Chain of Thought

E-Commerce Will Close Technology's Generation Gap by 2020

Gen Y is keeping the Baby Boomer generation on its toes—both at home and at work. But it's in the supply chain where those generations are acting as generators of commerce. Only by synchronizing their respective powers of consumer technology adoption and logistics system integration can the promise of the 2020 Value Chain come true.

John Phillips, senior vice president of customer supply chain and logistics at Pepsico, outlined the retail industry's vision of “The 2020 Future Value Chain” during an interactive two-hour session at Dematic's “Supply Chain Advantage” conference held in Park City, Utah this week. This vision is the result of a study based on input from more than 200 senior retail and CPG manufacturers from around the world. These participants helped identify the global strategic objectives on which they as an industry should focus. The objectives identified were:

• Make Our Business More Sustainable

• Optimize a Shared Supply Chain

• Engage with Technology-Enabled Consumers

• Serve the Health and Wellbeing of Consumers

Phillips outlined the trends linked to these objectives, including scarcity of natural resources and increased regulatory pressure which he said will be direct change drivers for the industry's supply chain in the coming decade. He also demonstrated how the rapid adoption of consumer technology (particularly smart phones) and the increase in consumer demand for customized service will require retailers and their technology providers to rethink the way they engage with technology-enabled consumers.

These consumers initiated 5.3 million scans from their devices in the second quarter of this year. Printed newspaper circulars will be replaced by consumers scanning product codes at home, in stores and on street corners to find out how items are priced at competing stores. They will then order them on the spot and those stores will deliver those products to the consumer. Indeed, retailers will change into distributors, Phillips predicted.

The question is, are the enablers of distribution—the material handling and logistics technology providers of the world—ready to make this prediction a reality by 2020?

I asked the host of this event, Dematic's president and CEO, John Baysore.

“We've been doing a lot of work in split case anyway with customers who were splitting for more aisle friendly totes—at Walgreens for example,” he answered. “So we're well positioned for e-commerce.”

How Dematic is planning its R&D dollars for the future Phillips outlined is a good indicator of the kind of technical talent required to bring it about. Baysore said Dematic is holding its spending on the hardware and increasing it on the software side.

“More than half of our customers are looking at e-commerce or a multi channel solution related to e-commerce,” he added. “That's why we've put extensive effort into recruiting and training talent. You're not going to find people with five years experience so we decided to grow our own. We've had major campaigns with universities and colleges. We're using all of our field offices as recruiting tools.”

Dematic has grown $300 million organically over the last few years, according to Baysore—more than 30% per year in 2010 and 2011. But this year, he said, Dematic is tempering its growth to build its resources. “We're being more choosey about what we go after,” he said.

He's optimistic that his competitors are also beefing up for that vision of 2020.

“This is America, and it's fueled by ingenuity,” he continued. “We'll respond to the market. There are capable companies among all of our competitors and collectively we can support whatever happens.”

Baysore is even optimistic about Europe's prospects, particularly in the material handling and logistics sector, if not in e-commerce.

“I don't see a huge boom in e-commerce over there as we have here,” he said. “And Europe struggles with talent even more than we do, so if anything we're shipping talent over there. We in America are 56% of our overall company so we're the anchor, and the rest is split between Europe, Asia Pacific, China and Australia.”

What does that mean for traditional material handling technology like conveyors and sortation systems?

“We're helping customers transition from traditional mechanized solutions to integrated systems, mixing four or five technologies, including Multishuttle. A company that might have had 12 miles of conveyor and big crossbelt shoe sorters now all of a sudden wants to add four aisles of Multishuttle to do some sequencing. That becomes an integrated system. So our traditional convey and sort business growth will be relatively flat for the next five years and our integrated systems business will go cataclysmic.”

What will that mean for the labor situation in warehousing and distribution? Baysore said customers are facing 30% or more staff turnover in their logistics operations while their fulfillment profile is going to eaches, which by its nature is more labor intensive than what they've been staffing for.

For Baysore and his colleagues in the material handling automation industry, that's job security.

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