Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Widespread, Yet Cautious Optimism for 2021: ARC’s Order Fulfillment Research Findings

Warehouse Automation | By •

COVID-19 caused a global upheaval in order fulfillment processes throughout 2020. As we enter the second half of 2021, there are abundant signs of improvement and optimization. Meanwhile, caution is prevalent as well. For example, the Delta variant of COVID-19 may cause an increase in infection and disruptions to business in the fall. Scenarios such as this, generally categorized as a surge, have been a concern for the last six-plus months. At the beginning of 2021, ARC Advisory Group, in partnership with DC Velocity magazine, anticipated factors such as a subsequent surge when we crafted our survey of warehouse practitioners. We obtained insights into experiences from the prior year (2020) and expectations for 2021 and beyond. Our research contained questions about numerous topics. However, this article will focus on findings about the following: business activity (anticipated change in order throughput volumes); COVID-19 related impacts on labor productivity; and perspectives on warehouse technology investments.

Warehouse Business Activity

More than 25 percent of survey respondents stated that they experienced a decrease of order throughput volumes in 2020. In contrast, only 3 percent of respondents anticipate a decrease in 2021. Furthermore, 80 percent of respondents anticipate an increase of order throughput volumes, while only 17 percent expect volumes to remain about the same. These expectations are generally in-line with other broader economic measures of expectations such as the ISM Report on Business and other confidence measures. In general, our results indicate widespread optimism for 2021, accompanied by a health dose of caution.

COVID-19 Labor & Productivity Impacts

Labor productivity was hindered extensively by COVID-19 and these negative impacts were exerted through a number of mechanisms. Within warehouse and fulfillment operations, personnel and labor was negatively impacted in a few ways. In our survey, we inquired about the impacts of facility-wide labor capacity restrictions, warehouse zone-based labor capacity restrictions, social distancing requirements/mobility restrictions, and worker unavailability due to quarantine requirements (reduction in available staff). The first three mechanisms are driven by restrictions on personnel density or movement within a warehouse or facility. In contracst, the last mechanism (worker unavailability) is a temporary reduction in the size of the available labor pool. Aggregate responses indicate that facility-wide labor capacity restrictions was the factor that exerted the most widespread negative impact on 2020 warehouse operations. And although social distancing measures negatively impacted warehouse operations, one respondent stated that complying with social distancing measures was key to continuing operations. Most notably, negative impacts from worker unavailability due to quarantine requirements was almost as widespread as facility-wide labor capacity restrictions, but also exerted the greatest amount of “extremely negative impact” on warehouse operations in 2020. I view this result as “when quarantine requirements hit a warehouse operation, likely due to a local outbreak, they hit it hard.”  When viewing the same factors for anticipated impediments to 2021 operations, a substantial improvement is visible across the board. Of course, expectations are uncertain. But the reduction in 2021 anticipated negative impacts, when compared to those that were experienced in 2020, indicates an improvement in expectations that to date have occured as expected (or better).

Warehouse Technology Investment Perspectives

ARC Advisory Group’s prior research with DC Velocity indicated that the value proposition of warehouse automation continues to improve. Our research this year indicates the same. Over 60 percent of respondents indicated that they believe the warehouse automation value proposition will expand (become more applicable) over the next three years. Meanwhile, less than 10 percent expect the value proposition to diminish (become less applicable). With that said, we asked respondents to identify the one warehouse technology investment that is the highest priority/importance to their organization. WMS was by far the most frequently chosen technology, followed by warehouse labor management. I believe these results indicate that software remains central to achieving efficient and effective warehouse operations, and that labor remains a necessity in the vast majority of facilities. With respect to automation, autonomous mobile robots (AMR) and conveyors/automatic sortation were most frequently chosen. Conveyors and sortation is almost a necessity to automated warehouses, so this was expected. However, the relatively high importance of AMRs shows that these robotic systems have matured rapidly from emerging to well-established warehouse technology options.

Efficient Frozen Food Distribution: Inside the Build-out of Two Automated Facilities

Warehouse Automation | By •

In December of 2019, the global grocery retailer Ahold Delhaize announced it was investing $480 million to transform and expand its US supply chain operations to support a strategy to transition the supply chain network into a fully-integrated, self-distribution model.  My colleague Steve Banker published an informative article in 2020 about this extensive initiative Ahold Delhaize’s Supply Chain Transformation (forbes.com). Chris Lewis, EVP Supply Chain at Ahold Delhaize Retail Business Services, and Mike Khodl, VP, Differentiated Technologies at Dematic, participated in an ARC Advisory Group event discussing this transformation. As part of the initiative, Ahold Delhaize is partnering with Americold and Dematic for the build out of two fully automated frozen facilities. Mike and Chris together communicated substantial informative details on the function and role of these facilities during the session.

The Ahold Delhaize USA transformation is large in scale and scope with the goals of improving service and reducing delivered costs. As such, they identified automation as a key tenet of the future to drive efficiency from one end of the supply chain to the other. The fully automated frozen facilities are expected to drive significant costs out of the supply chain and at the retail stores they support by building smarter pallets, improving cube in trucks, and streamlining downstream tasks.

Intelligent Store Replenishment

The frozen facility solution incorporates a dynamic order assembly process that supports the broader initiative by streamlining downstream processes within the supply chain. The process starts with the objective of fulfilling a “store, aisle, and shelf friendly” delivery to a downstream store or fulfillment center. This process utilizes store-specific planograms, which differ according to location. These planograms are used as an input to determine the inventory to be assembled on a pallet that needs to go on the trailer, to be delivered to a certain store, all in the right sequence. Picking automation is used to depalletize SKUs for shipment, while Dematic’s shuttle system is used to efficiently sequence items from their prior pallet storage arrangement to their desired order. In addition, the company’s pack optimization software ingests the SKUs associated with a particular store order and builds a puzzle of a particular pallet or series of pallets that belong to that store. The software then sends the requirements to the automated mixed case palletizing that assembles the outbound, store-friendly pallet.

Sources of Efficiency

The solution is expected to deliver efficiencies within the DCs (process itself is more efficient and more responsive to store replenishment requirements), through improved trailer cubing (estimated at a 15 percent improvement that will reduce 3 million miles of travel per year), and more efficient processes within the stores due to a replenishment pallet organized for sequential unloading according to the structure and item proximity within the specific store’s layout. This will allow store restocking to unload items from the pallet in the order in which these workers progress down the aisle.

Final Word

Ahold Delhaize engaged in strategic network design to properly locate its warehouses to minimize travel to and from these facilities. These relocation and expansion efforts, in addition to the automated end-to-end solution within the frozen warehouses, are expected to significantly improve service and reduce costs at a time of rapid change toward omni-channel fulfillment within the grocery industry. In the first three quarters of 2020, Ahold Delhaize USA reported a 115 percent increase in online sales.

Achieving Overall Logistics Effectiveness in Warehouse Operations

Warehouse Automation | By •

I recently had the opportunity to speak with Mike Khodl, VP of Differentiated Technologies at Dematic. We spoke mostly about achieving optimal warehouse performance. However, we discussed a number of key subtopics, beginning with the role of software intelligence in automated warehouses as a strategic value driver, and the critical role it plays in in managing the automation, manual activities, material flows, and order fulfillment within a facility.  Subsequently, we discussed the broader concept of taking a holistic approach to warehouse performance improvement, including warehouse process design, solution selection, and the role of specific steps in achieving overall success in warehouse operations.   Finally, we discussed the hot topic of grocery fulfillment and the challenges facing grocery operations as e-grocery growth accelerates across regions. Below are some key points made in the discussion. Watch the attached video for the full interview.

Warehouse Software as a Strategic Value Driver

Warehouse software has classically been viewed as warehouse control software or warehouse management software. A more contemporary view divides the discussion into three layers. Warehouse control is the layer that manages the real-time activities, giving directions to mechatronic systems to perform in an optimized way. The second layer is the execution layer that bridges the gap associated with overall material flow between the functional areas of a distribution area – creating functional linkages. Third, is the order management system that orchestrates the overall facility processes with a focus on the outbound objectives of the warehouse operation. Together, these three layers drive an optimized facility.

Methods for Achieving A Holistic Solution

Dematic has formalized the use of an OLE (overall logistics effectiveness) measurement into the grading and measuring of each functional element of a facility. The measurement process takes planning, machine capacities, system capacities, and quality measures into consideration. These measurements are then utilized as an element of judgement to determine if they are achieving the project’s operational goals. Dematic takes a holistic approach, helping customers develop an operating plan, which then drives what needs to be achieved and the measurements of that success.

The Rapidly Evolving Grocery Supply Chain

The grocery supply chain is evolving rapidly. Grocery is moving toward microfulfillment and urban fulfillment models. The underlying value driver is the ability to respond in a two to four-hour time frame with fresh goods. In short, the future of grocery is a very dynamic, very fluent fulfillment operation. In turn, grocers are pressured with instituting efficient and effective processes for picking those orders and then buffering those orders for last mile delivery or portal pickup at the grocery store. A subsequent challenge will be the ongoing performance and maintenance of the automation installed in this decentralized fulfillment model.

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

Warehouse Automation Market Outlook: 2020 Update

Warehouse Automation | By •

ARC Advisory Group’s 2020 update to its global warehouse automation market study is completed and available for purchase (detailed table of contents). I wrote an interim update a couple weeks ago that discussed my analysis of 2019 market performance and the surprisingly strong 2020 year-to-date performance of warehouse automation providers and the market as a whole. The top three providers in this market for 2019, in alphabetical order, were perennial leaders Dematic, Knapp, and SSI Schaefer.  I would like to take this opportunity to provide additional details on the structure of the research and the included findings.

warehouse automation market growth

E-Commerce Fulfillment Trends Accelerate

The recently released US Census Bureau statistics show that e-commerce sales in the second quarter of 2020 increased 37 percent from the first quarter of 2020 and increased 44.5 percent when compared to the second quarter of 2019. Clearly that is an acceleration that will have wide-ranging effects on the retail landscape, fulfillment processes, facilities, and more. Just yesterday, I read a WSJ article that quoted data from the BDO Bi-Annual Bankruptcy Update stating “In the first six months of 2020, 18 retailers filed for Chapter 11 bankruptcy, with an additional 11 filing in July through mid-August….. Shifting consumer spending habits driven by the pandemic have added pressure for retailers to minimize their physical footprints and move toward more digital and omnichannel customer experiences.”

The most notable and recent publicly stated data point on accelerating warehouse automation demand from e-commerce growth is KION Group’s  announcement that the value of order intake in the Supply Chain Solutions segment (Dematic) was “close to €1.1 billion in the second quarter of 2020, an increase of more than 100 percent on the corresponding prior-year period (Q2 2019: €506 million).” The strong order performance was “due in large part to big-ticket orders from e-commerce customers, including companies in North America and Europe.” My confidential discussions with warehouse automation suppliers also revealed that demand for warehouse automation in support of e-commerce fulfillment remains strong. Demand from grocery continued to be especially strong. Flexible, scalable automation is being adopted to meet these growing and changing fulfillment requirements.  Most notably, shuttle systems, automatic guided vehicles (AGV), autonomous mobile robots (AMR), and pocket sorters are being deployed for their flexibility, adaptability, sequencing, and throughput capabilities.

Warehouse Automation Research Scope Update

I believe that thoroughly defined research scope and ongoing attention to detail are important determinants of research quality.  I placed extensive effort into the scoping process for this study back in 2013. I determined this year that the historical data from then until now is finally adequate to forecast additional market segments. As such, this year’s research includes a five-year forecast for the segments in the table below (note: market share data for these segments has been available for a number of years).

Final Note

As I have stated previously, I believe the same trends in the global warehouse automation market will occur as if the pandemic had not occurred. However, I believe technology investments are at the tail end of a mild to moderate delay due mostly to implementation disruptions. ARC foresees stability in verticals that provide essential items, expected acceleration in verticals transitioning to e-commerce, and some isolated declines in warehouse automation demand from businesses that have themselves been negatively impacted by the COVID-19 pandemic.

For additional information on this research, please contact your client manager or submit your request here.

Warehouse Automation Global Market Update: Steady as She Goes

Warehouse Automation | By •

Warehouse Automation SR Machine
Photo by Arno Senoner @arnosenoner

I have completed the analysis and forecast portion of my global warehouse automation market research for this year. All I have to do now is write the report and publish it. I thought I would take this opportunity to present some of the high-level findings from this research. To those of you on vacation during this peak vacation week – I’m jealous. To those of you in the office. I hope you find some of my insights…insightful.

Warehouse Automation Didn’t Take A Sick Day

Straight to the point, the market didn’t grow as much in 2019 as I had expected, while 2020 is looking better than I had anticipated. It’s interesting how the focus on coronavirus, the effects of the lockdowns, etc., clouded my memory of 2019. Of course, the major factors such as investment to support the growth of direct-to-consumer remained on the top of my mind. However, indirect factors in 2019 such as GDP growth deceleration in parts of Europe, trade decline due to trade disputes, and the strengthening dollar (or weakening euro) fell out of mind once the lockdowns became a reality.

I entered the research process with the expectation that the global warehouse automation market would remain relatively stable during these uncertain economic times, as most direct-to-consumer channels remained active, with some growing very rapidly. Furthermore, warehouse automation suppliers went into 2020 with a substantial backlog of orders to buffer any short-term decrease in demand for project business. And the maintenance and support business of automation suppliers has been growing steadily over the past few years, providing additional support to providers’ business. But at the same time, travel and other restrictions likely caused project delays, so I didn’t expect the market to actually grow in 2020. But 2020 growth now appears to be a real possibility. The International Monetary Fund recently downgraded its 2020 GDP growth forecasts. In contrast, my expectations for the 2020 global warehouse automation market have improved over the last couple months.

2020 Anecdotes and More

ARC’s study process includes direct input from suppliers as well as the use of publicly available information. I am not at liberty to discuss confidential inputs. However, I can say that the most impressive publicly available datapoint from 2020 thus far is KION Group’s announcement that the value of order intake in the Supply Chain Solutions segment (Dematic) was “close to €1.1 billion in the second quarter of 2020, an increase of more than 100 percent on the corresponding prior-year period (Q2 2019: €506 million).” The strong order performance was “due in large part to big-ticket orders from e-commerce customers, including companies in North America and Europe.” Of course, orders are not constrained by capacity like revenues. But the order increase shows that demand for warehouse automation projects remains high. In general, warehouse automation providers informed me that implementation delays in Q2 were less than they had expected, and demand from e-commerce operations of most industries remains strong. There is some notable weakness from apparel verticals, while demand from grocery remains exceptionally strong. My high-level market perspective remains the same as it was earlier this summer, “I believe the same trends will mostly occur as if the pandemic had not occurred. However, I believe technology investments will experience a slight delay, followed by an accelerated shift to e-commerce fulfillment requirements occurring shortly thereafter.”

Have a great Labor Day weekend!

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