1 The Impact of Explosive Growth in Internet Retail on Order Fulfillment Jeff Hedges, President OPEX Material Handling 2013 MHI Copyright claimed as to audiovisual works of seminar sessions and sound recordings of seminar sessions. All rights reserved.
2 What is the order profile of an Internet client? Small number of lines (1-3) Low number of items per line (1-2) Typically, 1.2 total items per order As internet ordering goes up Orders within the D.C. are going WAY up Size of orders are going WAY down Many individual items per order very labor intensive
3 Internet business 1. Studies show an average of 15-20% growth per year for the next 7-8 years. 2. Rise of customers using APPS for shopping (online and in the store) 3. How do you communicate affectively with customers 4. Transportation: FREE shipping 5. Unknown & changing legislation 6. Volatile/unpredictable economy 7. Investing in supply chain automation to counter rising cost of business
4 Internet sales growth potential The Internet and mail-order retail industry in the US includes about 20,000 companies with combined annual revenue of about $270 billion. Major companies include Lands End, LL Bean, Amazon, Overstock, and Hanover Direct. The industry is concentrated: the top 50 companies account for about 70 percent of industry revenue. Over the past five years, the bulk of the industry's revenue has shifted from catalog to Internet sales. While most brick-and-mortar retailers have an online presence and many also offer catalog sales, this profile focuses on retailers who use the Internet or catalogs as their sole or primary sales channel. First Research - Source CNET Which is it?
5 Rising use of phone apps 25% of Americans (82.2M people) own a smart phone 64% of smart phone owners shop on-line. 34% of smart phone owners made a purchase via mobile phone in 2012, (compared to 19% in 2011.) 2/3 of all mobile shoppers make purchases while at home. Approx 50% plan to make holiday purchases from their phones. 1/4 of all iphone and Android phone users have used a shopping application within the past three months. More than 40% of smart phone users have already bought something using the phone. More than three-fourths of all retail companies plan to invest in mobile this year. The retail market for mobile devices is expected to top $12 billion by Sources: edigitalresearch & Portaltech Reply 2012; RSR Research 2011; ThriveMarketing Blog
6 Rising use of phone apps 25% of Americans (82.2M people) own a smart phone
7 Rising use of phone apps 25% of Americans (82.2M people) own a smart phone
8 Rising use of phone apps 25% of Americans (82.2M people) own a smart phone
9 3 key aspects of effective communications 1. Visual connection 2. Audio 3. Words 38% 55% 7% The Internet defies this Web site ease of use Informative Competitive pricing Free shipping Next day delivery 1. Visual connection 2. Audio 3. Words 38% 55% 7% 15% --% 7% Damage free How it is packaged Completeness of order
10 Internet growth concerns Factors that will negatively affect the widely publicized double-digit sales growth projections
11 Transportation Transportation/infrastructure (U.S. passed a bill to spend $119B falls short of the estimated $220B needed) Less profit for e-tailers vs. brick-and-mortar due to shipping $ Shippers are raising rates could hit e-tailers (BtoC) by as much as 7%-8% increase Work force legislation (driving hrs/ productivity) Rail / Air / OTR / Sea what are your alternatives?
12 Legislation Cost of employee benefits (healthcare, 401K, incentives) FSMA (Food Safety Modernization Act) C-TPAT (Customs-Trade Partners Against Terrorism) Declining value of carbon credits Federal Reserve and interest rates U.S. State Taxation on Internet sales United Nations WCIT - Internet Tax World Conference on International Telecommunications What does this do to average persons disposable income?
13 Economy Today Eating away at your profit margins The new normal Companies much more hesitant to invest capital ROI justifications for capital project are tougher Companies are holding onto their profits, consolidating operations and demanding short-term, high return on capital investments Banks and investors are constantly under scrutiny Investors are skeptical demanding more conservative company leadership/investment Disposable income issues - interest rates/housing starts?
14 Investing in warehouse automation Traditional Approach ROI Target (typically 2-3 years) Designed for Avg 10 year PEAK performance Expensive Reduces associated costs regarding facility footprint, energy, labor Today s Approach Warehouse automation (and the supply chain) is looked at as one of the last areas to reduce costs to counter the rising external cost demands on a business Solutions need to be scalable, flexible and immediately cost justifiable
15 On-line retailer cautions What if your business does not grow at the industry rate? The advertised growth rates are AVERAGES! How long can your business afford free shipping? Projections are NOT taking into account many issues that will affect your costs of doing business Legislation? Economy? Transportation spend Evaluate supply chain automation realistically
16 Investing in automation Leading automation solutions will grow with your company
17 What to look for in Automation? Accuracy Does it help you better fill and track orders How well does it perform it s task Reliability Consistent Has a high run time rate and low down time Space Efficiency Makes best use of your cubic space Makes best use of your vertical space Does this solution free up space for other functions?
18 What to look for in Automation? Simplicity Easy to understand Easy to implement Simple to operate & service Easy to expand Sustainable (Green) Friendly to the environment Does it reduce your energy consumption? Flexibility (too many unknowns) Keeps pace with your business growth Solutions that adjusts easily / is nimble
19 Scalable Automation CHART TECHNOLOGY AGV FLEXIBILITY (1-5) RELIABILITY SPACE EFFICENCY SIMPLICITY GREEN PRICE ENTRY POINT ($ - $$$) Conveyor M/L ASRS Carousel Shuttle
20 Jeff s unscientific prediction Two key events: Phase I: Increase sale of Internet companies (large players buying up the prime performers) Phase II: Poor performers will begin to fail - too costly to compete (free shipping, same day delivery, state taxing) Internet Fulfillment Growth
21 The new normal for automation investment? Times have changed Think long term /solve for the short term Get rid of the crystal ball be realistic Invest in automation that can grow at the actual rate your business grows - automation should be scalable Be realistic when projecting ROI How will your investment better prepare you to deal with economic, legislation and transportation unknowns? What if your business does not grow at the industry rate? The advertised growth rates are AVERAGES Think about the unknowns State collected tax on internet orders How long can you afford free shipping Taxes (property, health care, ) Declining value of carbon credits Evolutions of the FSMA (fees, inspections, etc.) Declining transportation infrastructure Rising transportation costs (gas)
22 For More Information: Visit us at ProMat 2013 Booth MHI Copyright claimed as to audiovisual works of seminar sessions and sound recordings of seminar sessions. All rights reserved.
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