Jake Heldenberg, Author at Global Trade Magazine

Many U.S.-based retail and e-commerce brands are questioning whether now is the time to modernize their fulfillment operations with new greenfield facilities, or if it makes more sense to enhance existing warehouses with new technology. There is no one-size-fits-all solution.

For U.S. retailers and e-commerce companies operating globally, efficient warehouse and distribution centers are critical. However, deciding how to invest in these facilities is becoming increasingly more complex. Many supply chain and operational leaders rightfully question if they should build new fulfillment facilities or instead “sweat their warehouse assets” by adding automation to existing facilities.

It is a question of mission-critical importance. For many brands, expansion and growth plans require an expanded fulfillment footprint in new international markets, while others – particularly those in low-margin sectors like grocery and food – must embrace more automation in their fulfillment and distribution operations to remain competitive.

A litany of external contributing factors makes it even murkier whether retailers should sweat their warehouse assets. The cost of capital remains high, consumer buying behaviors remain uncertain, and inflationary forces continue to roil markets.

In the face of such realities, companies must carefully consider whether it makes sense to invest in greenfield warehouses or if, alternatively, the best path forward is to improve existing brownfield facilities. There are benefits to both approaches.

The Case for Greenfield Investments

Modern warehouses and distribution centers are highly efficient, enabling exceptional throughput, order accuracy, and storage capacity. Purpose built to utilize the most advanced automation – from Automated Storage & Retrieval Systems (AS/RS) that offer built-in sorting and sequencing capabilities to robotic pickers and automated mobile robots (AMRs), they enable unprecedented performance.

Today’s greenfield facilities also make more effective use of vertical space, a benefit that enables brands to operate warehouses on a much smaller footprint, a key factor in areas where real estate is expensive or in short supply. Most importantly, they also provide significant gains in ergonomics and better enable warehouse employees to avoid injuries, particularly those that stem from highly repetitive work.

Notably, new warehouses also build on evolving economies. With them, retailers can effectively bend the curve between increasing labor rates and the decreasing cost of automation.

The Case for Modernization of Existing Facilities

In contrast, the modernization of existing brownfield facilities requires less capital investment. Importantly, new technologies, among them Automated Case-handling Mobile Robot (ACRs) – while not offering the performance of the most advanced automation – can still significantly impact throughput, storage capacity and other performance metrics.

Timing is also a significant factor. New facilities can take several years to design, build and operationalize. Brownfield facilities can be significantly improved with automation in a matter of months.

Sweat Your Assets or Not?

Such benefits require U.S. companies engaged in global business to weigh a number of considerations when determining if it makes sense to build a new warehouse or distribution center, or alternatively, if they are best served by sweating their warehouse assets. What then should brands do to determine which approach makes the most sense for them?

To set the ideal course, businesses must begin by creating an integrated team that includes warehouse and operational leaders, among them CEOs and CFOs. Important parameters, including growth projections, the lifecycle and status of existing warehouses, and whether the efficiency of existing facilities can be effectively increased with lightweight applications of automation, should be explored.

During this discovery phase, retailers and e-commerce companies must conduct the due diligence required to ensure they make the right long-term decision to address their organization’s unique needs. Importantly, this includes creating a comprehensive business case that analyzes critical factors, including capital expenditures, revenue goals, expansion efforts and other important considerations.

The Foundation for Any Fulfillment Modernization Effort

An effective business case is the foundation for any modernization effort and begins by setting and defining ROI goals. On the most basic level, this includes determining if the cost of automation outweighs the cost of labor. Numerous details, including the number of SKUs that need to be stored and distributed, the throughput speeds required, the amount of storage needed, and how such variables will change in light of growth plans all need to be considered.

Just as importantly, organizations need to consider the timeframe in which these metrics should be measured. For example, if a new greenfield facility is expected to be in operation for two decades, how do cost estimates and gains play out in that timeframe? Alternatively, if improvements to an existing warehouse will enable it to suffice for ten years, the same exercise must be completed for that duration.

Retailers and e-commerce companies should also carefully consider potential “gotchas,” such as how the business case could be impacted by various risks, as well as the opportunity costs involved. Far too many brands invest in the expensive modernization of existing warehouses only to later realize that building a new facility would have offered better savings and bottom-line results with the incremental increase in outlays a new facility requires. For that reason, the business case for a greenfield facility should almost always be created for the sake of comparison, even if it is ultimately determined that a brownfield project makes more sense.

Sweating Your Assets

If it is determined that it makes sense to sweat your warehouse assets, the resulting effort should include not only supply chain leaders and operational leaders, but also warehouse managers who are familiar with existing warehouse workflows and processes. Their participation is instrumental to consider and vet potential and pertinent improvements.

These include the previously mentioned ACRs, which use existing warehouse racks and can be installed and made operational in as little as six months. Conveyors and sorting technology, Automated Mobile Robots, palletizing robots and other forms of innovation are among the other forms of automation that can be implemented to significantly increase throughput and other performance metrics in existing warehouses.

The Path Forward

Fortunately, either approach – building a new warehouse or sweating existing warehouse assets – can help U.S.-based brands intent to excel in global business add far greater flexibility and performance to their fulfillment and store replenishment efforts. Now, more than ever before, retailers and e-commerce companies in every sector, and the employees that comprise them, stand to benefit from innovation and automation

Jake Heldenberg, director of sales engineering, warehousing, North America at Vanderlande, oversees the design of warehouse systems that enable retailers of all kinds to transform their businesses for long-term, scalable success with integrated systems that combine intelligent software, robotics and advanced automation.

2023 TRENDS:

Trend 1: Omnichannel consumers settled into a new normal.

“2023 was a year of resetting expectations as online sales plateaued, or even declined, as consumers gravitated back to the brick-and-mortar stores they missed during the pandemic. The pendulum swung heavily from virtual and online interactions to in-person ones in the retail sector. Across the board though, there was a dramatic increase in people getting out and about. Airlines for example saw sales volumes return to, and in many cases surpass, pre-pandemic levels.

As in all situations where consumer behavior is marked by dramatic and fast shifts, the question on most retailers’ minds was ‘what exactly will the new normal look like?’” At the start of the year, most reflected on what they had learned about consumer shopping behavior and asked themselves how they could predict what e-commerce levels would look like going forward. As the year progressed, there was a growing consensus that we had reached a more normal, balanced state – one where it is clear that most people are omnichannel shoppers.”

Trend 2: Materials handling operations are working smarter than ever.

“The pandemic challenged warehouses to effectively achieve dramatically higher throughput in the midst of a severe shortage of labor, and often without access to the parts and components needed to keep systems in optimal shape. This of course all occurred while running systems harder and faster than ever before. It was a tough learning experience for many.

In 2023, many warehouses built on the hard lessons they learned and in general were more effective not only at embracing new disciplines like predictive maintenance, but also at working smarter. For example, we saw organizations making sure they have necessary components in stock while also trying to lessen the demands placed on their facilities. Many retailers also asked themselves how many days of inventory they need to keep on hand, with many choosing to keep more fast-moving products available and accessible from in-store storage – something that can require the altering of store footprints. Brands also took a hard look at how much inventory they want to keep in their distribution centers and warehouses – a strategic question that should be carefully explored while considering numerous factors, including the potential for shortages.”

Trend 3: The shortage of labor remains the elephant in the room and a catalyst for investments in automation.

“The ongoing shortage of labor was a universal challenge across materials handling operations in 2023. Warehouses and distribution centers of all sizes, and in every geography continued to grapple with how to attract new talent and retain existing employees.

Not surprisingly there was a corresponding trend of increased investment in automation as a labor solution, particularly in areas like item picking that are prone to employee churn. Interest in, and demand for robotic item picking and flexible automated storage and retrieval systems (AS/RS) continued to grow, although the industry did not see the exponential increases in adoption one might expect given the rapid pace of innovation and technological advancement occurring today. In the beginning of the year many organizations instead paused to reflect on consumer shopping behaviors and what e-commerce volume would look like. Today, with the market normalizing, investment in automation is again accelerating.”

Trend 4: Employees at every level are embracing the use of robots.

“Employees, from distribution center executives to employees on the warehouse floor, are embracing robotics. Employees are now seeing how robots can offload the most difficult, repetitive, labor intensive and injury prone tasks. Additionally, as more employees become adept at maintaining and optimizing their use, the costs associated with robotics will continue to decrease. This is encouraging organizations to capitalize on the value robotics delivers while upleveling their employees. As a result, robots are increasingly viewed as another tool, similar to advancements in automation now taken for granted like conveyors and automated storage and retrieval systems.”

2024 PREDICTIONS:

Prediction 1: 2024 will be the year for omnichannel sales and the flexibility and performance they require.

“As we near 2024 and find ourselves in a new normal where the shifts in consumer behavior are not as extreme, retailers are looking at all of the insights they gained on shoppers and fulfillment practices over the past several years. Whereas the slowdown in e-commerce sales prompted many brands to reflect and proceed with caution, the normalization we are seeing now has prompted many to again invest in their materials handling operations. This time with an important caveat: The focus is no longer solely on brick-and-mortar or e-commerce operations. Instead, retailers are looking at omnichannel approaches that inherently make their businesses more flexible and agile. You could say that 2024 will be the year for omnichannel. More brands will invest in retail automation, but the emphasis will be on performance and flexibility across their brick-and-mortar and online operations.”

Prediction 2: Greenfield construction of warehouses will accelerate in 2024.

“Going into 2023 most predicted that the scarcity of warehouse space would be a gating factor for retailers and materials handling operations nationwide. The good news is inventory levels of warehouse space are increasing and we’re seeing greenfield construction in areas where many did not expect it, including populated areas on the West Coast and in the Northeast. Many fulfillment and materials handling operations will continue to ‘build up’ to attain more storage, particularly in urban areas where real estate costs remain high, but the dramatic shortage of warehouse space most expected to constrain the market did not occur.”

Prediction 3: Robotics will achieve mainstream adoption in 2024.

“Next year we will see a dramatic increase in the number of businesses deploying robots in their distribution centers and warehouses, particularly in item picking where gains in vision software and advancements in end effectors now deliver a return on investment most organizations can’t ignore. This is particularly beneficial when there is a shortage of labor for such roles. In 2024 we will also see more robots doing repetitive tasks like case picking and palletizing. Robotics-as-a-Service will also increase, as many warehouses look to deploy robotics either to explore the benefits they offer firsthand, or to address increased throughput needs.”

Prediction 4: Smaller warehouses will begin their robotics journey with automated vehicles.

“We will see increased use of autonomous vehicles in 2024 as more warehouses look at how they can help offload highly repetitive tasks that are not only hard to fill, but all too often are the source of many workplace injuries. For many smaller warehouses, automated vehicles – which can be deployed in many facilities with minimal upgrades – will mark their first major foray into robotics. This will be particularly true in distribution centers where the same products are consistently being moved in the same path.”

Sweating Your Assets in the Quest for Global Success

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