Analysis: E-commerce era ushers in smart, flexible warehouse

Analysis: E-commerce era ushers in smart, flexible warehouse

A warehouse in the United States.

Increasing customer demands and the need for more-flexible supply chains means the warehouse of the e-commerce era will do much more, and also achieve more for businesses. Photo credit: Shutterstock.com.

As the global economy strengthens and the synchronized regional recovery continues, there is a growing need to generate space savings and improve productivity in distribution centers (DCs) in order to accommodate a faster and shorter — and a more flexible — supply chain. Moreover, automation is one of the options to achieve those goals — and that was one theme expressed at the recent SITL 2018 (Salon International du Transport et de la Logistique 2018) in Paris.

Attendees at SITL 2018 noted the strong market trend of automation in the warehouse. Multimodal 2018 in Birmingham in May will certainly reiterate that trend. However, this trend of more-autonomous warehouses, which includes automation and artificial intelligence, is just the tip of the iceberg: Industry 4.0. and Supply Chain 4.0. are completely changing the traditional warehousing market landscape.

Reinventing the warehouse/DC

A revolution is coming to the warehouse and for warehouse operators.

Ever-changing business models and markets, new sales strategies, growing unpredictable customer demand, and shorter product life cycles demand more flexible solutions to increase customer satisfaction; the challenge is to put customers at the center of changes to the value chain.

What does that mean for the warehouse?

Automation and robotics will definitely increase, as will autonomous technology, which will lead to more high-velocity operations with integrated warehouse management software and analysis of real-time data. Further, warehouse operators who would not be ready or able to invest in new technologies, higher skilled staff, and transformation projects may simply disappear in the near future.

Real-time data management also raises the challenge of integrating the digital and the physical in the warehouse, described in an illuminating report by Deloitte University Press; real-time sharing of information among all supply chain stakeholders is being enabled by Industry 4.0 technologies. That is enabling companies to enhance supply chain planning and optimize their distribution networks, with better lead-time and volume allocation for short-term and mid-term delivery windows.

The above means inventories will be closer to customers, collaborative load and route planning will be better scheduled, which will optimize transportation and warehousing networks, resulting in reduced operating costs. All this will be enabled by digitization and real-time connectivity.

As a result, DCs’ strategies will change, and the market will contain a higher percentage of standardized logistics buildings: fulfillment centers (large storage spaces that include flexible automation solutions in order to consolidate inbound flows) and last-mile delivery warehouses (smaller spaces closer to end customers to support urban deliveries).

The temporary warehouse

Still, the main, expected warehouse change will be the development of temporary warehousing solutions. With customer demand more difficult to predict and because of shorter product life cycle, companies’ supply chains will become more flexible to anticipate and follow market fluctuations.

Furthermore, because manufacturers and retailers want inventories to be closer to their customers, connected and collaborative warehousing networks will be created to more efficiently use and share existing warehousing capacities. That means third-party logistics providers (3PLs) have a unique opportunity to develop more multi-user warehouses with short-term lease agreements — signed with their customers but connected to a collaborative, international network of warehouses.

Hence, Warehouse on Demand – WaaS – seems likely to become a realistic concept as it shall increase the space utilization ratio and offer greater flexibility to adjust companies’ supply chains to market fluctuations and ever-changing sales strategies.

3PLs’ main challenge is therefore to move from a traditional model — sell space with standard 3-, 6-, or 9-month contract durations — to a more-collaborative approach — create a flexible model of interconnected WaaS.

To be sure, this is a huge change that should not be underestimated; it requires major cultural changes for 3PLs — especially medium-sized ones — to become more collaborative, transparent, and adaptable. 3PLs’ traditional business models must change to meet the requirements of Supply Chain 4.0.

That is a major task, but the financial argument could be a very good incentive to change. According to a JLL study (March 2018) — the actual warehouse space usage ratio in France accounts for 79.7 percent, or about €211 million ($260 million) per year per warehouse currently not compensated by any customer revenue. Other countries are certainly in similar situations.

The warehouse revolution is on. It is time for 3PLs to embrace the changes of this new brave world or disappear.

Pierre Liguori is director of Tokema International, a supply chain consultancy firm. Contact Liguori at: pliguori@tokema-international.com.

To learn more, go to www.tokema-international.com.