Six trends shaping warehouses of the future
Now, moving into 2020, the warehouse is a carefully managed control...
In 2010, many warehouses would still have been regarded as a neglected cost centre.
Now, moving into 2020, the warehouse is a carefully managed control centre and very often the strategic hub of e-commerce within an ever-extending supply chain. Exciting as it is to be entering a new decade, the business landscape has been transformed, with the arrival of many different challenges, some of which depend on where in the world your warehouse operations are located.
In Europe and the US, priorities centre around making investments in automation to achieve order fulfilment targets and retaining the workers needed to sustain growth objectives. In Asia and other developing countries, attentions are directed elsewhere - towards ensuring reliable Internet connectivity and efficient transportation. One key trend that every region shares, is the arrival of social commerce and digital transformation, with business transactions at all levels continuing to migrate online, albeit at very different rates.
Indigo has been helping customers to optimise warehouse productivity and improve process efficiency inside warehouses for over four decades. Here are our six key global trends to be watching out for in 2020:
Dropshipping will increase substantially
E-commerce and direct-to-consumer growth will continue to transform the fulfilment operations of retailers, manufacturers, plus their wholesalers and 3PLs. Many manufacturers and wholesalers have already started dropshipping and have disintermediated their retail partners. This trend will accelerate because it allows the seller to improve profit margins and create direct customer relationships, by building up their direct-to-consumer channels. Logistics service providers / 3PLs are also benefiting from this trend, by obtaining business from retailers that are looking to outsource some of their direct-to-consumer fulfilment.
Time to delivery becomes a key competitive differentiator
Price is no longer the main competitive differentiator. How long it takes to receive an item is becoming just as important, as Amazon has shown the industry. Fulfilment responsiveness (the time it takes from order receipt to final delivery) will increase over the next three years. In a recent ARC Advisory Group study, 77% of respondents reported they expected it to increase in importance, significantly higher than the results for the same question in 2016.
Social media commerce returns will make reverse logistics even more important
Reverse logistics was already an issue for many sellers and will become even more so in the future, thanks to the so called ‘Instagram effect’. Research into online shoppers shows 34% will make more impulse buys as social media sites make it easier to buy products directly, through in-platform selling tools. Once Instagram launches its ‘Buy on Instagram’ and ‘Instagram Checkout’ tools, it goes without saying that these impulse shoppers will end-up sending more of their purchases back to retailers. Social media buyers are expected to account for a fifth of all online shoppers who make returns.
Flexible pick methods for multiple order profiles
Picking methods like batch pick and sort will become more common, as they are ideal for cost efficiently processing high volumes of small orders as quickly as possible. Multiple orders or shipments can be picked simultaneously and then grouped into individual orders, greatly increasing the throughput possible in a warehouse by reducing travel times to gather stock items. Social or e-commerce orders can then be released in the shortest possible time for the lowest cost possible – essential if extra resources are to be utilised during returns management. If the warehouse is exceptionally busy, with a large number of pickers and different product SKUs, wave picking can also be highly efficient. This is because it cuts down on congestion between locations and allows orders to be grouped into zones for optimum productivity.
New workarounds to overcome labour shortages
In Europe and the US, a tight labour market remains one of the overriding challenges for warehouse operations managers. In a recent study, 50% of respondents said that an inability to attract and retain a qualified hourly workforce was a critical issue. For 2020 and beyond, multiple methods of strengthening warehouse workforces will be necessary, ranging from increasing pay, to offering enhanced training and benefits. Investing in operatives, for instance, by offering personal development and soft skills training opportunities, will be essential for companies to attract and retain the people they need to achieve their e-commerce and omnichannel expansion goals.
Investing in a WMS is increasingly common
An efficient warehouse runs on technology and the investment priorities of warehouse executives show that tried and tested technologies - such as a warehouse management system (WMS) and partial automation using conveyors or automated sortation systems remain top priorities. Once these essential items are in place, other supporting technologies including transport management systems, voice recognition for picking and putaway, AGVs, and palletisers are also top investment priorities.
By Mark Wilkinson, Supply Chain Consultancy Manager at Indigo Software
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”