Two broad findings stand out from the results of our “Annual Warehouse and Distribution Center (DC) Equipment Survey.” First, spending generally is up, quite noticeably in categories including information system (IS) solutions; and second, pressures associated with e-commerce fulfillment are being felt—with respondents expecting those pressures to rise.
Peerless Research Group’s (PRG) annual survey, conducted in early January of this year, found that 35% of respondents were proceeding with investments given the state of the economy, up from a 21% response to the same question in early 2016. The percentage of respondents who said they were “holding off” on investments also fell—from 21% in 2016, to 16% this year.
The more robust outlook also can be seen in the 54% of respondents who expect to be spending more on materials handling systems and related technology over the next two years—an increase from 41% last year.
It’s likely tied to the unrelenting growth in e-commerce and the fulfillment pressures that exert on operations. For example, just as the survey was being closed out in January, Amazon announced its plan to add 100,000 fulfillment jobs over the next 18 months. Around the same time, the U.S. Commerce Dept. released data on December 2016 retail sales that showed purchases at department stores fell by more than 7% compared to the previous December. That same report also noted that sales by non-store retailers, which include Internet and catalog purchases, grew by 10.4%.
With e-commerce marching on, it may be that companies operating supply chains simply can’t afford to fall out of step by failing to invest in new systems, especially in technologies and solutions that help with e-commerce fulfillment.
“Many of the retail industry DCs weren’t designed to deal with e-commerce-size orders, so you just can’t get those orders out of the building very effectively without investing in new material handling equipment of some kind, or in information technology systems,” says Norm Saenz, managing director of St. Onge Company, a supply chain engineering and logistics consulting firm.
The survey shows investment levels grew significantly in some areas and held steady in several others, observes Judd Aschenbrand, director of research of Peerless Media’s PRG. He points to the survey finding that 39% of respondents say company spending on materials handling solutions increased the past year, up from 32% for this question the previous year. And when asked how they expect 2017 spending on materials handling to compare to 2016 spending, 40% expect an increase—up from 32% last year.
“Clearly across multiple findings in the survey, we see more companies moving forward with their investments,” says Aschenbrand. “There are multiple data points in the survey that indicate more investment in systems, whether it’s because of overall confidence in the economy, or the need adjust to operational pressures by making upgrades or investments in new systems.”
Spending plans on technology IS solutions, which include software such as warehouse management systems (WMS) and enterprise resource planning (ERP), saw a significant increase among companies who said they are proceeding with investments. While these companies are also spending slightly more on materials handling equipment (up 1%), their spending plans for IS systems jumped from 49% last year to 58% this year. That is easily the highest spending indicator for IS systems on this question over the last four years.
“To see that kind of bump up in technology information systems plans is an important trend line that bears watching,” says Aschenbrand.
Other categories that saw an uptick among those proceeding with investments include lift trucks (up by 6%); conveyor and sortation (up 8%); and robotics, up to 26% from 9% in the 2016 survey. A different question in the survey found the use of robotics in the market to be at a lower percentage, but it may be that while robotics is still an emerging category overall, for those who are proceeding with investments, the percentage is more robust because they may already have had some success with robotics.
Respondents are also more bullish on future spending. When asked how do you expect your spending to change over the next two to three years, 54% said it would increase, up from 41% the previous year. Only 38% say their spending will remain about the same, down 10% from last year.
When asked how much they expect to spend in total over the next 12 months on materials handling and IS solutions, 14% plan to spend $1 million or more, and another 8% said spending will be between $500,000 and $999,999. The average anticipated 12-month spend prediction came to $378,130, up from $327,340. The median spend outlook came to $82,610, up from $64,520.
This year, 43% of respondents have a pre-approved budget for materials handling solutions, up from 41% in 2016. The average budget for these respondents was $422,260, with 23% of respondents having budgets that topped $1 million.
The survey asked questions that shed light on spending for many solution subcategories over the next 12 months. The IS system subcategories included some new choices, specifically distributed order management (DOM), which was checked by 13% of respondents; “other” supply chain software, at 9%,; and warehouse execution system (WES), indicated by 6%. Together, WES and the closely related category of warehouse control system (WCS) software drew an 18% response, which is higher than last year’s 13% response to WCS alone.
Both voice picking and transportation management systems (TMS) saw slight growth, while other established IS subcategories remained stable or declined slightly—perhaps due to the new choices for DOM, WES and “other” supply chain solutions.
For equipment, a few subcategories saw increases in what respondents are considering over the next 12 months. For example, mobile and wireless equipment increased 10%, as did radio frequency identification (RFID) gear. Oddly, order picking and fulfillment solutions saw a decline, but “system solutions” spend indication was up by 5%. Other growth subcategories included lift trucks, up to 48% from 46% last year, and racks and shelving, up to 44% this year from 40% last year.
Overall, the survey showed healthy spend levels for equipment, but it was technology and IS solutions that tended to see the steeper increases. For 2017, 30% said that they will be investing in applications like ERP, WMS and WCS over the next 18 months, up from 25% in 2016. Still, equipment investment drew a higher percentage (67%), but down 1% from 2016. Higher investment is also expected for staffing/labor over the next 18 months, up to 49% from 42%.
The issues and pressures that supply chain and manufacturing professionals see as important and growing are the likely drivers behind much of the investment trends in the survey.
The survey asked respondents to pick which issues are important to them today and which ones they expected to become more important two years from now. This list of issues included safety, cost containment, company growth, training, throughput, labor availability, cycle times, order size, trading partner collaboration and multi-channel fulfillment.
Issues that are core to many operations, such as safety, throughput and cost containment, were ranked high in importance today and were rated as growing modestly in importance over the next two years.
However, a few other issues outpaced today’s top issues when it comes to their increase in importance in two years. These include labor availability (53% today to 60% in two years); trading partner collaboration (27% today to 34% in two years); and smaller, more frequent orders (23% today to 30% in two years). Cycle times, training, facility consolidation, environmental sustainability and use of 3PLs are also expected to gain in importance two years from now.
Many of these growth issues—think smaller, more frequent orders—are associated with omni-channel fulfillment. Such pressures are driving the type of investments being made in the market today, says St. Onge’s Saenz.
“It makes sense that more people are looking at software, controls and the technology side of investments because it’s become pretty important to be able to separate and manage e-commerce orders and handle them efficiently in the building,” says Saenz. “It takes more than throwing up some new rack to deal with these pressures.”
Donald Derewecki, a senior consultant with St. Onge, concurs that operations are still adjusting to the changes wrought by e-commerce, even as they continue to serve established channels. “Brick and mortar retail fulfillment isn’t going to go away,” he says. “In fact, it will continue to be a major requirement. However, the evolving requirements around e-commerce are going to be based on speed. You see this speed factor reflected in increasing investment in technology solutions, as well as the types of issues and pressures respondents see as important.”
The survey also asks about common management practices for manufacturers as well as management practices employed by warehouse and DC operations. These sets of questions asked which methods are employed today and then set out to find out the expected use two years from now.
Among manufacturers, for example, lean manufacturing was ranked as important by 51% of respondents today, but this increases to 57% in two years. Other practices on the rise in manufacturing include just-in-sequence production (27% today rising to 34% in two years), trading partner collaboration (20% rising to 30%) and outsourcing, up 6%.
Similarly, among warehouse and DC operators, practices such as continuous improvement and labor management were ranked high today and are also seen as growing in importance. However, other practices came in as higher growth areas for importance, including lean inventory practices (47% today, rising to 53% in two years); same-day order shipping (46% today, rising to 56% in two years); and trading partner collaboration, up 8% in two years.
Overall, it’s consistent that respondents who are feeling pressures like faster cycles times, smaller, more frequent orders, as well as labor pressures, are looking to spend more on automated materials handling solutions and related software systems. With growth in the economy overall and the unrelenting pressures around e-commerce, increased investments may simply be a necessity.
As Derewecki sums up: “If businesses don’t adequately prepare their infrastructure for e-commerce, including their information systems support, they’re going to be behind their competition.”