The rise of digitization is making warehouse processes more efficient, by automating tasks and giving employees time to focus on more complex duties.

According to one report, the warehouse automation market is expected to surpass $30 billion worldwide by 2026. Multiple factors make a compelling case for contract logistics and parcel companies to dedicate a significant portion of their technology spend to warehouse automation.

One fundamental way in which e-commerce has changed is in the buying experience. Customer expectations, whether consumers or shippers, are for next-day, and increasing same-day, delivery. Category spread and product assortment has given rise to a proliferation in SKUs, numbering in the tens of thousands and approaching a million for dominant shippers.

In striving to meet customer expectations, warehouses and distribution centers are under a huge strain, especially where receiving, sorting, storage, picking, packing and dispatch has been largely a manual activity. Hiring and staffing for peaks and busy seasons has become an exponential problem, worsened by inflationary pressures and labor shortages since COVID-19.

On the supply side, there have been several advances in intelligent industry technology, ranging from warehouse management system (WMS) integration with operational technology to smart glasses, automated vehicles and forklifts for pallet movement, robotics, and conveyors with capability for three-dimensional movement. Additionally, drone technology for yard management, exoskeletons, digital twin technology and all-round sophistication in optical recognition, bar code, and internet of things technology are gaining traction.

Emerging advances in computer vision, machine learning and artificial intelligence are set to inspire a new generation of robots that can work alongside humans safely and efficiently in warehouses and distribution centers.

Yet despite this confluence of demand and supply, we only see tentative steps forward in warehouse automation investment. When preliminary results are mixed, it further undermines the business case to invest in warehouse automation.

The challenges aren’t typically associated with technology, but instead are business-related. 

Dominant e-commerce companies with purchasing leverage are investing in their own warehouse and fulfilment centers. At the same time, the pressure placed on margins for contract logistics and parcel companies challenges the business case for investment in warehouse automation. Break-even is typically longer than the agility and flexibility that shippers demand. Supply-side constraints in the manufacturing industry extend to robotics suppliers as well, resulting in longer than acceptable lead times and pricing headwinds.

Shippers and logistics companies need to get their strategy right on designing and architecting the supply chain, to ensure flexibility in e-commerce as well as traditional channels such as stores and branches. Following are several steps they should consider.

Ensure that the C-suite is on board. Senior leaders need to be educated and in agreement about the business case being made for this transformation. It starts with a pragmatic vision for warehouse automation that’s built upon core business strategy. Having clarity on customer segments, pricing terms and the value of the offer is essential. Ultimately, the vision for warehouse automation itself must be flexible and capable of evolving into a lights-out, autonomous and 24/7 warehouse operation that is achieved through many intermediate projects and steps over a multi-year journey.

Design your supply chain strategy. Contract logistics and parcel companies will have different approaches toward supply chain design. A warehouse strategy that supports e-commerce and traditional channels separately is very different from an omnichannel supply chain. There’s frequently a trade-off between industrialization of scale, and cost versus flexibility. Location and real estate expense, and utilization of space within the warehouse, will also determine the supply chain strategy.

Pick candidates for early success. Given the challenge with disrupting existing warehouse operations, logistics companies should evaluate one of two approaches. The first is identifying or setting up a model warehouse that has fewer SKUs to allow for warehouse operators to trial new processes, configurations, technology, training and change management techniques. Choosing a greenfield site to test new technology is an option. Second, digital twin technology offers the capability to pilot an entire warehouse operation, and AI allows for the simulation of human design elements. Warehouse managers can usually predict success with a fairly high degree of accuracy across a range of metrics, such as layout changes, volume, shift staffing, inventory turns and sorting, picking, and packing accuracy.

Choose the right use cases. Warehouses should consider several parameters in choosing the right use case for early success in the roadmap toward an autonomous operation. The size of materials, choice of processes, sorting throughput, reliability of robot technology and floor plans are key. Use cases should be are slotted into the overall automation roadmap to deliver consistent wins, and create a virtuous cycle of investment that’s scalable across the network.

With a carefully thought out and deliberate approach, shippers, contract logistics providers and parcel companies will see high returns on their warehouse automation investments. 

Siddharth Ram is vice president, consumer products, retail and services with Capgemini.