Think about the last time you bought something online. If you live in the United States, you most likely visited Amazon.com, selected the exact product you wanted from a range of similar options, added it to your shopping cart and checked out. From there, the product left one of Amazon’s cavernous distribution centers and made it to your front door, perhaps by truck or by air, in only one or two days. Amazon has spent years – and massive amounts of money on warehouse automation and freighter aircraft – developing that process into what it is now.
However, while consumers are falling in love with the e-commerce process, sellers competing with Amazon are scrambling to match the Seattle retail giant’s speed and efficiency, regardless of where their customers do their online shopping. Most sellers lack the time and money to make the initial investment to develop Amazon-level fulfillment systems and delivery standards, and even fewer need the giant warehouses typical of Amazon or traditional big-box retailers like Walmart.
That is where a new breed of third-party-logistics providers comes in.
While some warehouses are situated near major air hubs and expand to meet surging e-commerce demand, others are getting smarter, using analytics side-by-side with smaller, urban distribution centers. This second category of warehouse relies more heavily on road-feeder services and keeping products closer to customers, while also sharing space to keep costs low and get shipments to shoppers as quickly as possible.
“I would say that technology, like every other industry, is driving most of the change in warehousing,” Steve Bullard, vice president of logistics for Pilot Freight Services, told Air Cargo World. “There are only so many ways you can move a box or a mattress or a recliner, and those haven’t changed a lot in the 30 years I’ve been doing this – technology has been the biggest overall change.”
The warehouse as storefront
Part of the technology advancement in warehouse design comes from the addition of gadgets like wireless, handheld scanners that track inventory and forklift video feeds that allow operators a clear view of what they’re moving.
The real technology stars in the warehouse, though, are the platforms like Pilot’s warehouse management system, or EWMS. These platforms, which are employed by more and more third-party logistics providers, as well as techenabled start-ups, give the providers and their warehousing customers real-time inventory visibility. The information can then be analyzed, and forecasts can be made to figure out where to locate inventory at distribution centers across the country, to ensure that, when a customer wants something, it can be located and delivered to them quickly and at low cost.
Pilot’s roots began in transportation before the company expanded into warehousing at the request of its customers, Bullard said. Pilot already had more than 60 U.S. locations it used for cross-docking in its transportation business and has since increased the footprint of those facilities to serve as regional distribution centers. Some customers are seeking even more, though – particularly services that are tailored exactly to their businesses. Those customers are now requesting customized solutions to meet their needs, according to Bullard.
“The idea that you can get very specific information and customized solutions for your product mix has also created this new customer that is very open to the idea of creating custom solutions for anything they’re doing,” Bullard said. Sometimes that translates to adding a service for the customer within a warehouse, as Pilot did when they built a custom screen-printing and embroidery shop in a warehouse for a client selling uniforms.
For another business-to-business (B2B) customer, even a 20-minute delivery time was too long, and Pilot developed a hybrid warehouse/retail space at that customer’s request. While some logistics firms struggle to find high-tech “lastmile” systems, using flying drones, delivery vans or multiple kiosks, this B2B example allowed the clients to come to them, instead.
“We found an old retail space across the street from the client that had been used as an insurance sales representative’s office and we barcoded all the products in the building, so the customer can go in, get what they need and scan it,” said Bullard. “It’s basically a warehouse where they take exactly what they want. It’s a very specific solution that five years ago, no one would have thought of.”
The higher expectations of customers can be a win-win situation, Bullard added, if logistics providers are willing to provide those added services. “The value to the customer is, it costs them less money and less time to market. For us, we’ve added more value and it makes them a longer-term customer,” he said.
While technology is used to manage expectations on the one hand – for example, ensuring that what someone adds to their virtual shopping cart matches the final expedited product they receive on their doorstep – technology can also create expectations that are challenging to meet, logistically. And it doesn’t necessarily matter whether theseller in question is a small, mom-and-pop operation or an international presence.
“Every company now has a digital platform – it doesn’t matter whether you’re a high-street retailer or selling screws to the hardware market, and all are expected to meet those standards,” said Andrew Bird of Tilstone Partners, which manages urban real-estate investment trust specialist, Warehouse REIT, in the United Kingdom. These companies may have their own logistics teams, but are more likely to work with a logistics provider – so it’s up to that provider to make sure its seller customers can get their products to customers, while meeting the heightened expectations e-commerce has established.
“Amazon set the bar so high for what customers want, and the rest of the industry is following in their footsteps,” ShipBob CEO Dhruv Saxena told Air Cargo World.
As an e-commerce fulfillment start-up, ShipBob creates all the software it uses in-house and partners with traditional warehouses to store excess inventory. Most of the inventory ShipBob handles, though, is spread out across the U.S. in fulfillment centers near major cities and air hubs.
Divide and conquer
The Amazon effect is largely responsible for the emerging, geographically dispersed fulfillment center setup that is becoming more popular with the growth of e-commerce.
Only one or two decades ago, most fulfillment needs were from big-box retailers, like Walmart, Target or BestBuy. Cost control, rather than convenience, was the rule. Warehouses were in the middle of the country or away from population areas to take advantage of cheap real estate, and inventory moved across the country in pallets, using less-than-truckload (LTL) shipments. With the rise of e-commerce, all of that had to change, as air delivery played a larger role in reducing delivery times.
“With e-commerce, your customers are placing an order today and you only have a narrow window of time – from two to five days – that customers expect the package to get delivered,” said Saxena. What’s more, those customers don’t want to pay extra for faster delivery via air when Amazon Prime promises them free shipping in just two days. Part of managing those expectations is pricing merchandise to include shipping costs, but the better option for sellers and shippers is to change the way the products are stored before they’re purchased.
Space near cities is at a premium, though, and controlling costs means being creative about finding those spaces that can serve as distribution centers. ShipBob uses an eclectic mix of buildings to meet that need, including “a combination of new spaces being built, an old FedEx depot and former storefronts,” Saxena said. “Warehouses for e-commerce should be close to where our customers’ customers are, not close to FedEx or UPS centers.”
When it comes to dividing their customers’ merchandise between locations, technology comes back into play: “Customers then get their products from the closest fulfillment center, and analytics and forecasting should account for what is stored where,” Saxena added.
What’s next in warehousing?
So, what’s the next stage of warehouse evolution? Unsurprisingly, it seems likely that innovations already on the industry’s horizon will become more common in warehousing to solve problems, both old and new.
One such widely acknowledged issue is the siloed nature of the supply chain. As ShipBob’s Saxena noted, “Manufacturer, fulfillment, order management software, transport management systems for shipping labels with UPS, FedEx and UPS – these are all antiquated, and so the information they have is not always up to date.” This is a well-known truth across the industry, and the recent push toward data-sharing and cloud-based systems indicates the industry is at last working on methods to address the problem.
“We are trying to create a software solution that plugs into all of these areas, so you can see information about manufacturers, all your orders, inventory levels – and everyone in the supply chain needs to have access to that same information,” Saxena said.
The sharing of information is the idea that some supply-chain participants have been hesitant to get onboard with, but Saxena expects new technology will be the key to achieving the necessary sharing of information. “I think what we’re going to be seeing in the next three-to-five-year timeframe is software solutions that make all of the silos talk to one another,” Saxena added.
Warehouse REIT’s Bird expects changes in hardware to have a similarly large effect on the warehouse of the future. He said that the “buzzword” topics of robotics and artificial intelligence have not yet made major inroads into warehouses mainly because “the market has enjoyed a lot of availability of relatively low price-point labor.” That may be changing with recent low unemployment levels pushing wages up. “As prices go up, I think people will be increasingly looking to take the human element out of the warehouse and invest in automation,” he said. This is already becoming a trend in larger warehouses, Bird observed, and companies with those warehouses can already afford to pay more to secure the labor they need. The necessity of competing with those companies as wages rise, Bird added, “will be the initiative to see greater automation in warehouses.”