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Warehouse technology shifts expectations for retailers

The entry of Amazon in Australia in 2017 has provided a strong impetus for traditional retailers to invest in their online supply chain capability. Whilst Australian customers have been able to use Amazon for international orders for many years, they can now purchase directly from Amazon’s locally-held product ranges.

The online behemoth’s arrival marks a permanent shift in the pricing and delivery expectations placed on existing Australian retailers as they reduce prices to maintain market share. In this lower-margin environment, it is even more important to run the most efficient supply chain possible or risk declining profitability. Even viability.

Labour costs in Australia are amongst the highest in the world, particularly when compared to the USA or UK. A warehouse worker costs an Australian retailer double what that same worker would cost an American retailer, and well above a British retailer. We, therefore, have a great incentive here in Australia to squeeze every last bit of efficiency from our people costs.

The primary vehicle being used by retailers around the world for this purpose is automation of the physical supply chain. In a traditional online fulfilment centre, the greatest cost element is that incurred by pickers locating and picking items for individual customer orders, as pickers roam up and down endless aisles of warehouse racks searching for a specific product. If you’ve ever tried to locate a flat pack desk in Ikea you’ll have some idea how time-consuming — and expensive — this process can be.

But automation is revolutionising this process. Rather than warehouse stock pickers manually searching for a product, products can now be automatically located by sophisticated new warehouse management solutions. 

"Indeed, an operational warehouse with no actual people is no longer a vague concept, but will soon become a reality."

- Luke Ritchie, GNC Group Consulting

Last month in Boston I was shown a fulfillment operation that has begun using a combination of human pickers and self-driving robots. The robots are programmed with a pick list and travel through the warehouse using the same technology which guides driverless cars. Once they reach their next item a green light flashes — and all the picker has to do is follow the light and place the item in the robot’s basket. The robot then moves on to the next location on its list. Each picker co-ordinates multiple robots, significantly reducing redundant walk time and in turn warehouse staffing costs.

The cost of these self-driving robots tells a compelling story about how the technology revolution is spreading through retail. The sensor unit which drives such robots has fallen in cost by 95% in just five years, driven by the research and development in the driverless car space. And the company behind the self-driving robots actually leases them to retailers, enabling them to avoid large capital outlays typically required by technological advancement.

In the UK and Europe, I viewed dozens of ecommerce operations where pickers no longer even leave a central picking station. Tens of thousands of products are stored in dynamic storage locations, and individually moved by cranes, shuttles and conveyors – all in perfect customer order sequence – directly to the picker. These goods-to-person fulfilment operations can enable an individual picker to process more than 500 picks per hour. Contrast this with a manual picking operation which runs below 100 picks per hour and you can begin to see the labour benefit.

Ecommerce has opened up the whole world to Australian customers. Even before Amazon landed here it had already completely changed the way Australian shoppers think and shop. The pace at which the retail sector is changing will continue to accelerate. Australian retailers have some natural disadvantages to contend with due to our high labour costs and our geographically-dispersed population, making keeping up with the latest innovations even more vital.

Luke Ritchie is a partner at GNC Group Consulting, and now also a partner at Grant Thornton Australia based in Melbourne. Across a 25-year business career Luke has undertaken senior roles within a number of Australian retailers. He recently spent two weeks on an ecommerce study tour through the USA, UK and Europe observing dozens of ecommerce operations, and an array of fulfilment and supply chain automation solutions.

Luke will be leading a discussion on Data Driven Supply Chain at the Retail Innovation Summit in Sydney, February 20.  #RIS18