Chain of Thought

Material Handling Keeps IT Honest

Feeling the effects of the “Sequester” yet? Me either. And according to economic indicators, neither is the consumer. It looks like they’ll be using their Smartphones and their Twitter and Facebook accounts to continue consuming well into 2013. As retailers gear up to satisfy new streams of demand from these channels, logistics software vendors have a big opportunity to capitalize on this trend, according to a new “Retail SourceIT Report” from Technology Business Research. TBR says large North American retailers plan to increase information technology (IT) spending by 5% to more than $30 billion this year. They’ll be investing in mobile point of sale, customer analytics and more agile supply chain and logistics software systems to capture this renewed, but evolving, consumer spending.

One CFO responding to TBR’s survey said “Investments in e-commerce, mobile solutions and analytics will help us better support our customer needs and create business opportunity.” Nowhere in this report did I see anything about a parallel investment in the material handling systems that will fulfill the customer’s desire through “the last mile.”  So I called Stuart Williams, director of TBR’s software and cloud practice to get a more holistic view of this hopeful picture his company painted.

I told him there seems to be a disconnect somewhere in the organizational hierarchies of these retailers. From his report it looks like they’re heavily invested at the IT level, so could they unwittingly be implementing a chink in their supply chains if they don’t invest as much of their time and talent in upgrading their material handling infrastructure, i.e., conveyors, smart forklifts, robotics, etc? I mentioned to him that according to MH&L’s own research, many readers report that their budgets will only allow them to maintain what they have rather than make any investments in new technology. He agreed. In fact he heard of a similar approach to the fulfillment end of logistics in his research. Managers at this level are given mixed marching orders from on high, he said: “Give us improvements, but contain the costs.”

“The mandate is, 'deliver me innovation,' but their other two mandates are cost reduction and efficiency,” Williams added. “[To them,] what’s more efficient than making do with what you already have? Upgrade it, put a band-aid on it and keep it running so they can put those dollars toward the areas where they can make some bigger bets.”

Amazon made a pretty big bet recently—pouring almost $800 million into acquiring Kiva Systems, the makers of those now-famous robotic order pickers. Amazon is also focusing on offering same-day delivery to consumers, so they’re investing in logistics systems down to the last mile. Williams said that one of the findings from his research is that many smaller retailers want to leverage Amazon’s capabilities to do fulfillment and delivery rather than invest in their own systems.

This is where material handling system vendors need to step up their game, he added.  

“If you’re selling those systems, if you can deliver on that promise [to help meet consumer demand] I think you have a great selling point,” he said. “You can’t just rely on the software and the computers and smart algorithms, eventually somebody has to hand something to the customer. That’s where the fulfillment people have an opportunity to step up and show their role in the changing nature of retail.”

It’s great that retailers are pumping money into predictive analytics to tell them if they can get product shipped to a customer within 18 hours. But if they don’t have the physical material handling infrastructure to keep those upper level systems from turning into liars, those retailers are less likely to see returns on their investment—or returning customers, either.

 

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