The e-commerce logistics revolution

The technology and processes that are revolutionizing logistics and supply chain operations are helping today’s organizations keep pace with digital commerce.

® When it comes to eCommerce Fulfillment, Bigger is not always better.

Who Wins? The giant logistics elephant, or the dynamic supply chain lion that is innovative and fast moving, with expertise to drive cost-to-serve in complex supply chain environments?

BE BOLD. CHOOSE THE LION.

Learn how LEGACY can add value to your dynamic supply chain LEGACYscs.com The e-commerce welcome logistics revolution E-commerce: Changing the logistics game It’s a vast under- contents statement to say Major modes join e-commerce mix 4 that e-commerce While last mile carriers receive much of the attention, the traditional modal heavyweights has changed the are in charge of connecting the growing web of facilities that enable e-commerce. Today, way the logistics all modes as well as freight intermediaries must be poised for growth and flexible enough to keep evolving. and supply chain game is played. Battle for the last mile 10 In fact, it’s much Established carriers and logistics services providers are clashing with tech-savvy safer to say that the world of digital com- newcomers to gain market share in this critical, final piece in the e-commerce puzzle. merce has introduced more risk and com- Parcel Express Roundtable: plexity than logistics and supply chain professionals have ever faced. Paying for peak performance 14 From rapid order intake to omni-chan- Our panel provides an update on all the market shifts in store for parcel shippers— especially when it comes to pricing, service and managing an e-commerce-centric nel order fulfillment to establishing the supply chain. optimal distribution network for next-day or same-day delivery windows, both retail- Freight Forwarding: Digitization & e-commerce ers and manufactures now have to inno- continues to reshape marketplace 18 vate, adapt and evolve—or get knocked The global freight forwarding market has grown by 2.7% in real terms since this time last out of their markets. year, but owing to a continuation of excess capacity issues and lower average oil prices, In this Special Digital Issue, the edi- rates continue to fall in both air and sea freight. Forwarders now need to ramp up the value-add visibility services in an effort to boost revenues and keep shippers smiling. torial staff of Logistics Management has compiled feature stories that encapsulate Warehouse/DC Operations Survey: the software, technology and processes In the thick of e-commerce adjustments 24 that are helping today’s retail and man- As e-commerce fulfillment pressure continues to climb, our annual survey points to the ufacturing professionals exceed ever- many changes taking hold—from more investment in automated approaches to piece increasing customer demands—whether picking, more use of robotics, increased interest in throughput metrics and general process improvement. in B2B or direct to consumers. We hope this helps guide you along your digital State of Mobility: Part of the playbook 32 transformation journey. By taking the process to the product, mobility enables a more streamlined, more accurate and faster approach to warehouse and DC management in today’s e-commerce age. The evolving DC tech stack 36 With the growth of e-commerce, the technology stack for distribution centers is xpanding. Michael A. Levans, Group Editorial Director We explore why WES/WCS software is gaining prominence and share how operations are Comments? E-mail me at expanding their use of data science. [email protected] Follow me on Twitter: @MikeLeva

Editorial Staff Peerless Media, LLC Michael A. Levans Sarah Petrie John D. Schulz Brian Ceraolo Group Editorial Director Executive Managing Editor Contributing Editor, President and Group Publisher Transportation Bob Trebilcock Jeff Berman Kenneth Moyes Executive Editor Group News Editor Wendy DelCampo President and CEO Art Director EH Publishing, Inc. Francis J. Quinn John Kerr Editorial Advisor Contributing Editor, Polly Chevalier Editorial Office Patrick Burnson Global Logistics Art Director 111 Speen Street, Suite 200 Executive Editor Bridget McCrea Framingham, MA 01701-2000 Contributing Editor, 1-800-375-8015 Technology CMYK GRAYSCALE Major Modes Join E-commerce Mix While last mile carriers receive much of the attention, the traditional modal heavyweights are in charge of connecting the growing web of facilities that enable e-commerce. Today, all modes as well as freight intermediaries must be poised for growth and flexible enough to keep evolving. s Amazon continues its inexo- rable march toward distribu- tion and order-fulfillment dominance, logistics manag- Aers are examining the opportunities all modal players are promising as they build out their e-commerce supply chains. As a consequence, the nation’s industrial transportation networks have been largely transformed.

BY PATRICK BURNSON, EXECUTIVE EDITOR

4 E -COMMERCE logisticsmgmt.com logisticsmgmt.com E -COMMERCE 5 e-commerce

According to the CBRE Group, the facilities are now underway. New air cargo hubs world’s largest commercial real estate Egan maintains that this trend The impact on air cargo operations services firm, there’s been a proliferation foretells several different things. “The is already being felt by upstarts like of warehouses and distribution centers proliferation of big-box facilities under- Greater Cincinnati/Northern Kentucky (DCs) spanning 1 million square feet or scores the rapid growth of e-commerce, International Airport (CVG), which larger across the nation. And while “last because these mega-facilities serve as will now serve as Amazon’s centralized mile” carriers receive most of the atten- the backbone of retailers’ fulfillment hub for its newly-launched Prime Air tion these days, the traditional modal networks, distributing goods across Cargo service. heavyweights are in charge of connect- multi-state regions,” he says. “Amazon advised us of several fac- ing this ever-growing web of facilities. Furthermore, says Egan, develop- tors important to them, including site “The massive warehouses and DCs ers prefer to build these big boxes in availability and infrastructure,” says have sprouted from Southern California industrial-powerhouse “metros” that Candace McGraw, CEO of CVG. to Philadelphia, clustering around metro offer the best combination of excep- “CVG owns more than 7,500 acres of areas that provide the combination of tional transportation access and close property, four runways, plenty of taxi- road, rail, air and sea access that e-com- proximity to big populations favored ways, and we’re a cost-effective airport. merce users covet,” says David Egan, by e-commerce users. “While massive To top it off, we’re committed to invest CBRE’s head of industrial and logistics warehouses aren’t purely a phenome- $5 million in infrastructure improve- research in the Americas. non of e-commerce, the two are closely ments that will assist the airport and To date, 117 such facilities were built related,” he says. “E-commerce users the overall project,” adds McGraw. across the United States from 2010 to typically need two to three times the Meanwhile, it appears that the 2016 for a total of 141.2 million square amount of warehouse and distribution “middle-mile” of e-commerce will feet—a significant increase from the 99 space that traditional users do.” also be served by established hubs facilities built between 2003 and 2009, That’s mostly because e-commerce like Dallas Fort Worth International according to CBRE data. fulfillment requires more inventory, (DFW) Airport. This international The markets in which the most big- labor and automation. According to Lexi cargo gateway recently began install- box construction occurred over the past Russell, a senior research analyst with ing a cold chain facility that will be operated by AirLogistix USA. Total e-commerce sales via a website, by industry sector Expected to be operational this sum- (2015, including micro-enterprises) mer, the new transfer facility will give DFW the ability to precisely control Wholesale ($93.81 billion) 32.3% warehousing temperatures for ship- Retail ($47.75 billion) 14.0% ments of pharmaceuticals, flowers and Other ($33.42 billion) 11.5% fresh foods. John Ackerman, executive Information and communication ($32.3 billion) 11.1% vice president of global strategy and Transport and storage ($31.68 billion) 10.9% Utilities ($24.35 billion) 8.4% development at DFW, calls it “a natural Manufacturing ($19.13 billion) 6.6% choice” for the AirLogistix facility, given Accommodation and food ($12.67 billion) 4.4% the airport’s location in the center of the Construction ($2.73 billion) 0.9% United States.

Source: Of ce for National Statistics Aaron Ahlburn, senior vice president and director of research for the indus- six years are led by Philadelphia, Cali- CBRE, the strongest trend to watch trial property consultancy Jones Lang fornia’s Inland Empire and Dallas/Fort now is “build-to-suit,” which custom- LaSalle, concurs, noting that DFW Worth. By way of forecast, CBRE says izes warehousing for truck, rail and enjoys a certain geographical advantage. the Inland Empire, Chicago, Philadelphia intermodal service. “The dimensions He says location—as well as market and Atlanta lead the busiest markets for of the warehouse are determined by timing—is key. “Obviously, there are on-going construction of 1 million-square- the client,” she says, “to maximize traf- broad industrial and logistics real estate foot DCs. Across the 10 busiest U.S. mar- fic driven by e-commerce in the new implications as e-commerce supply kets for this type of construction, 29 such demand cycle.” chains are perfected,” he says.

6 E -COMMERCE logisticsmgmt.com Middleman in the mix Top 10 online retailers: U.S. cyber security measures.” According to Brandon Fried, According to Hanke, most executive director of the Air- forwarder websites are poorly Amazon 39.4% forwarder’s Association, impli- designed, and have a small, cations for today’s freight if any, presence on social intermediaries due to the media platforms. “This is just double-digit growth of e-com- a snapshot of the findings,” Walmart 6.7% merce are equally complex— Apple 6.0% he says. “Essentially, if any Staples 5.3% regardless of mode. Macy’s 2.4% Other 31.2% of these companies want to “Freight forwarders have Home Depot 2.1% be relevant for their custom- Best Buy 1.9% traditionally been focused on QVC 1.9% ers, these e-basics have to be the business-to-business sup- Costco Wholesalee 1.8% addressed soon,” he says. Nordstrom 1.3% ply chains, but are now mak- ing some inroads into busi- Top 10 online retailers: Europe Intermodal imperatives ness to consumer deliveries,” The Intermodal Association of says Fried. “We see this in North America (IANA) exam- many of our members deliver- ined the rise of e-commerce ing appliances, large electron- Amazon 15.5% and the future of expedited ics and other substantial-sized intermodal at its last annual goods into private homes.” Otto 4.1% conference, and will likely Apple 2.4% Because forwarders are tra- Tesco 2.3% address the issue in greater ditionally “asset light,” they can Home Retail Group 1.5% detail throughout the year. Other 67.8% Cdiscount 1.4% be quite nimble in adapting to Zalando 1.4% “E-commerce and associ- E. Leclerc 1.2% changing e-commerce market Next 1.2% ated services have fueled needs, adds Fried. Shop Direct 1.2% ever-increasing service expec- (Littlewoods) “We are seeing this now in tations on the part of ship- the online ordering environ- Source: eMarketer for U.S. data; RetailMeNot, Centre for Retail Research, pers,” says Derrick Broome, ibusiness and Veraart Research for Europe data ment where forwarders are vice president of intermodal supplying distribution centers, either the and warehousing is moving at warp for C.A.T. Global, a multimodal service actual brick-and-mortar retail outlets or speed, the learning curve, as well as the provider. As an IANA board member, he e-commerce fulfillment facilities with a pace of adoption among forwarders, is also notes that the mission for surface wide range of shipments from suppliers being brought into question by air cargo mode transport providers will now be to to maintain their inventory,” says Fried. industry experts. determine how the marketplace require- Indeed, building customized solutions Dr. Michael Hanke, founder and ment is evolving under increased pres- for complex supply chain challenges is managing director of SkaiBlu, an sure in the demand cycle. where freight forwarders excel, Fried e-commerce consultancy assisting cli- “For intermodal to remain in the contends. Unlike the “old days” of the ents in the aviation industry, says that game, intermediaries are going to have 20th Century, forwarders are less mode- recent analysis of the top 50 airfreight to move light years ahead in the way centric and more focused on actual solu- forwarders found them unprepared for they process information,” says Broome. tions where the form of transportation is “digitized” commerce. “This not only speeds up business, but only part of the overall logistics scheme. “Across the board, results were creates a closer bond with the shipper as “The freight forwarder role in e-com- not encouraging and many forwarders transparency is enhanced.” merce tends to support suppliers moving don’t appear to be fit for a competi- Logistics terminals that facilitate the industrial goods—both finished and in tive cyberspace presence,” says Hanke. transfer of goods between rail and motor actual components—which may or may “Many sites suffer from slow speed, are carrier are now being increasingly co- not end up in the consumer goods sup- not optimized for mobile devices, lack located in high-density business districts ply chain,” he says. information on their handling of digital with facilities that can process a range of But while transport infrastructure customer data including information on commodities and distribution centers for

logisticsmgmt.com E -COMMERCE 7 e-commerce finished, containerized goods, notes Bill E-commerce: Dramatic shift in service sector Renicke, partner at the global manage- new report released by the London-based think tank Transport Intelligence ment consultancy Oliver Wyman. A (Ti) notes that the logistics industry has undergone a “transformation” with a “Compressing distances in these dramatic shift in service sector domination. ways could drive the development of According to research contained in Ti’s latest report “Global e-commerce logistics new regional services, including blended 2017,” a powerful mix of demand and supply side factors means that further re- trains—with a mix of bulk commodity, structuring is possible—if not probable. automotive and containerized traffic— “The global logistics industry is vast, both in terms of market size and the huge numbers of people employed in the sector,” says Professor John Manners-Bell, and more direct point-to-point services,” CEO of Ti. “It’s therefore surprising that its role in the development of the global says Renicke. economy is generally overlooked.” Ti estimates that the global e-commerce logistics market grew by 18.1% in Waterborne worries 2016 and has forecast a 2016-2020 compound annual growth rate of 15.6%. Low, Shippers are rightly concerned about expected and high forecast scenarios have been presented. the wave of ocean carrier consolidation, “E-commerce is making everything more unpredictable,” says Ti analyst Ken Lyon. “To cope, organizations will need to react faster by breaking down functional but they should also consider the “digital silos to enhance communication and reaction, use systems that support flexibility divide” keeping some players out of the rather than rigid process, and establish operational networks and alliances that can e-commerce marketplace. respond and flex to demand,” he says. To date, the most significant news in David Buckby, an economist with Ti, observes that e-commerce volume now this regard surfaced last January when accounts for 20% of DHL Express total volumes, up from about 10% in 2013. global container shipping giant Maersk “That’s not necessarily all international volume growth, but I reckon a good portion announced that it will partner with Ali- of it is,” he says. For Alex Leroy, a Ti analyst, another obvious impact is that cross-border baba—a Chinese e-commerce provider. e-commerce is proving to be a major “shot in the arm” for airfreight. “DHL’s latest This endeavor will enable ocean ship- report claims that cross-border e-commerce accounts for about 15% of total pers to book space on Maersk vessels e-commerce, and has an annual growth rate of 25%, with one in 10 dollars spent on through Alibaba’s booking service called shipments,” he says. OneTouch, In addition to the roles of the contract logistics and freight forwarding sectors, the According to John Fay, CEO of Ti report also examines the dynamics of the express parcels, container shipping, air cargo, trucking and intermodal industries. INTTRA, a leading provider of e-com- “While global macro-trends are highly important to the long-term future of merce services for the ocean freight these sectors, conversely it’s the structure and competitive nature of these sectors industry, that gap may be widening. that has a ‘bottom up’ influence on supply chain management and hence global “The main impact of consumer-driven economies,” concludes Manners-Bell. e-commerce on ocean shipping is not on —By Patrick Burnson, executive editor deployments and schedules, but rather shippers’ needs for more efficient logis- now indispensable.” processes need to be reinforced with tics management,” he says. NavisWorld, a biannual conference to accurate and near-real-time information Fay’s company recently announced help port terminal operators optimize the flows from the upstream container move- that it generated 16% growth in 2016 movement of containers with the use of ment from vessel arrival through to con- over 2015 in container orders, which advanced technology, will also focus on tainer availability and yard management include bookings, shipping instructions e-commerce this month when it convenes that feeds the gate and rail process. and shipping orders. According to Con- in San Francisco. “While the main impact “Terminals and ports will see greater tainer Trade Statistics, INTTRA pro- of e-commerce to date has been around demand for providing visibility and cessed 38.5 million container orders on last mile logistics and warehouses, it’s predictability to container moves for its platform, while containership sailings interesting to think how e-commerce can logistics providers and shippers,” adds in the industry rose by just 3% in 2016. link back to what’s happening in the ter- Barrons. “This in turn will drive more “We played a significant role in 2016 minal and port,” says Andy Barrons, senior automation of processes.” • as the rate of technology and digitization vice president for Navis. accelerated rapidly in the ocean industry,” According to Barrons, the new ware- Patrick Burnson is executive editor of says Fay. “We believe that digitization is housing infrastructure and downstream Logistics Management

8 E -COMMERCE logisticsmgmt.com FROM RUNWAY TO RUNWAY As the premier freight forwarder for retailers, manufacturers and brand owners, SEKO is the future of logistics. We are a true supply chain specialist, delivering seamless Global solutions for air and ocean freight, cross-border and final mile - plus white glove, reverse logistics, customs brokerage services and more. Voted Top 10 3PL, four years running.

EMEA: +44 (0)1784 417 120 AMERICAS: +1 630 919 4800 ASPAC: +852 3195 3195 ANZ: +61 2 9669 4222 [email protected] sekologistics.com for the Last Mile Established carriers and logistics services providers are clashing with tech-savvy newcomers to gain market share in this critical, final piece in the e-commerce puzzle.

In one corner, we have some of the largest transportation and logis- tics services companies in the world, with the likes of UPS, FedEx, XPO Logistics and many other asset-heavy and asset-light compa- nies looking to improve their dominant position as the key, last-mile carriers servicing the fast-growing, $2 trillion e-commerce market. In the opposing corner, we have countless startups and relative newcomers, fueled by venture capitalist money, that are trying to crack into this highly lucrative transport market with high-tech, no-asset platforms designed to leverage available capacity in the marketplace. Who wins this e-commerce heavyweight fight will go a long way toward shaping the face of freight transportation in the next decade.

BY JOHN D. SCHULZ, CONTRIBUTING EDITOR

10 E -COMMERCE logisticsmgmt.com Daniel Vasconcellos

First, let’s look at the size and scope structure Committee on Feb. 1. “The expected to grow by a 15% compound of this e-commerce market. FedEx changing landscape of the marketplace annual rate by 2019. Corp. chairman and founder Fred Smith has presented FedEx with a wonderful Of course, Amazon is the 800- recently testified before Congress that growth opportunity well into the future.” pound gorilla in this space. However, sales in e-commerce are expected to reach Adding to the projections, Smith veteran Stifel transport analyst John $2.4 trillion worldwide by 2018—a 26% estimated that B2C e-commerce is Larkin says that carriers and other jump from 2016. expected to generate $3.2 trillion established service providers may be “E-commerce shopping isn’t a in revenue by 2020 while the B2B in a no-win position with Amazon, trend—it’s a fundamental part of retail- e-commerce market is expected to be which is already experimenting with ing today in the U.S. and is growing twice that size. In terms of transport its own fleet of equipment and owner- exponentially worldwide,” Smith told revenue, global B2C e-commerce operators to deliver low-hanging, prof- the House Transportation and Infra- produced $85 billion in 2015, and is itable last-mile freight.

logisticsmgmt.com E -COMMERCE 11 Last Mile

“Joining Amazon may be every bit as sized businesses on Main Street” enter- Hitt explains. “Everybody at XPO looks tough as beating the e-commerce jug- ing the online marketplace, and they at technology as a leading driver as to gernaut,” says Larkin, who adds that’s need final-mile capabilities as much what we do with customers. Technology due to the fact that core carriers and as the big boys. “The spirit of entre- manages workflows, directs the cus- dedicated carriers appear to be used preneurship is very strong within the tomer experience and provides visibility by Amazon only in cases where bro- e-commerce market, and we’re seeing to all parties, customers and retailers. kers can’t find cheaper capacity in the countless start-ups launching daily.” In addition, all our contract carriers and open market. Bottom line: It’s a massive freight operations teams can use it—and the Anecdotally, several large traditional end consumer can see it.” carriers privately say that they have “We believe that in many Hitt adds that allowing consumers backed away from Amazon for this rea- ways e-commerce is still in to have visibility into the process in son. But that still leaves Amazon with delivering a seamless buying experience thousands of other options among the its infancy and will continue online is the goal. “It’s not easy, and it established, for-hire carriers as well as to experience explosive, can make or break any brand’s reputa- Amazon’s growing private fleet. double-digit growth for the tion. The last-mile delivery person in the Over the next couple pages we’re foreseeable future.” home is replacing the in-store associate, going put the small package and under- and that last-mile person is about to 150 pound e-commerce segment domi- —Mark Davis, Averitt Express become the most memorable person for nated by the Big Three—UPS, FedEx a consumer to have that’s connected to and the U.S. Postal Service—aside. market, and all the competitors are that company.” Instead, we’re going to concentrate on gearing up for a fight. Last year, Schnei- Others agreed that being aligned with the roiling battle between traditional der, the nation’s second-largest truck- the customer is absolutely critical for carriers and the tech-savvy upstarts that load carrier, simultaneously bought two success in the e-commerce space. “The strive to perform heavy freight deliveries, companies—Watkins & Shepard and carrier must have a clear understanding set-up and installations, reverse logistics Lodeso—to bring together final-mile of the customer’s expectations and their and a gamut of other last-mile services. delivery and handling with a more inno- operations,” says Averitt’s Davis. “Com- vative technology platform. munication not just at the ‘deal-making’ Old guard adapts “We’re facing a large increase in level, but at the ground level is crucial. Nearly every large trucking company has demand for our services, and that The key to success is constant and a dedicated, last-mile division. These requires investment in people, equip- transparent communication.” include such large truckload giants as ment and facilities,” says Ray Kuntz, That communication enables suppli- Swift Transportation, J.B. Hunt, XPO CEO of Watkins & Shepard. ers to meet strict delivery windows and Logistics, ArcBest Corp. and countless Perhaps the largest player in this compliance standards that have been others. traditional market is XPO Logistics, set forth by many major retailers. Failure In fact, ArcBest recently told Wall that recently said it arranged more than to make on-time deliveries can result Street investors that it sees the last-mile 12 million last-mile deliveries last year in costly surcharges. On the plus side, “opportunity” as a $3 billion market for of things like furniture, refrigerators, same-day deliveries can mean a 25% transport providers, while others have ovens, computers, fitness equipment to 30% premium in last-mile delivery estimated it as large as $13 billion. and heaven knows what else. rates—another reason the last mile is “We believe that in many ways “Our secret sauce is 5,000 contract being heavily invested in by all parties. e-commerce is still in its infancy and carriers—that’s the most capacity that will continue to experience explosive, anyone has in this space by a good mar- Startups dream big double-digit growth for the foreseeable gin,” says Charlie Hitt, president of last Established companies such as XPO, future,” says Mark Davis, vice president mile for XPO, who oversees 45 market UPS and FedEx have the advantage of of pricing and traffic for less-than-truck- delivery centers for “staging” goods for already having solid and suitable e-com- load carrier Averitt Express. multiple customers, arranging pre-deliv- merce networks in place. But, what Beyond Amazon and Walmart, Davis ery and assembly. about the newcomers? says he sees “many small- and medium- “The big differentiator is technology,” First, they’re hardly household

12 E -COMMERCE logisticsmgmt.com names. Start-ups such as Cargo EATS, both of which are delivery services panies are trying to offer is same-day Chief, Cargomatic, Convoy, Deliv, for products. Additionally, Uber has run a delivery, usually within an hour or two, Fleet, Flexport, FourKites, Freighters, number of promotions that let customers adds Cunnane. Density is the key, and Haven, HaulHound, Instacart, Trans- get deliveries from Uber that included ice that means lots of deliveries over a fix and Trucker Path are just some of cream, cats and everything in between.” short distance. the new players entering this space Another startup, Deliv, is an example “The newcomers simply don’t have in the last two years. Second, they all of a company that’s partnering with the density to accomplish this,” Cun- have a dream—to make a big enough retailers for crowd-sourced delivery nane says frankly. “These companies splash to be taken over by a larger fish may be offer a more personalized experi- or perhaps become the next Amazon “The keys to last-mile ence than FedEx, UPS, or USPS, but or Google in this space. success are the same as they don’t have the required density to “The startups seem to be attacking in traditional trucking— make it work.” this huge industry the way large insur- Still, some of the old guard carriers ance companies are being pecked at by know your costs, have good say that they’re watching these start- startups going after specific niches in processes to get productivity ups—and trying to maintain their edge. that industry,” says Andy Kim, president from your drivers and price “Competition makes us all better, and of Chicago-based HaulHound. “We see the product correctly with it’s always going to be there,” says our last-mile startup customers on Haul- customers.” XPO’s Hitt. “We’re not worried about Hound being able to gain incredible vis- competition. We watch them and we ibility to their niche services such as car —Satish Jindel, SJ Consulting adapt. We just have to watch what’s transportation and food delivery.” going on.” Kim says that HaulHound’s approach options. Deliv uses a smartphone app to Cunnane’s advice for startups is to is to “come from a holistic model.” By alert pre-qualified drivers of a pending develop partnerships with major retail- that, he means the company uses a just- delivery. The driver simply picks up the ers as part of the process. “Without in-time technology model that is not merchandise from the retailer and deliv- these partnerships, it will be a difficult wedded to any one carrier, or even one ers it to the customer. model to crack,” he adds. mode. “Our advantage is flexibility,” he San Francisco-based Instacart is an Other seasoned freight transpor- says. “We see a lot of 800-pound gorillas example of crowd-sourced delivery option tation experts agree. Satish Jindel, in this market. But our model is to be for last-mile services. This company principal of trucking analyst firm SJ the aggregator who brings together all connects personal shoppers with custom- Consulting, says that most of these pieces of the puzzle.” ers to deliver local groceries. startups are “weeks away from going HaulHound’s matching technology What are common mistakes some out of business” due to a lack of freight is free to shippers and operates nation- newcomers make in this space? “The transportation experience. wide, says Kim, who adds that it has biggest mistake is not fully understand- Jindel says that the keys to last-mile the potential to work internationally as ing the market,” Cunnane explains, success are the same as in traditional well. “It provides immediate, real-time who adds that this comes in a number trucking—know your costs, have good matches at the rate independent truck- of forms, including not understanding processes to get productivity from your ers set,” he says. “The goal is for our actual costs for delivery, not understand- drivers and price the product correctly search engine to eventually aggregate all ing just how high the return rate is for with customers. His forecast for the supply chain data, cutting into the bro- e-commerce, and not understanding startups is not rosy. kerage market.” how to meet customer demands. “They have high-flying hopes and Chris Cunnane, senior analyst for “The market is a crowded one, with a lot of venture capital, but no knowl- ARC Advisory Group, says that these more companies forming to try to take edge,” says Jindel. “They don’t even newcomers want to become the “Uber” advantage of the sharing economy,” says know how many wheels there are on an of the last-mile world. Cunnane. “Unfortunately, too many com- 18-wheeler.” • “The first company that comes to panies don’t have the means to scale, so mind is Uber itself,” says Cunnane. “It they’re fighting an uphill battle.” John D. Schulz is a contributing editor has launched UberRUSH and Uber- The biggest thing that these com- of Logistics Management

logisticsmgmt.com E -COMMERCE 13 2017 Parcel Express Roundtable: Paying for peak performance

Our panel provides an update on all the market shifts in store for parcel shippers—especially when it comes to pricing, service and managing an e-commerce-centric supply chain.

BY JEFF BERMAN, GROUP NEWS EDITOR

t can be hard to believe that very Rob Martinez, president and CEO at tistical difference between the service much happens in a year, but that the- Shipware, an audit and parcel con- performance offered by FedEx and UPS Iory is put to the test when it comes to sulting services company. across a year’s worth of activity, although the parcel express market. Over the next few pages, our experts FedEx offers a faster delivery on ground In fact, over the past 12 months offer their insight into what’s driving to about 25% more city pairs than UPS. we’ve seen major changes in pricing parcel market trends and offers some This pressure on speeding up the prom- from the parcel duopoly of FedEx and practical advice for how shippers need ise and refining the networks to make UPS; the accelerated emergence of to re-adjust to ever-changing market the magic happen will only improve the regional parcel players; and don’t for- conditions. consumer experience in parcel services. get we’re all watching the increasing Rob Martinez: As a professional in power and reach of e-commerce giant Logistics Management (LM ): How the parcel industry for nearly 30 years, I Amazon as it grows its own delivery would you describe today’s parcel find today’s parcel marketplace tremen- capabilities globally. marketplace? dously exciting. It’s a dynamic industry These developments require parcel Jerry Hempstead: All of the parcel that’s constantly changing. The big shippers to do whatever it takes to stay carriers are doing well in volume and three—FedEx, UPS and USPS—rolled on top of their parcel game from both earnings—even the USPS is making out aggressive rate increases and pricing a financial and operational perspec- money if you back out the Congres- changes that require shippers to be even tive. To help them along, Logistics sional mandates. And it’s clear that more vigilant in monitoring costs. Management has gathered Jerry Hemp- e-commerce is driving the volumes. To This past year, UPS leveraged its stead, president of Hempstead Con- top it off, service levels this year are at acquisition of Coyote Logistics to deliver sulting, a parcel advisory firm; David record levels and are predictable and a smooth peak season, and FedEx final- Ross, transportation and logistics consistent. ized the integration of TNT Express in director at investment firm Stifel; and My observation is that there’s no sta- April. While FedEx and UPS continue

14 E -COMMERCE logisticsmgmt.com Daniel Vasconcellos to dominate market share, the USPS 55% B2C—the highest ever seen, and ronment is very tough on shippers. and regional parcel players are making it’s unlikely to stop there. While 2017 GRIs may have seemed inroads in their push for a seat at the modest, the changes in dimensional table. All the while, Amazon quietly con- LM : How would you describe the cur- pricing have resulted in double-digit tinues to build out its delivery business. rent rate and pricing environment for rate increases for many shippers. Dave Ross: Jerry and Rob are right parcel shippers? FedEx changed its dimensional divisor on. The parcel market is growing, Martinez: FedEx and UPS are public from 166 to 139 for all domestic pack- changing, and we’re seeing even more companies, of course, and Wall Street ages. And while UPS will match the two-way services—deliveries and rewards or punishes the shipping giants 139 divisor, it only applies to packages returns. B2C is actually growing much on margin—or yield per package. There- exceeding one cubic foot. Don’t forget, faster, led by the continued rise of fore, the more they make per shipment, both carriers adjusted fuel surcharges Amazon, and UPS said on its earnings the higher the stock valuation. As a weekly—rather than monthly—starting call that its package volume mix was result, the current rate and pricing envi- February 6, 2017.

logisticsmgmt.com E -COMMERCE 15 Parcel Roundtable

“While 2017 GRIs may have seemed modest, the changes tic, but the bulk of the transactions in dimensional pricing have resulted in double-digit rate handled by both FedEx and UPS are increases for many shippers.” domestic air and ground. If someone wants to purvey their —Rob Martinez items on the Internet and use a carrier Ross: I agree with Rob. The rate weight by dividing by 166, which is 10.4 that has it all, then they have to use environment is very difficult, unless vol- lbs. and that rounds up to 11. And 1,728 one of the two carriers to deliver the umes are growing and the shippers can cubic inches divided by the new divisor goods and pay the price. The carriers hit price breaks. Pricing continues to of 139 will yield a weight of 12.4 lbs. have made the investments so that the rise, but many shippers are unable—or rounded up to 13 lbs. service levels are not now severely com- unwilling—to pass this increased cost So, FedEx will not charge $12.91 promised. In fact, service levels this year through to customers, as “free shipping” [with 4% fuel] for a zone five package, are the highest recorded. has been pushed for a long-time by and they will not charge $12.99 based Ross: There is no material impact on Amazon and is now expected by many on the 166 rule, but they will charge service from current market conditions. on-line shoppers. $13.55 for the 13 lbs. dimensional The uneven U.S. economy is tilting Hempstead: I’ll add that the key for weight, or 5% more than the price for the shipment profile more to B2C than shippers is that none of the air and actual weight. It’s another increase that’s B2B, as the consumer side has been ground base tariffs of FedEx and UPS hard for a shipper to plan for unless the doing better than the industrial side for will match in 2017. That gets com- customer asks the carrier: what’s this the last couple of years. pounded because UPS has a much going to cost my business? higher fuel surcharge—and both are Ross: So, to build on Jerry’s example, LM : What does the future look like going to be adjusting the fuel surcharge don’t waste space in packaging. Pack for Amazon? weekly this year as Rob had mentioned. enough so the freight is delivered safely Hempstead: Let’s put it this way: However, FedEx did make the predicted without damage, but not much more, Amazon is gradually building out announcement that they were changing as you’ll be paying for the empty space. its own logistics network; they have the dimensional divisor from 166 to 139. The switch of the dim divisor is reflec- opened 20 of their own regional sort An aspect that FedEx has not tive of the significant increase in large centers; and they’ve started their own yet embraced is the 2.5% fee UPS package volume that has a higher cost air network contracting with ATSG and imposed last year on transactions associated with it than smaller pack- Atlas airlines. Where they have critical that are third-party billed. The USPS ages—both with the sort and the deliv- mass they do their own drops into the announced that on January 22 Ship- ery. FedEx and UPS are just raising the USPS network and use Parcel Select ping Services prices will change by price to account for this increased cost for the last mile. 3.9% percent on average, and DHL pressure on their operations. They’re innovative and willing to go Express announced a 4.9% general out on a limb. They’re testing drone average price increase for U.S. account LM : How are market conditions delivery of parcels; they’re building an holders, effective January 2, 2017. affecting service, and what role is the Uber like app for freight; and I’m sure “uneven” U.S. economy playing? driverless delivery and line haul vehicles LM : Let’s concentrate on the dim Hempstead: Because of e-com- have been discussed. divisors switching to 139. What are merce, the carriers are handling more However, they’re still a customer of the the “red flags?” packages than ever. And generally integrators and most likely will continue Hempstead: It’s hard to visualize what speaking, the U.S. economy has had to do so for a long time. Although Amazon the change to 139 means for a shipper. little impact on the top line or bottom will try to clip away the business they give Let’s take a 10-pound, one-square-foot line of the carriers. In addition, the to others to deliver, their incredible growth box at 12” x 12” x 12”. That’s 1,728 revenue of the integrators is now so will continue to force co-opetition with cubic inches. Today, FedEx bills that balanced globally they’re more affected the big parcel delivery firms. box for the actual weight or dimensional by global trade conditions than domes- Martinez: To follow up on Jerry’s

16 E -COMMERCE logisticsmgmt.com comments, Amazon’s steps to build out “This pressure on speeding up the promise and refining the its delivery business certainly has the networks to make the magic happen will only improve the industry abuzz. Amazon’s stated goal— consumer experience in parcel services.” rather than to compete with the likes of FedEx and UPS—is simply to minimize —Jerry Hempstead their reliance on the national carriers. But make no mistake about it: Amazon and packages business unit has actu- LM : What advice do you have for is already into the transportation busi- ally been doing very well. Following parcel shippers in 2017? ness in a big way. 2015 volume growth of 14.1%, the Ross: My simple advice is to know In the past few years, they’ve amassed business segment has continued its your freight and know your options. a fleet of delivery vehicles, negotiated strong performance with volume Hempstead: Indeed, and keep in extended leases on forty 767 air freight- growth of 13.8% for fiscal 2016 and mind that the devil is in the data. The ers, announced plans to invest $1.5 revenue growth of 15.8%. carrier being utilized knows more about billion in an air cargo hub in northern Still, the USPS lost $5.6 billion in a shipper’s business than the shipper Kentucky, and recently started acting as a fiscal 2016. However, most of the loss does. The integrators have armies of freight forwarder by handling ocean ship- was driven by mandated future retiree data analysts and massive comput- ments from China. While the national health benefits. Remove that from their ing power that allows them to tweak carriers publicly feign disinterest in income statement and the USPS would pricing to extract revenue and navi- Amazon’s recent moves, only stating that have recorded positive net income of gate through the next price increase. Amazon remains a very good customer, approximately $200 million. With the They know to the penny how much secretly they have to be nervous. continued growth in e-commerce, the additional revenue will be garnered Ross: Rob and Jerry nailed it. They’ll service is well positioned to flourish in with each rule change and tariff price be getting bigger and bigger, but we the years ahead. I don’t think shippers change, in both base rates and accesso- don’t know how big and in what areas have anything to worry about, espe- rial charges. and what challenges will come with cially if the USPS is able to achieve Martinez: I’ll add that for parcel increased scale. Certainly, the company legislative relief on the onerous pre- shippers going into 2017, managing is investing more in logistics, and we funding obligations. transportation spend has become even expect them to do more in-house where Hempstead: David and Rob are spot more complicated. Taken in combina- it makes sense, but we don’t believe on. And don’t forget, the USPS is the tion with the 2017 GRI, dimensional they want to put FedEx out of business only delivery company that goes to pricing changes are very significant. as we’ve read in headlines. every address in the U.S. six days a However, just like discounts on pub- week and is experimenting with Ama- lished pricing, dimensional divisors are LM : How do you view the current zon deliveries on Sunday. The model also negotiable. state of the USPS, given their is so perfect that the largest customers Shippers are also wise to decrease ongoing financial travails? of Parcel Select outside of Amazon are dimensioning through improved pack- Ross: The USPS is better than people FedEx (Smartpost), UPS (SurePost), aging. Shippers should leverage the give them credit for in that it has a good DHL (e-commerce) and Newgistics. competitive marketplace, including value product and it’s critical to the In fact, Parcel has been the shining the USPS, regional parcel carriers and e-commerce supply chain. They just star for the USPS, and their future package consolidators. And while parcel need to work out their pension issues is to some degree pinned to the con- in 2017 has become more complex and and raise the stamp price a bit and tinued success of their package ser- costly, winners will be those shippers they’ll be fine. vices. So far they have been executing that take the time to analyze, optimize Martinez: I agree. And despite the well and have been investing in the and diversify their parcel networks. • doom and gloom we all hear about required enhancements to the services, declining First Class Mail and finan- in particular tracking—and there are Jeff Berman is Group News Editor cial losses at the USPS, its shipping more improvements coming. for Logistcis Management

logisticsmgmt.com E -COMMERCE 17 The global freight forwarding market has grown by 2.7% in real terms since this time last year, but owing to a continuation of excess capacity issues and lower average oil prices, rates continue to fall in both air and sea freight. Forwarders now need to ramp up the value-add visibility services in an effort to boost revenues and keep shippers smiling.

ver the course of 2016, real revenue Oand volume growth in the air and sea freight forwarding markets was remark- ably similar globally, but this disguises significant differences across important countries and regions, say analysts who keep a close eye on the market.

By Patrick Burnson, Executive Editor

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Top 25 Global Freight Forwarders Ranked by 2016 Logistics Gross Revenue/Turnover and Freight Forwarding Volumes*

A&A Gross Revenue Ocean Provider Air Metric Tons Rank (US$ M) TEUs

1 DHL Supply Chain & Global Forwarding 26,105 3,059,000 2,081,000

2 Kuehne + Nagel 20,294 4,053,000 1,304,000

3 DB Schenker 16,746 2,006,000 1,179,000

4 DSV 10,073 1,305,594 574,644

5 Sinotrans 7,046 2,950,800 532,400

6 Panalpina 5,276 1,488,500 921,400

7 Nippon Express 16,976 550,000 705,478

8 Expeditors 6,098 1,044,116 875,914

9 UPS Supply Chain Solutions 6,793 600,000 935,300

10 CEVA Logistics 6,646 681,600 421,800

10 GEODIS 6,830 690,000 330,000

11 Bolloré Logistics 4,670 856,000 569,000

12 Hellmann Worldwide Logistics 3,443 902,260 576,225

13 Kintetsu World Express 4,373 556,640 495,947

14 Yusen Logistics 4,169 633,056 332,389

14 Kerry Logistics 3,097 1,055,600 282,200

15 DACHSER 6,320 481,400** 272,100

16 C.H. Robinson 13,144 485,000 115,000

17 Agility 3,576 513,500 372,700

18 Hitachi Transport System 6,273 430,000 230,000

19 Toll Group 5,822 542,000 114,000

20 Damco 2,500 659,000 190,000

21 XPO Logistics 8,638 131,500 72,300

22 Logwin 1,095 600,000 140,000

23 NNR Global Logistics 1,676 146,278 286,897

*Revenues and volumes are company reported or Armstrong & Associates, Inc. estimates. Revenues have been converted to US$ using the average exchange rate in order to make non-currency related growth comparisons. Freight forwarders are ranked using a combined overall average based on their individual rankings for gross revenue, ocean TEUs and air metric tons. **Includes LCL shipments. Copyright © 2017 Armstrong & Associates, Inc.

20 E -COMMERCE logisticsmgmt.com For example, airfreight forwarding growth in sustain margins. In addition, it appears that con- China is thought to have been robust this past year, ventional forwarders are set to lose volume share while sea freight growth was much weaker. Con- to other parties like smaller, more technologically versely, the United States saw moderate expansion savvy 3PLs, but the threat may be “asymmetrical” in sea freight as air cargo growth faltered over the for air and sea. same period. A deep dive into the world of freight forwarding Looking ahead to the next 12 months, the market technology reveals the disruption caused by digiti- is anticipated to grow at a real compound annual zation, changes to the competitive landscape, and, growth rate of 4.1%, as global trade volume growth ultimately, whether forwarders can adapt and sur- accelerates. Meanwhile, logistics managers moving freight globally should plan their budgets accordingly. According to the new “Global Freight For- warding 2017 Report” compiled by the London- based think tank Transport Intelligence (Ti), a continuation of excess capacity issues and lower average oil prices in 2016 led rates to fall in both air and sea freight, meaning most forwarders reported lower year-on-year revenues. “While air and sea volume growth picked up a bit in 2016, most forwarders experienced declining rev- enues on the back of substantial rate declines,” says David Buckby, an economist at Ti. “However, and as usual in such circumstances, the fall in forwarder sell rates did not match the drop in their buy rates, vive the upheaval being caused by the continued leading to improved gross profit margins.” evolution of the digital supply chain. Over the medium term, Buckby expects growth “The research we’ve conducted indicates that to pick up in line with higher global trade volume there’s substantial demand for online interfaces that forecasts in 2018, though risks are tilted to the allow forwarders to better serve shippers,” says Ti downside due to factors such as political uncer- analyst Alex Le Roy. “Nonetheless, it’s clear that the tainty and continued trade protectionism rhetoric. scope of these solutions, in terms of geographic cover- age for example, needs to broaden in order for them Deep dive into the market to deliver value. This will occur, but we are now bear- The Ti report also explores the performance of ing witness to a race for scale amongst the start-ups.” the top players against the rest of the market; John Manners-Bell, CEO of Ti, also asserts that disintermediation; regionalization; vertical sector the forwarding sector is facing a challenging time, opportunities and the effectiveness of online not least because the global economic environ- booking platforms. ment has remained volatile and difficult to antici- On profitability performance, survey results pate—though this was nothing new, and the sector indicate that excluding the impact of volume and has always coped well in such circumstances. He rate changes, margin pressures for forwarders will warns, however, that structural challenges such as intensify over the next five years. Indeed, research- trends toward regionalization and near-sourcing, ers feel that with investment in technology and coupled with greater technological demands, will offering new or more value-added services, middle- prove more difficult to manage. men will develop more successful strategies to “Political, economic and technological pressure

logisticsmgmt.com E -COMMERCE 21 Top 25 Freight Forwarders

will continue to shape the industry “The new generation entering the logistics markets have in the coming year,” says Manners- grown up with the laptops and smartphones and expect Bell. “One thing is certain, whether large or small, freight forwarders business transactions to be the same or just as easy as will need to remain agile if they are ordering a pair of shoes from Amazon.” to flourish in an uncertain and com- — Cathy Morrow Roberson, Logistics Trends plex world.” & Insights Morrow Roberson. 92% of survey respondents saying “digitization adds Digitize or die value.” Furthermore, says Morrow Roberson, 58% The Ti report mirrors much of what’s contained in of survey respondents view online freight market- a recent survey conducted by the consultancy Lo- places as an opportunity for traditional forwarders. gistics Trends & Insights. According to “The Evolv- “In fact, we’re seeing partnerships being estab- ing Freight Forwarding Market 2017,” digitization lished between traditional forwarder and non-tradi- is looming large in the immediate future. tional,” says Morrow Roberson. “DB Schenker and Cathy Morrow Roberson, president of the uShip, for example. Schenker acquired an equity consultancy, maintains that the advent of non- stake and is using uShip within the European road traditional players riding the wave of e-com- freight market. Drive4Schenker uses uShip technol- merce growth—such as Amazon, Alibaba, and ogy to connect the some 30,000 transport partners the many new tech-based startups—are changing in the European land transport network to their the face of forwarding. freight.” “The digitization of supply chains has forced many Morrow Roberson adds that partnering with an traditional forwarders into investing and automating online freight marketplace allows a traditional for- their processes,” says Morrow Roberson. “The new warder to offer a digital solution in a faster manner. generation entering the logistics markets have grown As an example, she points out that DHL introduced up with the laptops and smartphones and expect its online marketplace—CILLOX—that matches full business transactions to be the same or just as easy as truckload and less-than-truckload shipments with ordering a pair of shoes from Amazon.” available transportation providers. When asked what improvement will be uti- “A big plus for digitization is that it levels the lized the most over the next five years, 58% of playing field for small- to medium-size forwarders responding shippers named “digitization,” with as well as the larger ones,” says Morrow Roberson. “And it’s not only forwarders, but also shippers of all sizes. Shippers can take advantage of numerous online marketplaces, such as Freightos, to obtain a rate, book the freight and track it from beginning to end.” According to Morrow Roberson, a drawback to many, if not all of these marketplaces, is that not all trade lanes are included; so shippers will need to choose wisely which marketplace to use and remem- ber to compare rates among all of them, including those of traditional forwarders. “The big question to ask,” cautions Morrow Rober- son, “is as if the rates are published or negotiated.”

22 E -COMMERCE logisticsmgmt.com Margin watch Dr. Zvi Schreiber, CEO of Freightos, a technology provider focused on instant freight quotes for freight forward- ers and shippers, admits that the last quarter “ended on a somber note for digitization” due to cyber-attacks that temporarily crippled some of the major global forwarders. “However, the shipping community will remain vigilant in safeguarding the progress we’ve made toward transparency,” says shipment management system. “Finally, CHAMP Schreiber. took tracking further with voice-based air cargo The most recent Freightos newsletter, “LogTech tracking via Alexa,” says Schreiber. “And the timing Review: Q2 2017,” notes that during the second couldn’t be better.” half of June, Amazon and Alibaba both held confer- Brandon Fried, executive director of the ences in the United States, appealing to small and Air Forwarders Association (AfA), agrees with midsize businesses selling on their platform. Schreiber positive take on the innovation being “While Alibaba was advocating sales to China pushed into the market, noting that while air as Amazon encouraged cross-border importing, cargo volumes have increased, margins remain both were clearly pursuing a small- to medium- depressed and most of AfA members are look- sized business focus, as Big Box retailers continue ing forward to more tech-driven opportunities in to struggle,” says Schreiber. which profitability may improve. For enterprise forwarders and carriers, the “One influencing factor to consider is the growth marching orders for the second quarter appeared of capacity we’ve seen over the past couple of years, to be freight visibility, as a number of companies keeping pricing at lower levels,” says Fried. “This unveiled solutions to enhance cross-supply chain increase in space is attributable to the large amount visibility of shipments. The last-mile drone delivery of new and efficient wide-body aircraft, each with space stayed hot, both in the air and on the ground. generous belly space flying the popular trade lanes.” Meanwhile, Uber Freight formally launched its Another significant factor inhibiting this growth product, while continuing to face strong competi- in many cases lies with lower customer pricing tion from other on-demand trucking startups. agreements that may no longer reflect today’s mar- “The second quarter of this year was a strong ket conditions. Once these contracts expire, says quarter for visibility technology,” says Schreiber, Fried, prices and margin should improve overall. “particularly for DHL’s varied divisions.” DHL “However, new transport pricing agreements alone Global Forwarding launched Ocean View, which will not assure increased profitability, and this is why offers real-time updates on maritime shipments; forwarders must be searching for more operational DHL SupplyWatch, an AI program for identifying efficiencies that only technology can provide,” says supply chain disruptions; and Saloodo, an online Fried. “People still play a crucial role in our business, trucking marketplace. but technology will help them work smarter and pro- Meanwhile, DP World also released a container vide an improved customer experience.” • visibility solution in the UK, as French startup Traxens unveiled a smart freight train tracking solu- Patrick Burnson is executive editor of tion. In Germany, Panalpina launched a pilot ocean Logistics Management

logisticsmgmt.com E -COMMERCE 23 2017 Warehouse/DC Operations Survey: In the thick of e-commerce As e-commerce fulfillment pressure continues to adjustments climb, our annual survey points to the many BY ROBERTO MICHEL, CONTRIBUTING EDITOR changes taking hold— from more investment in automated approaches uring the adaptation of industry trends, there comes a point when you to piece picking, more Dpass the early stages of adjustment and dive into really doing things use of robotics, increased differently. Our “2017 Warehouse and Distribution Center (DC) Opera- tions Survey” shows us an industry that’s now in the midst of that change— interest in throughput and we’re getting into the thick of e-commerce adjustments. metrics and general The tweaks include more investments in automated order picking, process improvement. voice-directed systems and other technology. We’re also seeing pain points continue to swell; foremost among these is the struggle to find qualified workers. Also emerging are data that suggest respondents may

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purolatorinternational.com | 1-888-511-4811 2017 Warehouse/DC Operations Study

be reshaping their DC networks Nature of DC’s inbound/outbound operation with smaller facilities to serve as What is the nature of your distribution center’s operation? fulfilment centers closer to the point Inbound of demand. The survey, conducted annually by Peerless Research Group (PRG), Full pallet only inbound 13% drew more than 300 responses this year from professionals in logistics Full pallet and case inbound 24% and warehouse operations manage- Full pallet, case and split case inbound 46% ment across multiple verticals. One of the clearest data points, and the Case and split case inbound 17% issue that is likely driving change of many types, is the level of e-com- In what unit load quantities are products shipped outbound? merce involvement, according to Outbound Don Derewecki, a senior consultant with St. Onge Company, and Norm

Saenz, Jr., a managing director with Full pallet only outbound 14% St. Onge, a supply chain engineering consulting company and partner for Full pallet and case outbound 17% this annual survey. In fact, 19% of respondents now Full pallet case and split case outbound 45% say they do omni-channel fulfillment, Case and split case outbound 24% up 3% from last year, while 37% say they do e-commerce, up by 2% Source: Peerless Research Group (PRG) from last year. This steady growth in e-commerce and all the pressures that brings around piece picking, pick- to-light, and put walls, which Most participating companies came labor management, and cycles times, points to operators applying some from manufacturing (46%), followed is driving deep change for respon- technology to e-commerce pressures,” by distributors (27%), third-party dents, notes Derewecki. says Saenz. logistics providers (11%) and retailers “Overall, what we’re seeing and The annual survey of decision mak- (6%). Leading verticals included food what seems to be consistent with the ers for warehouse/DC operations & grocery, automotive & aerospace, study results is that there is more of spans multiple areas, including facil- general merchandize, electronics, fab- requirement for speed and accuracy, ity; labor and other operations trends; ricated metals, and paper products. driven very much by e-commerce use of technology; capital expenditure expectations,” says Derewecki. levels; and use of metrics. We also ask Operations snapshot In response, the survey shows that about disruptions from natural disas- In recent years, the survey has trend- some technologies that had been flat ters. And with the disastrous hurri- ed toward “more” as the norm when the last few years are on the increase cane season of 2017 fresh on people’s it comes to factors like facility clear this year. Many of these involved minds when the survey was in the heights and labor forces. This year’s each picking that is a hallmark of field, the response for this question survey results, however, has some e-commerce fulfillment, notes Saenz. jumped, with 15% saying they had data that runs contrary to these recent “The investments are increasing a experienced a catastrophic event, up trends, but is consistent on others like bit more for certain areas like voice, from just 6% in 2016. the nature of inbound and outbound

26 E -COMMERCE logisticsmgmt.com Market channels serviced by company shipments, as well as the previous year. the steady march of e- 67% 67% 67% 2017 2016 2015 The average number 60% commerce. 58% 58% of SKUs declined to N/A: not asked For 2017, 14% of 13,130 this year from 40% respondents handle full 37% 35% 13,774 the previous pallets on the outbound year. The percent- 19% side, up from 9% last 16% 15% 14% age of SKUs that are N/A 11% year. On the inbound conveyable or can be Wholesale Retail E-commerce Omni- Other side, full pallet was channel handled robotically only at 13%, which is was 29%, down from How multiple channels are being ful lled the same as last year. 36% the year previ- On the outbound side, 37% ous. Annual inventory Self-distributed from one main DC 42% 45% handle full pal- 34% turns for 2017 came in let, case and split case, 30% at 8.5 turns, a decline Self-distributed with separate 24% while 24% handle case DCs for different channels from 9.2 turns the year and split case, for a 28% previous. total of 69% for those 8% While more turns two answers, the same Use a 3PL for all channels 10% is typically desirable, 14% as last year. Thus, a couple of factors 7% Use a 3PL for e-commerce and while the response for 6% may be playing into our own DC for other channels outbound “full pallet 4% the slower movement. only” grew slightly, the 4% 2017 One, notes Derewecki, Use our retail store for e-commerce 2% outbound profile is rela- and our own DC for other channels 2016 is that the cost of 2% tively consistent. 2015 financing remains low, Wholesale (67%) and 4% so there is less cost Other 6% retail (58%) remain the 7% involved in carrying most common chan- more inventory than if 10% nels serviced, with Do not service multiple channels/ rates were higher. Only service one channel 11% wholesale staying equal 12% The widening of to the previous year’s Source: Peerless Research Group (PRG) the Panama Canal and 67%, and the response enhancements to some for retail down by 2%. U.S. ports to accommo- This year, 37% say that they service an house (self-distributed) from one DC, date larger freighters also has tended e-commerce channel, up from 35% in or self-distributed with separate DCs to increase the volume of cargo that 2016. Additionally, 19% say they have for different channels—also expe- can be imported at an attractive cost. an omni-channel service environment, rienced some change. Those saying Such factors may be contributing to up from 16% last year. they self-distribute for all channels a tendency to carry more inventory, While there is likely some overlap from one DC fell from 42% last year notes Derewecki, in addition to the on these answers, 56% now say they to 37% for 2017, while 30% now say need to maintain high service levels service omni-channel or e-commerce they self-distribute with separate DCs for multiple channels. needs. for different channels, up from 24% At the same time that some of How channels are being fulfilled— in 2016. these macro-level factors may be in terms of using third-partly logistics The survey’s findings on inven- driving inventory levels higher, (3PL) sites, servicing channels in- tory where slightly different from respondents are after better, tighter

logisticsmgmt.com E -COMMERCE 27 2017 Warehouse/DC Operations Study

2016 capital expenditures for from 240,410 to 176,600, while the warehousing equipment and technology “mega-sized” DC network response Current CAPEX (two million sq. ft. or more) stayed at

$1.431M 10%. Less than $250,000 47% $1.370M $1.213M When it comes to the most com- mon square footage for a single DC, when the network is four buildings or more, the average square footage for $250,000-$499,999 14% $500,000-$999,999 9% 2017 was 264,675, up slightly from 2016 201 201 $1 million-$2.49 million 8% 264,445 last year. For networks of $2.5 million-$4.9 million 5% Average $5 million-$7.49 million 4% three buildings or less, the average $7.5 million-$9.9 million 2% square footage was 159,510 in 2017, $250,000 $242,950 $266,130 $10 million or more 4% down from 178,090 last year, but very Unsure 7% Median close to the 158,955 sq. ft. back in Estimated capital expenditures for 2015. warehousing equipment and technology in 2017 Why the shift in facility and DC Projected CAPEX for next year network sizes? To some extent, there is natural variation year to year due to Less than $250,000 42% $1.517M $1.395M $1.354M different sets of respondents. Another factor at play may be the growth of e-commerce, notes Saenz. With

$250,000-$499,999 16% industrial real estate availability tight, $500,000-$999,999 10% and a growing need to service e-com- $1 million-$2.49 million 9% 2017 2016 201 merce orders quickly, it may be that $2.5 million-$4.9 million 5% Average some operators are opening relatively $5 million-$7.49 million 3% smaller fulfillment centers versus big $7.5 million-$9.9 million 2% $358,696 $303,190 $314,815 $10 million or more 4% DCs that service traditional channels Unsure 9% Median and large regions. “I think e-commerce is really start- Source: Peerless Research Group (PRG) ing to drive some of the survey results inventory control. In fact, when footage for buildings in the DC we’re seeing, even in areas like clear asked about actions taken to lower network, the average for 2017 was heights or smaller facilities,” says operating costs, “improving inven- 193,190 sq. ft., down slightly from Saenz. “Buildings last a long time, so tory control” was the second most 199,040 feet last year. some smaller facilities built decades common answer, with a 63% affir- Average clear height of buildings ago may be getting repurposed as ful- mative response, up from 60% the was 29.8 feet for 2017, down from fillment centers for e-commerce. Also, previous year. 31.1 feet in 2016, and 30.8 feet I think the growth in e-commerce vol- the year previous. However, 27% of ume has pushed the need to have the DCs and labor forces respondents said that clear height inventory and processes set up in a The trend toward “bigger, taller and ranged from 30 feet to 39 feet, up 1% separate building. As a result, some of more” when it comes to facilities from 2016. the findings that at first glance seem and labor altered slightly for the Total square footage in the network confusing start to make sense once 2017 survey. For example, when averaged 473,400 sq. ft., down from you realize that e-commerce growth is asked about most common square 539,00. The median dropped as well, driving various changes.”

28 E -COMMERCE logisticsmgmt.com When asked about DC Warehouse management systems in use expansion plans, 23% said 42% Legacy WMS (basic WMS, 35% that they plan to expand homegrown and developed in-house) 2017 35% square footage, down 2016 36% 2015 slightly from 27% last year. ERP with a WMS module 39% However, 17% say they plan 34% to expand the number of 13% 87% 83% 85% Best-of-breed WMS buildings, up 3% from 2016. 11% Employee/labor expansion 16% sing a plans for DCs also are on 12% Labor management systems (LMS) warehouse 10% the rise. Over the next 12 management 10% months, 36% are foreseeing system T 9% Product slotting functionality expansion in the number 8% of employees, up from 33% 6% 17% 15% last year. 5% one or minimal 13% On-demand/Cloud/SaaS The number of employ- 3% ees in a DC network 3% trended slightly downward. Source: Peerless Research Group (PRG) For 2017, the average num- ber of employees for a network was $303.19, down from $358.69 the automated technology was in use by 228, down from 278 in 2016. How- previous year. “There’s some new level 5% of respondents, up from 3% last ever, the 1,000-plus employee bracket of investment that’s indicated,” notes year. Use of automated storage and drew a 12% response, up slightly from Saenz. “It’s not an outrageous increase, retrieval systems was up by 1%, while 10% in 2016. but consistent with what might be automated guided vehicle use grew The “less than 25” employee expected in trying to handle e-com- from 3% to 6%. bracket grew significantly, while the merce more efficiently.” When it comes to “order filling” 500 to 999 employee range decreased techniques, 20% use a “put” to order from a 11% response in 2016, to just Solutions and metrics method, up from 15% in 2016. Use of 5% this year. These changes might be The types of technology investments put walls also grew by 2%. due to a different mix of respondents, respondents are interested in generally Use of warehouse management or deeper shifts in DC networks that align with the pressures of e-com- system (WMS) software, from may be developing. merce order picking and fulfillment. various types of vendors as well Capital expenditures continued For instance, 10% indicated that they as legacy/homegrown, grew from the general growth pattern of recent use some form of automated order 83% across all types last year to years. The average current capex picking, up from 3% from last year 87% this year. Best of breed WMS reached $1.43 million in 2017, up and the 7% from 2015. grew slightly from 11% to 13%, but from $1.37 million last year. Median Among specific picking technolo- somewhat surprisingly, so did the capex increased from $242.95 mil- gies, 12% say they are using a “parts-to- response for use of legacy systems, lion last year to $250,000 this year. person” system, up from 10% in 2016. up by 7%. When it comes to estimated Voice assisted solutions with While it’s possible that packaged capex for the next year, the average no scanning came in 7%, up from solutions from ERP and WMS ven- projection is $1.51 million, up from 3%, while voice with scan verifica- dors have been around so long that $1.39 million from last year, while tion was also 7%, down 1% from some consider older packaged solu- the median for projection comes to the previous year. Robotic or other tions as legacy, the overall trend is that

logisticsmgmt.com E -COMMERCE 29 2017 Warehouse/DC Operations Study

Productivity metrics in use

86% 82% 84%

2017 2016 2015

44% 40% 38% 34% 34% 33% 30% 29% 31% 27% 26% 23% 19% 17% 17% 7% 6% 7%

Use a metric Units/pieces Orders per hour Cases per hour Lines per hour % of engineered Other (NET) per hour labor standard or expectancy

Source: Peerless Research Group (PRG)

WMS is in use at the vast majority of gies of interest are all trending with the Survey findings show continued respondent locations. In keeping with piece picking volumes associated with strong use of metrics as well as that use level, 60% of respondents say e-commerce. Companies are interested interest in cost management meth- their primary data collection method in finding ways to fulfill orders with ods such as improving warehouse to gauge productivity is “automated fewer people, because people aren’t processes and inventory control— through a WMS,” up from 59% last easily available right now.” pointing to an industry that wants to year. Manual data collection methods The percentage of respondents streamline and standardize as much are used by 55% of respondents, down using some type of productivity metric as possible, both to manage costs and from 57% last year. grew from 82% last year to 86% this to respond to customer expectations. Overall, the technology portion of year. Common metrics used include “Companies are looking to stan- the survey reflects that operators are units/pieces per hour (44%), orders per dardize processes as part of making it layering in more automation, though hour (34%), cases per hour (27%) and easier to comply with rising customer not necessarily big ticket, fixed auto- lines per hour 26%. Use of “percent of expectations for quality and turn- mation systems. “The e-commerce an engineered standard” remained at around time,” says Derewecki. “There world drives the need for more labor, 17%, the same as last year. Metrics that is an increasing emphasis on continu- and as a result, you have the need to gained a bigger response this year were ous improvement—on streamlining use some forms or automation to give units/pieces per hour, orders per hour, and standardizing—as a means of you the productivity gains you need,” and lines per hour. managing costs and delivering more says Saenz. Respondents continue to take a value to customers.” Derewecki agrees that there is range of actions to lower operating strong interest in technology as a costs, with 95% taking an action of Labor as top issue means of dealing with the labor-inten- some kind. Common actions include Given the picking, packing and sive requirements of e-commerce, improving warehouse processes (70%), shipping tasks associated with e- especially solutions that are quick to while 63% tell us they’re trying to commerce, it’s not surprising that the reconfigure and change as DC work- improve inventory control, an action inability to attract and retain labor flows evolve. that grew by 3% over 2016. Chang- has become the top industry pain “There is greater interest in flexible ing racking and layouts increased by point. Whereas last year, “insufficient technology solutions like voice-directed 5%, while reducing staff as a means of space for inventory or operations” solutions or RF-directed picking, lowering costs decreased to 21% this remained the leading pain point, this and to some extent, robotics,” says year from the 23% who used that as a year it gave way to the inability to find Derewecki. “Generally, the technolo- cost reduction measure in 2016. hourly workers, which grew from 41%

30 E -COMMERCE logisticsmgmt.com last year to 49% this year. Actions taken to lower DC operating costs The insufficient space issue—at 95% 40% this year—still ranked number Taken any action (NET) 95% two on the list of major issues, fol- 94% lowed by inadequate information 70% Improving 70% systems support (36% this year) and warehouse processes 67% outdated storage, picking, or material 63% handling equipment (33%). What’s Improving inventory control 60% more, the fifth most cited issue—the 62% inability to attract and retain qualified 46% Changing rack/ 41% supervision—shot up from 11% in layout con guration 49% 2016 to 25% this year. 38% Improving warehouse “There is a lot of competition to 41% information technology find and retain good, quality employ- 34% ees, so DCs are struggling to find 21% Reducing staff 23% good people,” says Saenz. “This issue 2017 30% is driven in large part by the increase 2016 in smaller order handling. E-com- 20% 2015 Renegotiating leases 17% merce is driving change in terms of 23% N/A: not asked space, different types of facilities, for 11% people, as well as automation.” Using 3PL 13% 16% For the first time in recent years, the percentage of respondents per- Reducing number of facilities/ 12% sq. ft. of facility space N/A forming value added services (VAS) N/A reached 90%. Frequently cited types Negotiating with large/retail 11% of VAS include special labelling customers to reduce order N/A processing requirements (54%), lot number control (34%), N/A Source: Peerless Research Group (PRG) product assembly (31%), serial num- ber control (30%), and kitting (29%). Of these, assembly was up by 4% and RF scanning, concerns about finding many fronts—on turnaround times, on kitting by 3%. labor or improving the workforce, being able to find more space on short The majority of respondents (64%) improving warehouse processes. notice, or finding good hourly workers report that their systems have SKU These types of comments make and supervisors.” weight and dimension data in their sense in the current environment. As a result, Derewecki adds that item masters. This is down from 68% E-commerce is marching on, the we will continue seeing operators last year, but only 12% see it as a major economy is good, so challenges opera- trying to standardize and upgrade industry issue, just like last year. tors have been experiencing the last processes, and applying some auto- The survey includes an open- few years are only accelerating, con- mation. “They’re automating where ended comment section about “sig- cludes Derewecki. it’s justified, to reduce the long-term nificant change” respondents are “E-commerce has really become dependence on a large labor force, seeing. And while responses vary, a game changer in warehouse opera- and also, to be readily able to absorb common comments included adding tions,” says Derewecki. “When you surges in demand.” • 3PLs, becoming more automated, couple that with the expectation that adding space or racking, implement- the general economy will get better, it Roberto Michel is a contributing ing technologies like voice picking or puts increasing pressures on DCs on editor to Logistics Management

logisticsmgmt.com E -COMMERCE 31 State of Mobility: quency [RF] devices were considered ‘new,’ more and more companies are getting away from fixed workstations, using voice, and going to more mobile Part of the solutions.” The benefits associated with these moves are well documented and recog- nized. Called upon to orchestrate the Playbook movement of inbound freight into the By taking the process to the product, mobility enables a warehouse, for example, mobile devices more streamlined, more accurate and faster approach to can make or change dock door assign- warehouse and DC management in today’s e-commerce age. ments on a real-time, mobile-enabled basis—that way, employees spend less BY BRIDGET McCREA, CONTRIBUTING EDITOR time waiting for vehicles to show up at the receiving dock. ntent on improving real-time operations transparency, making And when mobile devices can quickly better and faster logistics management decisions, speeding up suggest suitable inbound shipment order processing and gaining better control over their operations, assignments, they can then help reduce I the time and effort required to match a growing number of logistics operations are implementing mobility inbound and outbound cross-docking solutions within the four walls of their warehouses and DCs. shipments. Over the next few pages Using handheld mobile devices, vehi- management as well as inbound/out- we’ll explore the inroads being made in cle-mounted devices, ruggedized mobile bound materials processing. the mobile warehouse, discuss the key computing solutions and voice solutions, “We’re definitely seeing a more wide- mobility components that go into these those forward-looking logistics opera- spread adoption of mobile computing facilities and provide some insight into tions are able to better track the produc- in the warehouse right now,” says Don what the warehouse of the future might tivity of individuals or groups, produce Derewecki, senior consultant at the look like. audit trails for improved accuracy and St. Onge Company. “Whereas 20 years accountability, and streamline inventory ago integrated scanners and radio fre- You’ve come a long way, baby When Dwight Klappich thinks back Picking technologies in use to the 1980s, he remembers just how What kinds of picking technologies are currently in use at your distribution center? enthused companies were to be able

2013 2014 2015 2016 to integrate RF technologies into their Paper-based 63% 60% 61% 59% warehouses and DCs. And while there RF assisted with scan veri cation 48% 49% 50% 49% were some kinks to work through with Light assisted with scan veri cation 8% 8% 8% 12% that particular technology at the time, Parts to person technology 5% 10% this research vice president for Gart- Voice assisted with scan veri cation 5% 7% 7% 8% ner says that those early “wins” helped RF assisted with no scanning 5% 5% 4% 4% shaped the now-mature warehouse Automated unit sorter 5% 4% 4% 4% mobility environment. Voice assisted with no scanning 7% 7% 5% 3% “To be frank, mobility is ubiquitous in Robotic or other automated technology 2% 3% the warehouse setting at this point,” says Light assisted with no scanning 5% 3% 4% 1% Klappich. “All warehouse management Other 2% 2% 2% 1% systems [WMS] vendors support tradi- Source: Peerless Research Group (PRG) tional, ruggedized, RF-based devices. As

32 E -COMMERCE logisticsmgmt.com logisticsmgmt.com E -COMMERCE 33 Mobility/Global Connectivity a result, the early barriers we dealt with on the mobility front Major issues as it pertains are now gone.” to warehouse/DC operations Globally, Klappich says that one of the more interesting Which of the following would you consider to be major issues? mobility trends is the fact that emerging economies have Insuf cient space for 43% embraced these state-of-the-art technologies on a widespread 43% inventory and/or operations 43% basis. “Workforces around the world are using mobile devices, Inability to attract and retain 41% and many of the emerging economies don’t even use land- 39% a quali ed hourly workforce 43% lines anymore—so moving to mobile has been even easier Outdated storage, picking 34% for them,” Klappich observes. “As a result, we’re seeing very 34% or materials handling equipment rapid ramp-ups in terms of companies getting workers to use 34% Inadequate information 31% mobile solutions in the warehouse.” 32% systems support Helping to drive some of the growth in warehouse and DC 36% mobility, says Klappich, is the introduction of consumer-grade 24% Obsolete layout 24% devices that are capable of operating in—and standing up to 27% the rigors of—today’s work environment. In other words, a Lack of higher 21% 17% logistics operation doesn’t necessarily have to invest in a bevy management support 22% of ruggedized devices, tablets and handhelds to be able to 2016 Lack of SKU weight and 12% gain global connectivity within its warehouses. 2015 dim information in system* 2014 “There’s really no reason why that company can’t use less Inability to attract and retain 11% expensive, consumer-grade devices,” says Klappich. “We’ve yet 20% quali ed supervision 28% to see any large upticks in the usage of these devices, namely 2% because of the advantages that ruggedized devices offer within Other 4% the industrial setting.” 5% *Not asked before 2016 Working without wires Source: Peerless Research Group (PRG) In surveying the modern-day warehouse, Klappich says that he’s seeing more mobility solutions being developed with the “Anything they used to be able to do in their offices they warehouse supervisor and logistics manager in mind. can now do while they’re out on the floor,” says Klappich, No longer tied to a desk, these employees can be out on who is also seeing more interest in voice-based solutions the warehouse or DC floor, armed with a tablet or other that allow employees to work on a largely “hands-free” basis mobile device, pushing out alerts, reviewing analytics, keep- when fulfilling orders. ing an eye on dashboards—and keeping their fingers on the More expensive than traditional RF solutions, voice offers pulse of the facility. a more adaptive and less expensive mechanism than, say, an automated solution. Interest in voice, wearables, and prod- ucts like Google Glass is largely being driven by the growth in smaller, high-volume e-commerce orders, says Klappich, and the realization that traditional picking and packing methods don’t always cut it when order velocities and volumes reach a certain level. Looking ahead, Klappich expects the current level of warehouse mobility to continue and even pick up slightly as more shippers work through the challenges associated with e-commerce, omni-channel and multi-channel distribution. “We’ve all received boxes that were packed poorly, or the one big box that’s full of peanuts and one single memory card stuck in the middle of it,” says Klappich. “Going for- ward, we’ll start to see mobility applied to very specific use cases, versus just heavy-duty transactional use.”

34 E -COMMERCE logisticsmgmt.com Seasonal support In a recent “Logistics Viewpoints” post, Warehouse & DC Management Feature: Mobility ARC Advisory Group’s Clint Reiser dis- 10 key mobile warehousing/DC trends to Watch in 2017 cussed Singapore Post’s (SingPost) new Don Derewecki, senior consultant at the supply chain advisory firm St. Onge e-commerce logistics solution integra- Company, tells shippers to keep an eye on these 10 trends in warehouse mobility tion. Owned by e-commerce giant Ali- during the coming year. baba, SingPost is a third-party logistics 1 More device types, including integrated devices with printers, voice recognition, provider that’s building an e-commerce RFID capabilities, cameras and other specialized functions. hub to support its growing direct-to-con- 2 More tablets, wearables and robots being used in a variety of conditions, includ- sumer retail channel. ing outdoors and a wider variation in working environment temperatures The company is using HighJump’s 3 Bring-Your-Own (BYO) deployment. “This flexibility allows users to access work WMS to support its logistics centers, information from their personal devices in a secure and managed manner,” says where Android handhelds are used to Derewecki. 4 System-directed navigation and positioning for warehouse equipment. improve operational efficiencies and 5 More integration of Web-based apps. In November, for example, UPS launched quickly onboard temporary workers— the beta version of a “chatbot,” an artificial-intelligence-enabled platform that particularly during peak times—at a mimics human conversation to help users easily find UPS locations, get shipping fairly low per-device cost. rates and track packages. Reiser compares this development to 6 Increased use of biometrics. Manhattan Associates’ introduction of a 7 A shift toward unified endpoint management (UEM), which brings together the mobile app that runs on iOS and Android, management of mobile and laptop/desktop devices onto a single solution. “A thus giving shippers more flexibility UEM solution is able to manage a device from the top down,” says Derewecki, in terms of the actual device that they “and able to manage a device ‘out of the box’ with the original operating system choose to use out on the warehouse or on the device.” DC floor. “These mobility developments 8 Increased use of artificial intelligence (AI) for automating repetitive service tasks, are mainly geared toward getting seasonal such as looking up shipping information, return policies and product details. or temporary workers geared up and ready 9 More attention being paid to mobile/IT security and user privacy—an issue that to handle peaks in order volume quickly many shippers are still concerned with, according to Derewecki. and without much training,” he says. 10 Delivery of mobile services via the private Cloud. Reiser adds that the drivers behind this trend are straightforward: Pretty much everyone already “The printer could be mounted onto a cart and used as a knows how to use a smartphone, and the cost-per-device is mobile workstation, or maybe the printer is hanging off some- cheaper than industrial-grade, ruggedized options. “On the one’s tool belt and controlled using a wristband device,” says negative side, smartphones are more vulnerable to damage, Derewecki. “Whatever the specific format is, the ultimate and I’m not sure how accurate and fast these devices’ scan- focus will be on taking the process to the product, versus ning and processing capabilities are,” he points out. “In the bringing materials back to a central processing workstation to end, it’s really more about getting up and running quickly and do the work.” saving some money.” In assessing just how far warehouse mobility and connectiv- ity has come over the last 20 years—and how far it still has Taking the process to the product to go before shippers can truly say they’re working “without As more shippers explore their options in the world of mobility, wires”—Derewecki says that while the progress has been and as the challenges associated with e-commerce and omni- substantial, there’s still more work to be done. “Focused on channel continue to mount, Derewecki envisions a time where improving labor productivity, the most aggressive companies are companies strive for a completely hands-free, ergonomically- already seeing the results of their investments in mobility,” he friendly work environment. He also expects more shippers to says, “with many already integrating voice operations with scan- invest in equipment like mobile printers, which—by allowing ning and printing to achieve operational improvements.” • employees to print labels where they’re working, versus having to walk back to a central location to do so—help cut down on Bridget McCrea is a contributing editor to the time it takes to fulfill an order. Logistics Management

logisticsmgmt.com E -COMMERCE 35 The Evolving

HE FAMILIAR TECH- not every DC needs the same founda- NOLOGY STACK OF tion, failure to grasp evolving areas could BY ROBERTO MICHEL, warehouse management end up stacking the deck against omni- EDITOR AT LARGE systems (WMS) to man- channel success. What’s more, while age transactions and automation hardware—including robotic With the growth of Tinventory at the distribution center level goods-to-person systems, pick-to-light e-commerce, the and then hand order requirements down systems and high-end sortation—play a technology stack for to the automation layer is not as simple role in the tech stack for e-commerce, distribution centers as it used to be. With the complexities even automation providers say the stack is expanding. We of e-commerce fulfillment, the need to is software driven. explore why WES/WCS orchestrate and optimize operations is “The new types of automation hard- software is gaining driving the need for advanced execution ware are extremely important, but I think prominence and share software in the middle of the stack and it’s a matter of hardware and software as how operations are for more optimization tools. a combined solution that give users the expanding their use of In short, the DC tech stack has advantages and throughput they are after, changed. It’s no longer just WMS on especially when you have Amazon push- data science. top, warehouse control system (WCS) ing the same-day delivery model, and software in the middle, and automated everyone is chasing and trying to achieve materials handling systems at the floor that same panacea,” says Michael Howes, level. The stack has expanded, and while vice president of software and controls

36 E -COMMERCE logisticsmgmt.com DC Tech StackCaption

for Swisslog Warehouse and Distribution Solu- stack for e-commerce has been the emergence tions (WDS) Americas, which offers automated of warehouse execution system (WES) soft- materials handling as well as software solutions. ware, an evolution of WCS. WES brings in E-commerce means that DCs have a greater richer functionality around order releasing and volume of small orders that make it more com- wave management, resource optimization and plex to orchestrate systems, not only within the analytics, in addition to WCS solutions’ more four walls of the DC, but with order fulfillment traditional role of coordinating automation and transportation management decisions. and material flow. “Everyone is being pushed to ship smaller and faster,” says Joe Vernon, senior manager of The role of WES North America supply chain technologies for WES solutions provide visibility and manage- the consulting firm Capgemini. “The demand/ ment capabilities around order requirements, fulfill cycle has been cut from days to hours, inventory information, and equipment and labor and freight costs are more often absorbed now, resources, observes Mike Dunn, group vice rather than passed along to a customer.” president with Fortna, a distribution consulting Vernon sees distributed order management and engineering firm. “The interesting technol- (DOM) solutions, as well as new types of optimi- ogy questions inside the DC are: ‘What systems zation software that can synchronize pick sequenc- should I own to have visibility into those three ing, staging and loading, as gaining in importance. components,’ and then, ‘What software can I use Perhaps the biggest shift in the DC tech to really optimize my processes?’” Dunn says.

logisticsmgmt.com E -COMMERCE 37 WMS

Evolving DC tech stack

Distributed order SCM management (DOM) • Supply, demand and inventory planning tools

ERP • Orders/procurement/ nancials/inventory

Transportation Yard management management systems (TMS) systems (YMS)

Warehouse management systems (WMS) • Inventory management • Order releasing/wave management • Receiving • Labor management • Putaway • Pack/ship functions • Replenishment • Voice pick/scanner integration Data Mobile IoT science industrial platforms/ and Warehouse execution systems ((WES)/WES)/ computers solutions analytics WWaarrehouse control systems ((WCS)WCS) and devices maymay include:include: • Order releasing and wave management • Inventory/replenishment managementmanagement • Labor managementmanagement • Pick-to-light, voice picking, scanner integration • Pack/ship • Material ow ow control • Machine control integrationintegration

Automation Inventory aware automation • Sorters • PLCs • Shuttle systems • Conveyors • Motion control • Goods-to-person robotics • Scales • Sensors • AS/RS • Cameras • Field devices

Source: Modern Materials Handling

WES tends to be at the center of things in today’s for work may change every hour. In the morning, you may be tech stack, says Dunn, because with its WCS roots, able to process a larger chunk of work efficiently while still it has real-time knowledge of equipment processes; it meeting demand, but later in the day, you may need to use knows labor availability details; and it can take the order much smaller chunks of work, which are suboptimal from a requirements from the enterprise level to manage the productivity standpoint, but are necessary to meet demand.” order pool and decide what should be processed next While WES has gained in importance, it can’t do every- by the DC’s resources. While some WMS systems are thing, says Dunn. Omni-channel companies have often getting better at grouping orders into smaller waves for turned to DOM to manage where orders should be fulfilled processing, most WMS systems tend to batch work into from, and at many companies, a WMS handles overall large static waves, says Dunn, whereas WES excels at inventory, says Dunn. Down at the automation level, he releasing chunks of work to the floor in the right size adds, DCs often have strong interest in technology such and sequence to satisfy orders while squeezing maxi- as goods-to-person systems or pick-to-light systems that mum efficiency from resources. minimize or simplify the labor requirements for order pick- “When we think about how to really optimize inside of a ing. But Dunn sees WES as the best solution for the order warehouse, it’s about creating chunks of work that are large releasing and resource management decisions that need to enough to drive productivity, but small enough to react to and be made around order priorities. satisfy customer demands,” says Dunn. “And the optimal size “We believe the best solve for many of these business

38 E -COMMERCE logisticsmgmt.com problems is going to be a combination of WCS of the market with simpler tech stack needs, and WMS capabilities,” Dunn says. “Finding observes John Sidell, principal with supply a way to have those two types of systems work chain consulting firm New Course. For many well together to release and process work is consumer goods manufacturers or other com- going to be the optimal solution.” panies that aren’t at the bleeding edge of omni- No one wants chaotic, inefficient peaks and channel, but do have growing e-commerce lulls in the pace of work, so WES providers often needs and more pressure from small rush “There are consumer focus on enabling a demand-driven, level pull of orders, the key concern is identifying when goods companies work through a DC and its various points of auto- e-commerce volumes force a change to the mation. So it’s not just software bells and whistles tech stack, explains Sidell. and others who to consider with WES, but the approach used to “There are consumer goods companies and are asking, ‘where achieve flow, explains Walter High, vice president others who are asking, ‘where is my tipping is my tipping of marketing with Invata Intralogistics, a WES point—in terms of e-commerce volume and point—in terms of provider and consulting firm. complexity—when I either bring in a third-party e-commerce volume “In building out system infrastructure, we logistics partner or create a new operation dedi- and complexity— take a whole system approach to optimizing cated to e-commerce?’” says Sidell. “Where they when I either bring process flows that embraces lean engineer- are with that tipping point greatly influences in a third-party ing techniques in the physical layout of our what they need in a technology stack.” logistics partner systems, the intelligence of our software, and For some companies who have relatively the application of advanced technology that modest e-commerce pressures, the tech stack or create a new maximizes the efficiency of human interaction, will tend to be more streamlined compared operation dedicated while eliminating toilsome labor requirements,” to what an omni-channel retailer would put to e-commerce?’” says High. “In doing so, we eliminate as much in place at a DC, says Sidell. A WMS with —John Sidell, manual and planned push-based processing as a more agile approach to wave management, principal, New Course possible, and replace it with pull-based, self- some zone picking, or perhaps a voice-picking regulating and self-maintaining systems.” solution combined with WMS might be key Projects around orchestrating flow also ben- pieces of a tech stack for many organizations. efit from a data science approach in which data “For some companies, the current tech stack analysis, modeling and simulation are used can be adapted to support new methods of to determine how to best configure the DC’s order picking,” says Sidell. “If they can tap technology stack, adds High. “Using data sci- additional functionality from their WMS ven- ence, we are able to look an existing operation dor, turn that on and train the users, that may and test options to determine their affect on meet their needs. That said, as your online that operation,” he says. “So while the technol- business grows, the need for more automation ogy stack can dramatically affect a company’s grows with it.” strategic advantages in the market, changing it The growth of e-commerce also has elevated out when productivity languishes is not always the importance of DOM and the inventory vis- the right answer. The answer is derived through ibility DOM relies on, says Sidell. Well-imple- understanding a customer’s data, business mented, accurate WMS systems support this requirements and growth expectations, and sci- visibility, says Sidell, as do accurate store-level entifically modeling that information in a way systems. “One of the most crucial elements with that delivers direction.” omni-channel is real-time inventory visibility across your supply chain network,” says Sidell. Broader needs “To have effective DOM and fill orders with While some omni-channel retailers are leverag- confidence in the promised service level, this ing WES solutions, there remains a big chunk inventory visibility is a must.”

logisticsmgmt.com E -COMMERCE 39 WMS

The solution stack for DCs increasingly needs components that enable workers and pro- to look beyond the four walls of a single site to cesses. Much of the value from this hardware optimally process and ship orders, says Cap- comes from the ability to consolidate data “The future gemini’s Vernon. Some sites might have multiple generated on the edge and make real-time buildings within a “campus,” notes Vernon, which decisions with it, says Bruce Stubbs, direc- is to make adds to the complexities of the DC-level inventory tor of supply chain marketing for Honeywell this whole moves, processing and staging. The whole pro- Safety and Productivity Solutions. ecosystem cess constitutes a “multi-tiered, multi-constraint One enabler of these actionable insights is smart, optimization puzzle,” says Vernon, to get the right Cloud-based gathering of data generated by sen- optimized and goods to the right dock doors at the optimal time sors in trucks or other supply chain locations, predictive.” for pickup by carriers. says Stubbs. Honeywell has already leveraged To solve this challenge, says Vernon, DCs are its Cloud platform capability gained from its —Joe Vernon, senior adopting solutions for pick sequencing, staging acquisition of Movilizer to do things like gener- manager of North America supply chain and loading optimization with integration to robot- ate Cloud-based insights into “cold chain” events technologies, ics and automation. Vendors in the space such as in sectors such as food and pharmaceuticals, Capgemini warehouse optimization can help DCs schedule according to Stubbs. complex activities in a synchronous way to achieve Another tech stack evolution Honeywell flow and better use labor, according to Vernon. is involved with is performance analytics of Capgemini is involved with pick sequencing, data generated by voice systems. Whereas staging and loading optimization by offering once the software component of voice systems data science services that assess actual perfor- was mainly about generating effective voice mance in shipping orders against the model in prompts and integration to WMS, now there the software, so that the model can be improved also is analysis software that combs data gen- for further efficiencies. erated by voice-based processes to improve Providers of robotic goods-to-person systems performance. and other warehouse automation systems also To this end, says Stubbs, Honeywell offers employ data science to refine the effectiveness an operational intelligence software for its of their solutions, says Vernon. The data sci- voice system that provides actionable insights ence for pick sequencing and loading will build for associates on the floor, such as slot skip- on data science from the automated equipment ping that degrades efficiency, while also gener- providers, rather than replicate it, he adds. ating reports for managers on issues like how Expect to see more data science from solu- actual, current performance compares against tion providers and consultants, says Vernon, productivity standards, or to budget targets. since some DCs are becoming highly auto- According to Stubbs, such software is an mated and generate a constant data stream increasing part of the value proposition today. that can be analyzed to refine optimization “We’ve transformed from a hardware-oriented engines. “The future is to make this whole eco- company to a total solutions provider, and system smart, optimized and predictive,” says that involves a lot this software on the edge Vernon. to enable connected workers,” says Stubbs. “We’ve enhanced our [operational intelligence] On the edge platform to be able look at all the task-related Another aspect of the tech stack for omni- data that exists and leverage it in a real-time, channel is various “edge” hardware such as actionable way to improve work processes and sensors, mobile computers, and voice-system head off problems before they start.” •

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