Democratizing Robotics Will Lead to Supply Chain Internalization

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1Q 2019 | IN-5421

In February 2019, German e-commerce retailer Zalando announced the deployment of GreyOrange’s Butler robots within a 30,000 square-meter fulfillment center in Sweden, one of the retailer’s fastest growing territories. This follows last year’s announcement that Zalando acquired a minority stake in Magazino, a Munich-based warehouse robotics firm.

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Robotics at the Top


In February 2019, German e-commerce retailer Zalando announced the deployment of GreyOrange’s Butler robots within a 30,000 square-meter fulfillment center in Sweden, one of the retailer’s fastest growing territories. This follows last year’s announcement that Zalando acquired a minority stake in Magazino, a Munich-based warehouse robotics firm.

Zalando has joined a growing list of e-commerce companies deploying robots within their fulfillment centers. Others include global giants such as Amazon, Alibaba,, Suning, Rakuten, Flipkart, and Nitori. The top of the market clearly sees the benefits of robots and how deploying them will create a supply chain advantage in the competitive e-commerce sector. Unlike manual processes or heavily automated fixed infrastructure, which has been powering warehouse automation for decades, robots offer a combination of efficiency, scalability, flexibility, and cost-effectiveness while solving the inherent challenges associated with warehouse operations, including labor shortages, seasonal peaks, real estate costs, and volatile product demand.

Mid-Market Expansion


Robotics use in warehousing is dominated by these larger players and dedicated Logistics Service Providers (LSPs), who alone accounted for 70% of robotic shipments in the warehouse in 2018. This is explained by the fact that contract logistics providers have greatly benefitted from the continued growth of e-commerce. LSPs and third-party logistics (3PL) companies have been able to capitalize on their logistics expertise and warehouse infrastructure, offering dedicated fulfillment services that mid-market e-commerce companies simply can’t compete with but now can’t do without. Investing in logistics capabilities is easier for 3PLs since their logistics networks are their primary revenue streams. Meanwhile, many mid-market retailers can only afford to invest in their core service offering and customer-facing applications and services, understandably preferring to outsource fulfillment and other logistics operations. 3PLs have been quick to leverage robotics as a strategic technology that enables them to maintain their position within the e-commerce value chain.

Still, this strong market position could change. ABI Research forecasts that by 2027 LSPs will only account for 45% of robotic shipments in the warehouse, with retailers and Direct-to-Consumer (D2C) brands becoming home to 40% of shipments. Unlike fixed, heavy mechanical automation technologies that have been powering the most advanced warehouses for decades, mobile robotic solutions enable a much faster Return on Investment (ROI). Autonomous Mobile Robots (AMRs) can generally offer returns within three years or less, while heavy automation can often take five years or more. This makes AMRs a considerably lower risk investment, especially given the flexibility they provide if order throughput demand unexpectedly changes.

Due to the relative immaturity of automated guided vehicle (AGV) and AMR technologies, prices are forecasted to fall quite considerably. The arrival of 5G could also dramatically reduce the cost of AMRs in the long term; with 5G, robots may no longer require such expensive onboard processing hardware due to the ability to process mission-critical information in the cloud thanks to higher bandwidth and lower latency. The steady maturation of Robotics-as-a-Service (RaaS) will also be crucial. By replacing heavy upfront capital investment with a recurring consumption-based subscription, CapEx is replaced by OpEx and costs are proportional to output. If deployed correctly, this means costs increase only if revenue increases. While current robotic solutions remain cost-prohibitive for mid-size retailers, the falling costs combined with flexible pricing models will surely create more fertile ground for robotic adoption among the mid-market within the next 5 to 10 years.

By making warehouse robotics more affordable to medium-sized retailers and brands in the long term, the dynamics of the e-commerce value chain, vis-à-vis retailers and their 3PL partners, will be disrupted. In e-commerce fulfillment, where every minute counts and consumer demand can fluctuate unpredictably, the flexibility, affordability, and efficiency of mobile robots make them a powerful strategic technology. If small and medium-sized e-commerce retailers can invest in robotic solutions that enable these advantages, they can drastically reduce order fulfillment times and compete with the supply chain capabilities of the 3PLs currently managing their fulfillment operations.

Controlling more of the retail supply chain allows long-term efficiency savings to be made, as operations can be harmonized within the wider network of enterprise systems and processes controlled by the retailer. It also means incremental improvements and adjustments to warehouse operations can be made by the retailer themselves, allowing supply chain operations to adapt to shifting business requirements and strategies. The advantages of internalizing the supply chain have already been seen in the growth of D2C business models. By bypassing retailers and wholesale distributors, D2C companies have fewer partners within their supply chain value chain, meaning these brands can retain a higher percentage of profits. The same applies to internalizing fulfillment operations. Relying less on 3PLs at the fulfillment stage means a bigger slice of the booming e-commerce pie.

While e-commerce giants and global LSPs may always have the economies of scale and budgets to maintain end-to-end logistical superiority, the current gulf in logistical capabilities between them and small to mid-size e-retailers could narrow thanks to affordable automation.

The Wider Struggle


However, while robotics may lower the barriers to entry for transformational e-commerce fulfillment capabilities, the warehouse is simply one node in a vast supply chain network. Increasing operational efficiency within a distribution center will certainly help reduce product delivery times, but other challenges remain for mid-market retailers. Chief among these challenges are transportation and supply chain management (SCM).

Many retailers’ SCM capabilities haven’t changed in years and their transportation networks are controlled once again by outsourced logistics companies, many of which have consistently been raising fees year after year. For years transportation has been expecting a major technology revolution as drones, robots, and crowd-sourced models are poised to disrupt last-mile delivery operations. In reality, this is yet to come true and remains a distant possibility in most regional markets. While companies such as may already be delivering products using drones and robots, they are a special case to say the least. For now, and for the foreseeable future, retailers will have to rely on the expensive, inflexible delivery networks of 3PLs.

Developments in SCM, on the other hand, represent a far more promising trend for mid-market e-retailers and can augment the benefits of a flexible fulfillment capability even further. Newer generations of AI and machine learning-laden SCM tools delivered through Software-as-a-Service models are becoming more widely available across the retail market, as is the case with robotics. This means vastly improved warehouse management systems (WMS), order management systems (OMS) and demand planning applications will enable incremental benefits beyond just robotics.

If true supply chain transformation requires intelligence, visibility and efficiency at every level, more accessible and intelligent SCM tools are a great place to start. For example, being able to more reliably anticipate demand and create an execution strategy that optimizes processes at every level and function across the supply chain means robots can be physically added or removed from an automated fulfillment center according to mid- or long-term future demand and operational requirements. If a more significant fulfillment center overhaul is required to adapt to new product lines or fundamental shifts in demand, reconfiguring an AMR-based fulfillment operation takes days or weeks, not months, as is the case with fixed heavy infrastructure. More flexible robotics capabilities, if integrated effectively with next-generation SCM tools, will bring order processing times down while optimizing profitability at a high level.

Any retailer, large or small, should be exploring ways they can transform fulfillment operations and integrate them effectively within the wider supply chain. The good news for e-commerce companies is that this will become far easier as robotics and SCM capabilities continue to improve and a strengthening vendor ecosystem creates yet more competitive and affordable solutions. 3PLs should be aware of how this could impact their role within the value chain and ensure that their wider value proposition goes beyond simply fulfillment and transportation services and offers high-level optimization.

This insight is part of ABI Research’s Intelligent Supply Chain coverage and draws on analysis found in the service’s most recent publications, Robotics in E-Commerce Fulfillment and Demand Planning and Optimization in the Supply Chain


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