There’s a well-understood inverse relationship between the intensity of developing e-commerce fulfillment centers and the quantity of customer traffic in retail shopping. The increased speed in e-commerce fulfillment and reduced cost of shipping has led to customers replacing shopping trips with the shopping clicks.
Given the number of fulfillment centers I see when I leave Shippensburg University’s campus and drive on Interstate 81, I thought we could quickly study how the automation of the supply chain has contributed and, will continue to contribute, to the fulfillment center boom.
First, automation has allowed faster and more agile flow of goods upstream in the supply chain. E-commerce customers experience this in the form of a wider assortment, better availability and lower cost.
In ocean shipping, automation has allowed a drastic increase in the size of ocean-going vessels, from 3,000 standard shipping containers to 18,000, while simultaneously reducing the size of the crew needed to operate the ship, from 50 to 20. This has reduced the ocean-freight cost and so enabled off-shore production of the low-cost goods commonly found when shopping online.
And things might get cheaper.Rolls Royce has already demonstrated it’s possible to operate a ship with no crew on board. Trucking has remained human controlled, but it could change as several companies, such as Tesla and Volvo, explore autonomous trucks.
Regulations and technical complexity means humans might still be on board as supervisors while routine driving can be handled by computers. That could increase the speed of trucking by reducing the need for stops and cutting the cost by about 8 percent.
Downstream, e-commerce supply chains have been shaped by automation as well. The speed and accuracy of picking, packing and sending the individual orders from the fulfillment center strongly influences the consumers’ move to shopping online.
In the newest centers, robots perform a majority of those tasks. Amazon alone has 45,000 robot staffers, and third-party fulfillment partners such as DHL have also reached the scale where automation provides an attractive price/performance ratio. Sensors and artificial intelligence improve a fulfillment center’s ability to have robots and humans work side by side. That could offer flexibility in dealing with seasonal demand.
The last mile of delivering shipments to consumers is a bottle neck, extending delivery times and typically making up more than half the total delivery cost. Until now, the task has been handled by humans at parcel delivery companies such as UPS, FedEx, USPS and DHL. Automation has mainly been limited to data collection and communication.
But delivery by autonomous flying vehicles (drones) and autonomous ground vehicles (droids) has been attracting interest. In its report “Parcel delivery: The future of last mile,” McKinsey & Co. sets a vision that 80 percent of parcel delivery can be carried out by autonomous vehicles in the future.
Flying drones are currently facing regulations, privacy concerns and several other factors, not to mention gravity. However droids, moving on their own wheels on sidewalks, might become reality in moderately dense residential areas as their size and speed do not pose high safety risks.
So the big picture suggests that supply chain automation in e-commerce has already played a role in driving consumers from brick-and-mortar stores by speeding up and reducing the cost of deliveries. The automation trend still has a lot of promise. We might see things move from next-day shipping to next-hour delivery without ruining the cost structure.
Most likely the current fulfillment-center construction boom will continue, requiring brick-and-mortar stores to take highly innovative steps to remain competitive.
Otso Massala is an associate professor and director of the Charles H. Diller Jr. Center for Entrepreneurial Leadership and Innovation in the John L. Grove College of Business at Shippensburg University in Shippensburg, Pa. Email him at OAMassala@ship.edu.