Warehousing and Fulfillment in the Age of Amazon
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With Amazon accounting for about half of all e-commerce and continuing to set the stage for what consumers expect, other players in the e-commerce space – and especially the warehousing and logistics providers who serve the product sellers – are figuring out how to support a two-day product experience. For warehousing companies specifically, that effort translates into growth.
Since proximity to customers geographically translates into faster, simpler, and less expensive deliveries, warehousing will continue shifting its presence toward areas where population is densest. For example, keeping a warehouse in New Jersey means they can service a large number of customers in a very short time span and at an affordable rate. The same is true of Reno, Nevada, which has great access to California. If a company places one warehouse in the Northeast, one on the West Coast, and one in the southern part of the Midwest, it can reach 60% to 70% of the U.S. population with two-day shipping.
What Goes on Inside Warehouses
In addition to impacting the location of warehouses, the speed of e-commerce has produced some interesting changes within warehouses themselves. Warehouses handling goods with a wide assortment of SKUs – like shoes and fashion items with lots of variations in sizes, colors, and styles – need major sorting solutions. Warehouses for those items require many slots, as well as the ability to quickly pull from those slots and assemble goods into a shipment.
Other warehouses that handle heavy, bulky items and have fewer SKUs don’t have many sorting problems, but they face the challenge of moving and loading heavier items.
Because of these challenges, warehousing automation solutions ultimately will be driven by consumer demand. The industry will probably see a great deal of development take place in consumer goods and groceries – especially in the frozen- and fresh-food supply chains – because that’s likely the area of greatest consumer and e-commerce interest. So many big players are using the area as a battleground, they’ll likely find ways to drive down the cost of fulfillment.
From a logistics perspective, you can expect changes in the bulk labeling and packaging of food and consumer goods products coming from manufacturers. There’s a lot of variation in these case packs, complicating the process of receiving them, putting them in the right place in the warehouse, entering the contents into inventory records, and making them available to ship to the end consumer. The variation translates into time-consuming labor in transferring and analyzing the sheer volume of information. There’s opportunity here in terms of vision-type solutions that can capture all that information quickly and automate the flow.
For investors in the warehousing and logistics space – and especially private equity firms – there are opportunities in combining businesses in fragmented segments of the business and producing economies of scale.
For example, since the third-party logistics (3PL) market is fairly fragmented, buying like-minded, specialized 3PL solutions and combining them can offer a more complete solution. Similarly, there’s room for consolidation in back-office e-commerce solutions focused on the procurement space.
The Coming Headwinds
Some of the warehousing and fulfillment industry’s greatest challenges in the coming years relate to these trends of being closer to the end customer and making warehouses more efficient. Specifically, the challenges come in the form of labor and costs. The closer you move to big population centers, the higher the cost of labor – and actually finding enough labor to do the work at a price that makes sense.
The other big challenge is managing the complexity of logistics. Amazon has tackled the problem of coordinating everything by owning everything. For others dealing with an inner supply chain and last-mile fulfillment, many players are involved and the challenge becomes coordination.
To compete effectively in this new, high-speed e-commerce landscape, coordinating everyone involved in all the processes is key. At this point, the technology to accomplish such an integration efficiently doesn’t yet exist.
As far as major macro challenges, there are the issues of tariffs and the economy. High tariffs are passed along as higher prices to the consumer, eventually affecting spending. And if the economy goes into recession, consumers will become more price sensitive. Will more pinched consumers be willing to pay for one-day shipping? Would they forgo some speed for a lower overall cost? Possibly. At ths time, many business models focus on speed, not price, so if times get tougher, changes could be coming. Bargain sites that don’t offer fast shipping could become popular, which means that the infrastructure built to get fast, fast, fast could become redundant.
About Jason Murray
Jason Murray has served as an independent consultant since he left Amazon. While at Amazon, he held the position of Vice President of Retail Systems and Services from March 2016 to May 2018 and previously served as Vice President of Forecasting & Supply Chain for five years from June 2013 to March 2016.
This article is adapted from the GLG teleconference Warehouse and E-Commerce Logistics. If you would like access to this teleconference or would like to speak with Jason, or any of our more than 700,000 experts, contact us.