Mark Catley, Head of eCommerce and Business Development, XPO Logistics
According to the latest IMRG Cap Gemini e-Retail Sales Index, the online retail market in the UK grew 14% in 2014, with spending topping the £100 billion mark for the first time and eRetail now accounting for an estimated 24% of the total retail market.
With this continued growth has also come huge and volatile peaks in demand such flash promotional sales, ‘Black Friday’ and, of course, Christmas.
This is, increasingly, causing capacity constraints to key supply chain components such as warehousing space, capacity and flexibility, carrier capability, labour availability, management expertise and IT systems processing capacity.
With some operations experiencing over 100% uplift in activity levels at certain times of the year, many fulfilment centres simply don’t have the facilities to sustain the number of extra people required to carry out the additional work associated with these spikes in demand. In some cases, the sheer number of active colleagues can lead to ‘dis-economies of scale’ and a reduction in overall productivity. Flexible warehousing solutions are also required to cope with the increased stock holding required to fulfil such demand.
As a result, many retailers are now exploring how automation can positively impact upon these multiple capacity constraints.
While fully automated solutions can deliver significant benefits to some retailers, fully automated eCommerce warehouses are currently (and perhaps always will be) only suited to operations which have sufficiently high volumes, broadly consistent stock characteristics, are cube and dimension friendly with a baseline of predictable sales to make this technology viable. In addition, significant time and effort must be channelled towards full integration of warehouse management, warehouse control and all peripheral systems.
By contrast, ‘mechanisation’ covers a wide range of technologies, machines and equipment which can part-automate different components of the fulfilment process.
Manual operations can only scale up to a point, with some UK retailers now getting close to the tipping point when the number of man hours required to process the number of orders equates to a workforce which even the largest distribution centre cannot physically accommodate.
With both people and property at a premium, will the fully automated eCommerce warehouse remain the preserve of those relatively few major retailers who have both the volumes and predictability to justify the investment and, if so, will this be enough to ease the aggregated eCommerce industry capacity constraint on both core and short-term industry volatility? Or, will we see radical developments, either in operating models and/or technology and, if so, what might these look like?
If the capacity issues being experienced begin to drive significant increases in costs for the eCommerce supply chain, through reduced availability and the ever-growing need for service excellence, the comparative payback periods for major automation projects could easily become shorter and look more attractive.
For retailers with similar stock profiles but not enough volume to support a fully automated warehouse, collaboration is a possible solution, after all, the practice of sharing space and other resources in traditional third-party warehouses is well-established. However, given the high levels of synergy needed to facilitate the sharing of an automated warehouse, it is more likely that these organisations will be direct competitors.
This is commonplace in other sectors; in mainland Europe, many frozen food manufacturers already share huge automated cold stores and distribution networks to get their products to grocery retailers’ stores. This has been made possible partly through the realisation that competitive advantage in this sector/channel is achieved through product assortment, availability and price and not by how those products arrive at the store.
Although this is likely to change as the market continues to mature, in direct to consumer retail, how products arrive with the customer is currently a major source of competitive advantage and collaborating with a direct competitor therefore requires a massive leap of faith. However, with eCommerce retailers already sharing major carrier providers, albeit offering a range of different service propositions, to deliver their products, the collaborative model is already established and working well.
In another scenario, a multi-channel retailer may have separate warehousing operations for its store replenishment and direct to consumer fulfilment, neither of which alone handles enough volume to keep an automated warehouse operating efficiently but together the combined throughput could be sufficient. Although far from easy, integrating store replenishment and e-fulfilment within a single automated warehousing system is theoretically possible and would deliver the benefits of a single inventory pool without the need for channel replenishment. One of the ways in which this could be achieved is for retailers’ stores to order their replenishment stock online, in exactly the same way that a consumer does, simply in much larger quantities.
In eCommerce fulfilment, automation is not necessarily about replacing people but about making those people more efficient and productive.
However, with labour in the UK increasingly at a premium, retailers are faced with finding new ways to augment their workforce or paying that premium and passing the cost on to the consumer.
There is no question that a goods-to-man system is more efficient than a man-to-goods environment due to the elimination of the travel time associated with put-away and order picking. In general, the larger the warehouse and the smaller the order size, the more travel is required, unless a batch pick and secondary sort solution can be adopted through mechanisation and systems integration.
Automated storage and retrieval systems have long been used to facilitate the efficient storage and movement of unit loads, i.e., pallets. Mini-load systems offer the same benefits for smaller storage media such as cases, trays or cartons.
In both cases, these systems support ultra-high density storage and can be built to much greater heights than traditional storage systems, allowing operators to reduce their warehouse footprint and improve cube utilisation – a major advantage where warehouse availability is declining.
Even so, these systems may be limited in terms of handling a retailers’ entire product range; their ability to cost-effectively serve operations which experience extreme demand peaks can be limited and they may not be easily scalable to accommodate unforeseen growth, so will always need flexible processes and labour to cope with peaks.
Key to supporting growth and the increasingly frequent and more extreme peaks is the design of flexible warehouse space by incorporating long term processing and welfare areas from Day 1; together with the ability to increase storage capacity through the retro-fit of mezzanine levels and sprinklers on a modular basis within the existing footprint, or by building expansion on additional land.
While also having limitations in terms of the types of operation they are suited to, robotic rover systems are further revolutionising automated eFulfilment operations. In these systems, autonomous robots are system guided to move inventory pods – effectively portable shelving units – to storage, replenishment and picking/packing stations via a grid mapped out on the warehouse floor by a series of 2D barcodes.
The major advantage of robotic systems is their ability to scale up quickly, simply by adding more robots, pods or work stations and relatively cheaply in comparison to traditional automated warehousing systems.
Following its 2012 acquisition of Kiva Technologies - the principal provider of robotic order fulfilment systems - Amazon itself deployed 15,000 robots in 10 fulfilment centres in November 2014 to help cope with the Christmas peak.
The way forward for the eCommerce industry is to embrace mechanisation and automation subject to their respective or collaborative business profiles in order to address the capacity constraints that are likely to increase in the short to medium term.
It is also incumbent upon all parties (consumers, retailers, logistics providers, carriers etc.) to think about how we can work together to iron out significant demand spikes.
However, whatever the future holds, the core components of flexibility, resources, and competition that have driven growth will continue to be right at the very heart of the future eFulfilment supply chain.
XPO Logistics is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. XPO Logistics has 195 locations in the United Kingdom, including approximately 3.5 million square metres of warehousing, and over 15,000 employees. The company offers comprehensive solutions for transport, global forwarding and logistics, including e-fulfilment, reverse and temperature controlled logistics, VAS, bonded and COMAH warehousing, and the UK’s largest owned ADR pallet network. XPO Logistics serves customers in multiple verticals, including food and beverage, retail, aerospace, automotive, chemicals, high tech, pharmaceuticals, textiles and publishing. uk.xpo.com
XPO's corporate headquarters is in Greenwich, Connecticut USA, and its European headquarters is in Lyon, France. The company serves more than 30,000 customers worldwide with a highly integrated network of over 52,350 employees and 863 locations in 27 countries.
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