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.
The Port of Oakland has been awarded $50 million from the U.S. Department of Transportation’s Maritime Administration (MARAD) to modernize wharves and terminal infrastructure at its Outer Harbor facility, the port said today.
Those upgrades would enable the Outer Harbor to accommodate Ultra Large Container Vessels (ULCVs), which are now a regular part of the shipping fleet calling on West Coast ports. Each of these ships has a handling capacity of up to 24,000 TEUs (20-foot containers) but are currently restricted at portions of Oakland’s Outer Harbor by aging wharves which were originally designed for smaller ships.
According to the port, those changes will let it handle newer, larger vessels, which are more efficient, cost effective, and environmentally cleaner to operate than older ships. Specific investments for the project will include: wharf strengthening, structural repairs, replacing container crane rails, adding support piles, strengthening support beams, and replacing electrical bus bar system to accommodate larger ship-to-shore cranes.
Commercial fleet operators are steadily increasing their use of GPS fleet tracking, in-cab video solutions, and predictive analytics, driven by rising costs, evolving regulations, and competitive pressures, according to an industry report from Verizon Connect.
Those conclusions come from the company’s fifth annual “Fleet Technology Trends Report,” conducted in partnership with Bobit Business Media, and based on responses from 543 fleet management professionals.
The study showed that for five consecutive years, at least four out of five respondents have reported using at least one form of fleet technology, said Atlanta-based Verizon Connect, which provides fleet and mobile workforce management software platforms, embedded OEM hardware, and a connected vehicle device called Hum by Verizon.
The most commonly used of those technologies is GPS fleet tracking, with 69% of fleets across industries reporting its use, the survey showed. Of those users, 72% find it extremely or very beneficial, citing improved efficiency (62%) and a reduction in harsh driving/speeding events (49%).
Respondents also reported a focus on safety, with 57% of respondents citing improved driver safety as a key benefit of GPS fleet tracking. And 68% of users said in-cab video solutions are extremely or very beneficial. Together, those technologies help reduce distracted driving incidents, improve coaching sessions, and help reduce accident and insurance costs, Verizon Connect said.
Looking at the future, fleet management software is evolving to meet emerging challenges, including sustainability and electrification, the company said. "The findings from this year's Fleet Technology Trends Report highlight a strong commitment across industries to embracing fleet technology, with GPS tracking and in-cab video solutions consistently delivering measurable results,” Peter Mitchell, General Manager, Verizon Connect, said in a release. “As fleets face rising costs and increased regulatory pressures, these technologies are proving to be indispensable in helping organizations optimize their operations, reduce expenses, and navigate the path toward a more sustainable future.”
Businesses engaged in international trade face three major supply chain hurdles as they head into 2025: the disruptions caused by Chinese New Year (CNY), the looming threat of potential tariffs on foreign-made products that could be imposed by the incoming Trump Administration, and the unresolved contract negotiations between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX), according to an analysis from trucking and logistics provider Averitt.
Each of those factors could lead to significant shipping delays, production slowdowns, and increased costs, Averitt said.
First, Chinese New Year 2025 begins on January 29, prompting factories across China and other regions to shut down for weeks, typically causing production to halt and freight demand to skyrocket. The ripple effects can range from increased shipping costs to extended lead times, disrupting even the most well-planned operations. To prepare for that event, shippers should place orders early, build inventory buffers, secure freight space in advance, diversify shipping modes, and communicate with logistics providers, Averitt said.
Second, new or increased tariffs on foreign-made goods could drive up the cost of imports, disrupt established supply chains, and create uncertainty in the marketplace. In turn, shippers may face freight rate volatility and capacity constraints as businesses rush to stockpile inventory ahead of tariff deadlines. To navigate these challenges, shippers should prepare advance shipments and inventory stockpiling, diversity sourcing, negotiate supplier agreements, explore domestic production, and leverage financial strategies.
Third, unresolved contract negotiations between the ILA and the USMX will come to a head by January 15, when the current contract expires. Labor action or strikes could cause severe disruptions at East and Gulf Coast ports, triggering widespread delays and bottlenecks across the supply chain. To prepare for the worst, shippers should adopt a similar strategy to the other potential January threats: collaborate early, secure freight, diversify supply chains, and monitor policy changes.
According to Averitt, companies can cushion the impact of all three challenges by deploying a seamless, end-to-end solution covering the entire path from customs clearance to final-mile delivery. That strategy can help businesses to store inventory closer to their customers, mitigate delays, and reduce costs associated with supply chain disruptions. And combined with proactive communication and real-time visibility tools, the approach allows companies to maintain control and keep their supply chains resilient in the face of global uncertainties, Averitt said.
Bloomington, Indiana-based FTR said its Trucking Conditions Index declined in September to -2.47 from -1.39 in August as weakness in the principal freight dynamics – freight rates, utilization, and volume – offset lower fuel costs and slightly less unfavorable financing costs.
Those negative numbers are nothing new—the TCI has been positive only twice – in May and June of this year – since April 2022, but the group’s current forecast still envisions consistently positive readings through at least a two-year forecast horizon.
“Aside from a near-term boost mostly related to falling diesel prices, we have not changed our Trucking Conditions Index forecast significantly in the wake of the election,” Avery Vise, FTR’s vice president of trucking, said in a release. “The outlook continues to be more favorable for carriers than what they have experienced for well over two years. Our analysis indicates gradual but steadily rising capacity utilization leading to stronger freight rates in 2025.”
But FTR said its forecast remains unchanged. “Just like everyone else, we’ll be watching closely to see exactly what trade and other economic policies are implemented and over what time frame. Some freight disruptions are likely due to tariffs and other factors, but it is not yet clear that those actions will do more than shift the timing of activity,” Vise said.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index indicating the industry’s overall health, a positive score represents good, optimistic conditions while a negative score shows the inverse.
Specifically, the new global average robot density has reached a record 162 units per 10,000 employees in 2023, which is more than double the mark of 74 units measured seven years ago.
Broken into geographical regions, the European Union has a robot density of 219 units per 10,000 employees, an increase of 5.2%, with Germany, Sweden, Denmark and Slovenia in the global top ten. Next, North America’s robot density is 197 units per 10,000 employees – up 4.2%. And Asia has a robot density of 182 units per 10,000 persons employed in manufacturing - an increase of 7.6%. The economies of Korea, Singapore, mainland China and Japan are among the top ten most automated countries.
Broken into individual countries, the U.S. ranked in 10th place in 2023, with a robot density of 295 units. Higher up on the list, the top five are:
The Republic of Korea, with 1,012 robot units, showing a 5% increase on average each year since 2018 thanks to its strong electronics and automotive industries.
Singapore had 770 robot units, in part because it is a small country with a very low number of employees in the manufacturing industry, so it can reach a high robot density with a relatively small operational stock.
China took third place in 2023, surpassing Germany and Japan with a mark of 470 robot units as the nation has managed to double its robot density within four years.
Germany ranks fourth with 429 robot units for a 5% CAGR since 2018.
Japan is in fifth place with 419 robot units, showing growth of 7% on average each year from 2018 to 2023.