It is a well-known fact that e-commerce is growing rapidly around the globe, and this is causing a significant shift in the retail landscape. It’s changing fulfillment paths and requiring retailers, distributors, logistics services providers, and manufacturers to expand and reconfigure their fulfillment operations. These changes are in turn driving growth in sales of warehouse automation systems. All of this I knew from general interest in business and prior research into the global warehouse automation market.
I am now in the process of updating ARC’s Warehouse Automation & Control market study. As part of this process, I reached out to a number of leading warehouse automation suppliers to learn about the changes that have occurred over last couple years. For example, how have the e-commerce demands placed on retailers changed over this timeframe? What are the primary concerns retailers are expressing to warehouse automation suppliers? What operational capabilities are they looking to develop? And what are the characteristics of automation that are in the highest demand, and why?
Today’s Fulfillment Demand
For starters, the shift to e-commerce is happening at a faster pace than many retailers and warehouse automation providers had imagined just a couple years ago. E-commerce retail sales are approximately $400 billion a year in the US, and have been growing at an annual rate of about 15 percent over the last couple years. This amounts to an annual increase of over $50 billion in e-commerce sales in the US alone. Annual US e-commerce sales have now doubled since 2012. The fast growth of e-commerce has brought about higher direct-to-consumer throughput requirements and many other changes to fulfillment operations.
Compressed Fulfillment Time Horizons
Retailer competition has compressed order fulfillment times considerably over the last few years. Expedited delivery, such as same-day or next day delivery, has become a common consumer expectation. These pressures have greatly impacted warehouse automation requirements. Kevin Reader of Knapp noted that customers will come to them with the goal to get orders out the door in an hour and a half with limited staffing in their warehouses. According to Erik de Jonge of Vanderlande, in Europe they have seen order lead times as short as 30 minutes. These quick order turn-around times are often a disqualifier for batch picking concepts. The batch picking and sortation systems used in the past are often not the right solution for today’s e-commerce fulfillment needs. Many of these customers are now opting for more agile goods-to-man solutions such as shuttle systems.
Accelerated Pace of Change and Increased Uncertainty
Retailers are dealing with an accelerated pace of change and this is causing increased uncertainty about future fulfillment requirements. They have a good feel for what they will need to handle over the next year, but three to five years out is extremely difficult to predict in this environment. So retailers are looking to configure their fulfillment centers to meet unknown changes in order profiles that will occur over the next five years. Adaptability is now a primary requirement for today’s e-commerce warehouse automation systems. Retailers need to be nimble and able to react to a range of scenarios that may occur in a fast changing marketplace. According to Tom Rentschler of Swisslog, three years ago you could predict the growth rate for an early stage e-commerce company such that the warehouse automation system would still be suitable five years later. Because of the explosive growth today, there is a real risk that a system could become obsolete almost immediately. Tom notes that many early stage e-commerce companies want a system that can scale easily and rapidly. These systems are often modular and include software intelligence that enables the operation to adapt to changing circumstances. Andreas Wimmer of SSI Schaefer confirms that adaptability and scalability are paramount in Europe as well. He notes that fulfillment adaptability is being achieved through proper multi-site planning, more sophisticated operational planning supported by software intelligence, and flexible warehouse automation that can adapt to volume and order structure changes. Andreas also noted that some online businesses are working with their customers to make demand patterns more predictable through repeat order programs. As an example, companies and households purchase consumables such as paper towels and cleaning supplies on a regular basis. An automated weekly delivery of these items can provide a discount for the customer and predicable, easy-to-fulfill demand for the online retailer.
Warehouse Automation Characteristics in High Demand
In the e-commerce world, order volumes are increasing rapidly, fulfillment turn-around times are being compressed, SKU numbers are proliferating, and order sizes are decreasing. But the specifics are occurring in a difficult to predict pattern. The high-growth, highly variable characteristics of today’s e-commerce industry are causing retailers and other distribution operations to seek out more adaptable and scalable solutions. Generally speaking, goods-to-person solutions are in high demand, as are other forms of automation that are flexible and scalable. Shuttle systems are often the choice solution for many e-commerce fulfillment operations that are willing to make the investment. Logistics service providers are investing in flexible solutions because they align well with their contract business model and allow them to easily adjust their facilities and operations to meet requirement changes that occur with short-term contractual agreements. Interestingly, Erik from Vanderlande informed me that he is seeing a trend where traditional parcel companies are offering more pick/pack operations and are purchasing solutions to support those processes. At the same time, traditional retail fulfillment operations are increasing their investment in parcel sorting capabilities. So the operational lines are being blurred in the e-commerce fulfillment chain. Finally, there are numerous start-up companies in China and other Asian countries that are offering their own goods-to-person robotics systems. Many of these solutions operate in a similar manner as Kiva systems. When I asked Erik if these appeared to simply be Kiva replica’s, he said that he did not necessarily think so. He stated that many of the solutions offer innovative software features such as slotting, route optimization, and fleet management capabilities. He believes that many of the providers that exhibited at the trade show in China had “evolved from imitation to innovation.”