Smart warehousing: the smart choice?

Date : 30 August 2018

In recent years, smart warehousing has been brought into the mainstream by ecommerce businesses like Amazon and Ocado. These facilities are a world away from the warehouses I am familiar with: think large buildings filled with lots of racking and forklift trucks. Not very inspiring!

Smart warehouses bring together a variety of complementary technologies, all of which work in harmony to receive, process and dispatch goods. I’ve had the opportunity to visit a few smart warehouses this year. To say they are impressive feats of engineering is an understatement, and their proliferation is a result of the consumer desire for greater speed. Simply put, these sites process more orders, quicker.

So why isn’t every business investing?

Number one on the list of concerns is cost. Smart warehouses cost a lot of money. Real estate researchers, Green Street Advisors, suggest that dependent on the combination of technologies used, the interior of a smart warehouse can cost between $150 and $200 per sq. ft, compared with less than $10 for a traditional warehouse. That is an enormous difference, and making the investment pay in volatile trading conditions tests even the biggest businesses.

That said, developing smart warehousing solutions is a source of competitive advantage. Amazon, probably the highest profile smart warehouse operator, invested in a Kiva Systems, a robotics business, in 2012 and hasn’t looked back. It now has tens of thousands of robots operating across its global fulfilment network. These work with humans and other technologies, including miles of conveyors to transfer goods around facilities, with minimal human input.

Ocado is another leader in this space. It’s taken a different approach, having developed a warehouse solution that it can license, supply and manage for clients. It recently secured deals to supply its solution to Sobeys, Kroger and ICA. Essentially, the partner businesses supply the space and pickers – Ocado takes care of the rest.

In recent years, Ocado has worked to master the technology it uses in its solutions, aiming to make its warehouses as efficient as possible. This meant moving from a sequential, conveyer-based system to a concurrent system that uses a grid and robots, much like Amazon.

This approach has a few key advantages over traditional automated systems. One of the most important is scalability. Systems like those developed by Amazon and Ocado can be scaled and flexed quickly with minimal disruption. You simply add more robots. There’s no need to stop conveyers, add mezzanine levels, etc. – all of which prevent the operation from running and disrupt service.

Making it pay

This helps businesses operationalise solutions and begin the processes of recouping investment quicker. This is extremely important when outlays can be so large and for businesses growing businesses, the question of “Where next?” is never far away., another business that’s invested in smart warehousing, began operating its first fully automated warehouse in Shanghai recently. It has stated that the site is ten times more efficient than a traditional warehouse. Efficiency is a key benefit of smart warehousing, but there are other ways to make them pay.

To increase the speed of return, businesses can look to operationalise data generated by the smart warehouse environment in the wider supply chain “ecosystem”, beyond the facility’s walls. This is a growing area of interest, particularly given the blurring of the lines between tech businesses and retailers.

The digitalisation of everything means almost every detail about the digital devices in these sites can be retrieved and used to add value. When a machine is broken, it communicates the problem. When a robot is out of battery, it takes itself out of action and goes to charge itself.

Right for everyone?

For all their benefits, it’s unlikely that smart warehouses will ever completely replace traditional facilities. Uptake will depend on many factors, primarily balancing capital expenditure with payback, and the factors influencing uptake will differ market by market. In China, for example, the low cost of labour is a barrier to smart warehouse proliferation. It means value returned is lower because the costs of operating traditional warehouses are lower. But as wages rise, this is likely to change the balance.

In the US, where costs are higher, the need is more pressing. But the initial cost of developing smart warehouses, and who foots the bill, is a bigger obstacle. Most businesses are not able to invest huge sums in smart warehousing solutions and share facilities. For those that own warehouse space, how to create a facility that works for different businesses will be challenging.

A more likely outcome is that businesses will pick and choose the elements that work best for their proposition. Despite the level of automation that I’ve described, the smart facilities I’ve seen are by no means fully automated. Elements of the process are still highly manual and carried out by humans. But – and it’s a very important but – these sites were designed with growth and expansion in mind. Aside from the robots and the automation, the ability to seamlessly add capability and capacity when the time is right will be a key factor in smart warehouse success over the long-term.

Alex Harvey, Head of Robotics and Autonomous Systems for Ocado will be speaking at November’s Supply Chain Summit. Come along to hear his views on the future of warehousing.

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Chris Irish

Chris Irish

Supply Chain Insight Manager

15 October, London
The IGD Supply Chain Summit 2019 focuses on how to be customer centric. We’ll connect you with the retailers, suppliers and solution providers that are winning with customers.

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