Chain of Thought

Amazon's Competitors Recalculating Automated Order Fulfillment

Warehouse wars are being waged among retailers, according to a headline in Tuesday's Wall Street Journal. The story reports that Macy's plans to convert space in 292 of its 800-plus stores for online order fulfillment. The idea is, if there's a surge in online orders for a specific item, Macy's can avoid losing sales from a stock-out situation by shipping the item from its stores. The problem is with the fulfillment process. It's basically manual, with store employees picking items off shelves and stuffing boxes.

The article states that Macy's is relying on technology that dynamically updates the status of every item in every store, however it also acknowledges that filling orders by hand is inefficient compared with Amazon's use of Kiva robotic technology in its distribution centers.

The day after reading this article I had a phone conversation with Bill Leber, business development manager for Swisslog's warehouse and distribution solutions. I mentioned the article to him, and although he hadn't yet read it, he said that his company had recommended to retailers a similar approach to online order fulfillment from stores a while back, using Swisslog's own high-density automated storage and retrieval systems. He met resistance.

“We told them you can store much more in there, and if you run out of a product, you can go back and get it instantly instead of having to resupply and be out for a few days,” Leber told me. “We heard, ‘No, we don't want to do that, we want to minimize inventory in the back of the store, that's the most expensive place to store products.' They believed if you put too much in a store you're inefficient because you triple-handle it by shipping it to the store, then shipping it back to the DC and having the DC ship it to a different store.”

Since then, with the recent announcement that Amazon was purchasing Kiva and its robotic order retrieval technology, the buzz was that Amazon's competitors might back away from robotic order fulfillment rather than purchase it from Amazon. Swisslog identified this as an opportunity to offer its automated e-commerce fulfillment solution, which incorporates autonomous robots for high speed goods-to-person order fulfillment. Leber says his team has been busy reintroducing its store-level fulfillment concept amidst the retailers' warehouse wars. Part of their strategy was to calculate the cost of manual order fulfillment in internet retail.

“With online shopping the consumer clicks and orders a product, but somebody still does what you did in the old days to fulfill those orders,” Leber continued. “Somebody gets a cart with totes on it, and they go shopping in the warehouse with a pick list. From that we calculated industry's cost last year for the manual pick and pack process. From shelf to shipping dock it was around $6.8 billion, and probably 65% of those costs could be attributed to labor.”

The Amazon/Kiva merger was groundbreaking news when it came out a little while back. Analysts didn't know what to make of that huge $775 million price tag, and many thought it was way over the top for a material handling company. But now that Amazon's competitors are recalculating the case for automation, the retailers' warehouse wars are bound to make more headlines pretty soon.

Related Editorial:

Amazon to Acquire Kiva Systems for $775 Million

Keeping Up with the E-Giants

Tech Companies Have Supply Chain On Their Minds

MH&L's Innovators of 2011 Putting Excellence Within Reach

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