One of the topics discussed during the second Sharpening the Supply Chain Practitioners event held two Fridays ago in Cebu City is the set of difficult, early decisions a supply chain manager must make with regards to capital expenditure. Where do you put up a warehouse? Do you build one from scratch, or look for a facility to rent? What kind of storage system and material handling equipment do you put in? How many people will you hire and train?
A week later I read about another real estate developer, DoubleDragon, entering the logistics industry. However, rather than establish a full-fledged third party logistics company, it has instead decided to complement established businesses by developing new warehousing hubs in Iloilo and Tarlac. It makes sense – their expertise is real estate, after all, and if done right it can serve not just major locators in their regions, but also smaller players looking to dip their feet into more mature supply chain models.
Perhaps that is also the appeal of the logistics industry for those major conglomerates who have entered the fray. After all, SM and Ayala hold significant real estate investments, through which they build their malls and residential developments. The same can also be said of Metro Pacific, who have significant investments in infrastructure.
On my morning commute I see several large-scale warehouses either being constructed, or already in operation. They weren’t there years ago. It’s definitely another nod to the increasing importance of supply chain in the national economy. What’s also striking is that these are being built in Manila – yes, that Manila, that congested Manila. One can imagine what’s going on in the provinces, where many more businesses are located.
Amazon’s purchase of Whole Foods Market was seen not necessarily as an investment in brick-and-mortar retail (although you must consider the e-commerce giant’s recent foray into tech-empowered physical stores) but as an investment in expanding its distribution network. The former has a burgeoning online grocery service alongside its long-standing retail business; the latter has strategic locations across the country. Imagine ordering something from Amazon and being able to pick it up at your nearest Whole Foods. Or, imagine ordering something from Amazon and getting it delivered faster than the two days promised by its Amazon Prime service. It’s just another block in their bid to improve their distribution and fulfillment network, one already powered by advanced fulfillment centers and new delivery methods such as drones. (Closer to home, Amazon already guarantees two-hour delivery in Singapore – it’s safe to imagine they want to cut it down to, say, one hour.)
Take SM, which has acquired a significant stake in the 2GO Group. Imagine the possibilities offered by combining the latter’s logistics network – ships, trucks, warehouses – and the former’s malls, supermarkets and condominiums. What’s stopping them from, say, turning a portion of your nearest SaveMore into a fulfillment center, serving not just SM stores, but also other groceries and sari-sari stores, and possibly an online shopping operation? SM has 67 malls and over 200 supermarkets across the country. That’s a powerful network.
A competitive supply chain means being able to serve your end customers anywhere, anyhow. In the Philippines – a country of over 7,000 islands, with a limited (and crumbling?) transportation network and, for now, lopsided development favoring major urban centers – this challenge is more keenly felt. But the economy is growing, the middle class is getting more empowered, and consumer spending remains the country’s powering force. The stakes are higher, and anyone who wants to compete will have to come in with all they’ve got. These conglomerates with their real estate interests are coming in with all guns b. But perhaps not for long: I imagine in the future we will move towards more high-density fulfillment centers with more responsive ways of delivery, like the future Amazon is working on, like the future that’s frankly long here, with smart warehousing options powered by automation. As for sheer size, one day we might stop building outward, and instead build upward.
Henrik Batallones is the marketing and communications executive of SCMAP. A former board director, he is also editor-in-chief of the organization’s official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.