Published in late 2016, the 2016 Warehouse/Distribution Center Operations Survey brought many interesting results about the recent changes in our industry (read the full report).
1. Average size and number of employees: the first decrease after years of growth
One main finding is the decrease of the average size of warehouses and distribution centers (DC) after three years of steady increase. This change was relatively small (- 5.6% compared to 2015) and the average size in 2016 is still higher than the levels measured from 2012 to 2014.
This correlates with another result from this year’s survey: the reduction of the average number of employees after also three consecutive years of growth. We can see this as an indication of a recent trend about having smaller distribution center close to customers to provide same day delivery. Those DCs must be closer to the urban areas to meet the fast delivery promises. The land price is much higher and operators will therefore favor smaller buildings to keep the costs down. Also, with the rise of transportation costs (tolls, fuel, etc.), logistics companies are looking for avenues to reduce their expenses. Smaller buildings closer to cities are one pertinent approach.
2. Number of SKUs: no clear trend
Looking at the average number of SKUs per warehouse and distribution center since 2012, it is difficult to identify from the survey results a specific trend. We all know that, overall, the number of SKUs should increase for various reasons (e-commerce, mass customization, variety packs, etc.). Similarly, as big players are acquiring smaller competitors, the number of SKUs tends to grow accordingly, even if there might be synergy effects. But, if we look at the survey results from the last 5 years, this trend is not clear. We see that the average number of SKUs reported for the last two years is higher than what was measured in the previous three years, but it is difficult to see a clear movement. We will probably have to wait for the 2017 survey results to draw any serious conclusions.
3. Servicing e-commerce: a significant reduction
Another surprising result is the percentage of DCs servicing e-commerce, which decreased by 12.5% from the 2015 results, after years of progress. This contradicts consistent news about the massive efforts made by numerous organizations to be present in the virtual market place. We see two possible reasons for this reduction. The first is about the logistics of return handling that represents a huge effort for distribution center to manage, including the shipping and mailing costs linked with those returns. A second possibility is a change in the customer behavior, looking for a personal or human touch, talking to an “expert”, to help in choosing the right item. Even Amazon is now opening brick and mortar stores.
4. Technologies and capital expenditures: contradictory results
The survey asked respondents about the type of technology used in their facilities. Again, there are surprising results in 2016. While the number of operations using goods-to-person technologies doubled from 5% in 2015 to 10% in 2016, automated picking technologies continued to decrease for a third consecutive year, going from 11% in 2013 to only 3% in 2016. One possible explanation could be about the technological complexity of those solutions. If the systems are becoming too big and complicated, the productivity might go down because of system availability and downtime. Also, the maintenance cost might increase because of the need of specialized staff. The secret is to find the proper balance between automated, semi-automated and manual operations to keep the risk “under control”. A warehouse could decide to use automation for some SKUs while having semi-automated or manual operation for difficult SKUs (also known as the “uglies”).
The number of DCs using AS/RS is relatively stable since 2013, around 9%. With the various AS/RS technologies available today (unit load, mini load, shuttle systems), our main question is why there is only one tenth of warehouses adopting those technologies?
Let’s conclude with a look about the capital expenditure. If we consider the last five years, we see a clear trend towards an increase in the average capital expenditure, showing that more investments are made by the industry to expand and improve DC operations. The situation is slightly different with the median capital expenditure with a decrease of almost 9% compared to the 2015 level. The 2016 median capital expenditure is even lower that the level reported in 2014. This might show that larger operations are investing more, looking to improve efficiency, which impacts the average, while smaller warehouses are investing less, resulting in the median capital expenditure reduction.
As we can see, smaller distribution centers might be a new paradigm to reduce transportation costs and enable same day delivery. But we know that the number of SKUs is significantly higher today that what it was a few years ago. This is where the storage density gets quite important. Symbotic, with its proprietary technology, offers a valuable solution for this challenge. If you are seeking a new solution to your warehouse, then reach out to us at firstname.lastname@example.org.Tags: Distribution Center Operations Survey, Warehouse / Distribution Center Operations Survey, Warehouse Operations Survey