Online shoppers continue to demand fast, accurate fulfillment, putting enormous pressure on retail DC operations. A new study looks at the lengths retailers are willing to go to accommodate them.
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
Rapid growth in e-commerce is placing big demands on fulfillment networks. That pressure has been a constant for years, but the fallout is ongoing, as retailers and third-party logistics service providers (3PLs) scramble to find ever-faster and more efficient ways to fill small multiline-item orders.
The pressure shows no sign of abating; just witness e-commerce megalith Amazon.com Inc.'s announcement in April that it would ratchet up its Amazon Prime subscription-shipping plan from standard two-day delivery to one-day delivery. The announcement sent ripples throughout the industry, with retailers and carriers alike predicting the change will lead consumers to demand even faster fulfillment.
"The development of raised customer expectations for 'one-day' business-to-consumer (B2C) delivery capabilities could create additional headwinds to parcel providers' [profit] margins," Benjamin Hartford, a transportation analyst for investment firm Robert W. Baird & Co. Inc., said in a note to investors. "Amazon's creation of customer demand and expectations for B2C led to e-commerce's rapid development over the past 10 to 15 years. As a result, we recognize the risk of a similar headwind being presented to parcel providers if the migration to free 'one-day' becomes adopted and expected in customer preferences."
So where will the industry go from here? To get a better understanding of emerging fulfillment trends, DC Velocity teamed up with ARC Advisory Group, a Dedham, Mass., management consulting firm, to examine warehousing and fulfillment practices in the age of online shopping. Together, we conducted a broad industry study that looks at how practitioners are currently meeting the demands of e-commerce as well as their plans for the future.
The study was conducted among 59 logistics professionals from a variety of industry sectors (see Exhibit 1) and is a sequel to a 2016 research project, allowing us to measure the trajectory of change in warehouse operational profiles, market pressures and priorities, warehouse order-fulfillment profiles, and warehouse technology. What follows is a look at some of the key findings.
MORE CHANGES AHEAD?
Industry trends aside, what ultimately determines how a given DC operates—from its processes and priorities to its equipment and technology—is the type of fulfillment it's engaged in: traditional store replenishment, DC replenishment, drop shipping, or direct-to-consumer shipping. A facility that mainly handles bulk orders for store replenishment will look quite different from one that primarily plays in the e-commerce arena.
To learn more about the study participants' operations, the researchers asked them which types of fulfillment their facilities supported. DC replenishment topped the list in this year's study, followed in rank order by direct-to-consumer/e-commerce fulfillment, direct fulfillment of a retail partner's customers' orders (drop shipping), and traditional store replenishment.
However, it appears the situation is in flux. When the study participants were asked how they expect those fulfillment activities to change over the next three years, their responses indicated that a big shift is under way. Some 40 percent said they expected direct-to-consumer fulfillment to increase "extensively," and a similar proportion said they expected a significant rise in drop shipping. A significantly smaller number said they expected to see an increase in replenishment shipments to partner DCs or retail stores. (See Exhibit 2.)
What the study makes clear is that DCs fully expect to continue focusing on e-commerce direct-to-consumer orders and drop-ship work, where they essentially serve as the fulfillment arm of their downstream partners such as e-tail websites, said Clint Reiser, director for supply chain research at ARC Advisory Group. Reiser, who led the study, noted that even as the volume of e-commerce orders continues to rise, warehouse shipments for store fulfillment are staying flat or declining, as traditional retailers reduce store footprints and trim inventory.
In a parallel finding, participants also indicated that they expected the type of picking performed at their facilities to shift over the next three years. When asked what changes they foresaw to their picking patterns, nearly half (48 percent) said they anticipated an extensive increase in piece picking. By way of comparison, just 26 percent said they expected a big jump in pallet picking and 19 percent in carton/case picking.
In order to navigate this shifting landscape, many companies have realigned their fulfillment priorities over past five years. Not surprisingly in an era when shoppers have come to expect instant gratification, speed has become a top priority for most operations. Our study participants are no exception. Asked which capability has grown most in importance over the past five years, 72 percent of respondents said "fulfillment responsiveness" (the time from order receipt to delivery). Lagging well behind were "fulfillment adaptability" (the ability to handle a wide range of order profiles), "fulfillment accuracy" (correct items and documentation), and "fulfillment throughput." (See Exhibit 3.) The rising importance of responsiveness shows that DCs are placing increased emphasis on prompt fulfillment in response to shifting consumer expectations for same-day or next-day delivery, Reiser said.
THE RUSH TO AUTOMATE
In order to reach those goals, DCs are investing in warehouse technologies such as software and automated equipment. In this regard, they have plenty of options. Visit any logistics trade show, and you'll find a wide array of products and services promising to supercharge fulfillment operations, from autonomous mobile robots (AMRs) to radio-frequency identification (RFID) tags.
But no single technology can solve every challenge, so our study asked exactly what "material flow processes" companies were targeting for improvement through technology investments. The top three responses were shipping, goods retrieval and order picking, and packing and labeling. (For the full rundown, see Exhibit 4.)
Next, we drilled down to ask exactly which warehouse tools were their top priorities for investment over the next three years. Here, the number-one vote getter was warehouse management system (WMS) software, followed by conveyors/automatic sortation, automated palletizing/depalletizing equipment, warehouse labor management software, and pick-to-light/put-to-light systems. (See Exhibit 5.)
All of these choices align with shippers' need to accelerate delivery speed and wring the maximum efficiency out of their resources, Reiser observed. "WMS still reigns supreme as a must-have in a fulfillment operation, and labor management remains critical for obtaining efficiencies out of your operations," he noted. "Conveyor and sortation remains surprisingly important," Reiser added. "Even though other automation technologies are higher profile or 'sexier,' conveyance and sortation is still ubiquitous in warehousing."
E-COMMERCE STILL DRIVING THE TRAIN
These changes in warehouse picking patterns and processes underline the continuing impact of the e-commerce trends we first identified in the 2016 study on warehouse operations. Just as they are today, facilities back then were seeing a widescale shift away from the traditional pallet- and case-picking operations toward piece picking.
Participants in both studies also sent a consistent message when it came to the process "pain points" they most wanted to address with new technologies. The top two responses from the 2016 study—shipping and goods retrieval/order picking—remained unchanged in the 2019 study.
Then as now, consumer expectations are driving sweeping change in warehouses across the country as operations scramble to rev up fulfillment. As shoppers' expectations continue to ramp up, look for further changes in the warehousing universe as DC leaders rethink their processes, technology requirements, operational priorities, and even their role in the supply chain.
By the numbers, fourth quarter shipment volume was down 4.7% compared to the prior quarter, while spending dropped 2.2%.
Geographically, fourth-quarter shipment volume was low across all regions. The Northeast had the smallest decline at 1.2% with the West just behind with a contraction of 2.1%. And the Southeast saw shipments drop 6.7%, the most of all regions, as hurricanes impacted freight activity.
“While this quarter’s Index revealed spending overall on truck freight continues to decline, we did see some signs that spending per truck is increasing,” said Bobby Holland, U.S. Bank director of freight business analytics. “Shipments falling more than spending – even with lower fuel surcharges – suggests tighter capacity.”
The U.S. Bank Freight Payment Index measures quantitative changes in freight shipments and spend activity based on data from transactions processed through U.S. Bank Freight Payment, which processes more than $43 billion in freight payments annually for shippers and carriers across the U.S.
“It’s clear there are both cyclical and structural challenges remaining as we look for a truck freight market reboot,” Bob Costello, senior vice president and chief economist at the American Trucking Associations (ATA) said in a release on the results. “For instance, factory output softness – which has a disproportionate impact on truck freight volumes – is currently weighing heavily on our industry.”
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.”
Oh, you work in logistics, too? Then you’ve probably met my friends Truedi, Lumi, and Roger.
No, you haven’t swapped business cards with those guys or eaten appetizers together at a trade-show social hour. But the chances are good that you’ve had conversations with them. That’s because they’re the online chatbots “employed” by three companies operating in the supply chain arena—TrueCommerce,Blue Yonder, and Truckstop. And there’s more where they came from. A number of other logistics-focused companies—like ChargePoint,Packsize,FedEx, and Inspectorio—have also jumped in the game.
While chatbots are actually highly technical applications, most of us know them as the small text boxes that pop up whenever you visit a company’s home page, eagerly asking questions like:
“I’m Truedi, the virtual assistant for TrueCommerce. Can I help you find what you need?”
“Hey! Want to connect with a rep from our team now?”
“Hi there. Can I ask you a quick question?”
Chatbots have proved particularly popular among retailers—an October survey by artificial intelligence (AI) specialist NLX found that a full 92% of U.S. merchants planned to have generative AI (GenAI) chatbots in place for the holiday shopping season. The companies said they planned to use those bots for both consumer-facing applications—like conversation-based product recommendations and customer service automation—and for employee-facing applications like automating business processes in buying and merchandising.
But how smart are these chatbots really? It varies. At the high end of the scale, there’s “Rufus,” Amazon’s GenAI-powered shopping assistant. Amazon says millions of consumers have used Rufus over the past year, asking it questions either by typing or speaking. The tool then searches Amazon’s product listings, customer reviews, and community Q&A forums to come up with answers. The bot can also compare different products, make product recommendations based on the weather where a consumer lives, and provide info on the latest fashion trends, according to the retailer.
Another top-shelf chatbot is “Manhattan Active Maven,” a GenAI-powered tool from supply chain software developer Manhattan Associates that was recently adopted by the Army and Air Force Exchange Service. The Exchange Service, which is the 54th-largest retailer in the U.S., is using Maven to answer inquiries from customers—largely U.S. soldiers, airmen, and their families—including requests for information related to order status, order changes, shipping, and returns.
However, not all chatbots are that sophisticated, and not all are equipped with AI, according to IBM. The earliest generation—known as “FAQ chatbots”—are only clever enough to recognize certain keywords in a list of known questions and then respond with preprogrammed answers. In contrast, modern chatbots increasingly use conversational AI techniques such as natural language processing to “understand” users’ questions, IBM said. It added that the next generation of chatbots with GenAI capabilities will be able to grasp and respond to increasingly complex queries and even adapt to a user’s style of conversation.
Given their wide range of capabilities, it’s not always easy to know just how “smart” the chatbot you’re talking to is. But come to think of it, maybe that’s also true of the live workers we come in contact with each day. Depending on who picks up the phone, you might find yourself speaking with an intern who’s still learning the ropes or a seasoned professional who can handle most any challenge. Either way, the best way to interact with our new chatbot colleagues is probably to take the same approach you would with their human counterparts: Start out simple, and be respectful; you never know what you’ll learn.
Grocery shoppers at select IGA, Price Less, and Food Giant stores will soon be able to use an upgraded in-store digital commerce experience, since store chain operator Houchens Food Group said it would deploy technology from eGrowcery, provider of a retail food industry white-label digital commerce platform.
Kentucky-based Houchens Food Group, which owns and operates more than 400 grocery, convenience, hardware/DIY, and foodservice locations in 15 states, said the move would empower retailers to rethink how and when to engage their shoppers best.
“At HFG we are focused on technology vendors that allow for highly targeted and personalized customer experiences, data-driven decision making, and e-commerce capabilities that do not interrupt day to day customer service at store level. We are thrilled to partner with eGrowcery to assist us in targeting the right audience with the right message at the right time,” Craig Knies, Chief Marketing Officer of Houchens Food Group, said in a release.
Michigan-based eGrowcery, which operates both in the United States and abroad, says it gives retail groups like Houchens Food Group the ability to provide a white-label e-commerce platform to the retailers it supplies, and integrate the program into the company’s overall technology offering. “Houchens Food Group is a great example of an organization that is working hard to simultaneously enhance its technology offering, engage shoppers through more channels and alleviate some of the administrative burden for its staff,” Patrick Hughes, CEO of eGrowcery, said.