Industrial Insights with Joe Dunlap

Joe Dunlap 01:09

Yeah, thank you Justin. Glad to be here.

Joe Dunlap 01:53

Yeah, certainly. Yes, the interview was with the VEDP, the Virginia Economic Development Program. And the topic came up, I think, really part of how that state is looking at their investments to support growth in the state. And the question was asked of me, are warehouses infrastructure? Because we typically think of utilities and things like that as infrastructure when we're trying to develop a property.

Joe Dunlap 02:23

Deal. Yeah, infrastructure means something different, but I think when you look at the what people typically look at as a visual representation of the supply chain tends to be sort of this linear from left to right from raw materials to a plant or manufacturer to maybe origin port of port of origin to a port of destination. Maybe it's great inland to a warehouse or distribution center and onto the customer, whether it's a retailer or other. But as you follow that line of the supply chain explanation, somewhat of a simple version of it, you begin to see all of the aspects of real estate all along the way, whether that be the manufacturing location, the warehouse distribution center, the ports themselves. So all along the way, real estate becomes a very key part of various supply chains and warehouses as a part of that. You could think of as infrastructure that allow you to sort of meter between the variability of demand and the variability of supply and size that inventory storage, the size of the building relative to your uncertainty, know, the changes in supply and demand.

Joe Dunlap 04:51

Yeah, clearly it's both. think the ports serve a role. They create sort of that center of gravity for a lot of volume, either exports or imports, both really, that creates sort of a strong economic environment. But you can't just limit it to inside that state itself. A lot of exporters are outside of the state of California, but it goes via rail or intermodal to the port and leaves the country in that way in the same regard. coming in. So the port thrives off of being able to serve a broader basin than just the state itself.

Joe Dunlap 05:54

I think I'm perceived as somewhat of a real estate professional and it's, probably an incorrect perception. I've worked within real estate companies. Yeah. Yeah. Yeah. So yeah, to, give you more background.

Joe Dunlap 06:12

I spent about nine years at UPS and a wide variety of roles from being a part-timer finishing school. My first time role was a computer technician. I worked in industrial engineering. I worked in business development. I worked in accounting for a short period of time. know, back in those days, UPS had this philosophy of minding the store, meaning that if you could work the cash register, sweep the floor, greet customers, stock the shelves, you understood the business more broadly. make better decisions on behalf of the business. so one of my last roles at UPS was as a customer automation supervisor. And that meant to UPS mainframe to mainframe integration for invoicing, billing, customer service, et cetera. And they subcontracted that to at the time Anderson Consulting, which became Accenture. And that really broadened my opportunity to get broader supply chain exposure. I spent in total about 10 years. at Accenture and eventually leading the operations fulfillment practice for North America. Everything from systems design and implementation for WMS, yard management, other systems to strategy, network design projects to business process design. Different projects that really gave me a lot of understanding of not just the different types of consulting and supply chain, but also across different industries. I left and started a supply chain business at DEMATIC to get in front of the big RFPs that occur in that industry. can imagine, know, tens of millions of dollars for automation systems. The obligatory three bids and a cloud of dust comes to mind as a phrase. lot of innovative proposals that make you think about it and differentiate you as a provider, but harder to make meaningful decisions. you know, the business plan was really one of, you have two options. You can either

Joe Dunlap 08:11

extend your salespeople to focus more deeply on a fewer subset of clientele, they may increase their win rate, but they lose some of the pipeline as a result of focusing on fewer opportunities. Or you can build a consulting capability to get in front of those RFPs and keep some of them from being competitive or at least learn something to be different. And I did something similar when I went to Fortna. At the time, they were I don't know, $100 million in revenue and really focused on consulting inside the four walls. Now they're almost 2 billion. But part of my role was to broaden their supply chain consulting beyond just inside the four walls, inventory, deployment strategy, network design, 3PL selection, things of that nature to broaden their pipeline as well. And I did essentially the same thing three times in a row. The next one was at CBRE. I spent about nine years there. doing the same thing, same services, getting in front of their engine that drives their business, you know, the transaction through the same type of services. So that's what I mean when I say I'm a little bit of an outsider within the real estate industry because I don't really participate in commissions or other types of traditional broker roles, but I...

Joe Dunlap 09:39

I appreciate that. Thank you.

Joe Dunlap 09:50

Essentially. It's dealing with the client's journey from, you know, I describe it as discovery, prioritization, selection, implementation, support. Generically and you know selection is the in this case for real estate is the site selection But to figure out the discovery what problems do I have? are those problems? Prioritization, know, I have a fixed budget. How do I prioritize which of those? projects or think initiatives to spend money on this year and Then maybe some of them are a real estate decision and that selection process and so on

Joe Dunlap 10:52

My last role at Legacy Investing was to help stand up essentially a new business line focused deeper on industrial but differently and bundling the real estate capital with the automation capital and creating a single lease structure for the tenant. The key to it really was something that Legacy had been doing for decades in data centers, which I didn't know much about, essentially that the landlord tends to own not only the property in the building, but also

Joe Dunlap 11:22

the equipment and technology inside of it and they do something very similar. So they were applying that same experience with their equity partners to industrial and it's something I found, maybe you've seen the same thing, where 10 years ago a lot of automation was really the big companies were doing a pilot, 10, 20 million dollars, whereas the vast majority of small to medium sized companies who also needed a lower cost per unit and better accuracy, They need that to compete but didn't have the capital budget to go automate. So I've seen more sort of robots as a service.

Joe Dunlap 12:04

I think the difference is that working with the right landlord, you can essentially, if it bolts to the building, connected to the building, the landlord can treat it like property and amateurize the investment over longer period, which lowers the cost. They can apply a real estate cap rate instead of a equipment finance loan rate, which lowers the cost. And then typically there's some period of free rent, which again, if you can implement the automation

Joe Dunlap 12:34

be up and running and shipping within that, let's say 12 months for an existing building, you can essentially have an immediate payback period if not well within one year, which is unheard of in this business.

Joe Dunlap 13:08

Risk, risk, risk. Yeah.

Joe Dunlap 13:15

All I think it's very similar story that I've seen at different firms. It's just that in my position at Blue Jay Advisors, the objectivity is more, I'm more aware of the objectivity that the client sees me. I think the clients see me as whatever name badge, you you're trying to get to that sort of outcome. I've removed that from my consulting with clients now where BlueJay is a bit more objective. I'm not necessarily trying to get to a real estate opportunity. I'm not necessarily trying to implement a warehouse management system or type of automation. I'm really trying to solve problems and help drive value.

Joe Dunlap 14:32

Well said.

Joe Dunlap 15:49

You So yes, that's one of the focus that I have for BlueJay. Really there three. BlueJay provides turnaround transformation services to those PE firms for distressed holding companies, provides data-driven supply chain insights to real estate owners and investors to make smarter investment decisions and asset decisions, and then to provide supply chain consulting services to the traditional, like you said, manufacturer, wholesaler, retailer type as well. In fact, I just finished a project for a private equity firm that had acquired another retailer and And I would say just in general, anytime a company is going through an &A, there may be situations where the two companies are not aligned. They're in different territories or geographies. And their infrastructure, their warehouses or distribution or manufacturing are in different geographies and serving different customers or manufacturing different widgets. And so by part of that acquisition, perhaps they want to grow their businesses. you synergistically across each other's territories and they may, you know, initially just ship, you know, cross ship or they may build those capabilities to manufacture in both geographies or hold that inventory for distribution in both geographies. Some version of that may suggest, depending upon the companies, that they don't overlap and they need that capability or they already overlap and perhaps they need to consolidate some of those assets into fewer locations to take out some of the redundancy. drive some cost savings. It's really situational. There's not a single way to approach these. The one I just completed was the early due diligence pre-closed validation of some of the early due diligence around some of the cost takeout. The acquired company was operating at a loss most recently. And so there was some stabilization, stop the bleeding kind of activity to drive some immediate cost takeout. And then later on after things do stabilize and those savings get implemented, there may be some synergies between the two companies, but it's a bit too much too fast. So I could tell you more a little bit about it offline.

Joe Dunlap 18:56

Yeah, in that particular situation, there won't be a new facility decision, whether it's a consolidation or a new added location. Most likely there'll be a sublease. They'll stay in the current facility and give up part of the building because they don't need it, because they're likely to close some of their stores. And there'll be a potential for a sublease transaction.

Joe Dunlap 19:37

It's worth saying it more broadly actually, any kind of change. particularly disruptions since COVID, right? We talk about changes as disruptions, whether it's, you know, tariffs or something else that disrupt the supply chain. But in general, I talk about five, you know, business imperatives, growth, contraction, M &A, change in the service promise to the customer or risk mitigation. And any time a company is going through business changes that involve one of those macro business imperatives, growth, contraction, M &A, change in the customer promise or risk mitigation. Anytime there's a change at the business level in one of those, there's typically going to be a change in the supply chain. Oftentimes there is a real estate impact and that's really where the real estate community gets excited.

Joe Dunlap 21:04

Yeah. You know, I wish there were a pithy short answer to that question, but it's a bit broad. let's tackle it with this caveat. Let's assume that you're asking me about Supply Chain Network Design or optimization or some version of that. And let me give you a little more situational context. Let's say the company has one facility for the whole country. that services the whole country versus, you know, a company that has say 30 facilities across the country and they're hyper local like beer and beverage distribution tends to be tends to be hyper local versus maybe a single manufacturing or a single e-conference center that covers the whole country. And the reason I give you those as sort of context is the degree of accuracy and the location varies or the need for accuracy varies. right? In the latter example, if I'm doing a beer distribution or something that has a very local customer base, you're probably more interested in route planning and route design than you are in network design, for example. And the reason I draw that distinction is that a network design, and you've probably learned this through your master's program if you've gotten this far yet, that Most people in real estate would probably cringe at hearing this, but in network design, it's really a three-digit zip code level of accuracy. The real estate, the...

Joe Dunlap 23:00

And that's the interesting distinction when people think about real estate site selection versus supply chain network design. The network design is going to get you to how many geographically where, how big, how many people, what's the business case. But it's not going to get you down to in this city, there's 14 properties that meet your size requirements and there's different trade-offs within them. That's really the real estate brokers. area of expertise. But what got them there was that supply chain network design. Now maybe when you get down to site section, they need to run some type of a route planning process, but you know, it gets pretty tricky if it's a dynamic routing versus static routes. It's, you know, it's different.

Joe Dunlap 23:52

. Thank Yeah, and just a quick comment about it. mean, if a company is perpetually doing network design, for example, they may need one tool and they need to bring the tool in-house. So the consultant may be able to help them establish that capability, build the initial model, train them on how to use the tool and transition it in-house as a part of the project. Whereas in my experience, most companies will do a network design once every three to five years. maybe and so it's a once and done kind of a thing where you're doing that work outside with their data outside and you're providing the outputs not necessarily transitioning the tool and the capability.

Joe Dunlap 25:27

at the pin. Yeah. Yeah, this could get into multiple conversation topics, but you're correct that in the broader industrial real estate segment, 3PLs tend to occupy about a third and growing to close to 40 % of a lot of the transactions that happen. So pretty significant. My world with 3PLs is a little complicated in that they can both be clients who require similar services. or they could be recipients that compete for an opportunity with a client where I may be doing an outsourcing strategy that includes a 3PL selection process and essentially an RFP. So I can work with 3PLs in multiple ways in that regard. The one quick comment about 3PLs and automation. If you're ever interested, probably see this occasionally yourself. There's a firm called Armstrong and Associates who is typically quoted in the press anytime there's any analysis about the 3PL industry or listings of here's the top 50 3PLs, et cetera. And they published something a couple of years ago that validated what I already knew, which was 3PL contracts tend to be on average, you know, two or three years in term, which prohibits a lot of real estate savings from the broker's standpoint because the longer the lease term, probably the better the rate or lower the cap rate at least. So, you know, 3PL contracts, they're not going to sign a 10, 20 year lease for a contract that they have for two or three years, right? So they coincide the lease term.

Joe Dunlap 27:37

Yeah, they tend to coincide the lease term with their client contract. And that also prohibits automation and innovation for a lot of 3PLs. So it's a sticking point for me from a lot of different points of view as to how I can best add value when there's a 3PL involved.

Joe Dunlap 29:04

It was there all along, I just don't think that the real estate industry acknowledged it. You know, give you a quick example. Take for example a company that doesn't currently sell or distribute into the Pacific Northwest. I don't know if my business is going to grow in that area, but we need to try it out. So I need a facility to serve the Pacific Northwest. Well, because I have some uncertainty, I don't want to go take down a building and do it myself. I want to test it with a 3PL. So that may be a short-term 3PL contract and a short-term lease makes sense. But in another example where a company strategically outsources their fulfillment and distribution capabilities. Classic example with Nike for example. They don't necessarily have that philosophy of operating it themselves, but they do have a long-term, I'm going to put a facility in this market and it's going to be there for the foreseeable future, know, at least five, ten years. Then they're probably better off... not necessarily insourcing it, but having direct control over the lease and then putting a 3PL warehouse operator inside of it to operate it for them.

Joe Dunlap 30:39

It's. You're describing what I began to coin as deconstructing the 3PL contract. So deconstruct it in terms of, as you started to describe the equipment, the capital equipment. the systems, warehouse management system, yard management system, et cetera, the labor component, and then the real estate. So when, when you think through those different components, there are certain situations in which the company, the client is their interests are best served by owning one of those bits. Maybe they have a great WMS in other facilities. They want to use their WMS in that building instead of having a three PL implement another one. So there are various, various reasons why those different components, some may be best that the client has. responsibility. Some may be better if they have the 3PL take responsibility. It just depends on the situation.

Joe Dunlap 31:46

Hahaha.

Joe Dunlap 32:15

Exactly. Food group meaning three PLs or insourcing or?

Joe Dunlap 32:32

Well, maybe it's circumstantial, but I think the discussion around automation has driven a lot of my activity over the past few years. I mean, even before I went to Legacy Investing, I was having that observation and talking about CBRE investments to accomplish something similar. I just think there's traditionally a risk aversion from a landlord's perspective. When you think about it, most landlords don't even want to own the pallet racking in a building.

Joe Dunlap 33:01

Why is that? Because one tenant may want V &A and the next tenant may want wide aisle or turn it 90 degrees or more pallet racking instead of half pallet or quarter pallet racking. And if you're doing three or five year leases, that doesn't have a good payback to put that whatever million dollar investment into the racking. But as your term is extended and you've got your your rate sort of pegged to CPI or something then I can I can take on that additional investment because I'm gonna see a return over the longer horizon and I think the real driver behind this are companies that are trying to you know lower their costs They're having to pick products and ship them within a shorter window to be able to not only enable next day delivery, but same day delivery, which is slowly slowly expanding well well beyond just Amazon. So those are really, you can throw more people at it, but that comes at a higher cost and potentially a higher accuracy issue or accident rate. So trying to automate it can solve a lot of problems and really getting behind the primary focus of shortening the picking window.

Joe Dunlap 35:11

Right. You keep scratching on things that I have a very definitive point of view on. So forgive me for always trying to respond to your comments. There are a lot of, lot, there are half a dozen or more companies like, like CubeWorks that have emerged over the past seven or eight years.

Joe Dunlap 35:33

that to your analogy of Regis for office kind of a model for warehousing. But because they tend to cater to smaller companies, I'll give a trivial example, Joe's home craft ideas that has outgrown his local garage needs a small warehouse and a do it yourself warehouse where I can go process orders, et cetera. And so fragmenting that up into a single 200,000 square foot building like you just said, maybe I only need 25,000 square feet. So it's hard to drive synergies in that model for the individual companies unless you as the landlord, in this case I'll draw analogies of them to a 3PL, they're not as willing to take on that capital investment. And by and large, don't see that having changed in the industry, in the broader industry outside of that specialty type of provider. The one thing that's different, not only with what I was describing earlier about automation, is that I think more of these large 3PLs are getting closer to the... willingness to take on that risk and the evidence I'll point to is a company called Symbotic that you might be familiar with or your viewers will be is that Symbotic is an automation firm that struck a JV with SoftBank in a company called Greenbox

Joe Dunlap 37:11

which if I understand it correctly is going to actually operate much like what you described with automation. But now instead of having dedicated space in a multi-tenant building for one client or another, I can put Justin's inventory on top of Joe's inventory and somebody else that occupy the same square footage. But now they have to be able to track and invoice off of cubic utilization or usage as opposed to just square footage. And so I think that automation capability to drive cost down, better accuracy, lower injury rates, et cetera, is something that that type of an that type of provider is going to change the industry in one way or another.

Joe Dunlap 38:01

Yeah, it gets back. I totally agree with you, but I think the class of automation is probably different. When I say class, I'm referring to more of a AMR, mobile robotic solution that's already more of a RAS, robots as a service, a transactional cost, as opposed to something that truly is capital. I've got to put in a structural automation solution that gets that dense footprint, storage footprint.

Joe Dunlap 39:27

It begins, it starts with where the client is. So if a client has never outsourced or doesn't currently outsource any of their operations, and I'm talking strictly, know, warehouse versus contract manufacturing or something, it's a little bit of a religious conversation. know, somebody in that company worked with a three...

Joe Dunlap 39:56

Somebody in that company somewhere in their past has worked with a 3PL and they either had a great experience or they had a horrible experience. And that's what I mean by a religious decision. They'll swear that they'll never do it again or they'll always want to or prefer to use a 3PL. So I find that that usually taints some of the initial acceptance to considering outsourcing.

Joe Dunlap 40:31

Yeah. It depends upon the influence of those individuals. If that's the chief supply chain officer, then... he or she is going to drive the decision. it's a general manager or somebody lower in the org structure, you may be able to overcome it. Worst case, the organization changes, those people leave and go to other companies, and the question comes back up again. So yeah, it does tend to be a cultural type of thing sometimes to get it started.

Joe Dunlap 41:23

That's right. Yep, yep, that's right.

Joe Dunlap 42:13

Yeah, like I started starting a small consulting firm like this, the way I explained it to my wife is that. There are supply chain consulting needs in macroeconomic times of growth and in macroeconomic times of contraction. In both periods there are supply chain consultative things going on that have always kept me occupied and my previous employers as well. So, knock on wood and hold my breath. I think it'll be good.

Joe Dunlap 43:34

Certainly, because area development, that conference where I did that presentation, that paper, was primarily economic developers in the audience, I was trying to help them understand particularly...

Joe Dunlap 43:51

rural areas. So I guess the analogy is, know, oftentimes when a company says, I know I want to be in Atlanta, pick a city, right? The economic development group, the state, they really drive a lot of pursuit and horsepower behind that to attract that company to come to Georgia and client already knows I want to be in Atlanta. A lot of the other rural areas surrounding Atlanta or elsewhere in the state don't usually benefit because they can't attract companies. Why? At least in this example I'm trying to convey where a company needs say a thousand people in the building. It's gonna be a hard you know seven days a week three shifts a day thousand people it's gonna be pretty hard to put that building

Joe Dunlap 44:37

That's exactly right. So that's where a lot of the labor analytics come from with consulting services in real estate to answer that question. But what I was trying to convey is like I was describing earlier about infrastructure automation being part of the building, because you can go from say, I don't know, 800 or a thousand people to potentially, you know, a hundred people. If you fully automate that operation, now I can attract that building into a more rural area that doesn't have the labor shed to pull from. Now I can bring economic growth to that area because not only are there I shouldn't say it this way. It's not that there are fewer jobs. It's that they were better paid jobs instead of a material handler or a forklift driver in that thousand person facility in that 100 person facility because it's automated. have mechanical engineers, technical programmers. I have mechanics. I have higher skilled, higher paid jobs so that hundred people that I bring to that rural community, those are more like manufacturing jobs in a sense.

Joe Dunlap 46:19

I do pay attention to it. I don't necessarily follow it on a regular basis, part of that's only because the volatility with tariffs, you know, from one week to the next has created a lot of confusion about what the outcome is going to be. But certainly I do think some of the resurgence and on-shoring, near-shoring, friend-shoring, you know, pick your flavor of resurgence. The difference, I think, in our generation with that versus, our parents' generation is that I don't think the job growth is going to be corollary to the manufacturing resurgence. I think that that automation we were talking about a moment ago is going to mitigate a lot of what would have otherwise been significant hiring. And so that's probably a good thing given a number of factors. wage rates have been skyrocketing for as long as I can remember. We've had an immigration program now that a lot of that lower wage skill set is not available. So it's almost, you know, I wouldn't say the stars are aligning, but I really do think that the automation has an even bigger value proposition given the circumstances.

Joe Dunlap 48:05

you Ha ha ha. you

Joe Dunlap 48:48

Ahem. My experience was one of I wanted to get a master's a long time ago. I'll be 57 next month. so it's a bit late in life for me to think about the value proposition and ROI on an investment like that. But it was something I wanted in the MBA and I never got one. I kind of felt like I experienced an MBA through my work experience. But I felt like, know, do I know what I think I know in supply chain? And Frankly, it was a bit more of the inspiration of being around like-minded people who are always curious and want to learn. That really gave me lot of motivation and inspiration to work with younger people. But yeah, it turns out I know more than I thought I'd give myself credit for. Wasn't necessarily to get a career boost at this point in my career, but I thoroughly enjoyed it. I would love to do some

Joe Dunlap 49:49

adjunct or something in the academic world that would keep me close to it because I enjoy the curious minds that don't have the experience that I have and kind of ask me questions to share stories that are useful as well as just the academic sort of theory of different supply chain things.

Joe Dunlap 50:18

Ha ha ha ha.

Joe Dunlap 50:35

Yeah.

Joe Dunlap 51:31

You're doing the distance learning program, aren't you? Yeah, I did too. I I felt I was pleasantly surprised with the frequency of interaction with the staff and the project teams that I was involved with throughout the curriculum. So, you know, there's no other way you can do it and still have a full-time job.

Joe Dunlap 51:55

And, but I think the experience, you know, especially at my age, being back on campus and there's no need to go to parties and socialize as much as you're there to learn.

Joe Dunlap 52:11

Yeah. Well, tell me, I got a question for you, Justin. I mean, you're... Some of your audience that are also in the real estate profession may have curiosity about you and why you took on a master's in supply chain management. in particular, I'm curious about your point of view prior to going through it. Maybe this is a better question once you get through it, but has your point of view shifted a little bit? And if so, how?

Joe Dunlap 53:54

Thanks.

Joe Dunlap 56:53

Yeah. Wow, I love that about you and kudos. I don't think I know anybody else in the real estate industry who is getting their masters in supply chain. I have a feeling you're gonna get a lot more of your peers coming to you asking for your advice about getting theirs. And at the end of the day, whether you're doing that work or not, what I think the value is, is enabling you to have more meaningful conversations with your clientele. about where the value is, where you create more value or where you lead them to drive value elsewhere. I think in the long run it's going to help people like yourself and I anticipate seeing many more real estate brokers doing something similar.

Joe Dunlap 58:06

Well, this isn't the last thing you're going to have to learn. Like I said, I'm still learning every day, doing something different every time, and I thrive on that. If I had to do the same thing every time and every opportunity looked the same, I'd probably get bored. So the industry that we work in keeps us perpetually learning and curious.

Joe Dunlap 58:45

Yeah, thank you, Justin. I appreciate the opportunity to talk. See you.