- Grocery retailers are putting pressure on supplier margins
- Consumers are becoming more price-conscious while simultaneously asking for a greater range of products
- Input costs including labor, raw materials, and energy are increasing,
- Safety and product tracking regulations are becoming more onerous
Benefits of Automation
- Increase productivity and reduce costs
- Improve storge capacity
- Consolidate production and distribution operations
- Maximize service levels with system flexibility and operational resilience
All these trends pose significant challenges to supply chain and logistics operations.
Leading F&B producers and distributors are investing in automation to address these challenges and to realize significant and lasting competitive advantages to their supply chains.
Automation solutions are the foundation for a lasting competitive advantage, and provide the flexibility to overcome today's challenges and prepare businesses for the future.
Challenge #1: High costs and insufficient productivity
While labor costs continue to rise, business pressures also compound by the increasing concentration of the Grocery retail market and increasingly price-conscious consumers.
Concentrated grocery retail market putting pressure on margins
A continuing trend, concentrated grocery retail markets mean that fewer numbers of retailers are becoming increasingly dominant. For example, in Australia, the market share of the two top grocers stood at 73% in 2013. That number has dropped down to 65% in 2021.
The major grocers have also consolidated market share in the liquor retail sector. The two major grocers— with the introduction of big box liquor outlets and aggressive pricing — now control 57% of the alcohol retail market.
Grocers have leveraged this market position to drive strong agreements with suppliers, eroding supplier margins and enabling them to offer low store prices that smaller outlets find very difficult to compete with. They are also using their position to drive their own private label ranges at the expense of branded products.
Grocery retailers pushing inventory back to manufacturers
Major grocery retailers are also pushing inventory back toward suppliers, increasing logistics costs for producers and distributors -- especially those that have outsourced their distribution to third party logistics (3PL) providers. With grocers pushing inventory back on suppliers, 3PLs are holding higher levels of inventory with consequent costs for many of their manufacturing customers.
As a result, producers and distributors are increasingly looking to insource their logistics operations and build supply chain competence back into their own business. For many, the timing of this presents an ideal opportunity to optimize their distribution activities.
Consumers remain highly priceconscious and are favoring low-cost supermarkets over convenience stores. As a result, higher-margin convenience and small food retailers are significantly impacted by this shift because lower-margin grocery retailers are recouping profit.
Increasingly open to purchasing new and expanding arrays of products and brands, consumers have come to consider private labels as good alternatives to national brands. Many now believe that private label brands are of equivalent quality to traditional household brands. This trend places further pressure on F&B margins as businesses must lower the price of their brands to remain competitive.
Labor: Rising costs, decreasing availability
An aging population and a workforce increasingly reluctant to work in warehouses, especially cold/freezer environments, has limited the availability of labor while also driving up labor costs. This creates major implications on the overall cost of distribution.
While producers have automated their processing lines, for many their distribution and warehousing operations remain highly labor-intensive. In recent years, companies across different sectors have increased labor productivity by adding people to their workforce. Many are now recognizing that the next step in improving labor productivity is through investing in automated technology.
Increase productivity and reduce costs with an AS/RS
An Automated Storage and Retrieval System (AS/RS) fully automates the process of product storage and handling and eliminates “touches” by operators, greatly reducing warehouse labor and operating costs. Although highly dependent on the specific inventory profile of a producer, productivity gains of up to 20%–30% can typically be realized with AS/RS.
The system also reduces waste, product and rack damage associated with forklift trucks, and typically have lower maintenance requirements in comparison to forklift leasing and maintenance costs.
Challenge #2: Land availability implications
There is a growing trend for manufacturers and distributors to consolidate their facilities in response to cost pressures. By reducing the number of distribution points in their networks, operations lower both warehousing and transport costs. As part of this consolidation, F&B companies are building their distribution operations adjacent to their manufacturing lines, eliminating the costly and labor-intensive process of shipping finished goods from a processing facility to a warehouse.
However, the limited availability of land next to manufacturing facilities and the increasing cost of land — especially in high-density population centers — can make this prohibitive with conventional manual storage and handling solutions.
Increase storage density and reduce land requirements with an AS/RS
Introduce automation to optimize building height and floorspace. By maximizing storage density and allowing heights up to 35m (115 ft), Pallet AS/RS systems require up to 60% less space compared to conventional pallet storage.
With a reduced building footprint, AS/RS can make it feasible for producers to build distribution facilities adjacent to their manufacturing plants -- even where land is limited. And by consolidating distribution into an AS/RS warehouse, producers can reduce stock holding requirements and total inventory costs.
AS/RS is also a cost-effective solution for conventional warehouses that are running out of space. When replacing conventional pallet racking with AS/RS, you:
- Significantly increases pallet storage capacity,
- Extend the life of the existing building
- Reducing overhead costs
- Eliminate the need, cost, and disruption associated with constructing a new facility or relocating
Challenge #3: Ensuring superior customer service levels
In such a competitive consumer-driven market it is imperative for F&B producers to get the right product, in the right quantity, and at the right time to customers, more so than in any other industry. Grocery distributors are less tolerant of missed delivery windows or incorrect products. A missed shipment or even just a missed pallet can lead to out-of-stock store shelves and impose penalties for late or incomplete deliveries. Distribution operations must ensure that they have the correct product in the required stock quantity, and that orders are complete and accurately dispatched in a timely manner. Also, distribution functions need to ensure they are not causing bottlenecks for operations, which can lead to production lines being stopped. And all this needs to be achieved in the most cost-effective manner.
Optimize service levels with AS/RS
Completely automating the processes of put-away, storage and retrieval, AS/RS eliminates potential operator errors and ensures optimal inventory availability and maximum order accuracy. Operations know exactly what is in stock and customer orders are verified through the entire process, prior to delivery.
AS/RS also delivers significant benefits for staging and dispatch applications as well as consolidated production and distribution processing lines — all critical elements in ensuring customer orders are fulfilled accurately and on time.
Ensure efficient staging and dispatch with AS/RS
In a manual staging and dispatch area, pallets need to be staged in trailer-load quantities to ensure trucks can be loaded rapidly. Having a large enough dispatch area is critical for dealing with daily operation fluctuations; however, many dock areas have limited floorspace and building height is not optimally used (as opposed to an AS/RS). In the event of a disruption, such as a truck breakdown on the way to the facility, stock for orders is often left in dispatch until the problem is rectified. This can lead to potential bottlenecks for other orders, which can cascade into disruptions to upstream operations with significant impact on delivering customer orders.
An effective alternative is extending the use of AS/RS technology to staging and dispatch. With an AS/RS delivering faster cycle times than manually operated forklift trucks, pallets can be retrieved from the system so they are ready for loading when the transport vehicle arrives. The use of zones within an AS/RS for pre-staging orders further facilitates quick and efficient shipments by providing the quickest access to storage locations, which ensures customer orders consistently meet ever tighter delivery windows.
Automated Guided Vehicles: Integrating processing lines with AGVs and AS/RS increase reliability
For production and distribution facilities, automating the order fulfillment process from end-to-end has significant advantages. Solutions that include a wide variety of options, such as palletizing or AS/RS, increase the speed and resilience of repetitive tasks and eliminate potential bottlenecks in critical processes.
While pallet conveyors provide robust and reliable links between production and automated storage, the ideal solution for operations looking for maximum consistency with flexibility to fulfill different areas of the warehouse are Automated Guided Vehicles (AGVs). Apart from providing reliable and cost-effective pallet transport, the inherent flexibility of AGVs means that pathways can be easily adjusted and additional AGVs readily added to the fleet as throughput requirements and pickup and delivery destinations change.
Challenge #4: SKU proliferation and order complexity
Consumers are demanding a wider range of products driven by tastes, food fashion trends, as well as fitness and health concerns. Just one example of this is the shift away from mainstream beer, milk and soft drinks associated with the increase in the consumption of craft beers, cider, soy milk, and health drinks. Businesses are responding to consumer demand by introducing many new products.
The impact on F&B producers is the continuing SKU proliferation in their supply chains and the need to stock an ever-increasing variety of product. For those who are also producing private labels for retailers, this only adds to the SKU complexity that they need to manage.
In a manual warehouse system, the implications of handling additional SKUs means that everything must get larger — more pallet storage, more picking locations, and more travel, which leads to slower and less efficient operations in bigger, more expensive warehouses.
AS/RS technology delivers greater storage capacity for handling higher number of SKUs
By offering greater storage density up to ceiling height, an AS/RS provides operations with significantly more storage locations for handling additional SKUs without increased travel. And with order profiles changing, as well as variations in the throughput of individual SKUs, AS/RS technology can readily re-slot product to ensure fast movers are located closer to out-feed zones. This results in increased system responsiveness.
Challenge #5: Managing occupational health and safety
Occupational Health and Safety (OH&S) is regularly cited as the number one priority for many F&B producers. The movement and storage of heavy pallet loads and the potential breakages and spills all pose dangers to operators.
Lost-time injuries are becoming increasingly costly to operations and an aging workforce only magnifies how imperative it is to address OH&S challenges.
AS/RS minimizes OH&S risks
By eliminating the need for operators and forklift trucks in storage and staging applications, an AS/RS significantly reduces the OH&S risks associated with manual handling.
AS/RS technology operates with precise put-away and retrieval from storage locations, removing the risk of product, pallet, or rack damage. AS/RS can also deliver pallet loads to a trailer in the precise sequence specified by a host system according to axle load requirements.
Challenge #6: Rising energy costs
Rising energy costs are also impacting F&B margins. This has particular significance for producers with energy-intensive cold storage operations.
Reducing total energy consumption with AS/RS
By maximizing storage density and optimizing footprint, an AS/RS reduces energy requirements for cooling or warming the storage area. This is important in temperature-controlled facilities where reducing the volume required to cool translates to significant reductions in energy use. AS/RS systems also require far less lighting than manual operations, further reducing energy consumption.
Equipped with energy recovery technology, Dematic AS/RS technology also conserves energy during day-to-day operation. For example, braking energy is regenerated and used by the lifting motor, enabling the AS/RS to consume up to 29% less energy than conventional AS/RS technology.
Challenge #7: Tracking requirements
Government food safety agencies require food to be tracked through all stages of production, processing, and distribution (also known as farm to fork). The aim is to prevent contaminated product from reaching consumers and to enable quick and effective corrective action in the event of something going wrong, such as a product recall.
Supply chain management systems need to capture sources of raw materials, additives, and all other inputs before labelling with batch/lot identification as well as production and expiry dates. In addition to meeting food safety standards, F&B businesses recognize that product traceability systems help protect their brands by enabling a rapid and effective response to any incident. Apart from batch and lot tracking, Warehouse Management Systems (WMS) need to effectively manage inventory and First-In-First-Out (FIFO) rules; in many cases, major grocers will only accept consecutively numbered batches and expiry dates.
AS/RS combined with a Warehouse Control System (WCS) provides comprehensive tracking and respnsiveness capabilities
AS/RS technology can be fully integrated into an Enterprise/Manufacturing Resource Planning (ERP) system or Warehouse Management System (WMS) via a Warehouse Control System (WCS). The WCS provides precise tracking of product movement and storage locations in real time. As part of its comprehensive inventory tracking capabilities, the WCS manages batch and lot tracking of products and, in conjunction with the host, manages First-In-First-Out (FIFO) and First-In-Last-Out (FILO) rules.
The WCS also seamlessly integrates other systems in the warehouse, including:
- Pallet Transport
- Picking (robotic and voice-directed)
By integrating technologies, businesses get complete systems management and visibility over the entire operation. In the event of an incident, such as a product recall, management can immediately identify the specific batches or lots in question and task the system to take appropriate action, such as bringing out the product to a specific location.
Read more about how Dematic Software can work for you and add value to your business.
The Dematic difference
The latest developments in AS/RS technology combined with Dematic Software solutions provide significant benefits for F&B producers looking to address challenges facing their distribution operations.
Dematic solutions allow F&B businesses to review their complete manufacturing and supply chain networks and look at where they can consolidate storage and distribution to reduce total costs and deliver superior operational capabilities. With the cost of automation falling significantly in recent years, the business case and return on investment has never been greater.