What’s fueling the growth in warehouse automation?

Ten years ago, global e-commerce sales amounted to just over 5% of total retail sales. Today, that number is closer to 20%. Most projections have e-commerce exceeding 30% by the end of the decade. Covid contributed to driving that number up at record rates, though it has receded in recent months, with shoppers clamouring to get back to the malls to regain some sense of normalcy.

Whether or not the increase in automation spend encounters further spikes, the compound annual growth rate (CAGR) of the warehouse automation industry as a whole is expected to exceed 10% over the next 8 years.

The warehouse robotics industry is growing even faster than that. According to Acumen Research, the size of the global warehouse automation market was approximately $20 billion in 2021 and it is expected to rise to over $60 billion by 2030. ResearchAndMarkets predicts that the combined growth of the automated guided vehicle (AGV) and automated mobile robot (AMR) markets will grow by over 30% annually, to $18 billion by 2027. Given the skyrocketing growth, the most significant challenges facing many warehouse automation vendors will be to attract and train sufficient numbers of skilled resources to implement the projects that they win.

So, what does all this have to do with e-commerce? E-commerce is not a market unto itself, rather a submarket that is associated with most major verticals. It has become a particularly significant channel for consumer spending across general merchandising, grocery, apparel, and health/pharma, leading to a surge in demand in the parcel industry as well.

Through the shift, consumers have become king. They want what they want, when they want it, and if they aren’t able to get it on their terms from one retailer, they will search for another retailer who can perform better. Gone are the days where manufacturers and retailers wield the balance of the power and influence.

Many manufacturers and distributors that invested heavily in automation in the 2000’s and 2010’s, now realize that their efforts were insufficient. They focused primarily on the efficient fulfillment of goods to retail stores, typically involving large quantity orders packaged in cases and shipped on pallets. They prioritized the automation of case picking and pallet building, rather than item (eaches) picking and case (or envelope) packing. Today, many distribution centers must figure out how to support retail and consumer orders in tandem, which adds significant complexity to their automation efforts.

The primary options that manufacturers and distributors face today as they strive to maximize their e-commerce business opportunities are the following:

• Outsource their e-commerce orders to Amazon, for both sales and fulfillment.
• Sell directly, but partner with a third party logistics (3PL) provider to manage fulfillment.
• Rely on individual retail stores to process their e-commerce orders.
• Invest more heavily in automation to optimize their sales through e-commerce channels.

Outsourcing to Amazon has its advantages and disadvantages, but given the costs, many manufacturers and retailers don’t see it as a long-term solution due to a rise in their e-commerce business as a percentage of total sales. The 3PL market will continue to grow on the back of e-commerce, and those 3PL providers that make the required investment in next generation automaton solutions are likely to thrive.

Many retailers, with grocery stores leading the way, are expected to invest in micro-fulfillment at increasing rates, converting the back-half of their stores into highly automated, standardized micro-warehouses. With increasing numbers of online orders, it only makes sense to utilize the full volume of a portion of their stores to rapidly retrieve products from any height. It follows that a smaller percentage of floor space will be used for in-person shopping. The last option is to make the required investment to optimize picking and packing of the small quantity orders that are associated with e-commerce, and to build the required relationships with parcel companies to guarantee rapid delivery.

Fortunately, new, innovative technologies from a host of well-funded robotics providers have created a multitude of choices, and just in the nick of time. Labor shortages have become a major challenge for many warehouse operators and there is no indication that these shortages will subside any time soon. To meet the demands of customers, an increasing number of manufacturers and retailers are piloting solutions with autonomous and articulated arm picking robots. They are minimizing their reliance on workers to perform repetitive, mundane tasks, and training an increasing number of them to perform more interesting, complex jobs.

While some companies, Shopify being a recent example, grossly over-estimated the Covid driven acceleration of e-commerce, the longer-term trend has not changed. Robotic technologies and services are getting better, and faster, every day. The time is now for manufacturers, distributors and retailers to devise a long-term e-commerce strategy that works for them.

There is no one size fits all approach, but it is a mistake for sellers not to acknowledge that the way consumers are buying is shifting. Those that don’t, are likely to become the companies we remember with fondness from days gone by, just as we remember Sears and Blockbuster today.

Pete Devenyi is an experienced technology executive with a focus on warehouse automation. He is the author of the highly acclaimed technology career book, Decoding Your STEM Career, published by Business Expert Press. For over thirty years, he led a career in technology, both globally and in Canada. Until June 2020, he was senior vice president of global products and solutions at Dematic. He continues to consult actively in the field. For more information about Pete, visit him here. petedevenyi.com.

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