With e-commerce shopping seeing unprecedented acceleration this year, all eyes are shifting to what lies aheathe d during the upcoming holiday season. If there’s one thing that’s certain, warehouses and fulfillment centers nationwide are going to be swamped in a way they’ve never been before, leading to retailers to ask the question: How are fulfillment-focused employees going to handle this virtually inevitable spike in demand?
The shift in spending habits driven by Covid-19 disruption is expected to persist through the peak season. While 60 percent of consumers plan to pull back on store shopping given the ongoing risks of exposure to the coronavirus, 66 percent expect to turn to the web for their holiday needs, according to a July survey from omnichannel commerce technology provider Radial. On top of the changing channel preferences, 39 percent of shoppers plan to start shopping for the holidays in October into early November.
And in another survey from Voxware, a provider of cloud-based voice and analytic supply chain solutions, 57 percent of consumers plan to have more gifts shipped directly to recipients than last year. This means that distribution centers accustomed to sending one shipment per order will increasingly be expected to ship items within a single order to multiple addresses.
Voxware CEO and president Keith Phillips indicated that very few fulfillment centers are capable of meeting the demand they’re about to see if they continue with the status quo.
“With distribution centers continuing to experience virus spread and absenteeism, it becomes really difficult to get that product out the door on time,” Phillips said. “Then you hit the back-end challenge of the supply chain, and that is that UPS, FedEx and the USPS do not have the capacity to handle the demand that they’re seeing even now, so that would be even less so when we get to the holiday time.” I
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It is notable that the trio of logistics players have all unveiled new surcharges in anticipation of the record volume during the holiday season, suggesting that the increasing demands are squeezing margins thin.
Retailers hope to shift demand to pre-holiday
Ilias Simpson, senior vice president of fulfillment services at Radial, agreed that most retail supply chains as they are currently constructed, including both fulfillment centers and transportation, won’t be able to sustain the expected holiday growth. To combat this, the company is working with its many of its retail clients on “demand shaping” ahead of the season.
“We’re trying to move the traditional holiday volume up into October to alleviate some of that capacity and still allow them to achieve their overall sales targets and all of that, but shift the demand curve a little bit so that we don’t have a 20X peak compared to last year,” said Simpson.
Retailers are clearly bracing for an upcoming demand spike, with a few of the industry’s biggest names already revealing their own efforts to spread demand if they want to ease the pressure on fulfillment centers.
Target and Kohl’s already have decided to move winter holiday promotions up to as early as October to stimulate demand early. On a similar note, L Brands said it would pull some volume out of the fourth quarter into the third to spread holiday business out over a longer time period.
Automation must take center stage
As these retailers assess and manage their demand, they also must navigate more granular issues that their warehouse employees will face difficulty handling on their own. The Covid-driven shopping behaviors require rethinking more tactical measures within a distribution center, such as how to optimize item selection, order sorting, label printing, packing order confirmation forms and boxing, and even possibly gift wrapping.
With a level of automation included, retailers can deploy robotics solutions and other platforms to perform these tasks more efficiently. Gap and American Eagle have gone public during the pandemic about their new warehousing strategies with their recently expanded use of Kindred apparel sorting robotics within select distribution centers.
Yet while it’s clear that warehouse automation can help to relieve the burden on employees, retailers have been slow to enhance their fulfillment operations in the wake of the pandemic. The high demand for online shopping, particularly as stores remained closed from March through June in many cases, already posed a barrier to automation adoption, according to Phillips.
“Forget about implementing the technology, the challenge is them finding the time to evaluate technology while meeting the demand of the consumers,” said Phillips.
“I mean, we’re seeing scenarios where you have administrative people and senior managers in distribution centers fulfilling orders. Those are the people that should be thinking strategically, ‘How are we going to solve this problem before it kills us?’”
With many retailers early in the pandemic laying off employees who haven’t since returned, distribution centers are short-staffed as it is, further lending credence to the idea that automation is a necessity for businesses that want to be competitive come holiday season. Of course, the pandemic has exacerbated another problem that struggling retailers always deal with: many hesitate to make significant investments when they are losing money in light of short-term cost pressures, even though those investments would likely pay handsome dividends in the long run.
And alongside that, the safety measures now required within the distribution centers themselves are forcing retailers to keep workers socially distant, which essentially disincentivizes merchants from hiring more employees anyway. If anything, this should make automation an even more enticing proposition, especially as uncertainty looms on when a mass-market vaccine will materialize.
“Throwing labor at this thing is an obvious solution but it’s not easy,” said Peter Van Alstine, senior vice president and general manager of the retail business unit at robotics company Berkshire Grey. “There’s no doubt that they’d be sacrificing margins when they go after that, and that’s on top of the margin erosion that’s occurred over the last six months. That’s why automation is top of mind for most, if not all, supply-chain executives and we are certainly in the middle of seeing that on a daily and weekly basis.”
Automation investments should be tiered
Scott Gravelle, founder, CEO and chief technology officer of robotics and supply chain technology company Attabotics, offered some advice for retailers considering warehouse automation: “Any investment in technology needs to be flexible.”
The market has been changing so quickly, Gravelle said, that designing a rigid automation solution, which can have a 10-, 15- or 20-year lifespan, can mean retailers are stuck with capex investments that might be hard to augment and optimize. “Pick the one that can be the most flexible and be able to adjust. We’re not 100 percent sure what changes are coming or happening, and Covid is great example. No one expected this much demand this quickly. Make sure you’re not stuck with a certain level of rigidity that doesn’t allow you to be flexible and evolve as the market continues to evolve.”
Gravelle noted that almost all of Attabotics’ installations went into existing real estate assets, underscoring the idea that retailers don’t necessarily have to overhaul their entire distribution system in order to improve automation capabilities and hasten digital transformation across the supply chain.
“It allowed them to move in an incremental approach as opposed to a big all-or-nothing,” Gravelle said. Van Alstine agreed there are “levels of strategy” that automation-minded retailers can explore.
“For example, as it relates to the sorters, they can make the choice to augment that process with automation so they could use automated or robotic induction stations to work alongside the labor that they have to help them run operations 22 hours a day,” Van Alstine said. Berkshire Grey estimates that users of its Robotic Induction Station (RIS) solutions will typically see 25 percent to 50 percent increases in throughput capacity, or the rate of production, without incurring additional labor costs.
Plan for 2021
Retailers that have only just started ramping up their automation capabilities can expect to recoup their investment after the peak holiday period has passed.
For example, XYZ Robotics Inc., which has developed a 3D vision system and end-of-arm tooling for logistics and industrial automation and recently raised $20 million in Series A funding, said it recently took only two weeks to integrate, test, and fine-tune a piece-picking station at a leading logistics warehouse. And while the system was delivered and operated with 99.9 percent accuracy rate before a significant shopping holiday, the expected return on investment is still two years, according to the company.
But even with a long-term outlook for robotics, retailers should still optimize what they already have and ensure that they can accelerate their plans for 2021.
“Longer term, even Covid aside, it’s just efficiency and cost savings. You don’t have to worry about workers’ comp and liabilities, or people calling in sick,” said Meyar Sheik, CEO of omnichannel commerce platform Kibo. “Depending on whether the retailer has their own warehouse versus using a third-party fulfillment center, they’re in the stages of automation and that’s just going to keep becoming more important for business and for safety and health reasons.”