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The Covid-19 catalyst

28 September 2020

Why the Coronavirus pandemic has sparked an automation revolution in retail. Jason de Kauwe provides analysis.

The world has changed irreversibly for every business in every sector this year, perhaps none more so than in retail. Covid-19 has accelerated trends and pressures that have been building for many years. Online sales have risen at an astonishing rate, with total online spending in May 2020 at $82.bn – up 77% year-on-year (Adobe via Forbes). In grocery, this acceleration has been even more stark. In March, online orders accounted for 7.4% of all grocery sales. By July, this had risen to 13% (Kantar, July 2020 Report).

Growing Pains

For retailers whose primary channel is bricks and mortar stores, Covid-19 has piled on even more pressure. But even for companies whose business model is built around online sales, there are still challenges. Many simply don’t have the flexibility built into their supply chain to cope with exploding demand in the pandemic. Most have turned to in-store inventory and third-party services for picking and delivering, but they are quickly learning that these third-party services do not have the flexibility to meet increased demand, especially during peak ordering times. Manual labour, the other standard solution to spikes in demand, haven’t solve the problem either. Grocery, delivery and retail companies have hired thousands of people to address the peaks brought on by the pandemic, but quickly found that this isn’t enough to manage the surge in orders, nor is it practical given the need to limit social interaction in distribution centres and deep-clean facilities between shifts.

Climate and Congestion

Covid-19 has put a temporary pause on longer-term concerns about urban congestion and pollution, but these problems haven’t gone away. The UN (2019 World Population Prospects) estimated that nearly 70 percent of the world’s population will be urbanised by mid-century, living in cities that already create more than 70% of global greenhouse gas emissions and use two-thirds of the world’s energy. It’s estimated that e-commerce deliveries will result in 36% more delivery vehicles in inner cities by 2030, leading to a 30% increase in urban last-mile delivery emissions and traffic congestion in the top 100 cities globally (World Economic Forum ‘The Future of the Last Mile Ecosystem’). As Covid-19 is brought under control, this will put more pressure on retailers and their partners to streamline and de-carbonise their last mile supply chains.

The Rise of Automation

As retailers navigate the ‘new normal,’ automation is going to be crucial to achieve the flexibility they need to sustain similar future spikes in consumer demand and tackle the long-term challenges of carbon emissions and congestion they will increasingly face over the rest of this decade.

Automation in stores and distribution warehouses provides retailers with the flexibility to identify and adjust for changes in customer traffic and buying patterns, both in-store and online. Micro-fulfilment solutions, for example, enable retailers to take ownership of the speed at which customers receive online orders and maintain the best possible customer experience. They can be implemented close to consumers in footprints as small as 10,000 sq. ft, for example in the back of a retail store or in an urban fulfilment centre, and be configured to allow retailers to react to peak demand quickly by shifting between online and in-store fulfilment. These hyper-local fulfilment centres will make next or same day deliveries affordable for companies of all shapes and sizes, while also significantly cutting the carbon impact of logistics operations in already overcrowded and polluted city centres.

Automation can also minimise Covid-19 risks for employees working on the front lines of fulfilment. Automated guided vehicles (AGVs) can move items around a warehouse without manual intervention, protecting workplace safety and ensuring human-to-human interaction is minimal in the warehouse environment while also achieving significant improvements in shipping speed and accuracy.

Solving the Automation Equation

We believe this current crisis will be the tipping point at which investment in automation technology becomes necessary to tackle these business-critical issues, and Dematic is in a unique position to help retailers navigate the challenges.

It’s a challenge that must be approached holistically. Selecting the right solution for your business and deploying the physical hardware in the most effective way possible is of course important, but it’s just one part of the automation equation. Even more vital is the software that controls this technology. This was one of the reasons that Dematic recently acquired Digital Applications International Limited (DAI), a UK-based software company specialised in logistics automation solutions. Acquiring DAI expanded our warehouse management software (WMS) capabilities to provide tailored insight into market and consumer trends using data captured by our software. WMS data will allow retailers to plan ahead and adapt quickly to the next unanticipated market shift.

Supporting all this will require a longer-term way of thinking to manage and maintain an automated supply chain. These technologies are not ‘fire and forget’ solutions — you need a robust, full-lifecycle plan in place for carrying out predictive and rapid-response maintenance, measuring performance over time, and continually improving the system to ensure the greatest long-term return on investment.

Mission Critical

It’s a complex equation, but one that needs to be solved by retailers as Covid-19 continues to bring new challenges to an already fast-changing industry. We have seen a string of household name businesses falling into administration because their e-commerce operation wasn’t flexible enough to handle recent changes. Order fulfilment and distribution are where retailers are either succeeding or failing — they will need to invest in automation if they are to survive and thrive.

Jason de Kauwe, Strategy and Innovation Director, Northern Europe, Dematic

For more information, visit www.dematic.com