LogiMAT 2019: e-commerce logistics needs to adapt to the demand of the future

Though e-commerce has been in the picture for barely two decades, the impact it has created has been nothing short of phenomenal. The industry has been growing consistently at over 20 percent annually across the U.S. and is now so prevalent that it has forced (and is forcing) some  brick-and-mortar storefronts to drastically alter their strategies or shut down for good. Increasingly, customers are buying products online rather than physically visiting storefronts, as e-commerce businesses can offer broader inventories, often at a much-reduced cost.

At LogiMAT 2019, Fréderique Debecker, the business unit manager at Storeganizer, spoke about how e-commerce – a derivative of the retail system – is now a Frankenstein monster that threatens to eat up storefronts, by bypassing the traditional business-to-business (B2B) retail system and replacing it with business-to-consumer (B2C) system.

Debecker addressed the industry misgivings on e-commerce heading towards a monopoly – a concern validated by the growing might of Amazon, which looks to be gaining ground across several markets and in particular, is firmly entrenched across the West.

“Monopoly would happen in a market where there is limited growth to be attained. And since there are many reasons to expect high growth in e-commerce over the coming years, I believe it would not be one single party that would monopolize the market. Rather, the players will consolidate, and it would probably create an oligopoly and not a monopoly,” said Debecker.

Predictive e-commerce is a trend that would define which companies would live to tell the tale a few decades later. Amazon, for instance, has moved from gathering data about its customers through digital mediums, to now drawing insights through devices like Alexa and Echo, which etch out user personality traits through their queries and discussions with the devices.

“Amazon’s artificial intelligence and data algorithms allow it to organize logistics in such a way that it can predict who is going to buy what and when they are going to buy it. Based on this, it can ship those products to warehouses that are very close to where the consumer lives and deliver it in about 30 minutes from the time of order,” said Debecker.

Amazon did this with high accuracy during the launch of the final part of the Harry Potter book series. Based on data of consumers who bought previous editions of the series, it was able to ship books to nearby neighborhoods and deliver them very quickly after the orders came in. Apart from making logistics seamless, such services also elevate customer satisfaction.

However, as the e-commerce market explodes, it does come with its share of complexities. Debecker quoted a study that for every $1 billion in new sales that e-commerce generates, an extra 830,000 square feet of warehouse space is needed. And there is more – compared to traditional retail, e-commerce needs three times more warehouse space to accommodate products in a way that expedites product picking and thus, shortens delivery times.

“The United Nations expects that 68 percent of the world’s population to live in cities by 2050. This would mean that warehouses need to be located close to their customers for instant deliveries to be possible,” said Debecker. “This creates a huge demand for real estate as there are not enough available spots near highways, airports or canals. It is an economic reality that if the demand for space is rising, the prices will go up too, and this will make operations more expensive.”

Debecker suggested a dual distribution center model to solve this issue. For one, the products that are moving quickly from the shelves must be stocked near city centers, and the medium- and slow-moving items can be stocked at the city outskirts in expansive warehouses. “The XXL warehouses will distribute products to the city depot, and from there, it can be taken out to delivery,” he said.

The movement of goods in a warehouse must end up defining automation, stated Debecker. Automation would be useless in a warehouse setting where the products being stocked have a low order frequency, as the return on investment for automation would take a long time before depreciation costs might be recouped. On the flip side, automation would be helpful in warehouses near city centers that stock fast-moving items, with mobility robots doing a better job at shuttling parcels than manual workers.