eCommerce – The Next Industrial Revolution?

LinkedIn Twitter Facebook

Mark Catley, Head of eCommerce and Business Development, XPO Logistics

A perfect storm

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.


Automation vs mechanisation

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.

 


Tipping point

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.


New ways of working

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.


New technologies

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.


The rise of the robots

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

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.


About XPO Logistics, Inc.

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.

 

 

www.xpo.com (NYSE: XPO)

 

Contacts

 

XPO Logistics, UK
Gail Everton - uk.communications@xpo.com
+44 (0)1604 737100

 

Quiet Storm Consultants
Rebecca Draper - rebecca@q-storm.co.uk
Phil Rennett - phil@q-storm.co.uk
+44 (0)1530 276550

LinkedIn Twitter Facebook

Royal Mail Sponsor

Register today for unlimited article views, and unique insights

Register Now

5 tips for breaking into online retail in France

5 tips for breaking into online retail in France

France boasts being the 5th largest eCommerce market in the world and with an expectation to exceed €80 billion turnover in 2017, for those looking to enter this thriving online market here are five tips that could help you to break into the French online retail space.
Interview with Melanie Smallwood, International Buying Director at Global Fashion Group

Interview with Melanie Smallwood, International Buying Director at Global Fashion Group

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Melanie Smallwood, International Buying Director at Global Fashion Group, to learn from her experience and knowledge in cross-border trading around the world.
Interview with Gregor McMillan, Business Development, China at The Hut Group

Interview with Gregor McMillan, Business Development, China at The Hut Group

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Gregor McMillan, Business Development, China at The Hut Group, to learn from his experience and knowledge in cross-border trading into China.
Interview with Michael Truluck, CEO at La Redoute

Interview with Michael Truluck, CEO at La Redoute

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Michael Truluck, CEO at La Redoute, to learn from his experience and knowledge in cross-border trading.
The latest view on eCommerce in Germany

The latest view on eCommerce in Germany

There are many benefits to entering the German eCommerce market - it’s the 3rd largest online market in Europe and has a very high internet penetration rate, but what other staistics do you need to know before entering this lucrative country?
How to use colour in cross-border online retail

How to use colour in cross-border online retail

Did you know colour can be an important driver of eCommerce sales? Research suggests 85% of buyers make their purchasing decision based on colour so getting it wrong could be a fundamental disaster for any online business. So what is the right colour to use?
Interview with Richard Longhurst, Co-Founder and Director at Lovehoney

Interview with Richard Longhurst, Co-Founder and Director at Lovehoney

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Richard Longhurst, Co-Founder and Director at Lovehoney, to learn from his experience and knowledge in cross-border trading.
Building an eCommerce fraud prevention strategy for Germany

Building an eCommerce fraud prevention strategy for Germany

Being the world’s fifth largest eCommerce market, Germany has become an exceptionally popular destination for online merchants looking to sell their goods and services. However, retailers should still be aware of the high levels of fraud to do with their number one payment method. Therefore, what do you need to know about building an eCommerce fraud prevention strategy for Germany?
Interview with Kai Li, Vice President of International at Revolve

Interview with Kai Li, Vice President of International at Revolve

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Kai Li, Vice President of International at Revolve Clothing, to learn from his experience and knowledge in cross-border trading.
How does device usage differ in France, Germany, and the UK?

How does device usage differ in France, Germany, and the UK?

It is well known that the use of smartphones and tablets has grown rapidly but which device dominates the traffic and at what time of day across France, Germany and UK? And how does device usage differ between these Countries?

Contact Us

eCommerce Worldwide
2 Ching Court
49-53 Monmouth St
London
WC2H 9EY

Tel: 0203 696 0980
2016© eCommerce Worldwide

Keep In Touch

powered by Affino

About eCommerce Worldwide

eCommerce Worldwide provides online retailers with all the information, and resources, they need to develop cross-border strategies for entering new markets around the world
Read More