How are rapidly changing fulfillment requirements affecting warehouse operations? According to a recent survey, they're triggering widespread changes in everything from facility footprints to long-standing value-chain partnerships.
If you’ve been involved in order fulfillment for a decade or more, there’s a good chance you’ve seen a wholesale change in your facility’s picking patterns. Over the last 15 years, many DCs—particularly in the retail sector—have found themselves picking far fewer pallets or cases and a lot more individual items or pieces.
As for what’s driving this trend, a big part of the answer is e-commerce and the consequent rise in consumer-direct shipping. And the growth of e-commerce shows no sign of slowing. Prior research by ARC Advisory Group and DC Velocity showed that companies expect an average of 40 percent growth in online sales over the next five years. Meanwhile, Amazon, the 800-pound gorilla in the market, has achieved annual North American growth of over 20 percent in each of the last five years.
With this substantial growth comes rapid change and fierce competition, stimulating widespread changes to warehouses and fulfillment operations. To be precise, the heightened customer expectations and industry competition are forcing managers to rethink fulfillment processes, technology needs, operational priorities, warehouse footprints, and even the roles of long-standing value-chain partnerships.
But what is the market profile of today’s operations? In what ways are the demands on warehouses changing? Perhaps more importantly, what are practitioners doing today and what are their plans to meet future demand and remain competitive?
To develop a better understanding of the fulfillment environment, ARC Advisory Group and DC Velocity teamed up to conduct a survey of practitioners, asking about facilities, market pressures, operations, and investment priorities. We included a time-phase element to obtain insight into the likely progression from past to present to future. Many of our findings are likely to confirm your current assumptions, while others may surprise you.
DC FOOTPRINT EXPANSION
Although CBRE and other real estate firms publish regular reports on trends in industrial real estate, including warehouse space, data on warehouse types coupled with fulfillment operation data is hard to find. So we decided to include a question on facility types in our study. What we learned was that on average, respondents’ facility footprints are almost half bulk warehousing (facilities with more than 100,000 square feet of space), while a quarter consists of smaller warehouses, followed by cross-docking operations and refrigerated facilities.
When asked to look forward five years, respondents identified bulk warehousing and cross-docking as the types of facilities they most expected to become more prevalent. One consumer-goods company respondent noted that it was expanding the footprint of existing facilities to support growth. We believe this to be a common and cost-effective means of increasing capacity. Meanwhile, a third-party logistics service provider (3PL) reported a planned expansion of bulk and cross-docking facilities to meet the anticipated needs of its clients.
Not surprisingly, when asked about the reasons behind their planned facility expansions, respondents most frequently cited expected increases in throughput and storage capacity needs. Interestingly, an increase in order complexity was the next most common response, followed by a change in outbound load profile. These results point to the current evolution of order profiles driven by e-commerce growth and related factors such as the average retailer’s proliferation in SKUs (stock-keeping units). One mechanical parts distributor noted that its business is moving away from wholesale in favor of retail sales. This is a great example of disintermediation in the supply chain, as consumers increasingly opt to order online rather than visit a retail store.
MARKET PRESSURES AND FULFILLMENT PROFILES
Every order would be the perfect order in an ideal world. But in reality, practitioners must set priorities and deal with tradeoffs. When respondents were asked about fulfillment priorities, "fulfillment accuracy" unsurprisingly topped the list. However, respondents believe that "fulfillment responsiveness" is the capability whose importance has increased the most over the last five years.
Also worth noting, respondents believe that "fulfillment adaptability" (defined as the ability to handle a wide range of order profiles) has risen in importance more than "fulfillment throughput" has. This supports the view that overall order variability has increased, making adaptability more important. And this trend is expected to continue, as fulfillment adaptability and fulfillment responsiveness are the capabilities most expected to grow in importance over the next five years.
Respondents’ comments support the view that pressures from e-commerce are largely responsible for this shift. For example, a respondent from an office supply wholesaler noted that it had seen an increase in its e-commerce direct-to-consumer shipments. Such a transition requires greater responsiveness due to the change in order profiles and customer expectations. Similarly, a respondent from a fashion accessories brand mentioned that it is becoming more nimble and adaptable to gear its operations more toward direct-to-customer fulfillment than it had in the past.
FULFILLMENT PATHS AND PICKING UNITS: FROM HERE TO WHERE?
There are a number of fulfillment paths that warehouses can support: traditional store replenishment, DC replenishment, drop shipping, and direct-to-consumer shipping. We asked respondents about the degree to which their organizations supported these various fulfillment processes. Replenishment of downstream DCs and replenishment of retail stores are currently the most prevalent fulfillment paths. However, once again, our inquiry into anticipated change painted a picture that differs from the status quo.
When asked how they expect various fulfillment processes to change over the next three years, respondents identified direct-to-consumer shipping and drop shipping (shipping goods directly from the manufacturer) as the practices that would see the biggest growth. The anticipated growth in drop shipping suggests that respondents expect to see further decoupling of customer-facing and fulfillment processes. I consider this to be one of the most interesting reconfigurations of value-chain partnerships. For one thing, it indicates that e-commerce and the omnichannel paradigm are not only affecting retailers, but also their manufacturing and wholesale partners. As retailers are pressed on margins, many are refocusing on the customer experience and unloading the inventory carrying costs and fulfillment processes onto their upstream partners.
PICK, PACK, REPEAT
Order size and scale generally decrease as products move through the supply chain toward the final consumer. Therefore, the balance among material handling units (pallet, case, piece) handled within a warehouse is likely to change along with the adjustments in fulfillment channels. We asked respondents how they foresee picking unit types changing over the next three years. (We chose "picking" because it is typically the most labor-intensive activity in a warehouse.)
Piece (eaches) is the unit type that most said would increase and also the type that most said would increase extensively. Over half the respondents also said they expected to see an increase in case picking. In contrast, less than half of the survey respondents predicted an increase in pallet retrieval.
The responses about picking unit expectations support the view that picking units will continue to move toward eaches as warehouses fulfill more and more e-commerce orders and upstream partners support downstream partners with greater SKU variability along with smaller volumes of the same SKU.
PAIN POINTS AND TECHNOLOGY INVESTMENT
The shift toward processing higher volumes of small multiline-item orders is raising fulfillment costs within the warehouse. At the same time, greater levels of order variability are injecting inefficiencies into the fulfillment process. Typically, when faced with the need to improve processes and boost efficiency, logistics practitioners turn to technology.
We asked respondents about the likelihood of deploying technology in the next three years to improve various operational processes (process pain points). Shipping, goods retrieval/order picking, and put-away are the processes most frequently cited as expected targets for technology investment over the next three years.
In their supporting comments, respondents also expressed a desire to pick single and multi-unit orders by zone within the same wave, as well as a need for flexible picking solutions that can be deployed at scale. When they were asked the same question about technology investment for warehouse planning process improvements, they most frequently cited parcel shipping, general inventory management, and slotting optimization as likely areas for investment support.
We expected parcel shipping to be a focus area due to results from other ARC and third-party research showing that the e-commerce boom had led to a substantial increase in parcel shipping. However, the high percentage of practitioners that plan to invest in technology to support reslotting and facility layout changes was unexpected. Nonetheless, it confirms the view that order profiles are evolving quickly and warehouse management is diligently searching for ways to boost efficiency.
Although logistics executives would like to have a blank check and with it, the ability to select "all of the above" when it comes to investments to improve upon their operations, businesses live in a world of competing priorities, where oftentimes one investment must be chosen at the expense of another. Given that reality, we asked respondents to select their top warehouse technology investment priorities over the next three years.
Interestingly, but not surprisingly, when it came to software, warehouse labor management systems were the top choice. E-commerce fulfillment is labor intensive and costly, as these orders are generally small, with items often stored in different parts of the facility, and that require additional steps such as packaging and labeling.
WMS was the second most frequently selected investment choice, which is unsurprising given its role as the backbone of warehouse operations.
When it came to warehouse automation options, conveyors/sortation was the most popular investment choice, followed by pick to light/put to light. The responses for conveyors likely reflect the high level of conveyor/sortation use in North America, as compared to Europe.
Meanwhile, we believe that the interest in pick/put to light reflects a desire to gain efficiencies in e-commerce fulfillment operations. Also, the results support the view that autonomous mobile robotics (AMR) in the warehouse has moved from the concept phase to practical consideration, as 15 percent of respondents selected AMR as an investment priority for the next three years.
KEY TAKEAWAYS
Customer expectations and competition from e-commerce are driving widespread changes to warehousing and distribution operations. Direct-to-consumer growth is not only affecting retailers, but also manufacturers, wholesalers, and 3PLs. Warehouses and warehouse fulfillment operations are increasingly playing a greater role in commerce due to disintermediation and a reduction in retail sales through stores.
On top of that, the relationship between retailers and upstream partners is changing, as wholesalers have increased their presence in retail and retailers have pushed direct-to-consumer responsibilities back onto their suppliers. As a result, warehouse footprints are expanding, responsiveness and adaptability have become more important, parcel shipping has grown, and labor efficiency remains as important as ever.
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.
According to Vanderlande, the global logistics landscape is undergoing significant change, with increasing demand for efficient, automated systems. Vanderlande, which has a strong presence in airport logistics, said it recognizes the evolving trends in the sector and sees tremendous potential for sustained growth. With passenger travel on the rise and airports investing heavily in modernization, the long-term market outlook for airport automation is highly positive.
To meet that growing demand, the proposed transaction will significantly enhance customer value by providing accelerated access to advanced technologies, improving global presence for better local service, and creating further customer value through synergies in technology development, Vanderlande said.
In a statement, Nuremberg, Germany-based Siemens Logistics said that merging with Vanderlande would “have no operational impact on ongoing or new projects,” but that it would offer its current customers and employees significant development and value-add potential.
"As a distinguished provider of solutions for airport logistics, Siemens Logistics enjoys a first-class reputation in the baggage and air-cargo handling areas. Together with Vanderlande and our committed global teams, we look forward to bringing fresh impetus to the airport industry and to supporting our customers' business with future-oriented technologies," Michael Schneider, CEO of Siemens Logistics, said in a release.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”