In the wake of the COVID-19 pandemic, the retail market has witnessed a 28 percent surge in e-commerce activities. Although many retailers have remained conservative and large tech investments are somewhat muted, warehouse automation is slated to receive new investments. The primary driver is the need for fewer employees in warehouses to meet safety and social distancing norms accompanied by the need to ramp up operations to meet increased online order volume.
Some early signs of the growth in warehouse automation are already appearing. In Honeywell’s 2020 Intelligrated automation investment study, e-commerce and grocery retailers emerged as the most willing categories to invest in supply chain automation to combat the seismic shift in retailing triggered by the pandemic. Moreover, the adoption of robotics in the supply chain has increased from 32% to 39% in the past nine months. Based on the current market situation and historic adoption trends, potential automation investments will follow the below pecking order:
|
Primary Investments |
Secondary Investments |
Tertiary Investments |
|
|
|
Please note: Not included sortation, conveyor and overhead systems as they are already widely adopted.
Primary investments are the emerging technologies in which retailers are most interested in investing. Secondary investments are mature technologies many retailers have already invested in but that still see market demand. Tertiary investments are nascent technologies with which companies are still experimenting.
Here is the lay of the land for the aforementioned eight automation technologies:
Primary investments in warehouse automation
- Order picking systems: Until a year ago, 90% of warehouse picking was manual. Today, automating the picking process is becoming a priority for retailers, especially grocers. Grocery was a brick-and-mortar stronghold until the pandemic left no choice but to tap the potential of e-commerce. E-commerce purchases require individual picking and packing as opposed to dispatching mass items to brick-and-mortar establishments, pushing retailers to invest in automated picking technologies. The extent of adoption will differ. Small and mid-sized retailers are more likely to espouse hybrid models like goods-to-person (G2P), pick-to-light or pick-to-voice technologies to save manual efforts. Large retailers with deep pockets will likely strive for technology-intensive setups, ranging from individual picking robots (Ocado’s warehouse robots) to a fully automated warehouse solution. Although the initial cost is high, the returns are equally impressive. Picking robots have shown they can increase productivity gains by about five times.
- Autonomous guided vehicles: The market for autonomous guided vehicles was already growing at a brisk pace of more than 30% before the COVID-19 pandemic. As these are imperative to maintaining quality and optimizing warehouse operations, they are likely to see more investment in the coming months.
- Warehouse execution software (WES): WES is imperative for retailers looking to control the flow of products through automation. It already has more than a 25% penetration rate and is soon expected to be among the most widely adopted automation solutions.
Secondary investments in warehouse automation
- Automated storage (AS) and automated retrieval (AR) systems: These technologies are used for shelving, racking, and pallet storage and retrieval and are some of the most sophisticated automation equipment in warehouses today. Their sophistication and attached high investment make them elusive. Based on market indicators, at least 10% of new warehouse investment will be made on AS/AR systems.
- Palletizing systems: Regular palletizing systems for loading and unloading pallets in a warehouse have been around for some time, but the availability of more advanced versions of these systems are likely to create new demand. These systems are capable of managing various parameters such as weight, shape, size and fragility during the palletizing process and can integrate with other installed systems in a warehouse.
- Automatic identification and data capture (AIDC): Most warehouses already have some version of AIDC in places such as barcode readers, RFID, and various biometric applications. As their inventory increases, retailers are likely to upgrade their current technology. For example, RFID is faster and more accurate than barcode readers.
Tertiary investments in warehouse automation
- IoT analytics: Data-driven insights can improve operational decision-making and expedite the order-to-fulfillment turnaround time. However, for it to work seamlessly, different elements in a warehouse must be automated and smart enough to relay information and take appropriate actions. Retailers such as Amazon and Walmart that have automated multiple warehouse tasks are well placed to take advantage of the changing market dynamics.
- Drones: There are multiple potential use cases for drones in warehouses such as the movement of material, inventory monitoring and even deliveries. The current adoption is low and confined to a select few (including Amazon), but the technology holds promise and the pandemic can provide the right impetus for wider uptake.
Retailers with revenues of less than $500 million are more likely to explore new service models like robotics-as-a-service. These systems are predominantly based on laser or sonar and, therefore, save high upfront costs and can be implemented without an overhaul of the existing facility. Moreover, the service model requires less time to train robots.
ISG Provider Lens has launched two studies on the retail technology industry focused specifically on retail software and services and retail digital innovators. To participate or find out more, please contact [email protected].
ISG is working with multiple retailers to understand and adapt to the quickly changing landscape. Contact us to get started.
Associated Insights
Three Key Applications of Visual AI in Fashion E-commerce
Retail - Digital Innovators 2021 Study
Retail Software and Services 2021 Study
