Creating a network of small satellite fulfillment centers can ease transportation, labor, and automation challenges for retailers—all while raising the bar on the customer experience.
Victoria Kickham started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for DC Velocity.
In the never-ending quest to speed up order fulfillment and delivery, material handling systems integrators and supply chain consultants are helping retailers develop satellite fulfillment strategies designed to keep smaller, local distribution centers stocked with a steady flow of items from larger, strategically placed "mother ships." Driven by a rise in e-commerce and the associated consumer demand for near-immediate delivery, the satellite concept is set to reshape the way many retailers are designing their fulfillment networks.
"The thought process is to get the inventory as close to demand as possible with the least impact on transportation costs," explains Carlos Ysasi, vice president of systems integration for material handling solutions company Vargo. "You are trying to reduce the latter while at the same time being able to compete in the Amazon world, with same-day processing and next-day delivery."
The satellite concept—in which a retailer operates a series of regional master distribution centers that serve a larger network of small DCs located close to consumers—can help deliver on that promise by placing inventory closer to customers and easing challenges associated with last-mile delivery, Ysasi adds. The team at Vargo refers to the model as an "in-market DC" strategy that allows retail companies to utilize smaller local spaces in new ways and more easily manage transportation, labor, and automation challenges. Ysasi offers an example from the labor side of the equation: Retailers can utilize their physical stores or small warehouses as satellite DCs, giving them access to a local labor pool for picking and fulfillment jobs while easing the challenge of hiring such workers at larger facilities in hub markets (where third-party service providers and others may have a lock on such employees).
"Companies can experience 18 times more volume during peak season," explains Art Eldred, Vargo's client executive for system sales. "For the mother ships [large DCs], trying to hire all those additional workers is tough. If you change that to a satellite model, the task becomes easier."
The ultimate goal is to improve the customer experience in an era when that experience needs to be perfect, every single time. An e-commerce study released earlier this year by contract logistics specialist DHL Supply Chain found that more than half of logistics and supply chain management professionals in both business-to-consumer (B2C) and business-to-business (B2B) markets view the customer experience as one of the most important factors in determining the success of an e-commerce and omnichannel business strategy. Strong fulfillment capabilities can make or break that experience, according to Jim Gehr, president, retail, for DHL Supply Chain North America.
"Owning the relationship with the customer is where the value is," Gehr explains, adding that fulfillment is a "prime route to owning that relationship—fulfilling quickly, efficiently, and accurately. It's something that will increase sales per transaction and create lifelong customers."
REDUCING COSTS
Reducing transportation and freight costs is one of the biggest drivers behind the satellite or in-market DC concept, according to Ysasi and Eldred, who point to a criss-crossing of inventory that occurs in many retail organizations. It's not uncommon for retailers to bring product into the Port of Los Angeles, for example, and then ship it to a regional DC in Chicago, where it's unloaded, stored, and then picked, packed, and shipped back to the West Coast to fill both store and direct-to-consumer orders. Strategically placed mother ships and satellites can help eliminate those redundancies by placing the inventory closer to where it will be consumed in the first place, Eldred explains.
"Two-thirds of your supply chain costs are usually in transportation, not facilities," he says, adding that eliminating an overlapping leg of the fulfillment journey can "save you a lot of money."
Ysasi agrees, adding that "If you can save that freight cost—to customers and to stores—that's a huge win. Many customers we're working with are looking to reduce that [transportation expense] and pop up these in-market DCs."
Deciding how to re-allocate inventory in this model requires considerable data-mining and use of analytics, but it's worth the effort because it can lead to savings in other areas, Ysasi and Eldred add. On-boarding new employees—especially during peak season—becomes easier in a smaller in-market DC because the fulfillment processes are less complex. Implementing a smaller DC that cuts throughput in half—going from, say, processing half a million units on a peak day to 250,000 or fewer—allows retailers to combine manual processes with less complex automation strategies, including the use of collaborative robotics and autonomous mobile robots, they say.
MIRRORING "MICROFULFILLMENT"
The satellite or in-market DC concept is also being driven by mass urbanization and the need to deliver e-commerce orders to customers in densely populated areas. Supply chain and logistics consultant Marc Wulfraat told attendees at a recent industry conference that 54% of the world's population lives in urban areas today, a figure that will rise to 68% by 2050, resulting in even more pressure on retailers, carriers, and logistics service providers to develop fulfillment and delivery strategies that can serve those markets quickly and efficiently. Wulfraat is president and founder of MWPVL International, a global supply chain and logistics consulting firm that helps companies with supply chain strategy, facility design, and supply chain technology planning. During a workshop at the Material Handling and Logistics Conference 2019, held in September and hosted by material handling solutions firm Dematic, Wulfraat discussed how the trend is playing out in the grocery market today, as companies implement smaller DCs or "microfulfillment centers" (MFCs) in urban areas nationwide.
Wulfraat explained that the line between stores and warehouses in the grocery sector is blurring, with retailers opening facilities in urban markets that are dedicated to e-commerce fulfillment, click and collect, and home delivery. Smaller than traditional warehouses and automated with standardized material handling solutions—including robotics— these MFCs can be deployed quickly and affordably compared with larger automated facilities, he said. And although the model will play out differently depending on the industry, he says the trend toward MFCs and other versions of the small-footprint local DC is no fad, predicting that it will "explode" over the next few years.
No matter how it shakes out, the customer experience remains central to any good fulfillment strategy—especially in an environment where growth is being driven by e-commerce, according to DHL's Gehr.
"Retail growth is 90% e-commerce today, so to not have a strong e-commerce strategy means you'll be less significant," he says, adding that retailers must be able to effectively and efficiently meet that challenge by "using all the different fulfillment capabilities available—in store, [via] any number of warehouses, without delay."
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.