In European DCs, bags of coffee and sugar are whipping out of highly automated storage and retrieval systems at a rate of 3,000 cases per hour. Is America next?
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
For most of the last 50 years, the grocery industry's war on labor costs has been waged at the checkout counter. The opening salvos came in the '70s, when grocers seized on the newly introduced bar codes and scanners to replace the labor-intensive process of ringing up purchases on a cash register. Next came self-checkout lanes, installed to encourage consumers accustomed to doing their own banking at ATMs and pumping their own gas to scan and bag their own groceries. Today grocers are racing to find ways to use radio-frequency identification technology to end the traditional checkout process once and for all.
But the money saved by eliminating all those checker positions over the years is just pennies compared to the savings grocers can realize by automating what goes on in their back rooms and DCs. Right now, order picking accounts for a whopping 70 percent of the average grocery distribution center's payroll. Automate that function, and a company could save serious money.
In fact, grocers are already doing just that—particularly in Europe. Dutch grocery retailer Albert Heijn, for instance, recently celebrated the first anniversary of its revolutionary DLS order release module (made by Nedcon). The system, which is currently installed in one-quarter of the grocer's 900,000-square-foot distribution center near Rotterdam, can ship up to 3,000 cases per hour. Late last year, the grocer announced that it would install a second module at the DC, which stores and ships about 2,000 fast-moving products like sugar and coffee. Once the DC is fully automated, it's expected to ship up to 6,300 cases per hour, or about one million cases of perishable and dry grocery products each week. "We are certain that this is a system for the future," Mels Koster, the company's vice president of supply chain development, told DC VELOCITY in the first interview the retailer has granted about the highly automated system.
It's automatic
So what does the future look like? Big, shiny and complex, if Heijn's system is any indication. Its automated picking module is seven levels high,with 72 conveyor lanes on each level, for a total of 504 lanes. Each level has an inbound conveyor and an outbound conveyor running along the front and back.
The system performs its complicated ballet hundreds of times each day with virtually no human intervention. For example, on each inbound conveyor a pusher device rides up and down the lane. Upon receiving an order command from the warehouse management system (WMS), the pusher device moves to the correct lane and pushes a batch of the required product into the lane. After guiding a batch into a lane, the pusher sends a message to the WMS that it's moved a certain number of cases. (Bar codes are not used on full cases; the system relies on the WMS's information in combination with a counting photo sensor to ensure the number of cases entered into a lane is correct.)
Products ready to be picked are automatically fed from bulk storage to depalletizing machines. Once they're depalletized, the packaged items are transported via conveyor to one of the DLS module's seven-level input roller tracks.
As products are carried along on the input lane, an input trolley at each level sees to it that the items are routed into the correct storage lane. The storage lanes are typically 40 feet long, which not only allows for a large area of entry for each product, but assures timely replenishment. The system is designed to handle items of all sizes, weights, and packaging types, including fragile products. (Fast-moving items are assigned to more than one storage lane.)
Each storage lane is fitted with a universal computer-controlled dispenser, creating enormous release capacity, especially for fast-moving items. All items destined for a particular store are released in a predetermined sequence so that, say, bags of coffee beans come out before potato chips, ensuring the bags of chips don't arrive at the store as bags of crumbs.
Numbers game
Although officials at Royal Ahold, Albert Heijn's Dutch parent company, won't discuss specific productivity gains until later this year, their comments hint at the magnitude of the savings they're realizing. "What we have created is a system where you can turn out several thousand cases per hour," says Han Willemse, chief supply chain officer for Ahold, "not the 100 to 150 cases per hour that you see with normal order picking processes in conventional warehouses."
As the number of cases shipped per hour soars, labor needs will plummet. Once the DC is fully automated (the plan is to install a total of four order picking modules), the grocer will need roughly 100 associates spread over two shifts—a huge drop over the approximately 350 order pickers currently needed.
A 70-percent cut in workforce is staggering by any measure, but it's particularly significant in Holland, where (as in many parts of Europe) DC workers command $50 an hour or more. And that's assuming grocers are lucky enough to find workers willing to work in their DCs. During peak picking seasons like the Christmas and Easter holidays, Albert Heijn has been forced to bus in workers from Poland and East Germany.
What's not yet clear is whether a system that's all the rage in Europe will catch on in America. Unlike Europe, where land and labor are in short supply, America still boasts an abundance of both. And outside of the Northeast and the West Coast, land is still relatively cheap—particularly in Oklahoma and Texas.
Labor, too, remains readily available in the vast majority of markets across North America, says Marc Wulfraat, a senior partner at consulting firm KOM International Inc. who specializes in the grocery supply chain. In contrast to Europe's $50 an hour, the going rate for DC workers in most parts of the United States is somewhere around $15 to $20 an hour, says Wulfraat, who points out that it would take an extraordinarily expensive labor market to justify a full-blown automated storage/retrieval system (AS/RS).
Certainly, automation doesn't come cheap. Though prices have dropped—an AS/RS that once cost as much as $750,000 per crane can now be had for as little as $200,000 per crane—one of these systems still represents a hefty investment. And enormous labor savings are by no means guaranteed. True, grocers may be able to get by with fewer manual laborers and forklift drivers. But cranes, like forklifts, require upkeep. Most facilities eventually find themselves hiring highly specialized—and highly compensated —technicians to maintain the cranes.
Still, a couple of grocers have taken the plunge. Stop & Shop has installed an AS/RS system (made by HK Systems) that uses 77 rotating fork cranes to perform put-away and replenishment functions in place of forklifts at its 1.3-million- square-foot facility in Freetown, Mass. And Kroger has installed a dynamic picking system (DPS) that integrates storage and picking into one module at a new distribution center in the Southeast. The first phase of the "goods to person" picking system engineered by Witron Integrated Logistics includes installation of an integrated conveyor network, 16 stacker cranes, 70 picking workstations, two order consolidation buffers and 175,000 tote locations.
Yet grocers lag well behind their counterparts in electronics and apparel. "When you take a good hard look at who has invested in automation in North America, the list is pretty short when it comes to food retailers and wholesalers," says Wulfraat."This stuff is so expensive that it's very difficult to make a business case for it."
Third-party logistics (3PL) providers’ share of large real estate leases across the U.S. rose significantly through the third quarter of 2024 compared to the same time last year, as more retailers and wholesalers have been outsourcing their warehouse and distribution operations to 3PLs, according to a report from real estate firm CBRE.
Specifically, 3PLs’ share of bulk industrial leasing activity—covering leases of 100,000 square feet or more—rose to 34.1% through Q3 of this year from 30.6% through Q3 last year. By raw numbers, 3PLs have accounted for 498 bulk leases so far this year, up by 9% from the 457 at this time last year.
By category, 3PLs’ share of 34.1% ranked above other occupier types such as: general retail and wholesale (26.6), food and beverage (9.0), automobiles, tires, and parts (7.9), manufacturing (6.2), building materials and construction (5.6), e-commerce only (5.6), medical (2.7), and undisclosed (2.3).
On a quarterly basis, bulk leasing by 3PLs has steadily increased this year, reversing the steadily decreasing trend of 2023. CBRE pointed to three main reasons for that resurgence:
Import Flexibility. Labor disruptions, extreme weather patterns, and geopolitical uncertainty have led many companies to diversify their import locations. Using 3PLs allows for more inventory flexibility, a key component to retailer success in times of uncertainty.
Capital Allocation/Preservation. Warehousing and distribution of goods is expensive, draining capital resources for transportation costs, rent, or labor. But outsourcing to 3PLs provides companies with more flexibility to increase or decrease their inventories without any risk of signing their own lease commitments. And using a 3PL also allows companies to switch supply chain costs from capital to operational expenses.
Focus on Core Competency. Outsourcing their logistics operations to 3PLs allows companies to focus on core business competencies that drive revenue, such as product development, sales, and customer service.
Looking into the future, these same trends will continue to drive 3PL warehouse demand, CBRE said. Economic, geopolitical and supply chain uncertainty will remain prevalent in the coming quarters but will not diminish the need to effectively manage inventory levels.
In a push to automate manufacturing processes, businesses around the world have turned to robots—the latest figures from the Germany-based International Federation of Robotics (IFR) indicate that there are now 4,281,585 robot units operating in factories worldwide, a 10% jump over the previous year. And the pace of robotic adoption isn’t slowing: Annual installations in 2023 exceeded half a million units for the third consecutive year, the IFR said in its “World Robotics 2024 Report.”
As for where those robotic adoptions took place, the IFR says 70% of all newly deployed robots in 2023 were installed in Asia (with China alone accounting for over half of all global installations), 17% in Europe, and 10% in the Americas. Here’s a look at the numbers for several countries profiled in the report (along with the percentage change from 2022).
Sean Webb’s background is in finance, not package engineering, but he sees that as a plus—particularly when it comes to explaining the financial benefits of automated packaging to clients. Webb is currently vice president of national accounts at Sparck Technologies, a company that manufactures automated solutions that produce right-sized packaging, where he is responsible for the sales and operational teams. Prior to joining Sparck, he worked in the financial sector for PEAK6, E*Trade, and ATD, including experience as an equity trader.
Webb holds a bachelor’s degree from Michigan State and an MBA in finance from Western Michigan University.
Q: How would you describe the current state of the packaging industry?
A: The packaging and e-commerce industries are rapidly evolving, driven by shifting consumer preferences, technological advancements, and a heightened focus on sustainability. The packaging sector is increasingly prioritizing eco-friendly materials to reduce waste, while integrating smart technologies and customizable solutions to enhance brand engagement.
The e-commerce industry continues to expand, fueled by the convenience of online shopping and accelerated by the pandemic. Advances in artificial intelligence and augmented reality are enhancing the online shopping experience, while consumer expectations for fast delivery and seamless transactions are reshaping logistics and operations.
In addition, with the growth in environmental and sustainability regulatory initiatives—like Extended Producer Responsibility (EPR) laws and a New Jersey bill that would require retailers to use right-sized shipping boxes—right-sized packaging is playing a crucial role in reducing packaging waste and box volume.
Q: You came from the financial and equity markets. How has that been an advantage in your work as an executive at Sparck?
A: My background has allowed me to effectively communicate the incredible ROI [return on investment] and value that right-size automated packaging provides in a way that financial teams understand. Investment in this technology provides significant labor, transportation, and material savings that typically deliver a positive ROI in six to 18 months.
Q: What are the advantages to using automated right-sized packaging equipment?
A: By automating the packaging process to create right-sized boxes, facilities can boost productivity by streamlining operations and reducing manual handling. This leads to greater operational efficiency as automated systems handle tasks with precision and speed, minimizing downtime.
The use of right-sized packaging also results in substantial labor savings, as less labor is required for packaging tasks. In addition, these systems support scalability, allowing facilities to easily adapt to increased order volumes and evolving needs without compromising performance.
Q: How can automation help ease the labor problems associated with time-consuming pack-out operations?
A: Not only has the cost of labor increased dramatically, but finding a consistent labor force to keep up with the constant fluctuations around peak seasons is very challenging. Typically, one manual laborer can pack at a rate of 20 to 35 packages per hour. Our CVP automated packaging solution can pack up to 1,100 orders per hour utilizing a fully integrated system. This system not only creates a right-sized box, but also accurately weighs it, captures its dimensions, and adds the necessary carrier information.
Q: Beyond material savings, are there other advantages for transportation and warehouse functions in using right-sized packaging?
A: Yes. By creating smaller boxes, right-sizing enables more parcels to fit on a truck, leading to significant shipping and transportation savings. This also results in reduced CO2 emissions, as fewer truckloads are required. In addition, parcels with right-sized packaging are less prone to damage, and automation helps minimize errors.
In a warehouse setting, smaller packages are easier to convey and sort. Using a fully integrated system that combines multiple functions into a smaller footprint can also lead to operational space savings.
Q: Can you share any details on the typical ROI and the savings associated with packaging automation?
A: Three-dimensional right-sized packaging automation boosts productivity significantly, leading to increased overall revenue. Labor savings average 88%, and transportation savings accrue with each right-sized box. In addition, material savings from less wasteful use of corrugated packaging enhance the return on investment for companies. Together, these typically deliver returns in under 18 months, with some projects achieving ROI in as little as six months. These savings can total millions of dollars for businesses.
Q: How can facility managers convince corporate executives that automated packaging technology is a good investment for their operation?
A: We like to take a data-driven approach and utilize the actual data from the customer to understand the right fit. Using those results, we utilize our ROI tool to accurately project the savings, ROI, IRR (internal rate of return), and NPV (net present value) that facility managers can then use to [elicit] the support needed to make a good investment for their operation.
Q: Could you talk a little about the enhancements you’ve recently made to your automated solutions?
A: Sparck has introduced a number of enhancements to its packaging solutions, including fluting corrugate that supports packages of various weights and sizes, allowing the production of ultra-slim boxes with a minimum height of 28mm (1.1 inches). This innovation revolutionizes e-commerce packaging by enabling smaller parcels to fit through most European mailboxes, optimizing space in transit and increasing throughput rates for automated orders.
In addition, Sparck’s new real-time data monitoring tools provide detailed machine performance insights through various software solutions, allowing businesses to manage and optimize their packaging operations. These developments offer significant delivery performance improvements and cost savings globally.
Mid-marketorganizations are confident that adopting AI applications can deliver up to fourfold returns within 12 months, but first they have to get over obstacles like gaps in workforce readiness, data governance, and tech infrastructure, according to a study from Seattle consulting firm Avanade.
The report found that 85% of businesses are expressing concern over losing competitive ground without rapid AI adoption, and 53% of them expect to increase their budgets for gen AI projects by up to 25%. But despite that enthusiasm, nearly half are stuck at business case (48%) or proof of concept (44%) stage.
The results come from “Avanade Trendlines: AI Value Report 2025,” which includes two surveys conducted by the market research firms McGuire Research Services and Vanson Bourne. Conducted in in August and September 2024, they encompass responses from a total of 4,100 IT decision makers and senior business decision makers across Australia, Brazil, France, Germany, Italy, Japan, Netherlands, Spain, UK, and US.
Additional results showed that 76% of respondents state that poor data quality and governance inhibits their AI progress. To overcome that, companies are stepping up investments in that area, with 44% planning to implement new data platforms and 41% setting governance standards. And to support the scaling of AI, budgets will focus on data and analytics (27%), automation (17%), and security and cyber resilience (15%).
"Mid-market leaders are at a defining moment with AI—where investments must not only boost efficiency but ignite future innovation and sustainable growth," Rodrigo Caserta, CEO of Avanade, said in a release. "The tension between cost-cutting and growth ambitions shows the AI value equation is still being worked out. Productivity with AI isn't just about doing things faster; it's about reimagining work itself. People are central to this shift, requiring workforce alignment, clear communication, and new training. Leaders must rethink how they support collaboration, measure productivity, and ultimately, assess the true value AI brings to their organizations."
Editor's note:This article was revised on November 13 to correct the site of Avanade's headquarters; it is located in Seattle.
That result came from the company’s “GEP Global Supply Chain Volatility Index,” an indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The October index number was -0.39, which was up only slightly from its level of -0.43 in September.
Researchers found a steep rise in slack across North American supply chains due to declining factory activity in the U.S. In fact, purchasing managers at U.S. manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating that factories in the world's largest economy are preparing for lower production volumes, GEP said.
Elsewhere, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than seen in Western markets. Europe's industrial plight remained a key feature of the data in October, as vendor capacity was significantly underutilized, reflecting a continuation of subdued demand in key manufacturing hubs across the continent.
"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers," Todd Bremer, vice president, GEP, said in a release. "President-elect Trump inherits U.S. manufacturers with plenty of spare capacity while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."