Amid global economic uncertainties, it’s prudent to be prepared before things take a turn for the worst. This is even critical for warehouses and distribution centers that are already stretched thin by global supply chain headwinds. A confluence of technological innovation, global economic influence and rising labor challenge is driving the rapid growth of warehouse automation globally to meet the demands of a new pandemic-forged e-commerce and omnichannel retail model. Building resilience into fulfillment operations is the most surefire way to insulate it from economic turmoil. Through this article, supply chain automation expert Rupesh Narkar demystifies the defining trends that the automation & distribution segment is set to witness in the year 2023…
Rupesh Narkar
The year 2022 was a year of turmoil for supply chain and fulfillment industry to say the least! As the hopeful post pandemic recovery kickstarted, it was anticipated that the already disturbed supply chains since 2019 would see an exponential recovery; and may even stabilize. But the attack on Ukraine, at the beginning of 2022, left the Western world crippled for energy, which significantly reduced the industrial output. The year 2019 through 2021 was Asia and now it was Europe. Highly sophisticated, tech heavy goods coming out of Europe, saw a drastic drop and wobbled the supply chains across the globe again, erasing the little recovery visible.
Despite this new blow, the Warehousing, Distribution and Fulfillment sector kept rising. According to Allied Market Research report, the global warehousing & distribution logistics market was valued at US$12,019 billion in 2021 and is projected to touch US$25,788.7 billion by 2031, growing at a CAGR of 7.7% in the forecast period.
Needless to say, that even with these growth projections, the Warehousing, Distribution and Fulfillment will face significant challenges in 2023. These challenges are an outcome of the brewing trends since 2019 and will still continue to impact businesses worldwide. So what to expect in 2023?
#1. Continued Geopolitical Influences and Disturbances: The political tensions across the globe specially between United States, China, Taiwan, Russia, and Ukraine will keep affecting logistics and warehousing operations across various industries. Trade embargoes and sanctions on Russia have crippled the supplies of fuels, grains, heavy equipment, etc. China’s regional political disputes with Taiwan have significantly disrupted the semiconductor manufacturing sector. While the USA is ramping up their semiconductor manufacturing capacities, it is unlikely that any near-term solution is in the horizon. Furthermore, many businesses in Europe are feeling the brunt of a chronic power shortage across all industries. A recent Goldman Sachs report estimated that the Euro area economy will contract by 0.7% from 2022Q4 to 2023Q2.
#2 Persisting Labor Shortages and Rising Wages: The acute labor shortage that all sectors are facing will continue well into 2023.The rising inflation (and the climbing interest rates to curb it) is still responsible for a super-hot labor market. Salaries across the fulfillment industries have risen 30%~35% YoY. On the brighter side, this is a blessing in disguise for the automation market. More businesses are exploring the possibility of deploying automation and many have already done so. Shifting to automation helps warehouses shield themselves from the fluctuating labor pool, while improving overall performance.
#3 Rising land and infrastructure costs: Needless to say, that the inflation has had a deeper impact on setting up and running new industrial enterprises. Cost of energy, cost of raw materials, labor to build, construction, etc., all have shot through the roof in 2022. Trend of “Doing More” in smaller setup, limited spaces, available infrastructure is making rounds and putting extreme emphasis on operational efficiency and cost-effective operations delaying the need to expand or newly construct. A point to note here that efficiency in the existing operations is only possible with deployment of technology… essentially digitalizing it! An interesting study had revealed that by utilizing floor to ceiling storage (vertical space is criminally underutilized in warehouses), ASRS can save up to 85% of floor space.
#4 On Demand everything & Right Now: The world seems to be embracing the concept of “On demand everything & right now”. Order on the phone and get deliveries in two hours... Next day delivery... No need to wait… order and pick up… All this will continue if not become more prominent in 2023. All these trends are giving rise to In- city warehousing and we are seeing a greater traction on such infrastructural investments. In order to serve these heightened demands, many retailers are adapting and getting closer to the urban customers by investing in DCs in urban areas. Micro Fulfillment Centers (MFCs), a highly popular e-commerce fulfillment strategy, is seeing a rising adoption.
ADAPTING TO THESE TRENDS
Technology is a friend to adapt to a trend! It is no rocket science that the year 2023 will be the year to focus on operational efficiency, cost effectiveness & sustainability while meeting market demands of here and now. The promising solution to all these trends comes by adopting technology. Take an example of the Warehousing, Distribution and Fulfillment industry. A recent analysis of fulfillment operations by some large retailers and pharmaceutical suppliers revealed that shortages of goods due to supply chain disruption was the lesser of a problem compared to the missing, lost, and misplaced goods in the warehouse. Thanks to their opaque and inefficient fulfillment operations, these goods were lying in a corner of their warehouses, untraceable, giving the impression that there was an acute shortage. Businesses lost a significant number of sales owing to the false shortages.
Now imagine that they had deployed automation solutions in their existing setup; not only would their the monotonous, error prone and labor intensive tasks be efficiently done 24x7, but it would have established visibility, traceability, and control over their warehousing operations, uncovering these misplaced, lost goods. Not to mention that their existing setup would have been operating at an elevated productivity levels in a cost-efficient way.
So, what should be done to stay ahead of the trend in 2023? The answer is Embrace technology. Speaking in the context of Warehousing, Distribution and Fulfillment industry, deploying technology will lead to digitization in addition to automating the tasks that are labor-intensive and need to be done efficiently in a cost-effective way. Interestingly, this technology adoption is happening in the industry.
An IDC study estimates that by 2023, 65% of warehouse operations will use robots and situational data analytics to aid in storage optimization, boosting warehouse capacity by over 20% and halving the time required to process work orders. By 2025, up to 50,000 robotic warehouses will potentially be developed, while 8 million robots may be shipped to users by 2030. Distribution centers will continue to explore the use of order fulfillment robotics – such as robotic cube storage and autonomous mobile robots (AMRs) – in the warehouse in 2023.
The fundamentals for unlocking productivity and improving operations lies in the basic concept of gaining more visibility, improving tracking, and thus gaining control on processes. Only after you track, you can control. Only after you control, you can optimize. Digitization makes this possible. Per IDC study, by 2023, more than 60% of global manufacturers will invest in AI-enabled robotic process automation, increasing productivity and bridging the talent gap for supply chain skills.
Some more benefits of implementing technology include:
Resilient, reliable, and scalable operations to sustain any geopolitical influences and disturbances
Significant improvement in the service levels out of the existing setup to cater the “on demand everything & right now” trend
Ability to do more in the existing setup, thus alleviating the inflation cost impact
Improvement in overall safety and ergonomics of operations thus stepping up operational excellence with policies like zero accidents
Opening up the doors for the Internet of Things. Introduction of IoT enabled devices that gather and report real-time feedback and insights from the ground level.
Establishment or stepping up of IT/ data security, which is increasingly becoming a threat to operations
Significant improvement in the competitive advantage
Another major factor is Digitalization of processes, which is the cornerstone of the next generation of Supply Chain. Intelligent, reactive, data driven, and flexible solutions (or warehouse management system) form the backbone of digitalization. Automated receiving, accurate identification, easy tracking in the process, optimization, inventory control, assured order fulfillment and reliable operations are all made possible at a finger’s click using automation systems.
No matter which trend would be the most impactful in 2023, adopting technology will certainly prepare business to adapt to challenges. One may debate that it is a significant capital expense to deploy technology in a uncertain environment but, in the long run, bringing operations on the digital path by implementing technology will be a beneficial approach. As a result, business will become more competitive in 2023, ready for what the year has to bring!
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