E-commerce and warehouse logistics – growth engine and challenge

overview

The current picture of the retail industry is characterized by massive changes, because as consumers become increasingly digitally connected, they are changing their shopping behavior more and more. They are increasingly ordering via PC or mobile devices such as tablets or smartphones instead of purchasing the goods in brick-and-mortar stores. Last year, e-commerce sales in Germany amounted to almost €34 billion. And this is just the beginning, because online retail is predicted to continue to grow strongly in the coming years.

The high dynamics of e-commerce places completely new demands on logistics. On the one hand, this applies to the courier, express and parcel services (CEP) market with the processing of shipping and returns. On the other hand, however, this applies to intralogistics, which deals with the storage, transport and picking of goods. Due to high competitive pressure and low margins, more and more providers are trying to make their cost situation more efficient and at the same time optimize delivery time

This article outlines the current status and medium-term development in online retail and addresses the resulting challenges that companies face in warehouse logistics

We will also publish further articles on the topic in the following weeks. The areas that are crucial for warehouse logistics are discussed separately, such as:

• Storage types in comparison (chaotic vs. fixed location)
• efficient returns handling
• Delivery times & speed (keyword Sameday Delivery )
• Machine use and automation in the warehouse
• Networking/digitalization of warehousing & logistics

Overview: The rapid development of the e-commerce market

Worldwide sales of 1,220 billion US dollars in 2013

According to a study by the market research company emarketer.com, global sales in B2C e-commerce in 2013 amounted to around 1,220 billion US dollars, for which around one billion active online buyers were responsible ( http://www.emarketer.com/Article/B2C- Ecommerce-Climbs-Worldwide-Emerging-Markets-Drive-Sales-Higher/1010004 ). Despite the rapid development that the market has undergone in recent years, sales are expected to continue to rise. eMarketer 's forecast assumes a total volume of 1,860 billion USD in 2016. However, the growth rates will decrease from currently around 18% worldwide to 11% in 2016, which is still an extraordinarily high value compared to the overall global economic growth of currently around 3 - 4%.

With sales of USD 340 billion and 240 million buyers, Europe is currently the third largest market in the world after the USA and Asia, and although growth in Europe is weaker than in global comparison, the market volume will continue to increase steadily in the following years estimated at USD 455 billion in 2016.

The main drivers of global growth are the Asian countries, emerging countries such as Brazil and India, and Africa. One reason for the lower growth in Europe and the USA is that these areas are already much more developed in terms of the spread and acceptance of e-commerce. The share of online buyers in the total number of Internet users in Western Europe and the USA is over 70%, whereas in Asia and Eastern Europe it is less than 45%, and in Central America and Africa it is only around a third.

Germany second largest market in Europe

If we look at Europe, Germany is the second largest market with sales of €34 billion. By far the leader here is Great Britain, where sales in 2013 were just under €70 billion. France (25 billion), Spain (15 billion) and Italy (14 billion) follow in second place.

In addition to the large population in Germany, the comparatively high acceptance of online purchases among Internet users as a whole, at around 80%, is responsible for the high ranking. This is the second highest figure in Europe after Great Britain (87%), and therefore higher than, for example, in the USA (73%). Another reason for the size of the local market is the relatively high expenditure per buyer per year (study: E-commerce in Europe 2014 , PostNord). In Germany these cost just under €800, which is a top ranking in a European comparison. Only Great Britain is ahead here - albeit clearly - with spending of € 1,180.

However, growth in Germany was comparatively low at just under 13% in 2013. Here, a significantly stronger development can be observed in other European countries (Italy 22%, Spain 16%).

Clothing is the largest segment in Germany

But even with rates slightly below the European average, e-commerce will continue to be a sales channel for the foreseeable future the Be a growth engine in retail. This is not least the reason why there were almost 500,000 online sellers online in this country in 2012. From Amazon, Otto and Zalando to one of over 170,000 commercial sellers on eBay: the Internet is becoming more and more retailers the crucial platform for selling their products, with the 100 largest shops already generating a good 50% of the total revenue with sales of around €18.5 billion. In recent years, the share of online retail in total retail has grown to 8%, with areas such as electronics and fashion already at around 30%.

So it is not surprising that the clothing and shoes sector is the main driver of e-commerce and is by far the largest segment. It is followed by goods from the electronics and books sectors. Together, these segments account for over 60% of total revenue.

Impact on warehouse logistics

High competition and cost pressure put pressure on companies

Buyers from Germany are characterized by a comparatively high price sensitivity, which keeps the price pressure on retailers operating in the local market permanently high. The fact that German customers also attach great importance to fast and, above all, free shipping and returns - and this return rate is one of the highest in Europe - significantly exacerbates the cost situation for providers. The payment method that is widespread in Germany, namely payment after invoicing, also has an unfavorable effect on providers, as it sometimes delays their access to the income by weeks.

The resulting loss of margins forces companies operating on the market to constantly review their own cost structure in order to continue to compete successfully. Due to the high level of effort in the area of ​​logistics across the industry, this particularly requires efficient storage management.

Investments to increase efficiency in logistics and warehousing

The rapid development, the need for flexibility and the profit situation in e-commerce pose major challenges for both retailers and solution providers.

In an interview with the industry service etailment , Dieter Urbanke, CEO of Hermes Fulfillment GmbH, the following answer to the question about the central challenges posed by the rapidly growing e-commerce market (the entire interview can be read at http://etailment.de/ topic/player-and-people/Interview-How-Hermes-will-grow-and-score-in-logistics-2206 ): “The biggest challenge is to efficiently process the ever-increasing number of customer orders and to meet market requirements in terms of customer service, product availability and transparency. The end customer demands ever greater flexibility and greater experience orientation. This not only affects the pure online shop, but also fulfillment.”

In order to do justice to this task, market participants face high investments. And here it is the mail order companies in particular who have been investing multi-digit millions in logistics and especially intralogistics for years.

Here are just a few examples of the extensive measures that the big players in online retail have taken to modernize their warehouse structures:

• Tschibo is expanding its 200,000 pallet European central warehouse in Bremen for €50 million so that it can continue to meet future requirements. The expansion includes the construction of an automated small parts warehouse, a sorting building and technical equipment for a total of 17 km of conveyor routes. There are also extensive investments in IT.
• Bosch shuttle warehouse equipped with RFID technology ( radio-frequency identification) This will increase capacity by 50%, which means 20,000 more square meters of storage space will be available to the company. In the future (from 2016), this central warehouse will be used to supply spare parts to vehicle workshops and wholesalers in over 140 countries around the world.
• Hermes Fulfillment , a subsidiary of OTTO-Versand, has opened the world's largest returns warehouse. A total of €470 million went into the construction of the logistics center in Haldensleben. The world's largest shuttle system has been operating there since 2011. It has a storage capacity of around 1 million items, with up to 15,000 items per hour being picked during peak times.
• Zalando uses a system warehouse in Erfurt to ship its extensive product range, which covers 120,000 square meters and employs around 1,000 people. Expansions to the complex are already planned.

But it's not just the rapidly growing amount of goods to be stored and picked that is responsible for the constant need to optimize your own warehouse logistics. Safety aspects of employees (keyword ergonomics in the workplace ) and the expected further decline in margins due to high competitive pressure will require a significantly higher level of automation in the online retailers' warehouse and shipping centers in the future.

And this trend towards more automation can be seen everywhere in intralogistics. Increasingly sophisticated software systems now often take over the entire spectrum of the production flow. Tasks such as inventory inventory, coordination of ordering and shipping processes or checking the picking process, which were until recently carried out by humans, are now carried out by machines.

But what level of automation makes economic sense and is accepted by retailers? A high level of automation also means that, in addition to the high investments, companies may lose flexibility if they rely too heavily on the one-sided technical upgrade of their warehouses. In the future, e-commerce providers are most likely to use automation technology that can be used flexibly and which simultaneously enables high picking performance, low error rates and optimal storage densities.

Warehouse logistics companies therefore need to answer the following questions in order to be successful in the market:

• What are the most pressing problems that existing methods of warehousing are confronted with by the rapid growth in e-commerce?
• Which technologies and which level of automation will prevail in warehousing and order picking?
• How high can the costs be for the solutions to be procured?

In a series of articles over the next few weeks, these questions will be taken up, looked at in more detail and examined for solutions with regard to their efficient application in warehouse logistics.