Smart Factory

The Smart Warehouse delivers the powerful competitive edge

If you work in logistics, the chances are you have come across the term “Smart Warehouse”. But what does it mean? And how does it give you a powerful competitive edge?

31 October 2018

Whether we like it or not, the Smart Warehouse is here. It delivers significant advantages through its efficiency, speed, density and scalability. A Smart Warehouse is automated and connected, meaning that it is data-driven. The physical operation is integrated with the digital processes. The purpose is to cut the need for manual handling and increase the speed, quality, flexibility and efficiency of logistics processes.

Simply put, it describes the connection of all processes within a warehouse. Just like Industry 4.0 has been transferred to logistics, the Smart Warehouse is inspired by the "Smart Factory".

All of these concepts have their foundation in the German "Industrie 4.0". This began as a German government initiative launched in 2011 to re-industrialize the western world. The vision is for factories, warehouses and distribution centers to work as automated and self-learning systems.

“Pushing us to develop better solutions”

The speed of growth in the e-commerce sector has pushed new ideas and innovation forward, especially in warehouses and in last mile flows. Globally, Amazon, Alibaba and Zalando are well-known examples and in Sweden Sportamore and Boozt.com.

These e-commerce businesses have questioned traditional methods and pushed us to develop better solutions. Above all, there is a demand for fast processes, single item picking, individualization, handling of seasonal products and extensive return flows.

E-commerce has many challenges with specific demands on logistics. A wide range of products, short product lifecycles, different order sizes, demand variations, short lead times, fast deliveries and a large amount of returns make the warehouse a business-critical function. As a result, inventory investments are not primarily driven by cost rationalization, but as an effort to meet customers´ requirements and to create value.

A clear trend is the increasing access to data and the desire to get value from “Big Data”. The data that can be generated using sensors, the internet and process capabilities in the cloud, combined with artificial intelligence, is a potential gold mine. But it is important to process this data for decision-making.

 

The future of warehousing

There are many trends in developing the warehouses of the future. For Swisslog, the clearest trends are continued automation with compact, energy efficient and data-driven warehouse solutions.

For e-commerce it is particularly clear that there are fast, efficient, compact and scalable systems that apply. It goes without saying that the solutions should be computer-driven and supported by smart software. For us, it is important to be ready to meet the demands of e-commerce in the best possible way, both with advanced automation and the IT solutions needed.

 

Robots and new business models

Another megatrend is robotization, where several technological advancements have made it possible to use warehouse robots that collaborate with people – “collaborative robotics”. There is also an intensive development of robots that can handle single item picks. A big focus right now is to develop the robot’s 'grippers' so that they can work more like people. But investing in the Smart Warehouse comes with a price. New business models and financing solutions are now being launched to make automation an option for even more companies.

For a long time, there has been an economic barrier to invest in automation and advanced robotics. With the emergence of e-commerce, this has changed and new business and financing models are being developed. One example is the possibility to hire automation capacity and pay for your own use, known as distributed robotics. The concept means that you can scale capacity up and down whenever needed.

 

Sharing economy

There is a very exciting development going on right now. The 3PL-industry and property owners now invest heavily in automation simply because they need to do it to keep their customers. The equipment thus becomes part of the logistics property. Several companies can then find and share the capacity.

The financial market also shows an increasing interest in financing smart warehouses. There are various models for this. A common model is that the finance company owns the automation solution and leases it to the user and pays for the use. For example, pay per pick, pay per pallet or for the time the equipment is available and used.

A high degree of automation is often necessary if an e-retailer wants to achieve the speed and efficiency that consumers demand. Another factor behind the increasing automation is the increasing lack of labor. For example, if you visit Eskilstuna (a middle-size city west of Stockholm), e-shops pop up like mushrooms. But it's difficult to get people to the facilities.

This is true not only in Sweden but everywhere in the western world. Recently in Hungary, a company had to automate because they could not find people, even though the investment wasn’t economically possible.

 

The Smart Warehouse

A “Smart Warehouse” is like a “Smart Factory”. It’s an enterprise that automates workflows using the Internet, IT-systems and sensor technology. The supporting vision for Industry 4.0 is that all "machines" in a value chain are linked and share vital information based on common standards. The human involvement in the process is almost zero. It is more about monitoring and supporting the automation.

Today's ability to digitize supply flows down to the item-level creates the possibility of having total control over each item, order and its position in the warehouse. With the help of “Big Data” and self-learning algorithms, the automated system can also be optimized based on past experiences and other external factors.

Stefan Karlöf

Stefan Karlöf is a renowned expert, consultant and regular commentator on supply chain management, e-commerce, and logistics. He is a frequent moderator at business conferences and forum, and he has been widely published. Karlöf is also the editor-in-chief of the Supply Chain Effect, the most influential business magazine within supply chain management in Scandinavia.

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