Executive Briefings

Opinion: The 'Amazon Effect' Creates Supply Chain Pressure

The new purported norm created by Amazon's two-day shipping hits two key groups of stakeholders — consumers and supply chain service and equipment providers — differently. How the latter respond is critically important to business success.

Opinion: The 'Amazon Effect' Creates Supply Chain Pressure

Consumers like the “Amazon Effect” so much that they have largely come to view two-day delivery as the norm, and some even clamor for same-day delivery to become the standard.

On the other side of the consumer are supply chain service and equipment providers who are still trying to figure out how to keep up with the changing consumer demand.

Consumers aren’t much interested in the challenges that the delivery side faces, so these challenges are going to have to be figured out — and the challenges are significant.

Business viability is threatened by the rapid changes caused by the Amazon Effect. Many retailers who are adopting omnichannel solutions and direct home delivery are struggling to do so profitably. Retailers who are slow to adapt can be at risk of losing customers.

“It was the best of times, it was the worst of times,” is a quote famously applied to the Charles Dickens novel, A Tale of Two Cities. The same could be said of the two sides of logistics distribution — warehouses and retail stores. A revolution in fulfillment technology is underway for both.

Warehouses — the heart of the “distribution center” — are finding their role turned upside down. Now, rather than accepting and dispatching products by the truck and pallet load, they are often having to break shipments down into individual products, repack them for direct consumer delivery, and send them out via a myriad of carriers. And, retail stores — once only concerned with putting products on the floor — are now becoming mini-warehouses. Many products are being re-picked from the sales floor for processing in the “back room” to be put on last-mile delivery vehicles.

And, those same retail stores still need to make sure a full range of products are on the shelves when the time-honored walk-in customer arrives, expecting to find what they came for.

Yes, autonomous equipment is playing a limited role today, and that will likely grow. But, by necessity the shift to automation has not happened overnight.

First, there is cost. Autonomous equipment can carry a steep price and a long payback period. Second, the equipment is usually made to perform specific tasks in a specifically designed space. When market conditions change — resulting in a different product mix and/or delivery demands — much of today’s autonomous equipment cannot be readily adapted.

This automated technology continues to evolve. Recent developments make it likely that autonomous machines will become more flexible, and thus able to deal with a wide range of conditions in the near future.

While autonomous options continue to expand for warehouse and retail store operations, more traditional mechanical and labor methods will continue to play a major role. The trick is how to best utilize a mix of options today, and how to most efficiently transition to more advanced technology without damaging the ultimate customer’s experience.

All of us who provide supply chain technology and systems are being pushed to innovate.

On the warehouse side, the explosion in SKUs is overloading traditional capabilities and the industry has yet to figure out how to best handle this situation. This is the Amazon Effect’s “disruption” we hear about so much.

For example, a much higher storage density is resulting from the proliferation of SKUs. In many cases, warehouses are responding by increasing the height of storage shelves (high racking) and placing pickers on high-level order picking equipment. It can be an effective though costly solution, but it’s sub-optimal from the perspective of labor productivity. An alternative solution — reconfiguring and re-equipping the warehouse with vertical and/or horizontal carousels, shuttle systems, or mezzanine supported pick models feeding conveyors — can be a much better solution, but many warehouse operators don’t have the necessary capital resources. As a result, we are seeing some customers forced to use more labor for each pick.

Many warehouses are struggling to find the best solutions they can afford, but they aren’t sure how to prepare for an ever-changing future.

Autonomous equipment holds promise, but it is not going to become ubiquitous anytime soon, because there are still too many situations where human decision-making and dexterity are needed. A blend of autonomous and mechanized processes will likely emerge as the most efficient solution for many warehouse operators.

This requires a more sophisticated approach than the industry has traditionally employed. Investments in engineering, design, and installation can result in greater efficiency and — most importantly — the ability to compete in omnichannel distribution. Though existing warehouses can certainly be retrofitted, new construction will be necessary, because there are significant challenges when adapting a warehouse to the dramatically different requirements of today’s supply chain.

On the retail side, there are other challenges that are at least as significant as those facing warehouse operators.

While traditional brick-and-mortar stores are being repurposed for last-mile deliveries, adapting stores to this purpose is not simple.

What was once a back room for storage with basic pallet jacks is now being converted into a mini-distribution facility with more racking, and materials handling equipment. Store workers are being required to develop a new set of skills. And, WMS systems are being integrated into the store to make sure that products are efficiently picked — either from the back room or store shelves — and that inventories aren’t depleted for walk-in customers.

Labor savings at the traditional warehouses are being offset by increased costs at stores, as well as the cost of those last-mile deliveries. The jury is still out on how the overall supply chain cost of labor will be affected for retailers who are making these changes.

All of this might seem to be a threat to the future viability of small to medium-size warehouses, due to the need for more sophisticated solutions that require a large capital investment. But, for those who can make the change, the future actually looks pretty bright. Proximity to customers is going to be a key requirement for success, which favors the development of warehouses at locations already served by these operators.

Consider, for example, how Amazon itself got started. Its original success was in shipping, of all things, books. The experience Amazon gained in this single retail channel was the springboard for the creation of what has become one of the world’s largest companies.

The fact is we must innovate smartly. Making the right moves now can position your enterprise to succeed in the growing omnichannel marketplace.

Resource Link:
Hyster Company

Consumers like the “Amazon Effect” so much that they have largely come to view two-day delivery as the norm, and some even clamor for same-day delivery to become the standard.

On the other side of the consumer are supply chain service and equipment providers who are still trying to figure out how to keep up with the changing consumer demand.

Consumers aren’t much interested in the challenges that the delivery side faces, so these challenges are going to have to be figured out — and the challenges are significant.

Business viability is threatened by the rapid changes caused by the Amazon Effect. Many retailers who are adopting omnichannel solutions and direct home delivery are struggling to do so profitably. Retailers who are slow to adapt can be at risk of losing customers.

“It was the best of times, it was the worst of times,” is a quote famously applied to the Charles Dickens novel, A Tale of Two Cities. The same could be said of the two sides of logistics distribution — warehouses and retail stores. A revolution in fulfillment technology is underway for both.

Warehouses — the heart of the “distribution center” — are finding their role turned upside down. Now, rather than accepting and dispatching products by the truck and pallet load, they are often having to break shipments down into individual products, repack them for direct consumer delivery, and send them out via a myriad of carriers. And, retail stores — once only concerned with putting products on the floor — are now becoming mini-warehouses. Many products are being re-picked from the sales floor for processing in the “back room” to be put on last-mile delivery vehicles.

And, those same retail stores still need to make sure a full range of products are on the shelves when the time-honored walk-in customer arrives, expecting to find what they came for.

Yes, autonomous equipment is playing a limited role today, and that will likely grow. But, by necessity the shift to automation has not happened overnight.

First, there is cost. Autonomous equipment can carry a steep price and a long payback period. Second, the equipment is usually made to perform specific tasks in a specifically designed space. When market conditions change — resulting in a different product mix and/or delivery demands — much of today’s autonomous equipment cannot be readily adapted.

This automated technology continues to evolve. Recent developments make it likely that autonomous machines will become more flexible, and thus able to deal with a wide range of conditions in the near future.

While autonomous options continue to expand for warehouse and retail store operations, more traditional mechanical and labor methods will continue to play a major role. The trick is how to best utilize a mix of options today, and how to most efficiently transition to more advanced technology without damaging the ultimate customer’s experience.

All of us who provide supply chain technology and systems are being pushed to innovate.

On the warehouse side, the explosion in SKUs is overloading traditional capabilities and the industry has yet to figure out how to best handle this situation. This is the Amazon Effect’s “disruption” we hear about so much.

For example, a much higher storage density is resulting from the proliferation of SKUs. In many cases, warehouses are responding by increasing the height of storage shelves (high racking) and placing pickers on high-level order picking equipment. It can be an effective though costly solution, but it’s sub-optimal from the perspective of labor productivity. An alternative solution — reconfiguring and re-equipping the warehouse with vertical and/or horizontal carousels, shuttle systems, or mezzanine supported pick models feeding conveyors — can be a much better solution, but many warehouse operators don’t have the necessary capital resources. As a result, we are seeing some customers forced to use more labor for each pick.

Many warehouses are struggling to find the best solutions they can afford, but they aren’t sure how to prepare for an ever-changing future.

Autonomous equipment holds promise, but it is not going to become ubiquitous anytime soon, because there are still too many situations where human decision-making and dexterity are needed. A blend of autonomous and mechanized processes will likely emerge as the most efficient solution for many warehouse operators.

This requires a more sophisticated approach than the industry has traditionally employed. Investments in engineering, design, and installation can result in greater efficiency and — most importantly — the ability to compete in omnichannel distribution. Though existing warehouses can certainly be retrofitted, new construction will be necessary, because there are significant challenges when adapting a warehouse to the dramatically different requirements of today’s supply chain.

On the retail side, there are other challenges that are at least as significant as those facing warehouse operators.

While traditional brick-and-mortar stores are being repurposed for last-mile deliveries, adapting stores to this purpose is not simple.

What was once a back room for storage with basic pallet jacks is now being converted into a mini-distribution facility with more racking, and materials handling equipment. Store workers are being required to develop a new set of skills. And, WMS systems are being integrated into the store to make sure that products are efficiently picked — either from the back room or store shelves — and that inventories aren’t depleted for walk-in customers.

Labor savings at the traditional warehouses are being offset by increased costs at stores, as well as the cost of those last-mile deliveries. The jury is still out on how the overall supply chain cost of labor will be affected for retailers who are making these changes.

All of this might seem to be a threat to the future viability of small to medium-size warehouses, due to the need for more sophisticated solutions that require a large capital investment. But, for those who can make the change, the future actually looks pretty bright. Proximity to customers is going to be a key requirement for success, which favors the development of warehouses at locations already served by these operators.

Consider, for example, how Amazon itself got started. Its original success was in shipping, of all things, books. The experience Amazon gained in this single retail channel was the springboard for the creation of what has become one of the world’s largest companies.

The fact is we must innovate smartly. Making the right moves now can position your enterprise to succeed in the growing omnichannel marketplace.

Resource Link:
Hyster Company

Opinion: The 'Amazon Effect' Creates Supply Chain Pressure