How are rapidly changing fulfillment requirements affecting warehouse operations? According to a recent survey, they're triggering widespread changes in everything from facility footprints to long-standing value-chain partnerships.
If you’ve been involved in order fulfillment for a decade or more, there’s a good chance you’ve seen a wholesale change in your facility’s picking patterns. Over the last 15 years, many DCs—particularly in the retail sector—have found themselves picking far fewer pallets or cases and a lot more individual items or pieces.
As for what’s driving this trend, a big part of the answer is e-commerce and the consequent rise in consumer-direct shipping. And the growth of e-commerce shows no sign of slowing. Prior research by ARC Advisory Group and DC Velocity showed that companies expect an average of 40 percent growth in online sales over the next five years. Meanwhile, Amazon, the 800-pound gorilla in the market, has achieved annual North American growth of over 20 percent in each of the last five years.
With this substantial growth comes rapid change and fierce competition, stimulating widespread changes to warehouses and fulfillment operations. To be precise, the heightened customer expectations and industry competition are forcing managers to rethink fulfillment processes, technology needs, operational priorities, warehouse footprints, and even the roles of long-standing value-chain partnerships.
But what is the market profile of today’s operations? In what ways are the demands on warehouses changing? Perhaps more importantly, what are practitioners doing today and what are their plans to meet future demand and remain competitive?
To develop a better understanding of the fulfillment environment, ARC Advisory Group and DC Velocity teamed up to conduct a survey of practitioners, asking about facilities, market pressures, operations, and investment priorities. We included a time-phase element to obtain insight into the likely progression from past to present to future. Many of our findings are likely to confirm your current assumptions, while others may surprise you.
DC FOOTPRINT EXPANSION
Although CBRE and other real estate firms publish regular reports on trends in industrial real estate, including warehouse space, data on warehouse types coupled with fulfillment operation data is hard to find. So we decided to include a question on facility types in our study. What we learned was that on average, respondents’ facility footprints are almost half bulk warehousing (facilities with more than 100,000 square feet of space), while a quarter consists of smaller warehouses, followed by cross-docking operations and refrigerated facilities.
When asked to look forward five years, respondents identified bulk warehousing and cross-docking as the types of facilities they most expected to become more prevalent. One consumer-goods company respondent noted that it was expanding the footprint of existing facilities to support growth. We believe this to be a common and cost-effective means of increasing capacity. Meanwhile, a third-party logistics service provider (3PL) reported a planned expansion of bulk and cross-docking facilities to meet the anticipated needs of its clients.
Not surprisingly, when asked about the reasons behind their planned facility expansions, respondents most frequently cited expected increases in throughput and storage capacity needs. Interestingly, an increase in order complexity was the next most common response, followed by a change in outbound load profile. These results point to the current evolution of order profiles driven by e-commerce growth and related factors such as the average retailer’s proliferation in SKUs (stock-keeping units). One mechanical parts distributor noted that its business is moving away from wholesale in favor of retail sales. This is a great example of disintermediation in the supply chain, as consumers increasingly opt to order online rather than visit a retail store.
MARKET PRESSURES AND FULFILLMENT PROFILES
Every order would be the perfect order in an ideal world. But in reality, practitioners must set priorities and deal with tradeoffs. When respondents were asked about fulfillment priorities, "fulfillment accuracy" unsurprisingly topped the list. However, respondents believe that "fulfillment responsiveness" is the capability whose importance has increased the most over the last five years.
Also worth noting, respondents believe that "fulfillment adaptability" (defined as the ability to handle a wide range of order profiles) has risen in importance more than "fulfillment throughput" has. This supports the view that overall order variability has increased, making adaptability more important. And this trend is expected to continue, as fulfillment adaptability and fulfillment responsiveness are the capabilities most expected to grow in importance over the next five years.
Respondents’ comments support the view that pressures from e-commerce are largely responsible for this shift. For example, a respondent from an office supply wholesaler noted that it had seen an increase in its e-commerce direct-to-consumer shipments. Such a transition requires greater responsiveness due to the change in order profiles and customer expectations. Similarly, a respondent from a fashion accessories brand mentioned that it is becoming more nimble and adaptable to gear its operations more toward direct-to-customer fulfillment than it had in the past.
FULFILLMENT PATHS AND PICKING UNITS: FROM HERE TO WHERE?
There are a number of fulfillment paths that warehouses can support: traditional store replenishment, DC replenishment, drop shipping, and direct-to-consumer shipping. We asked respondents about the degree to which their organizations supported these various fulfillment processes. Replenishment of downstream DCs and replenishment of retail stores are currently the most prevalent fulfillment paths. However, once again, our inquiry into anticipated change painted a picture that differs from the status quo.
When asked how they expect various fulfillment processes to change over the next three years, respondents identified direct-to-consumer shipping and drop shipping (shipping goods directly from the manufacturer) as the practices that would see the biggest growth. The anticipated growth in drop shipping suggests that respondents expect to see further decoupling of customer-facing and fulfillment processes. I consider this to be one of the most interesting reconfigurations of value-chain partnerships. For one thing, it indicates that e-commerce and the omnichannel paradigm are not only affecting retailers, but also their manufacturing and wholesale partners. As retailers are pressed on margins, many are refocusing on the customer experience and unloading the inventory carrying costs and fulfillment processes onto their upstream partners.
PICK, PACK, REPEAT
Order size and scale generally decrease as products move through the supply chain toward the final consumer. Therefore, the balance among material handling units (pallet, case, piece) handled within a warehouse is likely to change along with the adjustments in fulfillment channels. We asked respondents how they foresee picking unit types changing over the next three years. (We chose "picking" because it is typically the most labor-intensive activity in a warehouse.)
Piece (eaches) is the unit type that most said would increase and also the type that most said would increase extensively. Over half the respondents also said they expected to see an increase in case picking. In contrast, less than half of the survey respondents predicted an increase in pallet retrieval.
The responses about picking unit expectations support the view that picking units will continue to move toward eaches as warehouses fulfill more and more e-commerce orders and upstream partners support downstream partners with greater SKU variability along with smaller volumes of the same SKU.
PAIN POINTS AND TECHNOLOGY INVESTMENT
The shift toward processing higher volumes of small multiline-item orders is raising fulfillment costs within the warehouse. At the same time, greater levels of order variability are injecting inefficiencies into the fulfillment process. Typically, when faced with the need to improve processes and boost efficiency, logistics practitioners turn to technology.
We asked respondents about the likelihood of deploying technology in the next three years to improve various operational processes (process pain points). Shipping, goods retrieval/order picking, and put-away are the processes most frequently cited as expected targets for technology investment over the next three years.
In their supporting comments, respondents also expressed a desire to pick single and multi-unit orders by zone within the same wave, as well as a need for flexible picking solutions that can be deployed at scale. When they were asked the same question about technology investment for warehouse planning process improvements, they most frequently cited parcel shipping, general inventory management, and slotting optimization as likely areas for investment support.
We expected parcel shipping to be a focus area due to results from other ARC and third-party research showing that the e-commerce boom had led to a substantial increase in parcel shipping. However, the high percentage of practitioners that plan to invest in technology to support reslotting and facility layout changes was unexpected. Nonetheless, it confirms the view that order profiles are evolving quickly and warehouse management is diligently searching for ways to boost efficiency.
Although logistics executives would like to have a blank check and with it, the ability to select "all of the above" when it comes to investments to improve upon their operations, businesses live in a world of competing priorities, where oftentimes one investment must be chosen at the expense of another. Given that reality, we asked respondents to select their top warehouse technology investment priorities over the next three years.
Interestingly, but not surprisingly, when it came to software, warehouse labor management systems were the top choice. E-commerce fulfillment is labor intensive and costly, as these orders are generally small, with items often stored in different parts of the facility, and that require additional steps such as packaging and labeling.
WMS was the second most frequently selected investment choice, which is unsurprising given its role as the backbone of warehouse operations.
When it came to warehouse automation options, conveyors/sortation was the most popular investment choice, followed by pick to light/put to light. The responses for conveyors likely reflect the high level of conveyor/sortation use in North America, as compared to Europe.
Meanwhile, we believe that the interest in pick/put to light reflects a desire to gain efficiencies in e-commerce fulfillment operations. Also, the results support the view that autonomous mobile robotics (AMR) in the warehouse has moved from the concept phase to practical consideration, as 15 percent of respondents selected AMR as an investment priority for the next three years.
KEY TAKEAWAYS
Customer expectations and competition from e-commerce are driving widespread changes to warehousing and distribution operations. Direct-to-consumer growth is not only affecting retailers, but also manufacturers, wholesalers, and 3PLs. Warehouses and warehouse fulfillment operations are increasingly playing a greater role in commerce due to disintermediation and a reduction in retail sales through stores.
On top of that, the relationship between retailers and upstream partners is changing, as wholesalers have increased their presence in retail and retailers have pushed direct-to-consumer responsibilities back onto their suppliers. As a result, warehouse footprints are expanding, responsiveness and adaptability have become more important, parcel shipping has grown, and labor efficiency remains as important as ever.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
According to Arvato, it made the move in order to better serve the U.S. e-commerce sector, which has experienced high growth rates in recent years and is expected to grow year-on-year by 5% within the next five years.
The two acquisitions follow Arvato’s purchase three months ago of ATC Computer Transport & Logistics, an Irish firm that specializes in high-security transport and technical services in the data center industry. Following the latest deals, Arvato will have a total U.S. network of 16 warehouses with about seven million square feet of space.
Terms of the deal were not disclosed.
Carbel is a Florida-based 3PL with a strong focus on fashion and retail. It offers custom warehousing, distribution, storage, and transportation services, operating out of six facilities in the U.S., with a footprint of 1.6 million square feet of warehouse space in Florida (2), Pennsylvania (2), California, and New York.
Florida-based United Customs Services offers import and export solutions, specializing in remote location filing across the U.S., customs clearance, and trade compliance. CTPAT-certified since 2007, United Customs Services says it is known for simplifying global trade processes that help streamline operations for clients in international markets.
“With deep expertise in retail and apparel logistics services, Carbel and United Customs Services are the perfect partners to strengthen our ability to provide even more tailored solutions to our clients. Our combined knowledge and our joint commitment to excellence will drive our growth within the US and open new opportunities,” Arvato CEO Frank Schirrmeister said in a release.
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Volvo Autonomous Solutions will form a strategic partnership with autonomous driving technology and generative AI provider Waabi to jointly develop and deploy autonomous trucks, with testing scheduled to begin later this year.
The announcement came two weeks after autonomous truck developer Kodiak Robotics said it had become the first company in the industry to launch commercial driverless trucking operations. That milestone came as oil company Atlas Energy Solutions Inc. used two RoboTrucks—which are semi-trucks equipped with the Kodiak Driver self-driving system—to deliver 100 loads of fracking material on routes in the Permian Basin in West Texas and Eastern New Mexico.
Atlas now intends to scale up its RoboTruck deployment “considerably” over the course of 2025, with multiple RoboTruck deployments expected throughout the year. In support of that, Kodiak has established a 12-person office in Odessa, Texas, that is projected to grow to approximately 20 people by the end of Q1 2025.
Women are significantly underrepresented in the global transport sector workforce, comprising only 12% of transportation and storage workers worldwide as they face hurdles such as unfavorable workplace policies and significant gender gaps in operational, technical and leadership roles, a study from the World Bank Group shows.
This underrepresentation limits diverse perspectives in service design and decision-making, negatively affects businesses and undermines economic growth, according to the report, “Addressing Barriers to Women’s Participation in Transport.” The paper—which covers global trends and provides in-depth analysis of the women’s role in the transport sector in Europe and Central Asia (ECA) and Middle East and North Africa (MENA)—was prepared jointly by the World Bank Group, the Asian Development Bank (ADB), the German Agency for International Cooperation (GIZ), the European Investment Bank (EIB), and the International Transport Forum (ITF).
The slim proportion of women in the sector comes at a cost, since increasing female participation and leadership can drive innovation, enhance team performance, and improve service delivery for diverse users, while boosting GDP and addressing critical labor shortages, researchers said.
To drive solutions, the researchers today unveiled the Women in Transport (WiT) Network, which is designed to bring together transport stakeholders dedicated to empowering women across all facets and levels of the transport sector, and to serve as a forum for networking, recruitment, information exchange, training, and mentorship opportunities for women.
Initially, the WiT network will cover only the Europe and Central Asia and the Middle East and North Africa regions, but it is expected to gradually expand into a global initiative.
“When transport services are inclusive, economies thrive. Yet, as this joint report and our work at the EIB reveal, few transport companies fully leverage policies to better attract, retain and promote women,” Laura Piovesan, the European Investment Bank (EIB)’s Director General of the Projects Directorate, said in a release. “The Women in Transport Network enables us to unite efforts and scale impactful solutions - benefiting women, employers, communities and the climate.”