Undeniably it will be warehouse automation that defines not only the future landscape for big warehousing but also the winners and losers in the struggle to win online shoppers, particularly in the grocery sector. The driving force is the meteoric rise in online shopping and the seismic changes taking place among the big delivery players like Amazon and Ocado, remorselessly eating away at traditional retailer set-ups. Britain is leading the way in this, where more than 7% of grocery sales are online, about four times the share in America.
Curiously, however, in Ocado’s case it did not find its automation solution among the many, large warehouse automation specialists, although not for the want of trying, and such is Ocado’s in-house developed solution that it now sees itself as a technology provider for large, overseas supermarkets more than an online grocery deliverer. Tim Steiner, CEO of Ocado Group, said: “The infrastructure, technology and software we needed did not exist and so we created it.”
In a southern England warehouse the fruit of such investment is on display handling over 65,000 orders a week. It uses air traffic control and AI to coordinate 700 factory robots resembling a cross between R2-D2 and a dorm fridge, as they zip across a grid of thousands of crates filled with groceries to pluck the food for delivery to banks of workers who pick the items into red plastic boxes for customer deliveries. The robots travel at up to 35 miles a day on an area the size of three football pitches, known as the hive.
Currently Ocado is building its biggest customer fulfilment centre just west of London which will have 2,500 swarming robots processing 200,000 orders a week. Ocado has become such a successful disrupter it is now emerging as the main online groceries challenger to Amazon, especially in the light of Ocado’s recent deal with America’s supermarket giant, Kroger Co, to build and operate up to 20 distribution hubs to take on Amazon and Walmart.
Until now it seems that supermarket executives felt cocooned from technology disrupters in the grocery business because Amazon had made no impact on groceries, so they sat back thinking food is different. But then came Amazon’s $13.7 billion purchase of Whole Foods Market last year. Ocado’s Steiner believes people have realized that online is not going to be 1, 2 or 3% of their market but rather 10, 20, 30 or maybe even 60%.
Such take-up of full automation, where the warehouse is entirely run by robots, is unlikely to appeal to most mid-sized manufacturers and retailers, partly on cost grounds, but many will need to consider a half-way house approach. This is because, according to industry experts, warehousing and logistics is one of the sectors tipped to see more levels of automation and AI adoption over the next decade. McKinsey predicts that about 57% of existing warehousing and logistics functions will be automated, with a variety of robots.
In reaching this half way house, operational managers will have to change their skills to do their jobs, meaning a switch away from people management to much more analytical and data-focussed functions to make strategic improvements to the supply chain. Sticking heads in sand, hoping the brave new world will go away, is not a survival option.
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