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Supply Chain News: Just How should we Measure Distribution Center Size?

 

Amazon CFO Says It May Change the Way it Reports Fulfillment Capacity

Nov. 13, 2018
SCDigest Editorial Staff

Here is seemingly a simple question: How large is your distribution center?

Normally, of course, that question is answered in terms of square footage – how much land a given DC occupies in width times length. This is a straightforward measure, and how most new distribution center projects are described in the press.

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The question then becomes how Amazon's fulfillment capacity and growth numbers might change if viewed from a cubic versus square footage perspective?


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For example, a recent report on a new DC being built by food wholesaler US Foods in McClellan, CA describes the project as a "355,000-square-foot facility."

But perhaps the times are changing. The trend is for DCs to be built with much higher clear heights than in times past. For example, an analysis by real estate firm CBRE found DC ceiling heights are up 21% since 2001. That means a clear height on average of about 32 feet, up from 28 feet 6 inches about 10 years ago.

There are a variety of reasons for this. Certainly taller buildings allow more storage space, meaning obviously more capacity for the same square footage. That can also mean use of advanced technologies such as automated storage and retrieval systems (AS/RS), which can reach as much as 100 feet high, though the average is thought to be more like 40 feet.

What's more, in some popular distribution areas, where square footage is hard to acquire and is expensive, some developers are deciding the answer is to go up, with multi-level DC designs. For example, in 2017 SCDigest reported on how warehouse developer Prologis broke ground on a new 590,000 square-foot facility that will have three levels and be located two miles from the Port of Seattle and five miles from Seattle's downtown.

Such multi-story DCs are already becoming popular again in parts of Europe and Asia. In fact Prologis says it has built more than 50 multistory facilities in Japan and China.

But even more topically, the focus on ecommerce and rapid deliveries in urban areas is naturally pushing distribution companies to consider going vertical in places where land is difficult find.



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All of which led Amazon to tell financial analysts that it may change the way it reports its fulfillment center assets.

In its recent Q3 earnings call, Chief Financial Officer Brian Olsavsky said that Amazon could start using cubic feet, instead of square footage, to measure its fulfillment center footprint. That would change the measurement from one of sheer size to one of volume, and give a clearer picture of how Amazon is becoming more efficient or not as its inventory grows.

"We are debating whether the dynamics of the warehouse are changing, so that square footage may not be the main indicator - it might be cubic feet," Olsavsky said. He said that if the company makes a change it will provide more detail to investors, but he didn't say when a decision will come.

And that actually makes a lot of sense – cubic feet really does provide a more accurate metric of capacity than does square footage.

Amazon said it expects its fulfillment center square footage to grow 15% in 2018, slower than the 30% growth rate over the prior two years. That and related metrics include several different fulfillment center types.

The question then becomes how Amazon's fulfillment capacity and growth numbers might change if viewed from a cubic versus square footage perspective?

Maybe someday we'll know, if Amazon changes how it reports such capacity.

As reliably tracked by Marc Wulfraat and his firm MWPVL International, Amazon has about 138 million square feet in the US currently across 354 facilities (that number includes smaller sites such as delivery stations and Prime Now hubs), with another 33 million or so in various states of construction.


Do you think we should start measuring DCs by cubic capacity versus square footage? Why or why not? Let us your thoughts at the Feedback section below or the link above to send an email.

 

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