James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
When it comes to warehouse automation, the U.S. grocery industry has long been the final frontier. For decades, grocers' warehouses and distribution centers remained untouched by the wave of automation sweeping through the nation's DCs. While pharmaceutical, electronics, and consumer goods facilities all around them installed the latest automated material handling systems, grocers clung to their manual ways.
Although there were some technical concerns, the reasons were largely financial. In a business known for its paper-thin margins, automation simply wasn't seen as a justifiable expense. "[Grocers] have such a low-margin business, they tend not to put their investment in warehouse technology," says Jeff Waller, president of the Atlanta consulting firm Waller & Associates. "They put it in the storefront."
But now that's starting to change. Within the past five years, several large grocers, including Kroger Co., HEB Grocery, and Stop & Shop Supermarket Co., have embarked on projects to partially or fully automate some of their distribution centers.
As for what's behind the reversal in thinking, it's partly the prospect of long-term labor savings. On top of that, the grocers say they stand to benefit from improved picking accuracy, a reduction in product damage, and higher throughput. But the fact remains, automated systems represent a hefty investment. And while some big players may have capitulated, it's still anything but clear whether their smaller counterparts will follow their lead.
Man vs. machine
A wholesale shift to automation would represent sweeping change for the grocery industry. Grocers' distribution facilities have long been labor-centric operations, with workers handling the distribution process from start to finish. In a typical operation, palletized products from suppliers are unloaded from trucks by workers on forklifts, who ferry the pallets to rack storage. Other workers break the pallets down into cases and later, assemble them into mixed pallet loads for delivery to individual grocery stores.
By and large, this work has been accomplished with little more than forklift trucks and pallet jacks. "The plain old forklift gets the job done quicker and for a lot less money," says Steven W. Simonson, a partner at the Raleigh, N.C.-based consulting firm Tompkins Associates.
Furthermore, up until fairly recently, systems that could handle complex grocery operations—with their thousands of stock-keeping units and diverse array of carton sizes—weren't widely available. For the most part, when grocers deployed technology in their DCs, it was in the form of voice or labor management systems—technology designed to help associates work more efficiently, not to replace them.
But technological advances have altered the equation, leading a few of the big players to start replacing at least some of those workers with machines. "We're seeing a real interest in automation in the grocery industry," says Mike Kotecki, a senior vice president with systems integrator HK Systems of Milwaukee, Wis.
In the past five years, HK has automated about 14 grocery warehouses in the United States, Kotecki reports. One of the first was a 2004 project at Stop & Shop's distribution center in Freetown, Mass., where HK installed automated storage and retrieval systems (AS/RS) that can accommodate both pallet and case picking. The system HK designed features cranes that automatically deposit pallets delivered by forklift into storage and then, when the pallets are needed for orders, remove them from storage and shuttle the loads to a station for loading into outbound trailers. For mixed-case pallets, the crane lowers pallets to floor-level bins, where order pickers select the needed items.
HK has also designed an automated mixed-case picking solution featuring a dynamic pick module for a grocery customer that Kotecki declined to name. At that customer's facility, workers break inbound pallets down into cases, which they deposit into totes or trays for storage by the unit's crane. When items are needed for orders, the crane ferries the trays to pick locations on the sides of the rack. Workers then retrieve the items for assembly into mixed pallet loads.
Case by case
Like HK, systems integrator Witron Integrated Logistics Corp. of Arlington Heights, Ill., has recently seen a flurry of interest in automation among grocery retailers. Within the last five years, Witron has installed its Order Picking Machinery (OPM), a fully automated case picking and palletizing system, at centers operated by big grocery chains like Kroger Co. in the United States and Sobeys Inc. in Canada.
At these facilities, the automated system takes over at receiving. Transfer vehicles whisk incoming pallets to an induction area, where a special machine removes cases from the pallets in layers and loads them onto plastic trays for storage in a mini-load AS/RS. When the cases are needed for orders, cranes remove them from storage and feed them to Witron's Case Order Machines, which assemble them into mixed-load pallets in a store-friendly sequence. In these DCs, the only contact forklifts have with pallets is at the receiving and shipping docks.
These systems come with a high price tag. An automated system of this level of complexity generally costs more than $1 million, says Brian Sherman, a senior engineer and account manager at Witron. And that's not the ceiling. Kotecki of HK says costs can run into the tens of millions for a big, complicated installation, like a fully automated rack-supported system for a hundred-foot-tall building with triple-deep rack storage.
Cost still a barrier
It's that million-plus dollar price tag that remains a sticking point for many grocers, particularly the smaller operations. Marc Wulfraat, director of supply chain strategy at consultant TranSystems Corp. of Kansas City, Mo., has run the numbers for some of his grocery clients. His conclusion: Automation doesn't make sense unless the company is paying its forklift operators $60,000 or more a year.
Outside of some unionized operations in big cities, most grocers don't pay their forklift drivers those kinds of salaries, Wulfraat says. Indeed, April 2009 figures from the Web site salary.com put the average pay for a forklift operator in the United States at $30,292.
Although the numbers alone may not justify automation, there are other factors that may come into play. For example, in Kroger's case, automation helped solve some longstanding employee recruitment and retention problems, says Simonson of Tompkins Associates. "They weren't finding quality employees, and turnover was killing them," he says.
For the most part, however, grocers still seem inclined to put their capital into technology that boosts sales in the store rather than in the distribution center. "Grocery companies tend to be behind the technology curve in distribution compared to Wal-Mart, who's on the leading edge," says Waller. "But competitive pressures will get them there eventually."
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”