Supply Chain Bottlenecks and the journey from manual warehouses to fully autonomous supply chains
Two years ago, if you wanted to move abroad, it was easier and much cheaper than the same move would be today. Packing your household in a container and shipping it to your new home cost around USD 2,000, assuming one container was enough for one household. If you want to do that today, whilst the biggest challenge might be finding a free container and a place on a ship, the price has also multiplied. The spot price for a container from Asia to the U.S. was over USD 20,000 last year, up from less than USD 2,000 a few years ago.
Of course, this tight situation not only impacts a potential relocation project, but all elements of the supply chain and even our daily lives. Whether it's that you ordered a refrigerator that can't be delivered until two months later or that your favourite compact powder wasn't restocked. With certain parts arriving late or not at all, this inevitably has an impact on manufacturing processes.
Prior to this, over the last few years, a lot of manufacturers moved to a ‘just in time’ production model, especially in the automotive industry where this concept was widely adapted. A ‘just in time’ method aims to control stock in the most efficient way, with an ultimate goal to maintain Zero inventory, which means that materials are only ordered and received as they are needed in the production process. With this very short term oriented process, production relies heavily on functioning supply chains. Therefore many companies are adjusting its ‘just-in-time’ strategies.
With the additional problems of increased freight rates and limited space causing higher prices and ultimately mean higher input and production costs, the obvious solution is to stockpile enough goods. However, warehouses at fashion companies, the food and beverage industry and manufacturers are already full to the brim and have reached their limit over the past few months.
A rethinking is taking place. The trend is clearly toward buffering or building up reserve storage, which means that more warehouses have to be built. Some trends that were important in the pandemic year are likely to continue. For example, online shopping is predicted to see fast growth, and consumer behaviour may change more rapidly than expected. Especially during peak shipping season, the need to have enough storage, capacity demand across all modes of transportation is accelerating and with that also logistics solutions. This will clearly drive many to rethink their inventory strategy. However, interestingly enough, building more warehouses, creates a new type of bottleneck, one that relates not so much to the availability of space as that of labour. In the U.S. in particular, the situation has worsened because of the difficulty finding workers who can move things in and out of warehouses.
The labour shortage is hampering many industries and is even more pronounced in supply chain warehousing. This is why automation and new warehousing solutions are currently a big talking point. Wage inflation is being felt not just in the U.S., but around the world. Today, only 10-20% of warehouses worldwide are fully automated. This means that the opportunities for increasing automation are immense. The journey is moving from manual warehouses to the future of fully autonomous supply chains. Automation systems, state-of-the-art hardware and robots will be the building blocks for these future systems.
Companies see logistics more and more as a value driver of their business, due to the ability to handle clients’ demand in a fast and efficient way. Late deliveries mean not only customer dissatisfaction but also sometimes even penalty payments. Increased demand for warehousing is therefore driven by digitalization, which has strongly accelerated during the pandemic crisis. Digitalisation influences the way we shop, or the way a purchase manager is ordering for a factory; it is true for small businesses and large corporations alike. The introduction of new e-commerce channels requires changes in the supply chain. This in combination with scarce labour, higher wages, and more expensive means of transportation leads to structural demand for increased automation in existing inventories or new inventories.
In Switzerland, two major companies are affected by this global trend: Kardex, a systems integrator that builds and plans warehouses, and Interroll, an intralogistics product and solutions provider based in Ticino. Interroll has just published its orders and sales figures for 2021 and reported an order intake in the second half of the year that exceeded expectations. Demand was broad-based, but a clear driver was not only strong demand from e-commerce, but also from courier services and manufacturers. Customers are OEMs and system integrators to whom Interroll supplies products and services such as rollers, drives, conveyors and sorters as well as flow storage systems. Kardex is another player in this field. Among other things, Kardex is a system partner of Interroll and supplies automatic storage and transport systems. Like Interroll, it is listed on the SIX Swiss stock exchange.
The need for alternative sourcing and warehousing solutions and the shift from manual to automated manufacturing and distribution centres is a structural change and investments into this area will be strong going forward. And with e-commerce continuing to grow by around 10% per annum and showing no signs of slowing down, the pressure is on.