The rise and rise of e-commerce has not only disrupted the store front and the point of sale but also has had lasting and dramatic impact on the back office side of retail. Nowhere is this more evident than in warehousing, which has been taken from an unsexy, unchanging part of the retail supply chain to a position very much at the coalface of commerce transformation.
Driven by the growing customer demand for next day, same day and even same hour delivery, the challenge of storing, indexing, tracking, packing and shipping products has been thrown into sharp relief. Never before has the role of warehouse technology, the challenge of effectively raining staff, the fundamental placement of warehouses and a myriad of other issues been so intensely questioned.
This debate is especially fierce in Asia for a number of reasons, whether it be the high cost of land in cities like Singapore and Hong Kong forcing an innovative approach to urban warehousing, or in sprawling states like the Philippines and Indonesia where effective warehousing is, alongside cost effective delivery options, often a major barrier to provision of e-commerce services to tier 2 & 3 cities.
In this post we’re going to take a closer look at some of these issues, as well as share some thoughts around how e-commerce and multi-channel retailers can take steps to futureproof their warehousing strategy.
Impact of E-Commerce
Perhaps the most obvious impact that e-commerce has had on warehousing strategy has been as a result of changing order types. In traditional retail, stores would order pallets, or at least multiple quantities of a particular product, from the warehouse in expectation of sales.
In e-commerce customers order single items across an often vast range of categories and individual SKUs. This trend towards supply chain disintermediation has massive implications on everything from picking to packing to shipping, as warehouses scramble to fulfil vast quantities of diverse orders.
This trend, as well as the increased demand for near-immediate fulfilment mentioned earlier, has led to some radical decisions being made by the more innovative of e-commerce companies. Some, for example, are abandoning traditional hub-and-spoke warehousing in favour of smaller, more specialised warehouses closer to where their customers are.
This is supported by merchants like Amazon who back in 2014 started talking about “anticipatory shipping”, moving products closer to potential customers in order allow for lightning quick fulfilment.
Others are taking the opposite tack however and are abandoning smaller warehouses in favour of one centralised warehouse which allows for bulk product storage and a large asphalt that provides full support for the cross-docking trend which many surveys see as firmly on the increase.
A number of financial and country specific urban trends will ultimately help merchants decide whether centralised or decentralised strategies are going to be most suitable for their specific business.
Before we get on to talk about the key part in this, technology, it is worth saying a few words about the human element of warehousing transformation. On the face of it humans in the warehouse are becoming problematic, as scale increases and speed becomes ever more important.
Staff take longer to train up, they are put under such pressure to perform that churn rate even at leading e-commerce merchants is through the roof, and even if they stay with the business polls have suggested that up to 20% are actively disengaged in the work that they are doing.
Nevertheless, warehouse staff remain an important part of the mix, and much of the innovation going on is focused upon augmenting them with technology, making training more effective, and providing suitable incentives in order to retain staff and keep them motivated.
The technology augmentation of employees has been driven largely by the expanded functionality of mobile devices in recent years, as well as the slow increase in the size of the wearables market, allowing for optimal route planning through the warehouse and fast item scanning and retrieval. Even more effective has been the rise of voice directed warehousing, providing paperless processes and in some cases increasing picking rates by 15%.
This gets us on to the subject of technology through the wider warehouse. The advent of IoT tech coupled with effective, analytics driven warehouse management software has enabled some interesting approaches to warehousing that simply wouldn’t be possible without the support of technology.
Amazon’s “chaotic storage” approach is a fantastic example of this, storing items not by category or alphabet but simply based on the nearest available shelf space, providing up to double the amount of usable storage than their previous model.
The effective use of data is really at the heart of future warehousing operation, not just within the business but also the sharing of data between supply chain partners. By taking a data driven approach, businesses can have a better idea of when and where they are likely to need products, ensure that items stay on the shelves for less time, and ultimately allowing for smaller and more affordable warehouses.
One of the other key technology applications that cannot be underestimated is the rise of robotics. With experts predicting that effective application of robotics could reduce fulfilment costs by 20-40%, robots are and will change the face of warehousing.
The clear debate is whether they will replace the role of humans entirely, or whether there are effective collaboration strategies between man and machine. While Amazon’s Kiva robots are designed with a collaborative role in mind, other businesses like inVia Robotics seem more focused on getting humans out of the way so that the robots can get the job done faster.
The future of warehousing
To summarise it is clear that warehousing is undergoing a radical transformation. Facilities built just 10 years ago are unsuited to the breakneck pace of modern day e-commerce, and the processes many have in place are simply too slow and labour intensive to be sustainable in the long run.
Whilst warehousing and supply chain management are not the most glamourous parts of the business, it is evident that senior management at e-commerce focused businesses need to focus more of their energies, and their budgets, on making sure their back end functions can support the promises made to customers at the front end.