Online shoppers continue to demand fast, accurate fulfillment, putting enormous pressure on retail DC operations. A new study looks at the lengths retailers are willing to go to accommodate them.
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
Rapid growth in e-commerce is placing big demands on fulfillment networks. That pressure has been a constant for years, but the fallout is ongoing, as retailers and third-party logistics service providers (3PLs) scramble to find ever-faster and more efficient ways to fill small multiline-item orders.
The pressure shows no sign of abating; just witness e-commerce megalith Amazon.com Inc.'s announcement in April that it would ratchet up its Amazon Prime subscription-shipping plan from standard two-day delivery to one-day delivery. The announcement sent ripples throughout the industry, with retailers and carriers alike predicting the change will lead consumers to demand even faster fulfillment.
"The development of raised customer expectations for 'one-day' business-to-consumer (B2C) delivery capabilities could create additional headwinds to parcel providers' [profit] margins," Benjamin Hartford, a transportation analyst for investment firm Robert W. Baird & Co. Inc., said in a note to investors. "Amazon's creation of customer demand and expectations for B2C led to e-commerce's rapid development over the past 10 to 15 years. As a result, we recognize the risk of a similar headwind being presented to parcel providers if the migration to free 'one-day' becomes adopted and expected in customer preferences."
So where will the industry go from here? To get a better understanding of emerging fulfillment trends, DC Velocity teamed up with ARC Advisory Group, a Dedham, Mass., management consulting firm, to examine warehousing and fulfillment practices in the age of online shopping. Together, we conducted a broad industry study that looks at how practitioners are currently meeting the demands of e-commerce as well as their plans for the future.
The study was conducted among 59 logistics professionals from a variety of industry sectors (see Exhibit 1) and is a sequel to a 2016 research project, allowing us to measure the trajectory of change in warehouse operational profiles, market pressures and priorities, warehouse order-fulfillment profiles, and warehouse technology. What follows is a look at some of the key findings.
MORE CHANGES AHEAD?
Industry trends aside, what ultimately determines how a given DC operates—from its processes and priorities to its equipment and technology—is the type of fulfillment it's engaged in: traditional store replenishment, DC replenishment, drop shipping, or direct-to-consumer shipping. A facility that mainly handles bulk orders for store replenishment will look quite different from one that primarily plays in the e-commerce arena.
To learn more about the study participants' operations, the researchers asked them which types of fulfillment their facilities supported. DC replenishment topped the list in this year's study, followed in rank order by direct-to-consumer/e-commerce fulfillment, direct fulfillment of a retail partner's customers' orders (drop shipping), and traditional store replenishment.
However, it appears the situation is in flux. When the study participants were asked how they expect those fulfillment activities to change over the next three years, their responses indicated that a big shift is under way. Some 40 percent said they expected direct-to-consumer fulfillment to increase "extensively," and a similar proportion said they expected a significant rise in drop shipping. A significantly smaller number said they expected to see an increase in replenishment shipments to partner DCs or retail stores. (See Exhibit 2.)
What the study makes clear is that DCs fully expect to continue focusing on e-commerce direct-to-consumer orders and drop-ship work, where they essentially serve as the fulfillment arm of their downstream partners such as e-tail websites, said Clint Reiser, director for supply chain research at ARC Advisory Group. Reiser, who led the study, noted that even as the volume of e-commerce orders continues to rise, warehouse shipments for store fulfillment are staying flat or declining, as traditional retailers reduce store footprints and trim inventory.
In a parallel finding, participants also indicated that they expected the type of picking performed at their facilities to shift over the next three years. When asked what changes they foresaw to their picking patterns, nearly half (48 percent) said they anticipated an extensive increase in piece picking. By way of comparison, just 26 percent said they expected a big jump in pallet picking and 19 percent in carton/case picking.
In order to navigate this shifting landscape, many companies have realigned their fulfillment priorities over past five years. Not surprisingly in an era when shoppers have come to expect instant gratification, speed has become a top priority for most operations. Our study participants are no exception. Asked which capability has grown most in importance over the past five years, 72 percent of respondents said "fulfillment responsiveness" (the time from order receipt to delivery). Lagging well behind were "fulfillment adaptability" (the ability to handle a wide range of order profiles), "fulfillment accuracy" (correct items and documentation), and "fulfillment throughput." (See Exhibit 3.) The rising importance of responsiveness shows that DCs are placing increased emphasis on prompt fulfillment in response to shifting consumer expectations for same-day or next-day delivery, Reiser said.
THE RUSH TO AUTOMATE
In order to reach those goals, DCs are investing in warehouse technologies such as software and automated equipment. In this regard, they have plenty of options. Visit any logistics trade show, and you'll find a wide array of products and services promising to supercharge fulfillment operations, from autonomous mobile robots (AMRs) to radio-frequency identification (RFID) tags.
But no single technology can solve every challenge, so our study asked exactly what "material flow processes" companies were targeting for improvement through technology investments. The top three responses were shipping, goods retrieval and order picking, and packing and labeling. (For the full rundown, see Exhibit 4.)
Next, we drilled down to ask exactly which warehouse tools were their top priorities for investment over the next three years. Here, the number-one vote getter was warehouse management system (WMS) software, followed by conveyors/automatic sortation, automated palletizing/depalletizing equipment, warehouse labor management software, and pick-to-light/put-to-light systems. (See Exhibit 5.)
All of these choices align with shippers' need to accelerate delivery speed and wring the maximum efficiency out of their resources, Reiser observed. "WMS still reigns supreme as a must-have in a fulfillment operation, and labor management remains critical for obtaining efficiencies out of your operations," he noted. "Conveyor and sortation remains surprisingly important," Reiser added. "Even though other automation technologies are higher profile or 'sexier,' conveyance and sortation is still ubiquitous in warehousing."
E-COMMERCE STILL DRIVING THE TRAIN
These changes in warehouse picking patterns and processes underline the continuing impact of the e-commerce trends we first identified in the 2016 study on warehouse operations. Just as they are today, facilities back then were seeing a widescale shift away from the traditional pallet- and case-picking operations toward piece picking.
Participants in both studies also sent a consistent message when it came to the process "pain points" they most wanted to address with new technologies. The top two responses from the 2016 study—shipping and goods retrieval/order picking—remained unchanged in the 2019 study.
Then as now, consumer expectations are driving sweeping change in warehouses across the country as operations scramble to rev up fulfillment. As shoppers' expectations continue to ramp up, look for further changes in the warehousing universe as DC leaders rethink their processes, technology requirements, operational priorities, and even their role in the supply chain.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.