: depth ratio is not optimized. The efficiency of a building shape is determined by the linear feet, shape and number of production lines, freight velocity, and truck access. For example, having cross-dock access for a 3PL or packaging company will improve material flow and throughput.
How warehouse operators work ‘within the walls’ is a critical step in determining the direction of a lease renewal, relocation, or consolidation. Until a Gap Analysis of the physical space and operating components of a warehouse is completed, an occupier will not be able to determine the optimal real estate strategy. The results of a Gap Analysis will identify areas where warehouse occupiers can swing the needle to improve their operating efficiency, cutting down on labor costs, and change the trajectory of their next real estate decision.
About the Author Justin Walseth exclusively advises industrial occupiers. Justin works closely with Cresa Consulting Group to provide occupiers with supply chain services, real estate advisory, and business intelligence services as part of an integrated service platform.