Inside Logistics

Materials handling column: Warehouse meets e-commerce

Changing logistics environment forces evolution


July 10, 2013
by Dave Luton

“Say Hello to Hal, your new warehouse manager” was the title of a column written a decade ago.

It forecast that with continuing advances in computer software and hardware, there would be corresponding gains in (labour) productivity.

What it described was a continuing speed-up of management and control that resulted in real-time warehouse management. This process was complete when the management process directed—in real time—the performance of each worker and when each task was able to be measured against a performance standard, according to management’s directions.

The need for (and importance of) enhanced productivity has greatly increased in the past decade, for a number of reasons. Most companies have reduced the number of warehouses, while the remaining warehouses have become larger and more complex. Also, the number of individual items (or SKUs) has increased with consumer demand for new and diverse products. Larger warehouse sizes create an opportunity for increased automation, but also result in increased difficulty of management command and control.

Historically, in many consumer-facing market sectors main warehouses shipped to an intermediate warehouse which, in turn, shipped to a retail outlet. Order volumes were larger, featured more SKUs per order, and were easier to pick and pack efficiently.

E-commerce

The rapid growth of e-commerce has also meant supply chains have needed to adapt to the new retail model. Now, several intermediate layers of the traditional supply chain are typically bypassed when customers place orders online.

Over the long-term, e-commerce shows the potential to eliminate much of the current volume and diversity offered by retail/wholesale outlets today, not to mention the supply chain operations that support those retailers. The e-commerce practices of free shipping and free returns, for example, offer a strong inducement to lure customers away from physical shops. While today’s e-commerce volumes only account for a relatively small fraction of total retail sales, the numbers are expected to grow rapidly.

From the customer’s perspective, the possibility exists that retail outlets will offer less volume and fewer SKUs in the future as they will be forced to become specialists offering a smaller selection of niche goods rather than a broad general inventory.

The implication of e-commerce from a warehousing perspective is that over the long term, the number of direct interactions between warehouses and the end consumer will increase dramatically.

For supplier warehouses this will greatly increase the number of picks and number of orders. The cost pressure is also exaggerated because the average order size is significantly smaller. Additionally, the decreased volume and lower value per item selected creates a double cost whammy.

Historically many product quantities could be divided into unit-load, full-case, sub-pack and individual item quantities. When shipping to retail warehouses (except for repair parts) usually unit-load and full-case quantity unit volumes predominated. In e-commerce, sub-pack and each volumes are the dominant order quantity selected in many product categories.

Warehouse costs also increase with the shift to less-than-full case order-selection volumes and the associated need to remove the shipping case before order selection. Specialized order-selection areas, commonly referred to as “forward picking” zones, are often created to handle this volume. These have to be complemented by packing and labeling work areas which are not required for traditional full-pallet and full-case product handling.

Order-volume tsunami

While a number of order-selection and packing solutions exist, costs can increase as much as two- to three-times over full-case order selection. This changing environment has the potential to create a pick- and order-volume tsunami for many warehouses.

The real-time command and control forecast a decade ago is now coming true. Some parts of warehouse operations already have this capability in fixed workstation equipment like pick-to-light or carousel systems. Mobile devices such as tablets, or the technology used in smart phones, offer the capability to extend this capability to all sectors of the warehouse and provide a system-wide real-time picture of activities.

In the columns of a decade ago, the forecast was a potential reduction or elimination of the human management element altogether. In future columns, I will discuss how this will work, especially in the context of the changing retail landscape.

FROM THE MAY-JUNE 2013 MM&D PRINT EDITION