Communications of the ACM
E-Commerce Supports Data-Driven Economic Development
Amazon's recent announcement it was searching for an appropriate location for a second corporate headquarters has more than 100 municipalities in the U.S. and Canada competing for a gargantuan facility expected to supply up to 50,000 jobs, as well as a jo
Credit: Scott Lewis
Amazon's recent announcement it was searching for an appropriate location for a second corporate headquarters has set off a high-stakes parlor game of sorts among civic boosters throughout the U.S. and Canada. More than 100 municipalities are said to be vying for a gargantuan facility expected to supply up to 50,000 jobs, an immediate $5-billion jolt to a regional economy, and the cachet of being in the vanguard of the future.
Yet, on a smaller but more pervasive scale, the explosive growth of Internet-enabled commerce is also creating opportunities for local economies through new distribution and fulfillment centers, operated not only by Amazon, but also by other large retailers. As exemplified by Amazon's recent purchase of the Whole Foods grocery chain, the integration of "pure play" e-commerce and brick-and-mortar goods and services is accelerating at a rapid rate – and the winners will have to be nimble in providing the largest selection of goods at the fastest speeds.
"There is a constant push to bring more selection, more inventory, closer to the customer, to cut down on delivery time," said Ben Conwell, national practice leader of e-commerce fulfillment at real estate firm Cushman & Wakefield. "(Amazon CEO) Jeff Bezos has trained nearly all of us because statistically, practically all of us are Amazon Prime members, to expect that instant gratification and expect it to be free, not just from Amazon, but from everyone else as well."
Digital Divide 2.0?
Just as the "last-mile" digital divide has separated consumers who receive the latest high-speed broadband connectivity from those stuck with obsolete or even no broadband access, a new digital divide, separating those communities truly in the running for a distribution center that could bring more than 1,000 jobs, and those clearly not in the running, might be emerging. The reasons that underlie a merchant's decision to locate in Municipality A instead of Municipality B span factors from proximity to transportation facilities, to reasonably priced and taxed land, to an adequately-sized and reliable labor pool; big data is a foundational element of those decisions.
Conwell said Amazon remains the e-commerce exemplar: "They created the market and continue to be well in front of potential competitors. There's no easy answer to 'what is the cut off, the minimum market size?' It's subject not just to demographics, but also shopping history and the big data that comes with that. Remember, Amazon knows every thing we've bought since 1995. They know what we bought it with, when we bought it, and I like to say they even know what we were wearing when we order it. All that data goes into identifying when to go to a given locale. And that's just Amazon."
Tools: Some secret, some not.
Exactly which tools supply chain planners use to narrow down likely spots for new facilities and how they program them tends to be well-guarded (Amazon declined to comment for this story. Seattle-based Nordstrom, which recently opened a fulfillment center in Lancaster County, PA, did not respond to a request for comment).
"They are a little secretive," said Rob Handfield, Bank of America Distinguished Professor of Supply Chain Management at North Carolina State University. "What you find in general is they are all looking for the same things – it's just dependent on how they weight them individually."
Conwell, who directed Amazon's North American logistics and fulfillment activities from 2011 to 2014, said the company develops its location analysis tools in-house.
"There is a core belief at Amazon that nobody develops engineering or software tools better than they do in-house," Conwell said. "That massive analysis on supply chain planning is done using proprietary tools. For the rest of the world, for other retailers, whether they are emerging online players trying to land fulfillment centers or 'sticks and bricks' retailers working to develop an online presence, there are a couple of market products."
Redlands, CA-based Esri is one of the leading developers of tools and suites that allow supply chain analysts to plug in variables such as lot size, flooding potential, and average cost per acre. The company, which also partners with other leading supply chain platform developers such as Llamasoft, also makes its methodologies for its leading products available. Helen Thompson, Esri's global business solutions manager for banking, insurance, and real estate, said more than 15,000 variables can be plugged into Esri's analytics—and some of those variables go beyond what one might expect.
Safety, health data are key.
For instance, Thompson said a large information technology vendor looked for areas with very low rates of crimes such as assaults and robberies when setting up a call center. "They employed a lot of women and young people who come in and out at different times of night; if you come in to work at 10 p.m., that's a big requirement."
Thompson also said analysis of prescription drug use and abuse is emerging as a variable. Her observation was echoed by Handfield, who said, "They want a workforce that, I hate to say this, but has a work ethic. One of the biggest challenges is getting people, that, with the opioid crisis as it is, are drug-free."
The degree to which a locality may be experiencing a pervasive drug problem might also work in tandem with the degree of economic hopelessness its people are enduring, and unfortunately, many areas that were hit hard by the loss of industrial or manufacturing jobs in the 1970s and 1980s are finding even local retail anchors are losing out to goods delivered from elsewhere. For example, while Johnstown, PA, located in the central part of the state, struggles with a new round of economic stagnation, Lancaster County, about 80 miles equidistant from Philadelphia and Baltimore in southeastern Pennsylvania, has two large recently opened fulfillment centers within its borders, with staffing that can run up to 1,000 people each in peak seasons. In addition to Nordstrom's center, Philadelphia-based Urban Outfitters also has a center in the county; each is about 1.1 million square feet in size.
John Biemiller, vice president of the Economic Development Company of Lancaster County, said the centers were not viewed as kick-starters or saviors to a stagnant area, but as welcome additions to an already robust economy, which he said has a work force of about 250,000 to 270,000 out of a total population of about 530,000.
"We have a very strong and diverse manufacturing base, a significant food processing industry, and a very vibrant downtown in Lancaster City. We have about 5,000 family farms, which average about 80 acres in size. And we have a vibrant tourist industry, which is how a lot of people know the county, but that also gives them a skewed picture of who we are."
Esri's Thompson said many local economic development agencies will have to start getting just as granular in their analysis of their regions' assets as their prospective partners in commerce already are; for example, she said, before a city council hands out tax incentives, they should make sure the economic payback through things such as a bigger workforce's residential taxes can offset the tax break.
She also said more jurisdictions will have to work collaboratively in order to reap the benefits of the changing supply chain. While some places are simply too far away from customers and transportation facilities to capitalize, others might have a shot if they combine efforts.
"It's not simply a case of 'I want to bring it here,' but understanding where the workforce is engaged and is part of, and that tends to happen across counties and local jurisdictions," she said. "More and more, these jurisdictions need to come together. Too many look at things in isolation and often compete against each other, often to their own detriment."
Gregory Goth is an Oakville, CT-based writer who specializes in science and technology.
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