This week we’d like to dive into some industry data from the annual “Industry Outlook Report” that is published every year by Logistics Management and Modern Materials Handling. It’s a comprehensive survey of decision makers with purchasing authority for materiel handling solutions, and it’s often a useful way to validate some of the trends and challenges we see in our own client base as well as learn about others that may have been out of our purview.
However, all these responses were gathered in January and February of 2020, and as we all know, the world changed for good just weeks later. So the data in this year’s report reflects a group of respondents who had no idea what was coming in the next months, and we can guess that their responses to the same survey now could be wildly different in some areas (i.e. the 67% who anticipated that the activity level in their standalone warehouses would decrease or stay the same probably don’t recall that response at all by now!) while remaining consistent in others.
Today we will look at a select number of questions in the survey that we see has being impacted by the pandemic and share our outlook on how we see what to expect in 2020-2021.
1. Spending and Investment
At the top of the survey, respondents are asked to compare their 2018 and 2019 spending and also share plans for 2020 relative to 2019. This year only 36% of the respondents indicated they expect an increase, down slightly from 40% in 2017-2018. Our not-so clever assumption is at this point that this number will reflect well North of 40% when the survey is done again in 2021 for both the ACTUAL spend in 2020 and the FORECAST for 2021.
Why? From what we’ve seen across all clients in all industries this year, the disruptions that have created so much pain around the economy and across many supply chains have also let to new, UNPLANNED investments to accommodate the changes that have been forced on everyone – whether it is from having to restructure from loss of business or accommodate a massive redirection of the business through new channels. E-Commerce has been the universal “killer app” for the winners and losers of 2020 because both those who were doing it well already have had to massively expand it and those who suddenly needed it to survive the loss or curtailment of their in-person retail channels have had to invest in it to do it right and keep up with demand.
And while this survey tends to defined “investment” as being about the equipment and supplies related to their areas of responsibility, for many businesses there is a large investment in skills not previously appreciated in the warehouse or shop floor related to the direct-to-consumer model that is now almost a universal goal.
Outlook for 2020-2021: E-Commerce growth as an existing channel and adoption of it as a new channel by retailers means there is – and will be – investment focused on fulfilling the demand in this channel. Retailers who survived the last six months with a MacGyver-like patchwork of solutions now know that there will be no return to normal, and will sit down to think through, budget and acquire the tools and solutions necessary to ensure that their E-Commerce channel is not only meeting customer expectations, but also performing at a high enough level not to reduce their margins or negatively impact other operational goals and KPIs.
2. The New E-Commerce Revolution
As noted earlier, we are all seeing the explosion in online sales where those who were already good at it are expanding their lead over their competitors and those were not or were not doing it all now find themselves trying to build an entirely new infrastructure, set of processes and business culture as a means to survive.
This year’s Industry Report is a bit thin on questions that help us delve more directly into what is going on in the E-Commerce world, but the question below highlights two very different points to consider coming from 2020:
- That almost everything we knew in February is no longer true and…
- A fundamental misalignment between what the customer sees as “online ordering” and how the industry divides itself based on its own legacy processes and internal needs, something that this year’s events may help correct.
First, the easy one.
2020 will need to be about waiting for the year to end and seeing where the dust settles. There are a LOT of varying reports out there estimating the growth of E-Commerce – ranging anywhere from 18% to 55% and more. The US Commerce Department, however, has it measured at about 30% for H1 for this year:
What is often overlooked, however, is that total retails sales have grown too. But the growth of E-Commerce should be viewed through our industry lens as follows:
- There are MANY businesses that were unprepared for ANY form of online ordering before March 2020, and have been jumping in to catch up now.
- Their facilities are playing catch up with systems, processes, equipment, partners, service policies and more.
- Competitors who already had established online fulfillment operations are ALSO catching up, and seeing processes breaking from the strain of not only the large order numbers, but the returns, the service issues, and the supply chain disruptions that has impacted everyone.
The takeaway here is that “catching up” to this new reality (because it is not going away in 2021) means a large shift in resources from the front store operation to the “warehouse”, which is now being forced to become a true “distribution center”.
New equipment, new software, training, etc. The investments being made this year are just a precursor to more in 2021 as businesses evolve their processes and learn how to improve on their forced response to everything that happened in 2020.
Now, for the misalignment question in the Industry Report, the question below already has the largest number of respondents indicating “Buy Online, Ship to Customer from DC” as the most common type of operation at 23% with 26% seeing themselves in that position within 2 years. For the small 3% who represented the increase in 2 years, they are probably feeling very prophetic with the quick transformation they had to make this year, and everyone else can be honest when they say “We didn’t see this coming!”
However, what the fundamental misalignment between what the customer sees as “online ordering” and how the industry divides itself is the missing holistic view of a DC. Many of the categories referred to in this question can be managed under one roof, and the future DC should be capable of managing many of them and the fluid changes in volume that might come from different processes depending on events or the time of year.
With the challenges businesses have faced this year working “ship to customer” into their operations, this merits a deeper dive as it’s own topic that we will cover next week.
Outlook for 2020-2021: EVERYONE is in some form of the E-Commerce business now, even if they do not fully understand it yet. With millions of previously inexperienced customers now familiar and comfortable with online shopping, look for an acceleration of the trends from this year – the shrinking of retail spaces and investment into the skills, technology and equipment required to build a competent, permanent online fulfillment channel. New processes not previously mastered before 2020 like single order picking, returns processing, etc. will need to be supported with appropriate equipment, devices, and training.
3. Mobile Technology Acquisitions
The last part of the survey we will dig into is one that is a core piece of our business. There are several responses here that may be confusing, but given what has changed in 2020, our bet is that actual numbers for this year will far exceed respondents’ forecasts prior to March. The first question “Which of the following best applies to your use/future use of mobile technologies?” has a few data points that appear to be in conflict with each other. While the percent of those indicating they would be deploying MORE mobile solutions declined from 37% in 2019 to 31%, there was a large increase (18% to 26%) in those planning to provide mobile devices “outside the four walls”.
But this indicates perhaps a larger focus on outfitting a fleet of trucks, a vendor facility or other asset that may not be staffed by employees.
In response to “Which technologies are you using/planning to use in the next 12 months?”, the answers might seem surprising now, with decreases in EVERY category except Drones and GPS Sensors. This might imply a growing interest in yard management technologies – or even an ambitious delivery process like the one Amazon is always mentioned in pioneering.
However, the data is likely an anomaly both because this year’s report has a much smaller set of respondents, a decline of about 40% from 2019, and because the crush of urgency that has impacted supply chains everywhere this year has led to all previous plans being discarded to just stay ahead of events.
Outlook for 2020-2021: Large bumps in almost all categories – especially Barcoding, RFID and Voice. “New Normal” processes like In-Store Fulfillment and adding E-Commerce to existing warehouse facilities to turn them into Distribution Centers will be driving a lot of the hardware acquisitions as well as those industries that had to respond to large spikes in volume like food, paper and cleaning goods, etc.
For a full copy of the 2020 Industry Outlook Report from Modern Materials Handling click here.