E-commerce continues to represent a growing chunk of total US retail sales. Representing an average of eight percent of total US retail sales for the first half of 2016 (compared to 7.1% for the same period in 2015), e-commerce has prompted not only changes in the way retail is performed, it is also changing each component of the supply chain. Demand for faster delivery times has resulted in vast changes in warehousing and fulfillment operations. One area that has seen growth is the demand for warehousing facilities.

Location, Location, Location

Logistics hubs similar to the Inland Empire located in California are being replicated in other areas, including the Lehigh Valley area in Pennsylvania; Frankfurt, Germany; and Hangzhou, China. Characteristics of such hubs include proximity to large populations, good transportation infrastructure, and presence of large businesses. Hangzhou, China is a bit different. Home to Alibaba, Hangzhou was the first city in China to receive approval for a cross-border pilot zone specializing in e-commerce. As a result, government officials consider Hongzhou the starting point of the “Internet Silk Road.”

According to Green Street Advisors, e-commerce alone is responsible for 20% of current demand for warehouse space in the US – and these aren’t small facilities. In some instances, they can exceed one million square feet.

Amazon has led the way, regularly announcing new facilities that are closer to its customers. In fact, Amazon added 18 fulfillment centers in the third quarter of 2016 alone. Retailers and logistics providers including DHL, FedEx, and UPS are following in the e-commerce giant’s footsteps as well and have announced similar investments along with expansion plans of existing facilities.

These warehouses and fulfillment operations are different from those that have been around for years. Previous fulfillment business models focused on low-cost labor and real estate in centralized locations within a country. Instead, these new operations are more focused on automation and are responding to the growing e-commerce influence.

According to real estate property management company Prologis, online retailers require three times the logistics real estate to meet needs such as:

· Wider product variety than in-store.

· Greater inventory levels.

· Individual product picking and larger outbound shipping space requirements.

· Increased reverse logistics and returns processing.

Automating the Fulfillment Facility

Inside the facilities, equipment updating, the increasing use of robots, and testing of drones, along with augmented reality, are taking place. Earlier this year, DHL completed a pilot test for collaborative automated order picking in its warehouse in Germany. The test involved a robot from the French start-up Effidence and is a fully automated trolley that follows pickers through the warehouse and handles most of the physical work. During the test, two robots supported the pickers by carrying the weight and automatically dropping off the orders once fully loaded.

Additionally, DHL has also conducted tests utilizing augmented reality. Equipped with smart glasses, employees navigate through the warehouse along optimized routes via the glasses’ graphics display, enabling them to find the correct quantity and item. According to the company, the use of augmented reality increased the overall picking efficiency by 25%.

Drones within the warehouse are being tested by a number of companies. French-based Geodis is testing the use of drones to count and report inventory at its warehouse near Paris. The test combines the use of a drone with a ground-based robot. The system features indoor geolocation technology that functions autonomously during the hours when the site is closed.

Walmart is also testing this technology. In late 2015, the retailer applied to U.S. regulators for permission to test drones for home delivery, curbside pickup, count warehouse inventories, and to fill and deliver online orders. The remotely controlled drone captures 30 frames per second of products on aisles and alerts the user when product is depleted or incorrectly stocked.

The Startups

Just a few years ago, a retailer had only a few options when it came to fulfillment. Either do it themselves or outsource to a 3PL or to a niche player. Today, there are many alternative solutions. For example, startups such as South Africa’s cloud-based warehouse and logistics provider, Parcel Ninja, utilize technology to manage fulfillment and delivery services. Shipwire, acquired by Ingram Micro in 2013, is another cloud-based fulfillment and delivery provider. It has warehouses around the world and provides numerous shipping options, pick and pack, labeling, and returns management.

In addition, Flexe offers on-demand warehousing. Describing the service as ‘pop up fulfillment’, Flexe notes that such a solution can be useful during promotional or peak periods when sales volumes peak, putting strain on existing infrastructure.

Fulfillment by Online Marketplace

Online marketplaces, made popular by such providers like Amazon, e-Bay, Flipkart, and Alibaba’s Tmall, represent additional options for order fulfillment. These marketplaces allow third-party sellers to leverage the providers’ warehouse infrastructure, potential shipping discounts, and placement preference on the providers’ website. Some retailers will use this solution to expand into new markets such as India or China.

Numerous Options Exist

Warehousing is moving closer and closer to customers while fulfillment services undergo dramatic changes thanks to new technology and the growth of e-commerce. There are many options available to retailers, and like everything else in the supply chain, there is no “one size fits all,” so retailers need to determine the best solutions to meet their needs.