COVER STORY

Fulfi llment Centers Transformed

Traditional model evolving with robots, delivery hubs and automated systems

By Dan Berthiaume

Robots, customer-centric delivery hubs and automated systems are transforming the traditional retail fulfillment center model.

The fulfillment center is not typically an area of the retail enterprise that is viewed as a center of innovation. Much attention has been paid to the “store of the future,” but retailers are also rapidly adopting technologies that are re-inventing the staid operations of the fulfillment center.

Of course, the fulfillment center does not operate in a vacuum. Larger retail trends, already evolving for several years but magnified in the past 12 months due to the impact of COVID-19, filter down to the fulfillment center. These include consumers’ move toward e-commerce (see sidebar), as well as a migration toward offering a more personalized, segmented customer experience.

“We are not post-COVID-19, we are in a new beginning of the supply chain,” Matthew Lekstutis, global practice leader, supply chain transformation, Tata Consultancy Services (TCS) told Chain Store Age. “The pandemic has accelerated a series of dynamics that were already underway and consolidated and amplified them.

“COVID-19 accelerated the industry’s motion toward a personalized experience, with retailers and CPG companies offering an end-to-end supply chain,” continued Lekstutis. “The new supply chain is focused on availability, deliverability, accessibility, and sustainability and ethics. It is purpose-driven, with a heightened sensitivity to safety.”

The “fulfillment center of the future” that retailers are creating to serve the new supply chain as described by Lekstutis is still taking shape. However, three early trends are already having a major impact on how retailers run their warehouses: robots, customer-centric delivery hubs, and automated systems.

ROBOTS

Faced with an unprecedented surge in online orders and significant workforce disruption caused by the COVID-19 pandemic, an increasing number of retailers

have been relying more on robots to perform repetitive, monotonous and lower-skill tasks for e-commerce fulfillment.

Specialty apparel retailers Gap Inc. and American Eagle Outfitters have been scaling their picking and packing operations for online orders with the Sort smart robotic solution from Kindred, which was purchased by U.K. online grocer Ocado Group in late last year. Gap is operating more than 100 of the piece-picking Sort Robots in its U.S. distribution centers. The retailer expanded its fleet in June 2020.

Between Jan. 1 and April 30, 2020, the Kindred piece-picking robots completed more than 13 million unique picks of Gap merchandise. During that time frame, the robots facilitated an average sorting speed of 335 units per hour and maintained uptime at 99.8%. Rather than standing side-by-side with co-workers to conduct pick and place operations, one employee can manage three to four Sort robots simultaneously, helping them to keep up with e-commerce fulfillment while maintaining social distancing.

American Eagle Outfitters, which began using Kindred Sort robots at select facilities in 2018, added new units in its primary U.S. distribution centers in August 2020. Sort piece-picking robots utilize AutoGrasp, a robotics intelligence platform that identifies and singulates items to pick and place into an automated put wall.

AutoGrasp combines vision, grasping and manipulation algorithms to move clothing, poly bags and other small items. Kindred uses artificial intelligence (AI) research and human-in-the-loop data methodology to continuously improve robot capabilities so that picking becomes smarter, faster and more accurate over time.

Meanwhile, global grocery conglomerate Ahold Delhaize is piloting a robotic solution for disinfecting air and surfaces in two of its U.S. supply chain facilities.

Retail Business Services (RBS), the services company of Ahold Delhaize USA, is testing newly launched ultraviolet robots from Ava Robotics in two of its affiliated distribution centers to support enhanced cleaning procedures during the COVID-19 pandemic. The fully autonomous robots feature applications that disinfect both air and surfaces, with integration of screens and speakers for disinfection-related announcements.

The robots also provide remote access for facilities managers or other users, and automatically send email reports to managers that confirm appropriate dosages for assigned areas. RBS can integrate the robots with its cleaning best practices and existing protocols. According to Ava Robotics, the solution offers a disinfection rate of approximately 9,000 sq. ft. per hour, with 99% effectiveness against COVID-19.

DHL Supply Chain, the supply chain subsidiary of global logistics company Deutsche Post DHL Group, is collaborating with Microsoft and enterprise systems provider Blue Yonder to roll out a “plug and play” robotics solution designed to ease the integration of automation into more than 2,000 warehouses. The solution leverages Microsoft Azure IoT and cloud platform services, and is powered by Blue Yonder’s Luminate digital fulfillment platform, which provides machinelearning (ML)-driven task management capabilities for warehouse operations.

The robotics platform is designed to reduce integration time and programming efforts to on-board new automation devices into warehouse facilities, while giving DHL sites more flexibility in selecting robotics systems suited to their individual business needs.

CUSTOMER-CENTRIC SUPPLY CHAIN HUBS

It’s no secret that retail is becoming a more customer-centric industry. Retailers are promising shoppers the products they want, when and where they want them. To fulfill that promise, retailers are creating highly specialized supply chain hubs designed to meet the needs of specific customer segments.

In time for the 2020 holiday season, Walmart created “pop-up e-commerce distribution centers” to fulfill home delivery orders. The retail behemoth took space in 42 of its existing regional distribution centers (RDCs) across the U.S. and created pop-up e-commerce distribution centers, or eDCs, to meet its growing demand for delivery of online orders directly to customers. Walmart expected to ship up to 30% of its holiday volume from these pop-up

ONGOING FULFILLMENT CHALLENGES

Major fulfillment challenges are continuing for retailers amid the sharp growth in e-commerce as a result of the COVID-19 pandemic, according to new research from enterprise technology provider Blue Yonder and conducted by Researchscape International.

The survey revealed the following:

• E-commerce revenue as a percentage of total revenue increased by 33% from before initial COVID-19 lockdowns began in March 2020.

• 27% of retailers have added fulfillment centers to meet the e-commerce shift, and half operate centers dedicated to e-commerce order fulfillment.

• Roughly seven in 10 (71%) retailers have expanded their logistics network to meet increased e-commerce demand and close to half (46%) said they need to be closer to the consumer to reduce cost to fulfill and enable delivery speed and convenience.

• 15% of retailers have leveraged micro-fulfillment centers in their logistics network.

• 14% of retailers currently operate automated fulfillment locations, including nearly half (49%) which obtain all their revenue from e-commerce.

• Four in 10 (41%) drug store/ health & beauty retailers and 40% of grocery retailers have increased their number of fulfillment centers to meet e-commerce needs and maintain a consistent customer and brand experience, more than any other verticals.

eDCs. A multi channel sourcing engine (MCSE) scanned the entirety of the company’s fulfillment network in less than a second and assigned orders to eDCs when it determined they offered the fastest and most efficient option to fulfill an online order.

After the holiday, Walmart’s eDCs will have the flexibility to scale up and down, and the company says it will apply lessons learned to further evolve the supply chain network in the future.

By early 2022, home improvement giant Lowe’s plans to have opened 50 cross-dock delivery terminals, seven bulk distribution centers and four e-commerce fulfillment centers across the U.S.

“It’s all about our customers,” Don Frieson, Lowe’s executive VP of supply chain, told Chain Store Age. “We have an opportunity in the omnichannel environment to serve customers the way they want to be served.”

Lowe’s opened a West Coast e-commerce fulfillment center in Mira Loma, Calif., in October 2020, with the goal of offering faster direct-to-consumer shipping options. This direct fulfillment center is designed to improve two-day delivery options to reach nearly 100% of customers nationwide.

“We want to offer flexible delivery options, especially for bulky and highly deliverable items like washers, dryers, grills and patio furniture, whether in store or online,” said Frieson. “To deliver from stores, we want to take the capacity out of the store. This increases sales by allowing store associates to focus on the customer instead of whether they can deliver the product.”

Frieson said that by removing the need to deliver inventory to stores and instead delivering from the warehouse to a cross-dock facility to a fulfillment center, Lowe’s can remove two steps from the process and make delivery much more efficient.

“In many cases, if the customer comes in the store and makes a purchase by 4 p.m., we can make the delivery the next day,” he stated.

Another home improvement giant, Home Depot, is opening three Atlanta-area facilities to better fulfill purchases from certain areas and for targeted products and customers. The largest of these new facilities, a 657,600-sq.-ft. distribution center focusing on fast replenishment to stores in the Southeast, opened in December 2020.

A new “flatbed delivery center,” set to open in Stonecrest, Ga., in 2021, will offer same-day and next-day delivery of bulk and oversized orders to both Pro and DIY customers. The third will be an order fulfillment operation that will open in late 2021 and offer same-day and next day delivery of the most popular products primarily ordered by institutional business customers for their maintenance, repair and operations needs.

Specialty apparel retailers Gap Inc. and American Eagle Outfi tters have been scaling their picking and packing operations for online orders with the Sort smart robotic solution from Kindred.

AUTOMATED SYSTEMS

One of the hottest current trends in automated retail fulfillment technology is micro-fulfillment. Primarily found in the grocery and CPG verticals, micro-fulfillment uses small-scale warehouse facilities located in urban areas to operate same- or next-day delivery order fulfilment.

“Micro-fulfillment centers allow for highdensity product storage and use shuttle systems or other forms of material handling automation to put away and retrieve products for consumer orders at high speed,” Tom Enright, VP and analyst with Gartner, told Chain Store Age. “The model is a goods-to-person style of automation and robotics, where the human stays in one place and automation delivers the goods to be picked to them.”

Retailers including Walmart, Albertsons, Loblaw, H-E-B, FreshDirect and goPuff are all utilizing micro-fulfillment technology.

“This model can significantly increase picking productivity when compared to traditional, manual, in-store picking,” said Enright. “Micro-fulfillment centers challenge the notion of ‘bigger is better’ by providing smaller footprints, automation and/or robotics enablement and fulfillmentas-a-service distribution points that are specifically designed to cost-effectively enable on-demand fulfillment.”

Grocery giant Kroger is collaborating with U.K. online grocery retailer Ocado Group (cited as new parent company of Kindred in “Robots” section) to deploy a whole new leading-edge automated supply chain technology model in fulfillment centers and across its physical stores.

Calling this new model the “customer fulfillment center (CFC),” Kroger and Ocado are incorporating state-of-the-art automation and artificial intelligence to help accelerate Kroger’s ability to provide customers with “anything, anytime, anywhere” through its seamless ecosystem. The program coincides with Kroger’s Restock program, which focuses on the company’s accelerated commitment to digital and e-commerce efforts.

Ultimately, Kroger intends to use the CFC model to expand the availability of its products to a larger footprint. Kroger plans to open the country’s first two CFC facilities in Monroe, Ohio, a suburb of Cincinnati, and Groveland, Fla., in early 2021. Kroger and Ocado plan to open a total of at least 20 CFC sites.

Kroger will also collaborate with Ocado on in-store fulfilment (ISF) capabilities, with a planned rollout across its stores beginning this year. Ocado’s in-store fulfilment solution includes proprietary software that supports associates’ efforts to assemble orders and makes it easier and more efficient for them to find products when fulfilling customer pickup orders. The grocer intends ISF to help support the rapid growth of pickup demand across its stores nationwide.