Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
In 25 years of working with manufacturers and distributors, Linda Taddonio, co-founder, CFO, and e-commerce guru at Minneapolis-based business-to-business software developer Insite Software, has heard enough corporate boasts to know when a company's claims are legitimate and when its pants are on fire.
So it was a revealing moment in mid-January when, as Taddonio was breezing through a webinar on Amazon.com's then nine-month-old B2B offering, Amazon Supply, she hesitated after showing a slide describing the unit's mission to offer the world's largest parts selection to the industrial maintenance, repair, and operations (MRO) buyer.
"This is the first time in my career where a business has set the earth as a defined territory," Taddonio said, with a slight chuckle in her voice that sent a message that Amazon's vow, as audacious as it sounded, should not be taken lightly.
In less than 20 words, Taddonio summed up what could become commerce's next signature moment. Already with a dominant position in the $186 billion-a-year domestic online business-to consumer (B2C) segment, Seattle-based Amazon has now turned its attention to the U.S. business-to-business (B2B) market, which in 2013 will generate $559 billion in sales, double that of three years ago, according to a mid-March forecast from research and advisory firm Forrester. How Amazon plays it and the changes wrought as a result could reshape the industrial distribution landscape for decades to come.
It would also, if things break his way, cement Amazon founder Jeff Bezos' reputation as a supply chain practitioner extraordinaire. Like Wal-Mart Stores Inc. founder Sam Walton before him, Bezos hit the ground knowing that the power rests not with the products themselves, but with the knack of getting them to the right place, at the right time, and at the lowest price.
Launched in April 2012 with inventory covering 14 industrial "categories" from abrasives to material handling, Amazon Supply is still too new to be a disruptive influence. Unlike the business-to-consumer e-commerce segment it helped invent, Amazon enters a field populated by seasoned intermediaries, or distributors. These firms add value through a deep knowledge of their customer base and its product needs, and by offering industrial inventory management and transportation service options Amazon isn't accustomed to providing.
The leader of the pack is arguably Grainger Industrial Supply, the Chicago-based colossus with 86 years of experience, more than 1 million parts and repair parts online, and 400,000 more in its catalogue (Amazon currently has about 600,000 online stock-keeping units, or SKUs). Grainger also has 711 local branches—more than 400 in the U.S.—where customers can pick up their orders on the same day or have them shipped.
Online transactions accounted for about one-quarter of Grainger's $9 billion in annual 2012 sales, according to Raleigh, N.C.-based consulting firm Tompkins International. That percentage is expected to rise to as high as 50 percent by 2015, the firm says.
BUILDING ON CONSUMER SUCCESS
Yet Amazon is Amazon. And it brings to the B2B game many of the unique characteristics that powered it to B2C online dominance. Amazon has 233 million products on its core website, and Tompkins estimates it is the launching pad for between 30 and 35 percent of all online shopping queries. A number of the SKUs available on Amazon's site for B2C transactions are applicable to B2B purchases as well.
Amazon has a base of 173 million users, many of which visit its site multiple times a week. This "familiarity footprint," as Taddonio calls it, could give Amazon Supply a leg up over its rivals, especially among younger procurement executives whose use of Amazon in their personal lives could be a marker in driving their business decisions.
Amazon will continue to beef up its DC density as the inexorable shortening of product cycles compresses delivery times to hours instead of days. It will add 47 million square feet of domestic DC capacity through 2016, bringing its U.S. network to more than 80 facilities, according to Tompkins International. Amazon plans to use separate centers to fulfill consumer and industrial orders, according to Jim Tompkins, the consultancy's CEO.
Amazon Supply offers free two-day deliveries to any customer as long as the order is more than $50 and bound for one address. Amazon's "Prime" service, where users pay a $79 annual fee for free two-day shipping regardless of the order's cost, has been made available to Amazon Supply customers. In addition, Amazon Supply offers free returns every day of the year.
Kiva Systems, acquired by Amazon last May for $775 million in cash, will become a key part of Amazon Supply's strategy. Procurement in the industrial distribution world is "a mile wide and an inch deep," meaning buyers have a wide variety of items to choose from but generally order in relatively low volumes. As a result, a typical MRO order involves small quantities of multiple SKUs.
Kiva's mobile robots, which scoot around warehouses and DCs bringing racks of goods to human pickers and packers, will enable Amazon Supply's efforts to provide an "endless aisle" of online buying choices while yielding substantial labor savings by eliminating the need for human workers to travel around the warehouse locating and picking items.
THE SHIPPING CHALLENGE
The biggest challenge for Amazon Supply will be keeping shipping costs under control. It's an issue the mother ship is all too familiar with. Amazon's 2012 shipping expenses rose to more than $5.1 billion, up from nearly $4 billion in 2011, according to the company's 2012 10-K filing with the Securities and Exchange Commission. Shipping costs last year outstripped shipping revenue by nearly $3 billion, according to the filing. Amazon generates much of its shipping revenue from third-party merchants who sell products through the company's site and use its fulfillment services for storing inventory, picking and packing, and shipping.
In the filing, Amazon said it expects its "net cost of shipping"—the ratio of shipping expenditures to revenue—to continue rising as parcel rates increase and more customers take advantage of the company's low-priced delivery offerings. Amazon mitigates some of the pain by using its massive volumes to leverage better pricing from its parcel carriers.
Bezos is doing what he can to fine-tune Amazon Supply's transport cost structure. Amazon has been running its own vehicle fleet in Seattle to support its "Amazon Fresh" online grocery business. The Amazon Fresh operations, which have never expanded beyond the Seattle metro area, are designed more to tinker with dynamic routing schedules than as a serious attempt to succeed in an area that has demonstrated more than its share of failures over the years, Tompkins says.
Tompkins says Amazon has several options, including the launch of its own transportation network or the creation of courier clusters in each market it serves. Or it could drop the bomb and announce the purchase of a major transportation company. Whatever direction Bezos & Co. take—and Tompkins says he has no idea what it will be—it will be based on optimizing margins per box and driver stops per block—the hallmarks of delivery success in the parcel world, he says.
Taddonio of Insite, who advises traditional industrial distributors on e-commerce strategies to counter the encroachment of e-providers like Amazon and Google Inc., says Amazon Supply will focus on providing the best product price and availability, and will not—at least for now—address the value-added solutions that have successfully embedded distributors in their partners' operations. Those solutions include a broader range of transportation options beyond parcel, the one shipping mode that Amazon is comfortable with, she says.
Taddonio adds, however, that too many traditional players "are not paying attention," either because they are unaware Amazon Supply exists or they feel it's not a threat. This kind of thinking puts old-line distributors at risk of a "death by a thousand digital cuts" should Amazon's low-cost model take hold, she warns.
The broader lesson, according to Tompkins, is that Amazon's model can be exported into any area where goods are ordered online. Asked to identify any impediment to Amazon's muscling into any field it wants, he replies, "Nothing."
The notoriously secretive Amazon would not respond to requests for comment. Thus, this story is left to quote from the proverbial "Book of Bezos," which preaches a commitment to low prices and the need to proceed with patience as well as an unbending strategic view, but with a willingness to change course if the winds suddenly change direction.
"There are two kinds of companies in the world," Bezos was once quoted as saying. "Those who sell things for more, and those who sell things for less. We're the second kind."
As for the mode of implementation, another Bezosian maxim should resonate with anyone who dreams of building a behemoth from scratch: "We're stubborn on vision, but we're flexible on tactics."
Robotic technology has been sweeping through warehouses nationwide as companies seek to automate repetitive tasks in a bid to speed operations and free up human labor for other activities. Many of those implementations have been focused on picking tasks, a trend driven largely by the need to fill accelerating e-commerce orders. But as the robotic-picking market matures and e-commerce growth levels off, the robotic revolution is shifting behind the picking lines, with many companies investing in pallet-handling robots as a way to keep efficiency gains coming.
“Earlier in this decade and the previous decade, we [saw] a lot of [material handling] transformation around e-commerce and the handling of goods to order,” explains Josh Kivenko, chief marketing officer and senior vice president at Vecna Robotics, which provides autonomous mobile robots (AMRs) for pallet handling and logistics operations. “Now we’re talking about pallets—moving material in bulk behind that line.”
Kivenko explains that whether items are being packaged and shipped directly to a customer’s home address or moved as finished goods to a shipping bay for store delivery, those items are first moved in bulk in some way, often by human hands and with human-operated equipment. He describes warehouses as chaotic environments in which humans move pallets and cartons in multiple ways—up and down, side to side, from receiving to storage, from storage to shipping, or via cross-docking. Automation can help bring order to that chaos.
“What we’re trying to do is relieve some of the pressure [on the] humans [doing] this work,” Kivenko says of companies that develop pallet-handling robotic technologies. “At the end of the day, we’re trying to automate some of those flows, relieve labor pressure, save costs, and keep the goods flowing.”
But automated pallet handling isn’t right for every situation, so it’s important to understand the warehouse conditions required and the protocols and best practices needed to make it a win. Here are some guidelines for applying pallet-handling robots and gaining the most from your investment.
FIRST, UNDERSTAND THE TECHNOLOGY
Pallet-handling robots fall into four general categories, explains Rich O’Connor, vice president of storage and automation for Raymond West Group, a business unit of lift truck manufacturer The Raymond Corp. They include:
Palletizing/depalletizing robots, which are used to load or unload items onto and off of pallets, usually with the use of a robotic arm for picking and placing. Today, these systems are being increasingly integrated with automated storage and retrieval systems (AS/RS) to further streamline pallet handling in the warehouse, O’Connor explains.
Autonomous guided vehicles (AGVs) and autonomous mobile robots (AMRs), which are used to transport pallets within the warehouse. Often outfitted with lift decks or conveyors, or designed to tug or tow items, these robots move pallets from point A to B within a facility. AGVs, which often follow a marked guide-path or wire in the floor, have been around for many years, but the advent of high-performance guidance and vision systems is allowing them more flexibility today, O’Connor says. AMRs are self-guided vehicles that use software and sensors to navigate their way through the warehouse.
Forklift AGVs and AMRs, which can move products both horizontally, from place to place, and vertically, into and out of storage racks. They come in various styles—including stackers, counterbalanced trucks, reach trucks, and even very narrow aisle (VNA) vehicles for use in densely packed warehouses. These vehicles are more complex than those used only for horizontal transport, O’Connor explains. They must be “highly integrated” into the facility’s warehouse management system (WMS) or warehouse execution system (WES) so that they know precisely where to retrieve and deliver pallets within the facility.
Robotic pallet shuttles, which move pallets into, out of, and within dense storage racking. The Raymond Corp. describes such a system as “a standalone, automated deep-lane pallet storage system that utilizes self-powered shuttle carriages to move pallets toward the back or front in a racking channel. Shuttles are motor driven and travel along rails within a storage lane.”
O’Connor and others say that no matter which of these technologies you’re investing in, it’s important to remember that they are all part of a larger system designed to optimize operations throughout the warehouse.
“The expanding role of all these different styles working together is what’s amazing today,” O’Connor says.
SECOND, ENSURE THE TECHNOLOGY IS A FIT
Kivenko, of Vecna, also emphasizes the importance of pallet-handling robots working in concert, particularly AMRs and AGVs.
“The magic isn’t just that the robots are autonomous and driving by themselves. The magic is multiple robots—when you have a [whole integrated] system [in place],” he says. “[It’s] how the fleet operates autonomously and optimizes itself for continuous improvement. That’s where the exponential gains are. [It’s] not just about automating what a worker does; it’s about automating a system.”
But you can’t install these systems in just any warehouse and expect magic. Kivenko and others point to certain conditions that enable the best robotic pallet-handling outcomes, especially when it comes to transportation-based and forklift-type AMRs and AGVs.
“The robots that I sell are large-load machines with very expensive technology,” Kivenko explains. “They move material, generally, in larger facilities. And in order for them to produce a return [on investment]—because that’s the name of the game here—they have to be higher-velocity facilities.”
He says pallet-handling robots work best in large facilities running multiple shifts, usually more than five days a week. Wider aisles allow the equipment to move more freely through the facility and at higher speeds, to optimize efficiency and productivity. Strong Wi-Fi networks and clean, dry environments also help keep equipment running at top performance.
O’Connor agrees that pallet-handling robots are best suited to facilities with multishift operations, where they can ease labor constraints and boost productivity. And he says many customers are willing to extend the typical two- to three-year ROI period to five years in order to achieve those gains. But there is even more to it than that. O’Connor’s colleague John Rosenberger says customers must first step back and analyze their processes to ensure that, even if they have the right facility for pallet-handling AMRs or AGVs, they are moving material in the most efficient way to begin with.
“Many times, we find that the processes in place [are inefficient],” says Rosenberger, who is director of iWarehouse Gateway and global telematics for The Raymond Corp. He emphasizes the importance of analyzing existing data—from an equipment telematics system or similar—to determine the best path toward automation.
“Do you have congestion zones now?” he asks. “They’ll still exist if you automate [those processes exactly].”
THIRD, MAKE SIMPLICITY A PRIORITY
Another basic rule of thumb when implementing pallet-handling robotics: Keep it simple.
Andy Lockhart, director of strategic engagement for global warehouse and logistics process automation company Vanderlande, says that when designing a pallet-handling robotics system, “you want to minimize the processes you [automate]. When you can create [an automated system] that focuses on one task—for example, AMRs delivering pallets from a high-bay [storage rack] directly to the palletizing cell—you can do that efficiently and effectively. When you ask the AMR to do this and this and this … you are adding risk of failure.”
Lockhart’s colleague Jake Heldenberg advises customers to first test their target processes via pilot programs within the warehouse or DC. Heldenberg is Vanderlande’s head of solution design, warehousing, North America.
“If AGVs or AMRs for pallet handling are interesting [to a customer], the best thing to do is pilot one or two in an existing DC,” he says, explaining that the process can help companies troubleshoot, understand integration timelines, and gauge ROI. But pilot programs can add expense to a project, making it unaffordable for some.
“If that’s the case, then the best advice is work with a vendor who has experience integrating [the technology],” Heldenberg says. “Use their experience to benefit your business. You won’t have the same hiccups and challenges you would with a less-experienced vendor.”
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.
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.”