The average media consumer is now highly aware of smart warehousing technology thanks to the likes of Amazon and Ocado. The media has succeeded in making a typically dull topic – warehousing – something exciting and intriguing. Who isn’t intrigued by the futuristic ideas of robots and drones, working in blissful harmony to deliver our goods speedily from A to B? This futuristic smart warehouse, with tracking and gizmos, is a million miles away from the classic warehouse format of shelves upon shelves complete with a fleet of forklift trucks.
Smart warehouses use different types of technology to receive orders, process those orders, and ultimately dispatch goods. They focus on, and drive, accuracy and efficiency. Ultimately, consumers get their goods more speedily, with greater transparency, and hopefully without mistakes.
Given the ‘dream’ of smart warehouses, surely all supply chain managers with warehouses under their wings should be grasping the technology with open hands? However, despite the big names like Amazon getting on board, not every business is moving to a smart warehouse model. Why not?
The Arguments Against Smart Warehousing
The single biggest reason why warehouse managers and supply chain strategists aren’t all jumping on the smart warehouse bandwagon is cost. This is a huge concern. The amount of investment needed to get a smart warehouse up and running is astronomical compared to a traditional warehouse. Figures bandied about vary, but there’s no escaping that technology costs a great deal. It’s a big risk to take, especially when technology is constantly evolving, and profit margins are already tight. Add in the volatile and unpredictable nature of many supply chains and it can seem like too big a risk.
The argument against this is that a smart warehouse can itself become the very hive of competitive advantage for your business. Amazon, of course, is a fabulous advertisement for this approach. It’s arguable that without their investment in their smart warehousing, they wouldn’t be running the enormous global fulfilment network that they are running today. They simply couldn’t do this with a traditional warehousing model.
So, perhaps we can look at another business who uses smart warehousing to its advantage and has become an industry leader: Ocado. Their approach isn’t quite the same as Amazon. They partner with other businesses. The partner is responsible for supplying the physical space and the pickers, Ocado’s warehouse solution is then used by them.
The Ocado warehouse solution focuses on technology that enhances efficiency for the business. It gets rid of the traditional conveyor-belt model of warehousing and instead uses grids and robots, in many ways similar to Amazon’s model. It differs from old-school automated systems, the most notable difference being scalability.
The scalability of warehousing systems such as Ocado’s is a key factor for making it appealing to others within the warehousing business. Supply chains need to be, by their very nature, responsive. If the warehouse end of the chain cannot flex and adapt quickly then the whole chain becomes unresponsive to changes in supply and demand. By using a system such as Ocado’s for smart warehousing, solutions can be scaled rapidly, simply by adding in more robots. There isn’t any disruption.
Making the Investment Pay
If it is the cost, and associated risk of investment, that puts many in the warehouse niche off smart warehousing then we need to focus on how to make the investment pay. Whenever we consider investing within the supply chain we want to know how quickly we can recoup our money, and begin to capitalise on it. The key term here is: efficiency.
Smart warehousing makes the processing of orders and logistics more efficient. Efficiency boosts profit margins. JD.com, having invested in smart warehousing in Shanghai, has declared that its Shanghai site is ten times more efficient than a traditional warehouse.
In addition to the obvious benefit of efficiency, there are other ways that smart warehouses pay for themselves. The data gathered within the walls of the warehouse, as a result of smart technology, can be used elsewhere within the supply chain to make strategic business decisions. The level of detailed information can add value at every stage in the chain. By bringing the whole chain together, there is greater transparency and room for success as a result of digitalisation.
Should We Invest in Smart Warehousing?
Despite the benefits that smart warehousing has been seen to bring, this doesn’t automatically mean that it’s the right investment choice for your business, today. Despite the pace of change, traditional warehouses still have their place in the modern supply chain industry model.
It is vital for individual businesses to understand the true costs involved in introducing smart warehousing solutions, and balancing this against risk factors that are unique to your industry. Therefore, whether smart warehousing is the right decision for your business requires careful assessment and thought, rather than a blanket approach.
Furthermore, the nature of your market affects the likely benefits of smart warehousing. For example, the low-cost labour force in the Chinese market means smart warehousing solutions have an astronomical barrier to entry. Running traditional warehouses are more economical in such markets – at least for now. However, in other markets, such as the US or UK, labour costs are higher and therefore smart technology in warehousing is more appealing.
However, the costs are still huge. There are some ways around this. For example, sharing smart warehouses, technology and facilities spread the risk. Alternatively, businesses can take a more selective approach to which elements of smart technology they wish to incorporate into their traditional model. It’s possible to balance the benefits of both technology and using a human labour force.
If you’re interested in working out what’s best for your business, and balancing the costs of smart warehousing against the advantages and business opportunity it brings, get in touch with our consultants. Our dedicated warehouse consultants are skilled in understanding your business, and your marketplace, enabling you to invest successfully in future growth. Call us on +44 (0) 121 517 0008.