In the warehouse, bigger isn't always better
Supply chains are being redesigned to fulfill orders faster, and warehouse technology is emerging as a centerpiece.
The warehouse. What goes on behind the doors of this facility is a key element in order fulfillment. How employees move about the warehouse, how items are picked and packed, and how machines work side-by-side with their human counterparts are all part of the challenge of optimizing order fulfillment.
And the challenge is even greater in 2018 as e-commerce continues to grow and the consumer demand trends faster and faster. Fulfillment is now a complex assembly process, similar to a car production line. In any given warehouse, there are now thousands of different items that can make up a single order.
As a result, retailers and third party logistics providers (3PLs) have been purchasing new equipment and testing technology that promises to boost their speed and efficiency. By extension, warehouse design has changed to accommodate this new technology and faster turnaround times. But, as the demand for e-commerce grows, the size of the warehouse is not growing proportionately: In fact, it is often shrinking.
"Supply chains are being redesigned to enable more efficient and faster movement of goods to meet individual customer needs," Vikas Aron, director of product strategy at enterprise order management firm, Aptos, said in an email to Supply Chain Dive. "The warehouse and the store are also getting built completely ground up to support the changes in order fulfillment."
More options, greater speed
There’s no denying that two of the biggest factors affecting fulfillment today are options and speed.
"There are very few companies not selling online today, which means consumers have massive choice," James Hyde, co-founder of James and James Fulfillment, told Supply Chain Dive via email. "They can shop around to find retailers that offer one-to-three-day delivery, beautiful packaging and hassle-free returns. These expectations mean that order fulfillment must be faster and more flexible than ever before."
So how are companies compensating for these great expectations?
For newly established retailers and fulfillment businesses, the change has been about embracing technology — for example, developing cloud-based warehouse management systems that integrate directly with online stores.
"This makes the pick, pack and ship process faster and more accurate, and gives retailers and customers greater visibility over their orders," Hyde said.
The warehouse in 2018
It’s no surprise warehouses look a lot different today, Dan Neiweem, co-founder and principal at digital solutions firm Avionos, said in an email to Supply Chain Dive.
"With the growth of e-commerce and next-day delivery options offered by more retailers, consumers demand that products land on their doorsteps at lightning speed," Neiweem said. "This, in turn, makes it difficult for traditional retailers with antiquated order fulfillment processes to keep up with those that have the technology and capabilities in place to compete against giants like Amazon."
So, what looks different?
According to Hyde, for some older retailers and fulfillment businesses, the shift has been from a wholesale or distribution model to a direct-to-consumer model. As a result, that means adjusting warehouses to a pick, pack and ship individual items process rather than a fulfillment of whole pallets process.
The shift to direct-to-consumer fulfillment, plus the increased use of technology, means there is less need for traditional racking and forklifts. Instead, the industry is moving into an age of smaller pick bins on tighter aisles with commingled storage (multiple items in the same shelf location). And this closeness in pick bins allows for a faster click-to-dispatch time.
The ideal for any retailer is to be as close to the end-point as possible. In other words: to reduce the last mile. And with the reconfiguration of the warehouse, there can be substantially less walking from one end to the other end of a giant space, ultimately saving time and cost.
Plus, it is now easier to reconfigure an existing space into a workable fulfillment warehouse than starting from scratch.
The cost of setting up a warehouse — getting the equipment, investing in labor and engineering, construction and permits — is all quite costly. These costs can be avoided today with simple upgrades to existing spaces. For example, warehouses used to have zones for different products: Jewelry, clothing, etc. Now it’s basically been shifted to have a mix of products in one place, reducing movement.
Finally, some companies are getting away from the idea of warehouse all together.
Some brands are using their brick-and-mortar storefronts as fulfillment options. This allows for scale and support of in-store and online sales simultaneously, while working to meet customer expectations in a seamless shopping experience. Plus, there’s always the possibility of an upsell with in-store fulfillment if a customer chooses the in-store pick-up option.
"The process of fulfillment is continuously evolving across the three dimensions of people, process and technology," Aron said. "From a people point-of-view, store associates are now being dedicated (temporary and/or full-time) for fulfillment activities depending on the volume of orders flowing through each store."
Plus, we’re seeing big names such as Walmart and Home Depot experimenting with order fulfillment methods such as in-store lockers and curbside grocery pick-up. While a convenient option for consumers, it’s also helping retailers minimize the costs that goes into shipping and delivery services.
"It’s likely that we’ll see more of these tools implemented into physical stores so that retailers who lack the capabilities and logistics to complete orders in the time that retail and e-commerce giants can are still able to streamline order fulfillment and keep their customers satisfied," Neiween said.
New fulfillment technology
There are all kinds of new technology entering the warehouse, from the software for management and order processing to robotic pickers and packers. There are lighter weight conveyers that are more flexible, and guided vehicles that travel the aisles and reduce labor costs.
There is no doubt that the advancements in cloud-based technologies and automation have helped to increase the speed and accuracy of the fulfillment process, Hyde says. However, the main challenge of automation comes from scalability and flexibility.
"While robots that pick products and move them to people have obvious efficiency gains, at peak times you cannot scale their use," Hyde said. "That means you either have too many robots for 11 months of the year, or too few between Black Friday and Christmas."
Plus, the nature of robotic operations also means that humans need to keep out of the storage zone, further compounding the challenge of a back-up at peak fulfillment times.
But Alberto Moel, a former Bernstein analyst who focused on supply chain, automation and robotics, specifically in the Asian technology market, said pairing robots and humans can be a great benefit.
"Ultimately, it improves operation cycles and the efficiency of work times," said Moel, who is now vice president of strategy and partnerships at Veo Robotics.
There are some tasks that are better suited for humans, and some better suited for machines, Moel said. He relates it to tying a shoe: a simple process for a human, yet difficult to teach a robot. Humans have better dexterity, better judgement and the ability to be flexible – all skills that a robot does not have. On the flip side, unloading a giant pallet is clearly not human work and better suited for a machine.
In this way, robotic technology isn’t taking the place of humans because it’s doing work that employees don’t want to do anyhow.
"We see automation as assistive to humans — it has to work alongside and help the workforce," Hyde said. "If the team resents the automation, they will not make the best use of it and efficiency will drop."
It also lowers costs and allows for more mass productions, Moel said. The more machinery out in the world, the lower the price will fall. In turn, results of need-to-cost calculations will go down if everyone continues with this structure.
Meeting the cost
Yes, investing in robotic technology costs money. But if one manufacturer or retailer is not willing to invest in it, a client is liable to move onto someone that will.
In fact, as the need for fulfillment grows and the turnover of employees continues, warehouses will need to find some way — if not by humans — to do the work that needs to be done. Ran Peled, vice president of marketing at CommonSense Robotics said a majority of his clients are grocers, a segment that is currently losing money with online orders but still needs to offer the channel for consumers.
"As the demand for grocery e-commerce continues to grow, retailers need to find solutions to make their online operations profitable or they risk their entire business going under," Peled said in an email. "The retailers we’re speaking with are excited to work with us to grow a sustainable online business."
Plus, in a globalized economy, U.S. companies can’t afford to back down from the competition. Hyde says that globalization is also having a major impact on e-commerce, with retailers now able to reach and ship to consumers worldwide. Stores need to keep this in mind when developing their own in-house fulfillment operations or thinking of outsourcing to a third-party provider.
"Ask yourself: ‘How can we ensure that customers in the U.S. or Europe or Asia all get the same shipping times and experience?'" Hyde said.
Plus, no company can ignore the 800-pound gorilla in the technology world: Amazon. Amazon’s movement of technology into the warehouse has been a huge driver behind what other companies are starting to do. According to Moel, when Amazon bought robotics company Kiva in 2012, they angered a lot of competitors. Within a few years, Amazon’s warehouses were filled with these high-functioning fulfillment machines, streamlining the process.
Now, technology companies, start-ups and retailers alike are even more motivated to try and build a better system so that their warehouses can move just as fast, if not faster than Amazon’s.