What will the warehouse of 2030 look like? 12 years may not sound like a long time, but with the pace of change being faster than ever before, companies need to start planning now, in order to keep up with ever-increasing market demands.
As people begin to have more disposable income and higher expectations for fast delivery, existing distribution networks may be stretched beyond their capacity to adapt.
E-commerce is a key driver for logistics and warehousing technology as consumers expect rapid responses to order placement. Technology is being driven to pick smaller quantities at an increasing rate.
It’s crucial for the supply chain, logistics and warehousing industries to examine current trends and see how they can best adapt to the changing needs of the market.
Trends in society
The goods that make their way through supply chains ultimately end up with consumers, and consumers not only drive demand, but set expectations for delivery. That makes it valuable to quickly review the macro changes occurring in society as we consider the warehouse of the future. Major trends include:
- Aging population
In the coming years, global demographics will change due to increasing life expectancy, declining fertility rates and rising levels of education. The number of people older than 65 is expected to double in the next 25 years, reaching 13 per cent of the global population. This will impact global productivity, personal savings and the labour force. It will also change consumption and spending behaviour on a global scale, impacting production, logistics, warehousing and retailing.
- Expanding middle class
The global middle class is projected to more than double between 2009 and 2030, rising from less than 2 billion to nearly 5 billion people. The middle class will then account for 60 per cent of the world’s population (ESPAS, 2015, p.19). Formerly poor populations, while still lagging behind developed countries, will have more purchasing power and greater access to information and communication technologies, and enjoy greater mobility (ESPAS, 2015, p.20).
Urban population is expected to pass 6 billion by 2045. In 2015, 54 per cent of the world’s population was living in cities; by 2050, that will reach 66 per cent. It is predicted that by 2030, the world will have 41 mega-cities with 10 million inhabitants or more. These developments will impact where goods are produced and consumed.
- Growth of the sharing economy
Uber, Airbnb and TaskRabbit are examples of the rapid emergence of the sharing economy. According to PwC, the five key sharing sectors — travel, car-sharing, finance, staffing and music/video streaming — have a potential to generate global revenues of $335 billion by 2025 (PwC, 2015). The concept is already being extended to the construction industry and sharing will eventually come to logistics with its heavy assets and infrastructure.
- Globalisation and de-globalisation
Globalisation is the increased movement of goods, capital and workers across national boundaries. Today it is common for companies to develop a product in the United States, manufacture it in China and sell it in Europe or Africa. Some experts also note the value created by the global flow of data and communication, which is often referred to as globalisation 2.0. According to McKinsey, “data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.”
While globalisation continues to advance, a counter-movement is also emerging as nationalism and the desire to source products locally, particularly food, grows. This de-globalisation is already impacting the decisions consumers in some markets are making about the products they purchase.
- Increased connectivity
The increasing connectedness of people and information is creating greater transparency, better information provision, more critical thinking and more creative and dynamic individuals. It is assumed that pressure for greater accountability and transparency at the different levels of governance — and within industry — will increase.
- Changing labour market
With global population growth in developing countries and population aging in developed countries, the demographic landscape is changing at the international level. The projected change in working-age population predicts an explosive workforce growth of nearly 1 billion in the developing countries, mainly driven by high fertility rates. The opposite trend is predicted for the most advanced economies, with a future decline in the working age population (Rand, 2015, p.15). In the short term, this is increasing the value placed on ergonomics and other factors that increase worker satisfaction in developed countries where the labour force is shrinking. In the longer term, China and India may gain importance, whereas Europe may lose traction in global governance and economy (Rand, 2015, p.16).
“It’s crucial for the supply chain, logistics and warehousing industries to examine current trends and see how they can best adapt to the changing needs of the market.”
Trends in logistics
The supply chain is being impacted by a number of trends resulting both from the broader changes in society and advances in technology. These include:
One of the biggest current trends already creating significant disruption in the supply chain is the continued growth in e-commerce. In Europe, the average share of e-commerce in retail was 7 per cent in 2015, 8 per cent in 2016 and projected to reach 8.8 per cent in 2017. Globally, retail e-commerce is expected to increase to 14.6 per cent of total retail, with a market volume of more than $4 trillion (eMarketer, 2016).
E-commerce has continued to experience high growth rates, in part by shrinking the time between order and delivery. Early in its development, consumers often waited a week or more to receive their orders. While this may still be the case in some specialty categories, major e-commerce players now routinely offer two-day delivery on many orders, while next-day and even same-day delivery is increasingly common. This is creating higher expectations among consumers and, as e-commerce expands to new categories such as food, delivery times are continuing to be compressed and e-tailers are exploring multiple options to consistently achieve next day or same day delivery.
- Anticipatory logistics
Anticipatory logistics is a process that foresees which logistic services will be needed in the future and in which region. The area where anticipatory logistics has already developed is anticipatory shipping. This allows online retailers to predict orders before they have occurred, based on previous customer behaviour data. This information is then used to ship or move goods closer to the potential customer to enable faster delivery. In the future, we will see anticipatory logistics extend across the value chain.
- Customer-centric production/batch size of one
In the future, the customer will increasingly become the centre of production. The result will likely be more localised production, as customers do not want to wait for their individualised product. The trend of 3D printing will drive both the individualisation and the localisation of production. The Adidas Speed Factory in Germany, which allows customers to customise their shoes, is an early example of this trend. (Adidas Group 2015).
The impact on warehousing and logistics are significant: these customised shoes never see a warehouse; they are shipped directly from the factory to the customer, reducing the need for warehouse space. However, the logistics required to support individualised production increase.
Even if we are not yet at a point where ‘batch-size-one’ production is feasible for most products, it seems likely that as this trend develops, companies will move production closer to their customers, and focus on next-shoring and near-shoring.
- Omni-channel logistics
Consumers are already using multiple channels for their shopping. They start and end their buying journey at different points and expect lots of information, a certain delivery speed and personalised experiences. This is creating opportunities for retailers to merge the different channels and optimise the whole journey for a customer, rather than optimising each channel separately (DHL Trend Research, 2015).
From the retailers’ perspective, omni-channel logistics can achieve an increase in customer base and loyalty, and also improve profitability. Shoppers using multiple channels for their shopping spend 15-30 per cent more than traditional shoppers.
By 2030, the omni-channel journey of a customer will move further, and the channels might be even more diverse than today. Home delivery is currently the most preferred mode of delivery — nearly 70 per cent of all online shoppers make use of it. Yet around 50 per cent of them have already experimented with buying online and picking up in a store. In a survey by PwC in 2017, 33 per cent of shoppers were open to kerbside pickup, and 28 per cent to pick up at a third-party location. These modes are commonly referred to as ‘click and collect’ and experts assume that these models will grow even more (PwC, 2017). As noted in DHL’s 2015 Trends Report:
“Looking ahead, we expect to see the physical assets of logistics networks being virtualised and managed much more dynamically in line with customer demands. It is also anticipated that there will be more focus.”
- Same-day (or faster) delivery
As noted earlier, e-commerce has continued to grow by shaping and meeting consumer expectations for faster delivery. The next frontier is same-day delivery. According to DHL’s 2017 Trend Research: Sharing Economy Logistics report, “41 per cent of US consumers have used programs offering same-day, expedited, or on-demand delivery services.”
Other studies show that 20 to 25 per cent of consumers would pay significantly more to receive items on the same day. These premiums would be up to 3 Euro, 20 RMB and 3 US dollars for the respective regions. Assuming that the customers would have to pay the full costs for this fast delivery, only around 2 per cent of all customers would be willing to pay more than that. McKinsey experts predict that “same-day and instant delivery will likely reach a combined share of 15 per cent of the market by 2020” (McKinsey, 2016, p. 9).
“Industrial IoT networks will soon become an essential component of efficient warehouse management as they provide the connectivity and data on which the smart warehouse will depend.”
Emerging technologies will play a significant role in shaping the warehouse of the future and supporting faster delivery. The major technology developments on the horizon include:
Leading companies like Amazon and DHL are actively exploring the potential of drones and filing patents for the use of drones in logistics. Amazon has patented an idea for an airship that can launch drones over larger cities. At the same time, many people see issues with thousands of drones flying over a city. These include traffic congestion, noise and an obstructed view of the sky. Energy-wise, flying is the most inefficient means of transportation.
In 2030, drones should play a role in the supply chain, although legislation could delay their application. The greatest potential may be in non-urban areas where drones would allow consumers to get the same high-speed, i.e., 2-hour delivery, as is possible in cities.
In addition, larger drones may play a role in connecting cities and even doing long-haul cargo flights. Inside cities, drones could play a role in ultra-high speed or short-distance deliveries. What percentage of parcel deliveries drones will carry in 2030 is still uncertain, but any future distribution plan should be designed to interact with drones.
- 3D Printing
3D printing will significantly change the way many products get to market. The most common 3D printing application today is small plastic parts. This is still a slow and, therefore, expensive process, but should become radically cheaper and faster as the technology matures. Plus, more advanced machines that can print complex parts of multiple materials, including metal, will emerge. There are even companies creating machines that will enable 3D printed food. By 2030, it is possible that we will see a three-tier approach to the use of 3D printing:
- Some consumers will have cheap, easy-to-use 3D printers that allow them to print small plastic parts based on licensed 3D models they buy online. This would apply to things like replacement parts for home appliances, a plastic case for a mobile phone or toys for children.
- For less tech-savvy consumers, or larger, more complicated parts, there will be ‘print shops’ in cities. Consumers could either send their digital designs to be printed or order a product online and never know it was printed on-demand for them. Ideally these print shops would be integrated into urban distribution centres.
- Complex industrial applications, which use multiple materials including metal, would be supported by sophisticated 3D printers within manufacturing or service centres.
3. Autonomous vehicles
Autonomous guided vehicles (AGV) have been used in warehouses for 30 years. In the next 10 years, the use of AGVs in warehouses will grow exponentially.
There are several drivers behind this trend. First, there is an increasing demand for flexibility in warehousing. Changes in processes, product ranges or distribution channels are all impacting warehouse requirements. Traditional, bolted-down automated conveyor systems are not able to adapt to these changes. AGV provide the required flexibility.
The other driver is the simultaneous decrease in cost and increase in performance of AGV as the core components increasingly support consumer products, such as robotic vacuum cleaners and automated lawnmowers. The economies of scale are much greater for consumer products than for warehouse technology and could drive down the costs of the underlying technologies, such as sensors and navigation systems, used by AGV. A similar impact could result from the technologies used to support self-driving automobiles.
Where early AGV still relied on fixed infrastructures, such as reflectors, floor markings or tags, the technology is available today to allow AGV to navigate with the help of on-board radar and camera systems. Intelligent software and self-learning capabilities interpret the images and instruct the vehicle where to go. This makes the systems plug-and-play and, therefore, easy to deploy and more flexible.
Replacing a large conveying system with flexible AGV could require hundreds or thousands of small AGV operating together. This would have been impossible in the past, but today, and certainly in 2030, the combination of peer-to-peer communication, faster wireless networks and cloud-based processing power enable coordinated operation. As the technology progresses, advances in sensors and electronics will allow AGV to move faster, even when interacting with people.
- Mobile robotics
In this context, a mobile robot is an AGV with a robot on top. This allows the robot to drive through the warehouse to where products are stored and retrieve them. For this to work effectively, these robots need robust navigation, vision systems and multi-functional grippers. A level of artificial intelligence is also required to deal with the near-infinite variety of products, shelf configurations and product placement. All of these supporting technologies are advancing rapidly.
- IoT connectivity
As more sensors are installed in machines and processes, the opportunity exists to connect groups of machines or entire facilities into IoT networks that provide visibility into product movement and enable capabilities such as predictive maintenance. Industrial IoT networks will soon become an essential component of efficient warehouse management as they provide the connectivity and data on which the smart warehouse will depend.
- Big data
Big data programs are already shaping everything from marketing to forecasting. They will also drive key advances in logistics, such as the predictive shipping model discussed earlier and will enable machine learning as the integration of real-time and historical data is what allows machines to continually improve their operation based on past actions.
This article is the first in a two-part series. The next article – to feature in the next edition of MHD magazine – will examine the impacts these trends and technologies have on distribution; what the distribution centre of 2030 will look like; scale, flexibility and the need for automation; and pose a key question of ownership: who will own and operate the distribution centres of the future?
Michiel Veenman is the head of the competence centre, warehouse and distribution solutions at Swisslog. Michiel is responsible for the development of some of Swisslog’s next-generation solutions. Michiel has over 20 years of experience in intralogistics with roles varying from consulting, design and project management to market strategy and innovation. For more information visit www.swisslog.com.