“Would’ve, Could’ve, Should’ve” Invested in Warehouse Automation

conveyor of moneyI wish that I had access to investing in warehouse automation companies. I wish they were publicly traded. Then I could’ve made some hefty gains on those investments. I think many private equity executives, aware of what they missed, are thinking, “Ah, I should’ve invested in X or Y warehouse automation company when I had the chance.” And I’ll just about guarantee that some distribution operations executives must have used “would’ve, could’ve and should’ve” in a sentence when they received those surprising increases in e-commerce orders.

Limited Public Information
I am currently in the final stage of my market study on the global warehouse automation and control (WAC) market. I picked a good time to research the market because it is in the midst of a large growth spurt driven by the global boom in e-commerce. In fact, my estimate puts the 2014 growth rate at around 10 percent. For context, real global GDP growth was 3.7 percent (IMF) and growth in US software investment was 3.9 percent (US BEA).  But I must admit, prior to embarking on this project, I was unaware of the degree to which the WAC market was growing. The growth isn’t obvious on the surface because most of the vendors are privately held companies. And those that do report their warehouse automation revenues bundle them with other material handling revenues, dampening the reported growth rates.

Where is the Investment Going?
The e-commerce boom is really showing its effects across the distribution world. For example, just last week I referenced a Financial Times article that reported European investment into properties including warehouses and distribution hubs amounted to €19.8 billion in 2014, representing a 34 percent increase over the previous year. And the UK experienced the highest growth rate, showing a 65 percent increase. Amazon’s spending on warehouse automation tend to receive the greatest amount of press, with the company’s high-profile acquisition of Kiva Systems in 2012 being the most well-known. However, Amazon continues to invest in new distribution centers that utilize a broad array of automation. But other e-commerce companies and brick and mortal retailers with e-commerce operations are investing heavily as well. One large warehouse automation vendor informed me that they received a billion dollar project order recently. This project will take multiple years to complete, but that is still one impressively large order. And these investments are not just limited to North America and Europe. In fact, Asia and Latin America are responsible for much of the growth, as the growth in e-commerce is truly a global development.  The development extends up the supply chain as well. The requirements of e-commerce are creating automation demand from channel partners including parcel carriers and manufacturers that need to meet the changing requirements of their retail partners.

What’s Delivering the Value?
The increased demand for warehouse automation is primarily to support the changing requirements driven by high volumes of small, individual orders. But this is creating demand across material handling types including AS/RS, shuttles, AGVs, pick to light, and conveyors and sortation. Although I mention the types of material handling, it is really the software and intelligence of the warehouse control systems (WCS) that are delivering the incremental value realized by these customers. The WCS are becoming more intelligent, more productized, and are well-serving to the agility needed in fast-paced, dynamic e-commerce fulfillment operations.

I’m looking forward to ProMat 2015 later this month in Chicago. If you are attending and would like to share information about a warehouse automation and control case study, a recent technology advancement, or ARC’s market study on this market, please feel free to contact me at creiser@arcweb.com.

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