Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Warehouse Performance Objectives Continue to Evolve

Warehouse Management Systems | By •

Warehouse performance continues to evolve into a more complex, multi-faceted measure. Performance today embodies not only the traditional measures of accuracy and cost-efficiency, but also responsiveness and agility. The importance of these capabilities has increased due to some interesting competitive pressures in the market. And the stimuli continue to change, gradually shifting the relative importance of these capabilities.

Warehouse operations historically strived to deliver the perfect order – the right product, at the right price, at the right time. But these same operations have historically been viewed as a cost-center to C-level executives. Then, warehouse performance became more closely linked with the overall customer experience due to the rise in direct-to-consumer shipping. These purchases were no longer influenced by factors such as retail center convenience, shelf height, or retail staff. Instead, online shopping experience, product packaging, and delivery times were the primary determinants of the customer experience.  Amazon and others subsequently elevated their fulfillment responsiveness to a level that helped them achieve a competitive advantage in the market, greatly gaining market share, and at the same time creating today’s customer expectations for rapid product delivery. E-Commerce and direct-to-consumer shipping exerted several competitive pressures on warehouses. First, rapid delivery required responsive warehouse operations. But obtaining these capabilities could have a positive impact on revenue. Second, additional requirements made warehouse operations more costly. This dynamic increased the importance of being able to balance competing performance objectives. Then the COVID-19 pandemic caused global supply chain disruptions and all bets were off.

warehouse performance objectives

The Relative Importance of Today’s Warehouse Performance Objectives

Clearly, there are numerous responsibilities and activities required to effectively run a warehouse. However, the relative importance of performance objectives is less clear. More elusive is the change in the relative importance of these objectives. ARC developed a survey in Q1 of this year and solicited responses from practitioners to obtain additional insight from the market. We asked about the relative importance of fulfillment accuracy, throughput, adaptability, and responsiveness. We also included a time-phase element by asking about the importance 3 years ago and as of today. Additionally, we obtained comments about “why” a given objective increased the most over the last three years.

Fulfillment operations differ according to many criteria such as load size, product range, service expectations, etc. But the results of the survey do identify some trends. The increased importance of fulfillment adaptability is the most notable change when comparing the relative importance of 3 years ago to that of today. That is understandable given the widespread supply chain disruptions that occurred due to COVID-19, the war in Ukraine, and global trade tensions. However, I believe that adaptability will continue to increase in importance due to incremental changes driven by technology advancements and the rapid spread in that technology (technology diffusion).

There were a range of reasons given as to “why” a given performance objective increased in importance. But there were two common threads. The reasons boiled down to two main themes:

  1. Increased costs that would erode profit margins or
  2. Performance degradation that would lead to lost revenues.

The comments that point to lost revenues further support my opinion that warehouse operations have become more important in the customer experience and as a result have a direct effect on sales. Examples include the following:

  • Increased importance of fulfillment accuracy: In a time of supply shortages, it is likely that an incorrect shipment will then result in a lost sale.
  • Increased importance of fulfillment responsiveness: Customer satisfaction and the Amazon effect make delivery times a determinant of buying.
  • Increased importance of fulfillment adaptability: Fulfillment complexity has increased with increased SKU counts and multiple fulfillment channels. This requires greater adaptability on a day-to-day basis.

Final Word

The data suggest that the dimensions and the degree of complexity within fulfillment operations have increased. Uncertainly is also elevated due to the recent widespread disruptions caused by the COVID-19 pandemic, the war in Ukraine, and global trade relations. Executives appear to be looking at the environment with three eyes – one on the problems of the recent past, one on the opportunities of today, and one on the potential hurdles in the future.

The Order Fulfillment Upheaval – An Omni-Channel Perspective

Omni-channel logistics | By •

It is no exaggeration to say that the COVID-19 pandemic caused an upheaval in order fulfillment processes. The question today is to what degree did these changes occur and how will processes change in the future. Will they revert back to the prior state as if the pandemic never occurred? Will they continue along the same trajectory brought about during the pandemic? Or will the processes be a mix of both, and how so?

An understanding of these dynamics was the goal of ARC’s survey-based research conducted with DC Velocity earlier this year (see DC Velocity Infographic in June 2021 issue). Order fulfillment changes were widespread and exerted effects on fulfillment channels, resource requirements, throughput, merchandise, investments, and more. Today let’s focus on the dynamic combination of order placement and fulfillment processes – also known as omni-channel.

Our survey was conducted with respondents across manufacturing, wholesale, retail, and logistics service provider (3PL) sectors. So certain channel activity is less prevalent in wholesale or manufacturing than in retail. With that said, we asked respondents about the degree to which their organizations processed and filled specific order types in 2019 to serve as a baseline to measure forthcoming changes, and to understand the profile of respondents in the survey sample (image 1). Traditional e-commerce (ship from warehouse), followed by traditional retail (in person) were the most prevalent order process and fulfillment channels used by our survey respondents. The other processes that utilize a combination of online ordering and retail store inventory were less prevalent, as expected.

Image 1

The interesting findings begin with the changes our respondents experienced in their fulfillment operations during 2020 – a tumultuous year to say the least. The survey sample experienced a net decrease in activity within the traditional retail channel as retail locations were restricted to customers or closely entirely for much of the year. And the majority of those that experienced decreased activity in traditional retail stated that it decreased extensively. In contrast, the survey sample experienced a net increase in activity across other channels including online order, customer pick-up at store; online order, shipped from retail store. Publicly noted examples (external to the ARC survey) include the increase of online order, pick up at store from retailers such as Target and the use of stores as fulfillment centers. The increase in activity was especially pronounced for traditional e-commerce (shipped from warehouse) with the majority of those experiencing increased activity stating that it increased extensively. The direction of these findings for 2020 was to be expected. Less clear are the changes that will occur in 2021.

Image 2

Our sample of survey respondents are expecting widespread increases in business activity for 2021, with net increases expected across all listed channels. The majority of those expecting increases within the traditional retail channel are expecting moderate, rather than extensive increases. This was unexpected. It is possible that the moderate increase is due to an underrepresentation of traditional retailers (whom I expect to experience extensive increases in traditional retail) such as grocery, sporting goods, and department stores in our sample. I am also surprised by expected increases in online order, pick-up at store and online order, ship from retail store. Again, it is possible that this is due to the profile of our respondents being skewed toward manufacturing and durable goods, as opposed to nondurables (CPG, apparel, etc.). It is also possible that I have underestimated the degree to which processes such as picking up online orders at stores will “stick”. I have reduced my personal use of these practices as I am enjoying the renewed novelty of entering stores. However, it is possible that this novelty will fade and give way to the convenience of pick-up in the near future. I am also surprised by the expected net increase in shipment from stores. I am interested in learning more about the reasoning behind this decision (as it is more of a supplier rather than a consumer preference). Finally, the broad-based expectation of increases in traditional e-commerce supports the perspective that the pandemic accelerated an existing trend and much of that change will “stick”.

Image 3

Final Word

The findings from our survey-based research of logistics practitioners shows the degree of change that occurred in 2020 and the likely progression of these changes in 2021. In general, the changes will partially revert back to pre-pandemic order processing and fulfillment practices. However, the e-commerce shift was in process prior to the pandemic and there are financial and convenience benefits to these practices that are likely to encourage their continuation. Finally, our findings are consistent with some broader economic measures. For example, the US Census Bureau reported a 32 percent increase in 2020 e-commerce sales – a strong acceleration from 2019. I expect this increase will decelerate markedly in 2021. Furthermore, the change in monthly sales by kind of business suggest both a rebound for businesses that declined during the pandemic (apparel, automotive) and a continuation of pandemic-related growth trends (home furnishings and sporting goods). This indicates that consumer purchasing preferences may have shifted somewhat, as well.

 

The Pandemic Order Fulfillment Upheaval: The 3PL Experience

Warehouse Automation | By •

ARC Advisory Group and DC Velocity magazine have closed our joint survey on the changes logistics operations have experienced in the upheaval of the Covid-19 operating environment in 2020; and the expectations these same executives have about their operating environment in 2021. The goal of this research effort is to capture measurable insights into the rapidly changing fulfillment environment and the direction of change going forward. We are currently compiling and analyzing the response data. In June, DC Velocity will publish an infographic concisely capturing our most significant findings. In the meantime, I looked at a small, but informative subset of respondents – namely the 3PLs. I chose 3PLs because they support a range of industries and very often experience more immediate changes than the facilities of the industries they support, offering a glimpse into broader fulfillment trends.

Throughput Volumes

3PLs experienced extensive increases in order throughput volumes in 2020, with the intensity of increases expected to moderate in 2021. As one would expect, direct-to-consumer was the channel that experienced the most extensive (rate of change) and widespread (across respondents) increase in 2020. Like order throughput volumes, the rate of direct-to-consumer increase is expected to moderate in 2021, but the growth in direct-to-consumer is expected to be more widespread (across a larger percentage of 3PLs).

Labor Restrictions

Covid-19 related restrictions caused friction during daily activities and even inertia for many individuals. And this was no different for warehouse operations. Facility-wide labor capacity restrictions appeared to have the most widespread, negative impact on warehouse labor operations in 2020. Although general social distancing and quarantine driven labor unavailability also caused notable difficulties. Looking forward through 2021, 3PL expectations are that these Covid-19 related labor restrictions will still have some impacts, but less substantial than those experienced in 2020. How did 3PLs respond to minimize the impacts from Covid-19 restrictions? Warehouse process changes and facility layout changes were the most frequently utilized tactics that proved effective at regaining productivity.

Technology Solutions

In the longer term, it is likely that technology investments will play a role in minimizing the risk associated with a pandemic or similar impediment to warehouse productivity. To better understand warehouse investment priorities for the next three years, we asked respondents to select the one warehouse technology investment that is of highest priority to their organization. WMS and warehouse labor management applications were noted, as would be expected. However, somewhat surprisingly, item picking and case picking robotics were also noted. Generally speaking, 3PLs have been risk averse with respect to long payback automation investments due to limited contract durations and the likelihood of differing fulfillment requirements as clients change. But I view picking automation adoption as an indication that 3PLs are accepting greater investment risk to reduce the variable costs of fulfillment in their contract relationships.

Be sure to view the infographic displaying our research findings in the June issue of DC Velocity Magazine, and in future Logistics Viewpoints articles.

Warehouse Automation in a Time of Rapid Change

Warehouse Automation | By •

Last week I had the opportunity to speak with Markus Schmidt, President of Swisslog Americas, about warehousing in today’s environment of rapid and often unpredictable change. The coronavirus pandemic exerted widespread impact on order fulfillment operations. But even prior to the pandemic, warehousing and fulfillment were evolving rapidly due to a number of factors, most notably the transition to direct-to-consumer fulfillment.  I asked Markus for his insights on a few targeted topics. First off, I asked Markus for his perspective on the pandemic’s long-lasting impacts on supply chains. How about all the buzz around grocery delivery? Is that trend expected to continue? Secondly, labor shortages were a major factor prior to the pandemic, but has the coronavirus changed that dynamic? Third, rapidly evolving fulfillment needs are now evolving even more rapidly. How can warehouse operators make sure they choose technology that will fit their needs well into the future… to be “futureproof.” Finally, what wisdom can you provide to companies embarking on their automation journey today? Below are some key points made in the discussion. Watch the attached video for the full interview.

The Pandemic’s Long-Lasting Impact on Supply Chains

Trends that were emerging before the pandemic – ordering more online, smaller order quantities, and faster fulfillment needs – accelerated enormously, because customer behavior was forced from going to the store to ordering online. That acceleration occurred with general merchandise e-commerce but most notable was the acceleration in e-grocery. Furthermore, this growth in e-grocery is likely to continue due to secular changes in the grocery customer’s preferences, as well as grocery’s operational and financial pressures.

Labor Shortages Then and Now

Prior to the pandemic, labor shortages were a driver of warehouse automation investment. But has slack in the labor market due to the pandemic relieved these labor pressures? Markus said that the warehouse labor market hasn’t changed notably – a labor shortage still exists. However, automation is also being adopted to bring down lead times and to be able to flex to changing demands. Further, labor risks have also increased due to social distancing and quarantine requirements.

Innovation, Selection, and Futureproof Investments

Warehouse automation investments are a ten-plus year decision. An appropriate decision involves the right automation for one’s needs, as well as the right level of automation. Flexible technology that can adjust to needs that aren’t even known at the time of implementation is an important consideration for optimally aligning a warehouse automation investment with facility requirements as they evolve over time. For example, some technologies allow for scaling of throughput and inventory needs independently. Additionally, an automation investment should be aligned with a company’s culture and labor practices, as well.

Words of Advice for Companies Evaluating Warehouse Automation

Look for a partner interested in providing a solution to your organization’s specific needs, and that will meet your needs for a number of years while providing a strong return on investment. To learn about Radwell International’s automation of its extensive inventory of spare parts, click the link below to register for the Radwell International / Swisslog session at ARC Advisory Group’s Digital Supply Chain Forum.

Register for Radwell International / Swisslog Session

Orchestrating the Future of Order Fulfillment

Guest Commentary | By •

order fulfillmentIt seems no matter where we look these days, robots and other uses of artificial intelligence are not hard to find. From our cars and smart appliances to Alexa and Siri, the rise of AI technology has permeated our daily lives and is changing the way we operate. Warehouses and distribution centers are no exception. In recent years we’ve seen a dramatic increase in intelligent automation across the supply chain, a necessity to keep up with the 24/7 fulfillment demand created by the rise of ecommerce and omnichannel shopping. Without a doubt, automation has changed the way distribution centers operate, and as warehouse management needs evolve we will continue to see further advances. To keep up with the changing landscape, distribution center managers will require insight into all resources with the flexibility to optimize and orchestrate both the automated and human components of their operations.

Management Snapshot

Let’s start by taking a step back to examine the traditional platforms in place. Managers work with three key systems across the warehouse and distribution center: a warehouse management system (WMS), a warehouse control system (WCS) and a warehouse execution system (WES). Historically, the WCS has integrated with and taken cues from the WMS, executing on a fairly static plan that was built during a batch selection process or wave. For years, this was the de facto process for order fulfillment. WES systems were eventually implemented to address order level reprioritization and improve task optimization – a necessity, as no WMS provider was doing this. WCS providers were first to deliver this capability because that platform has insight into the mechanization level and can drive the right flow paths. Working across various systems in this manner, however, raises certain challenges. First, managers must ensure these disparate platforms are synchronized, which can be costly and cumbersome. Second, they must also ensure the WCS has insight into inventory levels and orders – without this information, the system cannot do its job. Failure to execute on one of these requirements could result in significant issues, including inventory shortages and order delays, which negatively affect the consumer.

Understanding Natural Resources

Now let’s look at the distribution center holistically. There are five main “natural resources” to consider in distribution center management: orders, inventory, labor, automation and the planned work. A WMS manages four out of five of those resources; the only one it has traditionally lacked is automation, which has historically been the domain of the WCS. The WES, which at its core is optimization logic built on top of a WCS, has no line of sight into the other four resources, which is why integration with the WMS has been so critical. As the distribution center landscape continues to evolve, however, it doesn’t make sense to have the WES drive optimization. These platforms are completely dependent on the WMS for insight into orders, inventory, labor and planned work, and this multi-system approach is cumbersome, redundant, expensive and error prone. As distribution centers continue to advance technologically and the pace of business continues to increase, the future of distribution center management is in an advanced WMS that has built-in execution capabilities and is not dependent on communication with a disparate WES.

Inventory and Growth

Of the five distribution center natural resources, it’s safe to say that inventory is the lynch pin. If inventory gets out of sync, the ramifications are massive. Too much inventory means money wasted, not enough inventory can mean unhappy customers, and incorrectly allocated inventory can mean both. Optimizing your WMS with native WES capabilities solves this problem because it creates one system of record that has visibility into all aspects of distribution center management, cutting out the cross-system communication that can produce these inventory errors.

Another consideration for the evolving distribution center is that in most cases, there are various vendor systems in place. As upgrades and growth occur, it’s natural to introduce different types of automation and different platforms. A sophisticated WMS with WES capabilities should be vendor and equipment agnostic and able to orchestrate work across all systems, as well as handle any level of automation and seamlessly assign work to human or automated resources, including the most advanced robots on the market. Advanced WMS systems with execution capabilities allow distribution centers to account for expansion or system changes, giving users the flexibility they need to grow and scale, no matter what equipment they need to incorporate.

The Big Picture

What’s the bottom line? Order fulfillment requirements will continue to increase, and to meet this demand every facet of distribution center operations must be optimized. Doing this effectively requires visibility into orders, inventory, labor, automation and the work itself. The WES capabilities offered by traditional WCS vendors lack this total visibility and are thus unable to effectively manage complete distribution center functions. As order fulfillment becomes increasingly complex and demanding, the traditional multi-system approach to distribution center management is also no longer viable. Management must be approached from a holistic, top-down perspective that considers and accounts for all resources, both human and machine, and enables complete flexibility for system additions and growth. Without this approach, it is impossible to optimize the distribution center as a whole.

Sophisticated WMS with built-in execution capabilities will eliminate the inventory and integration issues that can arise with the use of disparate systems as well as enable the flexibility needed to grow and thrive in today’s increasingly complex marketplace. Managers who continue to depend on the integration of separate WMS and WES solutions risk a whole host of inventory issues that could ultimately result in lost revenue, disgruntled customers and damage to the brand. An optimized WMS is the most efficient way forward for distribution centers and the best way to ensure optimization and orchestration across the entire operation.

Adam Kline is Senior Director of Product Management at Manhattan Associates. Adam has worked at Manhattan associates for twenty years in a number of job roles, including experience as a business analyst and quality assurance engineer. Adam also has direct experience with Warehouse Management, Transportation Execution, Supply Chain Intelligence, Transportation Planning, Order Management, and Labor Management applications.

Sneak Peak: How Warehouses are Adapting to Rapidly Changing Demands

Warehouse Automation | By •

rpPrior research by ARC Advisory Group and DC Velocity on omni-channel fulfillment determined that companies expect an average of 40 percent growth in e-commerce sales over the next five years. That research project placed strong emphasis on the use of stores in today’s omni-channel environment. But it also showed that major changes are occurring at DCs as well. To learn more, ARC Advisory Group in partnership with DC Velocity developed and launched a subsequent survey of logistics practitioners to evaluate the future direction of today’s distribution facilities, technologies, and practices. We obtained feedback from practitioners and analyzed the results. DC Velocity will be running an article on the findings in May, and ARC will distribute a strategic report to clients soon as well. But for now, I would like to provide you with a sneak peak at a small subset of our findings.

  • We listed four fulfillment capabilities of a warehouse – Accuracy, Responsiveness, Throughput, and Adaptability – and asked respondents to rank them by relative importance to their organization. Not surprisingly, Fulfillment Accuracy was by far the most frequently chosen as “most important”. However, when asked how they anticipate the relative importance of these capabilities to change over the next five years, the survey results painted an entirely different picture. Adaptability (defined as the ability to handle a wide range of order profiles) and Responsiveness (time from order receipt to delivery) moved to the top of the list.
  • We listed four common fulfillment paths between nodes in today’s supply chains and asked respondents to indicate the degree to which they engage in these processes. Replenishment of downstream DCs and stores were the most prevalent responses. However, when asked about anticipated change, the responses once again painted a different picture – as direct-to-consumer and drop-ship were the paths expected by most practitioners to “increase extensively”.
  • Digging deeper into warehouse operations, we asked respondents about how they anticipate the prevalence of picking unit types to change over the next three years. We chose “picking” because it is typically the most labor intensive process within a warehouse. Piece (eaches) is the unit type that most said would increase. In contrast, less than half of survey respondents anticipated an increase in pallet retrieval. This data supports the view that picking units will continue to move toward eaches as warehouses increasingly shift toward direct to consumer fulfillment
  • Finally, we we asked respondents to select their top warehouse technology investment priorities over the next three years. Interestingly, but not surprisingly given the labor cost of direct to consumer fulfillment, warehouse labor management was the most prevalent choice. WMS was the second most frequently selected investment choice, also unsurprisingly, given its role as the backbone of warehouse operations.

That’s all for today’s sneak peak. ARC Advisory clients, look for the full strategic report in June. DC Velocity readers, an article will be published on dcvelocity.com in May. Others may contact mailto:chanf@arcweb.com for more information.

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