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E-commerce Brings Constant Change, Affecting Distribution Facility Decisions

29 Jul, 2016

By: Kris Bjorson

I have a houseful of hard-to-please customers. On a daily basis, they not only have a change of mind, but service expectations and buying patterns. On any given weekend, I sort through the delivery packages then handle returns to the retail or parcel store for my family.

I have also been fortunate to implement e-commerce real estate solutions for both traditional and Internet retail clients who have invested billions in supply chain infrastructure and omnichannel retail experiences.

From these experiences, I have observed that there are now more deliveries, returns and robots, which continue to impact the size and location of real estate to support the constant change of retail/e-commerce distribution.

Deliveries

Unfortunately, no retailer can afford to sidestep the challenge of the last-mile and same-day delivery. Reducing delivery time and cost is critical for its impact on customer expectations and loyalty. All types of logistics service providers are investing capital — the infrastructure of vehicle fleets and the real estate required for rapid deliveries — to win this battle. Traditional providers like FedEx, UPS, USPS and regional 3PLs have a tremendous infrastructure advantage but come at a higher cost and less flexibility to be truly on-demand. New players are disrupting traditional delivery models by leveraging real-time app-based analytics with the power of the crowd and courier services to get as aggressive as same-hour delivery.  Postmates is focusing on the high-velocity SKUs of retailers, Deliv is partnering with shopping malls to aggregate same-day delivery by zip code while UberRUSH is leveraging its passenger brand loyalty to be the scalable delivery service of choice. Expect the crowd-based logistics concepts to continue to drive change in flexibility and cost desired by the customer. 

Returns

According to the National Retail Federation, merchandise returns in the U.S. were valued at $260 billion in 2015, roughly eight percent of total sales. With my house representing well above the national returns average of 30 percent for online and nine percent for in-store purchases, the value of returns will exceed the value of e-commerce sales well before 2020. This is a major issue facing all omnichannel retailers, especially those with a heavier exposure to apparel where online returns are even higher, to spend significant capital on reverse logistics strategies to solve this growing friction point in the supply chain.

Similar to e-commerce, more retail space is being allocated at the local store-level for returns processing as well as dedicated hubs of industrial real estate (retailer direct or 3PLs) to handle returns in an attempt to mitigate costs of restocking, liquidating or reselling. Consumers continue to focus on the ease of returns while retail clients continue to wrestle with supply chain complexity and constant evolution of returns. 

Robots 

More robots? Yes. Think about the 1970s Jetsons cartoon – all of those futuristic robots, technology and automation are closer to an e-commerce distribution node near you than you think. As the Amazon KIVA mobile shelving solution becomes old news, tomorrow’s robots will be more collaborative, interactive and even smarter.

In 2016, DHL will be working with Rethink Robotics that has developed a one-armed collaborative robot named Sawyer. It will be lightweight and flexible with a high-resolution camera, pressure sensors and self-learning capabilities to best assist warehouse workers with pick-pack operations. The mobile piece-picking robots will also do the more physically demanding repetitive tasks safely adjacent to human workers, who will focus on complex tasks and exception decision making.

Similar to gaming technology, mobile 3D depth sensors and imaging will play a greater role in helping logistics operations quickly assess real-time dimensions for maximizing truckload capacity and real estate storage positions. The continued evolution of robots and flexible automation solutions will improve productivity, supply chain efficiency and reduce inventory levels, eventually reducing the number of workers and distribution space to support such operations.

About the Author

Kris Bjorson

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