History will look back at 2020 with many observations — not the least of them that COVID-19 ushered in the tipping point for automation technology investment. Companies were already feeling the pressure to accelerate their warehouse and supply chain automation efforts to keep up with growing consumer demands and labor shortages.
Even so, analysts were predicting a gradual implementation (another 30 years before the majority of warehouses would have significant automation within their four walls). But the pandemic has drastically accelerated that timeline, sounding an alarm that the time to act is now.
The Impact of a Global Pandemic
While the warehouse automation market will experience a decline overall in 2020, a full recovery is expected in 2021 and the market is estimated to grow in several industries (Grocery, e-Commerce, Food & Beverage) by at least 2% and as much as 10% between now and 2023.1
In fact, the grocery industry saw unprecedented growth in the first half of 2020, but with a significant shift in buying behaviors towards digital, with estimates showing online orders will account for as much as 10% of total business by the end of 2020.2
It’s too early to fully form a full view on the impact of COVID, but one thing is clear — even the companies with the best supply chains in the world are being tested.
If the pandemic is teaching retailers anything, it’s that they can’t always predict demand.
Exposing Cracks in the Infinite Shelf — the Convergence of Multiple Challenges
In addition to spikes in consumer demand (in-store and online), disruption in the food service industry, and widespread manufacturing challenges, COVID-19 has fundamentally changed the significance of providing employees a hygienic and safe work environment. Before, the emphasis of an “infinite shelf” was primarily on supplying consumers with whatever they want and as quickly as they want it. Now there is a much higher awareness that real people, real shelves, and real processes are required to make that everything/now possible.
Dematic’s recently published Automation Technology Playbook details three related cracks exposed by this new reality:
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Managing Online Delivery Through Third-Party Delivery Services:
As social distancing guidelines forced brick-and-mortar locations to limit hours or shut down completely, online shopping became the central channel for consumers to buy essential products. In fact, from February to March 2020, grocery delivery apps saw a 218% surge in downloads. To deliver the goods, many retailers turned to third-party deliverers, and in-store inventory to fulfill same-day delivery. But these same businesses quickly learned that third-party services did not have the flexibility to meet the increased demand, especially during peak ordering times.
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Relying on Traditional Distribution Strategies:
Traditional fulfillment strategies, like housing large volumes of inventory in one central location, don’t offer the flexibility to fulfill goods quickly. As the pandemic hit, in-store foot traffic and online orders increased, leaving store shelves empty. However, when non-essential retail stores were ordered to close, consumers shifted online to shop. U.S. online sales increased by 49% when compared to the same time period from the previous year. And as we’ve all seen, retailers everywhere weren’t prepared for this. If the pandemic is teaching retailers anything, it’s that they can’t always predict demand. To ensure quick response in the future, retailers need a more flexible distribution model.
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Disruption to Fulfillment Operations:
Retailers have historically relied on manual labor as a temporary solution to address peak demand in fulfillment centers. In fact, during the pandemic, companies hired more workers to address peak online order fulfillment. Take the meat supply chain as an example. Protein processing rely heavily on manual processes. But as employees fell ill to COVID-19, facilities had to close. Looking back, more automation could have ensured that the meat supply chain was not as negatively impacted as it was.
What Happens Next
We are still uncertain about the impact that COVID-19 will ultimately have, but we know this:
- Traditional grocery, retail, and e-commerce fulfillment strategies don’t offer the flexibility to meet unprecedented consumer demand.
- Retailers must future proof their businesses from unexpected disruptions by making strategic investments in automation.
- Not all automation providers are the same.
The reality is that there is real danger in supply chains remaining too rigid to handle unanticipated surges in orders. As retailers face increasing pressure from unpredictable consumer demand, implementing automation can no longer be thought of solely as a cost-saving investment. Retailers need to consider how automation creates flexibility to not only survive but to flourish during future spikes in consumer demand.
It’s too early to fully form a full view on the impact of COVID, but one thing is clear — even the companies with the best supply chains in the world are being tested.
The Role That Dematic Plays
Dematic is truly differentiated by both the solutions we deliver and the services to support them. We consider each project as a partnership, a partnership focused on customer success. So Dematic not only works with our customers to find the right solutions, we also provide the help and expertise to ensure the value of those solutions.
That, in a nutshell, is our role. Of course there's a lot that goes into making that happen, especially in unpredictable times, and the year 2020 has certainly presented us all some unexpected challenges. But with our global workforce of 10,000 employees and a 200-year legacy, I'm confident (and proud) that Dematic will continue to play our role as the go-to partner for automation technology.
1Source: Dematic Market Intelligence and Interact Analysis
2Fabric LTD, “The Impact of COVID-19 on Online Grocery”
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