Growth predictions for the warehouse automation market

February 04, 2020 by Kirsty Adams
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Growth predictions for the warehouse automation market

Growth predictions for the warehouse automation market make for encouraging reading. Dave Berridge, secretary of the Automated Material Handling Systems Association (AMHSA), looks at the figures.

Several market intelligence reports from commercial research organisations have recently given an optimistic view of growth in the warehouse automation market, which is excellent news for AMHSA members and other automated material handling system and software suppliers.

Interact Analysis, for example, interviewed and surveyed over 40 of the leading warehouse automation system integrators, suppliers and end-users over a six-month period. The research team’s report forecast that the global warehouse automation market will grow at a Compound Annual Growth Rate (CAGR) of 12.6% to reach $46 billion in 2023, although a temporary dip in revenue growth is predicted between 2020 and 2021.



The best growth is expected in the Asia-Pacific region (13.7%), with India’s warehouse automation market forecast to grow at an impressive 14.9%. The dip in the growth rate in the short term is attributed to businesses delaying capex projects in the face of political and economic uncertainty due to factors such as US-China trade tensions and slowing consumer demand in Europe.

Other stand-out figures in the Interact Analysis research include a CAGR of 98.7% for piece-picking warehouse robots – a rise made possible by continuing advances in machine vision, gripping systems and mobile navigation technology – and growth rates of 61.5% for AMR-based goods-to-person systems and 28.5% for ultra-high-density storage systems.

E-COMMERCE DRIVES GROWTH

The Interact Analysis researchers attribute the double-digit growth in the warehouse automation market over the past few years to the rise of e-commerce and omni-channel retail, combined with labour availability issues resulting from record low unemployment levels in Europe and the US.

Consumer expectations of rapid, accurate and cheap delivery for goods ordered online have led many retailers to invest in intralogistics automation to reduce the time required for order processing and to respond to the complex nature of their distribution channels. Labour shortages in the logistics sector – fuelled by Brexit in the UK – have made operations even more difficult, especially in the e-com sector, where demand is more susceptible to huge seasonal peaks that are difficult to predict. The challenge posed by consumer demand for speed at the lowest cost in e-com deliveries will ultimately drive the growth in warehouse automation in the mid- to long-term.

5G IS KEY

Another report by market research firm, LogisticsIQ, predicts that the next-generation supply chain market will be worth over $75 billion by 2030. The ‘next-gen’ supply chain encompasses not only robotics and automation, but technologies such as Artificial Intelligence, Internet of Things, blockchain, Augmented Reality, cloud computing, drones, 3D printing and wearables. Companies are seeking to leverage the IoT in their supply chains through the use of smart sensors and communication devices to enable real-time asset tracking, inventory management and predictive analytics. The rollout of 5G, beginning now, will make this possible by powering high-speed and high-quality mobile networks to cater for the increased number of smart devices in the supply chain.

SERVICE REVENUE TO RISE

The Interact Analysis research points to another reason for system integrators to celebrate the forecast growth in warehouse automation: the resulting growth in (more profitable) service operations. Many warehouse operators are persuaded by the advantages of awarding their system integrator with a service and maintenance contract to ensure maximum system performance and availability. The ongoing and predictable nature of service contracts make them a valuable income stream for system suppliers.

As the number of installed systems increases, so the contract revenues increase. What’s more, the profit margins for maintenance are typically higher, compared to system sales, thereby improving overall profitability. This positive effect is more pronounced in the UK, where service contracts are more common, compared to markets such as Germany and the USA. The growth in e-commerce also has an effect here, as the competitive nature of this market leads online retailers with higher order throughputs to invest more in maintenance in order to minimise the downtime of their systems.

 


Customer experience and managing peaks

What does research into customer experience tell us about how companies should deal with peaks? Dave Berridge, secretary of the Automated Material Handling Systems Association (AMHSA), takes a look at managing peaks. December report from SHD Logistics.

According to recent research from the US, customer experience (CX) is growing in importance in terms of differentiating brands. The report – from the Council of Supply Chain Management Professionals in association with BluJay Solutions and Adelante SCM – surveyed over 400 supply chain professionals across manufacturing, retail and logistics service providers. It found that 61% ‘agreed’ or ‘strongly agreed’ that customer experience will overtake price and product as the leading brand differentiator in the next five years. Only 22% ‘disagreed’ or ‘strongly disagreed’, with the remainder being neutral.

CX driving innovation

In fact, the survey found that delivering an enhanced customer experience was the top factor driving supply chain innovation (receiving 30% of top-factor votes), followed by reducing costs (29%) and creating competitive advantage (20%). In the same survey last year, reducing costs and delivering an enhanced CX tied for top spot with 31% each.

This year’s survey respondents cited real-time visibility as the most important supply chain capability for delivering an enhanced CX. The research also found that the top three barriers to logistics innovation were siloed systems or processes (21%), outdated IT systems (18%) and lack of support from senior management for resources (14%). All this does not mean that cost management no longer matters, but it does mean that cost reduction alone is not sufficient for companies to remain competitive.

Dealing with peaks

What is the significance of this research when it comes to dealing with supply chain peaks such as Black Friday, Singles Day and Christmas? Although Black Friday and Singles Day are relatively new phenomena – beginning in the 1950s and 1990s respectively – they have grown in impact. Sales on Black Friday, which takes place the day after Thanksgiving, are dwarfed by those on Singles Day, which takes place on 11 November (11 March in the UK) and originated in China as a celebration for single people (with the date of 11.11 representing the singletons). Consumers purchased over £34 billion worth of goods and services globally in a 24-hour period for Singles Day in 2018. Neither Singles Day nor Black Friday are as big in the UK as in China and the US but, along with Christmas, they nevertheless present peaks that are problematic for the supply chain. Although a revenue spike is on offer, if companies are unable to fulfil customer expectations, the result can be long-term brand damage.

Planning and automation

How should retailers deal with this risk? Part of the answer is to plan meticulously for peaks. Many companies find that a balance of fully automated and semi-automated processes allows them to scale operations up quickly by adding seasonal labour when required. Achieving next-day delivery in peak periods may require a unified order management system (OMS), to fulfil each order in the most cost-effective way; for example, an order placed in a rural location may be best shipped from a nearby store rather than from the main warehouse.

Delaying delivery

Another part of the solution is for companies to rethink their offer for peak periods. Do consumers really expect next-day delivery during discount events? Recent research suggests that they do not, which could give retailers vital breathing space. PFS, the e-commerce 3PL, surveyed 2000 UK consumers and found that 77% were willing to wait up to five days for delivery.

Research by IMRG, the UK’s online retailer association, backs this up. It found that speed of delivery is decreasing in importance for online shoppers, with only 25% citing slow delivery as a problem in 2019, compared to 35% in 2018. Retailers can also consider offering next-day delivery during peaks but charging for it. Then consumers can decide to pay the premium if speed of delivery is important to them, but retailers benefit from reduced pressure because most orders can be shipped with standard delivery.

 

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