In part 1 of this blog series, we took a look at how innovation is changing the supply chain and the evolution of different warehouse types and processes. In part 2 of this 3-part series, which is based around The Warehouse of the Future report, we’re going to take a deeper dive into the adoption of technology within the distribution center (DC), how technological innovation processes in DCs are poised to change over the next few years and the path and obstacles to automated DCs.

What’s Driving Technology Adoption within DCs?

Historically, the pace of technology innovation in DCs has been particularly slow. One of the major reasons is because the development and implementation of technology has been driven by long-term investment decisions and other corporate priorities while most of the time, warehousing and supply chain investments are afterthoughts during the corporate budgeting process and subject to short term decision making processes. Also, warehousing for a long time has been considered to be mainly a manual process, in global logistics concepts benefitting from low labor costs.

However, technological innovation processes in DCs are set to change significantly over the next few years. In the past, these processes have been defined by large, upfront investments and happened infrequently. In most cases, the return on investment (ROI) for these innovation projects could often be recovered in 10 years or more. Furthermore, these technological developments suffered historically from limitations in scalability because, in more cases, a large fraction of their costs were fixed. Lastly, given changing consumer behavior and requirements, logistics concepts are changing, requiring fulfilment activities close to charge customer concentrations, thus no longer being able to benefit from lower labor costs. Successful future innovations will need to limit upfront investment requirements, be scalable and make variable costs more relevant in how these technologies are procured and operated. DC technologies have also addressed the need for either greater efficiency or shorter cycle times, but rarely have they focused on simultaneously improving them both. In the future, we see a trend to increasingly develop and implement technologies that address the need to improve both efficiency and cycle times inside DCs.

Future changes in technological innovation in DCs are likely to face greater demand due to changing consumer behavior, as well as the redesign of logistics networks (the “Amazon effect”). First, because of demands to respond to greater demands of e-commerce and shorter delivery windows, many companies will have to reconfigure their distribution networks and increase the number and sophistication of their DCs. And second, there’s a larger scale of automation and an anticipation of increasing demand for more complex distribution.

The Path and Obstacles to Automating DCs with Innovative Technologies

New innovative technologies within the DC, such as autonomously guided vehicles, vertical, full case picking applications, robot picking applications, use of augmented reality (AR) and multimodal picking applications, help warehouse managers address the challenges mentioned earlier head on. Implementing these technologies also helps expand workers’ capabilities, enrich their jobs and make them safer and increase productivity. The Warehouse of the Future report goes into more detail around these innovative technologies and how they help solve challenges in DCs.

It’s important to note, however, that the road to automate DCs has been littered with obstacles, such as high costs, inflexibility and non-scalability, also requiring a changing mindset of DC management. These obstacles have made the adoption of technologies for seemingly simple tasks bulkier with an automation prohibitor, such as picking, difficult. This is reflected in the low rate of automation in DCs in industries such as grocery retailing, where only 8 percent of warehouses owned by the largest retailers are automated. The key question is whether the technology applications discussed in the report will change this reality. To do so, they must address several technological development challenges that have plagued the industry.

Part 3 of this blog series will cover the importance of an integrated and autonomous supply chain system, so be sure to check back. To learn more about how innovation is changing the supply chain, the evolution of different warehouse types and the adoption of technology within the DC, read the full report.