With logistics often being the largest cost element of an e-com business, it is not surprising that competitive markets are driving growth in outsourcing to third-party logistics providers (3PLs). Pureplay and omnichannel retailers are looking to 3PLs in order to meet consumer demands for fast delivery and easy returns cost-effectively, as well as to provide the know-how and infrastructure to facilitate growth.
Given their logistics expertise, access to technology and manpower, 3PLs should be well placed to capitalise on the growth of e-com and benefit from the economies of scale on offer. However, logistics for e-com is an increasingly complex business and success requires 3PLs to harness warehouse automation to an extent that they are not used to.
This was one of the findings in a recent report produced by OW Robotics in partnership with HikRobot – entitled 'How ready is the UK warehousing industry for the robot revolution?' – which looked not only at the 3PL industry but also the retail & e-commerce, grocery and pharmaceuticals sectors to provide a ‘robotics readiness’ verdict for each.
Robots suit e-com
The report found that robotics is coming of age against a backdrop of Covid-19 and Brexit, being able to meet surges in demand and address ongoing labour shortages, while supporting any required social distancing. Able to pick single items with speed and accuracy, robots are ideal for e-com. While a manual picker could be expected to pick 50 to 100 items per hour, introducing automation to the process can increase this to between 250 and 600 items per hour, depending on the technology deployed.
When it comes to cost, currently the outlay for an autonomous mobile robot (AMR) is around the same as for one full-time picker in a high-cost nation. Of course, robots can operate 24/7 without the risk of illness or injury, so the costs fall in a multi-shift environment.
3PLs have most to gain
However, although automation is becoming more common in the 3PL sector – especially among the tech-led start-ups serving the e-com market – there is still comparatively low adoption, from a low base. The report found that while many 3PLs use a WMS (warehouse management system), as much as 90% of picking is still manual. With labour in short supply and automation able to increase pick rates dramatically, it makes little sense to continue with these largely manual processes.
When it comes to e-com, the wide SKU range and high-touch nature of orders mean that automation is vital to meet customer expectations regarding order cut-off times and delivery. For these reasons, the report found that the 3PL sector has the most to gain from adopting robotics and automation in the warehouse.
Barriers to adoption
One barrier to adoption of automation by 3PLs is the relatively short contracts that they typically have with their customers. Shorter contracts of 2-3 years tend to favour solutions with lower capital investment and/or leased equipment, which are typically more manual in nature and have higher operating costs. Although the return on investment (ROI) of warehouse automation could be as short as 12-18 months – depending on the technology deployed – it could equally exceed the life of a 3PL's client contracts, bringing a level of risk that is tricky to justify in certain financial situations and corporate cultures. ROI will obviously be better in multi-shift applications and 3PLs should factor in all the less obvious savings resulting from automation such as lower recruitment and staff turnover costs, customer retention through higher fulfilment accuracy and the avoidance of penalties for service level failures.
As well as trying to negotiate longer contracts, 3PLs could explore the possibility of sharing capital investment with their clients, with other investors or even with an automation provider. One solution here that is growing in importance is the Robotics as a Service (RaaS) business model, which can offer automation adopters a price-per-pick solution.
3PLs may take comfort from news of trends from 'over the pond' in the findings of the 25th Annual Third-Party Logistics Outsourcing Survey, published in September 2020 by Infosys Consulting, Penn State University and Penske Logistics. The survey found that 92% of 3PL users and 96% of 3PL providers agreed that supply chains are evolving into complex networks. All parties predicted a future for outsourced supply chains in which customers and 3PLs move further away from having a purely transactional relationship and closer towards building a strategic partnership.
To read the full report by OW Robotics and HikRobot, please visit https://pages.owrobotics.co.uk/robotics-readiness
As the UK’s leading authority on automated material handling with over 60 members, AMHSA seeks to accelerate the adoption of world-class intralogistics automation across the UK supply chain. Visit www.amhsa.co.uk, call 07517 610514 or email firstname.lastname@example.org.