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Smart Warehousing: What It Is and How It Can Help Your Business

Ivan Farkas
11/13/2023 | 5 min read
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Smart Warehousing: What It Is and How It Can Help Your Business

The word “warehouse” conjures images of nondescript boxes collecting dust in expansive facilities with dark, cobwebbed corners. Despite these misconceptions, in 2023, warehouses are anything but inert. A modern warehouse management system (WMS) can dynamize business operations to improve efficiency and safety while slashing costs and liberating employees from repetitive tasks. 

From robots to the Internet of Things (IoT), let’s explore the advantages, challenges, and future of smart warehouse systems. Plus, how are these technologies revolutionizing commerce, manufacturing, and transportation? 

What Is a Smart Warehouse?

Conventional warehouses are simple storehouses. But smart warehouse systems employ numerous technologies to automate processes, increase transparency, boost production, and collect, share, and analyze data. 

These value-added services can enhance businesses across all facets, including facility design, transport, digitization, inventory, packing, store displays, and more. To handle surges in demand, warehouse managers can sync inventory and orders to control stock fluctuations, track shipments, and predict consumer trends to get customers what they need when they need it.

Get more insights on what a Factory 4.0 could look like.

Types of Smart Warehouse Technologies

1. Internet of Things (IoT)

Blue Planet Studio / Shutterstock.com

Let’s dig deeper into the Internet of Things industry. The IoT integrates internet-connected devices across a potentially unlimited network. IoT devices tirelessly work around the clock, collecting and sharing real-time data. 

These always-growing data sets are then analyzed to detect and predict trends, track business operations, monitor stock, boost worker safety, streamline transportation, maintain equipment, and more.

2. Automated Systems

Automated systems, such as robots and vehicles, are vastly advantageous. Automation lowers human error, increases safety, boosts workflow flexibility, and reduces overheads. Picking, transporting, and organizing are all becoming optimized through autonomy.

Liberated from repetitive tasks, employees have more time to be creative and engage in customer-facing roles. 

3. Inventory Management Software

Inventory management takes time, especially as companies grow larger and their holdings balloon. 

Fortunately, warehouse management is scalable and capable of monitoring extensive inventories. Constantly updated, accessible information streams help managers monitor their stock, while automated processes reduce mistakes and compile accurate reports. 

4. Order Management Software

As with inventory, managing orders requires hours of effort. Smart systems can take inventories and orders to track transactions and customer whims. 

Management systems liberate human operators and enhance efficiency by minimizing errors. As a result, customer satisfaction and loyalty increase as delays, wrong orders, and other hiccups are less likely to occur. The impact can be surprisingly significant, as a single picking error can chafe customer trust and dampen the profitability of an order by up to 13%

5. Shipping Software

Error-free, on-time shipping is essential for keeping customers. Digital tags, automated storage and retrieval systems (AS/RS), and other shipping software combine to keep accurate stock and ensure that the correct items are shipped and the optimal delivery routes are devised.

Plus, 70% of customers would be more willing to buy online items with single-day shipping options, and 80% would pay more for quick shipments. However, most warehouses need help accomplishing one-day deliveries. 

6. Data Collection Software

panuwat phimpha / Shutterstock.com

A truly smart warehouse system has sensors to track equipment use, energy requirements, and more. Other data collection systems delve into supply chains to illuminate material sources or monitor deliveries to guarantee timeliness or plan more efficient routes for speed and gas efficiency. 

Artificial intelligence (AI), machine learning (ML), and other analytics then make sense of the data, offering clear and concise insights accessible from any device. A smart warehouse not only collects data but analyzes it and puts it to work.

Find out more about how to drive warehouse management innovation with machine learning.

Key Players in Smart Warehouses

1. Oracle 

Oracle was founded in 1977 in Santa Clara, California, and acquired NetSuite in 2016 for approximately $9.3 billion. Oracle NetSuite’s Warehouse Management System (WMS) optimizes day-to-day dealings and automates warehouse operations. 

Its warehouse management systems bring increased control through omnichannel functionality to manage orders across all channels, including call orders, web orders, B2B, and marketplace. Customizable services help managers hone in on the most valuable information and leverage smart tech to forecast market shifts and capricious customer demands. Mobile processing brings business operations into one’s hands to boost ordering and inventory management. 

2. DHL 

Octavio Hoyos / Shutterstock.com

Logistics leader DHL was founded in 1969 in San Francisco and now has 600,000 people in over 220 countries and territories, delivering 1.7 billion packages yearly. DHL provides warehouse management systems and supply chain solutions to allay logistic concerns. DHL has deployed numerous smart technologies, including various autonomous vehicles like forklifts, 4,000 collaborative robots (cobots), and around 40,000 wearables.  

3. SAP

SAP, or System Applications and Products in Data Processing,was founded in 1972 by five former IBM employees. The German company has grown into a multinational market maestro in enterprise application software, with more than 400,000 customers. SAP’s employment surpasses 105,000 workers from over 150 countries and partners with 24,000 companies. Total revenue (non-IFRS) exceeded $30 billion in the fiscal year 2022

SAP’s Extended Warehouse Management (EWM) offers flexible, lean designs focused on optimizing business benefits, as well as technological innovation, including augmented reality devices, drones, data solutions, and automation, among other services. Accessible, clear interfaces provide transparency while keeping operations visible and at hand.

4. Ryder 

Ryder began in 1933 as a concrete moving company backed by a single $35 payment on a single truck, a Ford Model A. Now, Ryder manages 260,000 vehicles and employs around 11,000 professional drivers and 5,000 technicians across 95 million square feet of warehouse space.

Ryder’s warehousing solutions offer real-time inventory management and personnel support for inventory movement. Technologies like autonomous vehicles and sensors can significantly improve efficiency and attain commercial leanness through warehouse automation. Cross-docking and e-commerce services leverage hundreds of Ryder hubs, covering 100% of the U.S. to meet customer demands while slashing prices and reducing time to market. 

5. Element Logic

Founded in 1985, the Norwegian logistics company Element Logic purveys specialized, automated warehouse solutions. It employs around 300 specialists throughout Europe to provide interconnected technologies.

In 2022, Element Logic expanded its global footprint by announcing the acquisition of SDI Industries, which supplies turnkey automation and sorting systems. SDI has eight locations in the U.S. and five in Latin America, with a workforce of over 200 automation experts. 

6. Extensiv

Extensiv’s 3PL Warehouse Manager promises “total visibility from shopping cart to doorstep” using cloud-based order-and-warehouse management. Extensiv, founded in 2006, promises to futurize companies, digitizing paper-based businesses into lean commerce machines with on-demand reporting that visualizes all operations. 

Digitization, automation, and analytics boost organization and complete clerical tasks like billing, reducing errors to benefit both customers and businesses.      

7. Smart Warehousing

Smart Warehousing is a 3PL logistics partner founded in 2001 in Kansas, which now has 38 warehouses nationwide and over 10,000 users. The company was built on Smart Warehousing Information Management System (SWIMS) technology, a cloud-based service that offers clients control and visibility of inventory, transactions, and business operations summaries. 

8 Benefits of a Smart Warehouse

A smart warehouse offers many benefits.

1. Increase Data Visibility

RFID technology and vast webs of IoT sensors keep everything visible remotely and in real-time. By swiping at their phones, managers can see their stock or oversee operations, such as deliveries. 

WMS-sharpened visibility gives acute oversight across the entire supply chain, from procurement to assets management to product movement. The glut of data also visualizes the invisible, generating insights to increase space use and enhance business or worker efficiency.

2. Improve Accuracy

Even the best employees make mistakes, whether due to distraction, dehydration, lack of sleep, or many other factors.

However, robots and computers do not lose mental acuity and can more reliably identify packages. Smart technologies can also collect virtual reams of data and perform analyses at great speeds to prevent errors in inventory, orders, accounts, and more.

3. Better Customer Service

Quality Stock Arts / Shutterstock.com

Increasing customer satisfaction is vital, and the fewer disruptions, the better. Receiving the incorrect item or suffering a delay can significantly affect customer contentment, making consumers less likely to return.

Smart warehouse technology optimizes supply chains and workflows to reduce business costs, with savings being passed onto customers. Additionally, AI can forecast trends to better serve customers. 

Developing a smart warehouse can transform customer relations. Warehouse managers who turn to AI processes can quickly and effectively relay customer complaints, calls, or emails to the correct department based on urgency.  

For example, estimates suggest that 35% of warehouses or fulfillment centers suffer an error rate greater than 1%. That may seem small, but automated processes can get this down closer to 0%. 

4. Improve Efficiency

Smart warehouse work can help businesses become more effective. Using digital twins, managers can simulate and test various designs and ideas before establishing them at physical sites, potentially improving efficiency by as much as 25%.

For example, online grocer Ocado used its fleet of robots to complete 50,000 orders in five minutes, thanks to data-driven choreography and warehouse layout. The company’s smart platform also improves efficiency in inventory and orders by assessing 20 million forecasts daily to plan discounts, push out inventory, and, most importantly, “maximize freshness and availability while reducing overstock and waste.” 

5. Increase Transparency

Warehouse management systems ensure transparency by rapidly visualizing operations as they occur. Want to check inventory, delivery routes, billing, and other financials? The desired metrics can be instantly accessed with a few clicks on any device. 

By marrying data with AI and ML to forecast trends, WMS can provide supply chain transparency. No matter the industry and vertical markets, a smart warehouse makes sense, given recent supply chain disruptions.  

6. Reduce Costs

Smart warehousing takes into account equipment and energy use, storage space, site size, and other aspects to ascertain the most effective use of resources and tools. One American manufacturer consolidated its disparate operations into a single complex, reducing operating expenses by more than 30%, according to McKinsey & Company.

Smart warehousers can reduce costs by decreasing losses, including those due to mistakes or waste. Thanks to AI, ML, and other analytic capabilities, Ocado, for example, slashed food waste to just one in 6,000 items. Additionally, food approaching its expiration date is donated to those in need. 

Smart warehousing saves costs in numerous other ways, including through more efficient delivery routes that lower gas use and emissions or through predictive maintenance to fix items before they break.

With poor maintenance strategies costing companies up to 20% in productive capacity and unplanned downtime accounting for $50 billion in industry losses, predictive maintenance can save companies money. 

7. Optimize Space

Optimizing space can be difficult, but intelligent technologies such as digital twins and computer-assisted design (CAD) can envision, simulate, and test designs digitally to optimize layouts for material flow, worker habits, picking methods, and the integration of automated tools.

8. Reduce Risk

Innovative warehouse design increases worker safety by creating an optimal layout for storage and automated equipment like robots and cobots. 

Additionally, well-maintained equipment is the safest, and predictive maintenance can keep everything in top shape to avoid accidents and dangerous breakdowns. In turn, 82% of executives plan to adopt predictive analytics by 2025, with the market expected to hit $17 billion by 2026

3 Disadvantages of a Smart Warehouse

Despite the numerous benefits of a smart warehouse, there are a few disadvantages. 

1. Investment Capital

Automated and interconnected technologies do have a drawback: costs. These include installation, subscription, equipment, maintenance, licensing, and other expenditures. 

Licenses can cost an enterprise business tens to hundreds of thousands of dollars. This includes installation, maintenance, and training. Keeping an IT staff, cloud-based expenditures, and hidden costs should also be considered. Therefore, depending on one’s needs and facility, total costs can dip into the millions or even tens of millions of dollars

However, prices are lower than ever. An industrial robot only costs half of what it did a decade ago, reaching $23,000 in 2022 from $47,000 in 2011, and it’s anticipated to fall another 50-60% by 2025.

2. Reduced Workforce

As in other sectors, automation may reduce the number of human workers in the warehousing sector. It’s an age-old concern.

Plus, adopting WMS will create a technological environment that may lead to an experience or knowledge gap, as employees may require new training to keep up with the technology. 

3. Difficult to Adapt Operating Methods

In addition to capital and workforce concerns, overhauling or retrofitting a warehouse can prove a lengthy prospect. It depends on one’s facilities, as older warehouses may need more work, including an upgrade of electrical and other systems or structural refurbishments. 

A smart warehouse is a collection of advancements, whose individual and synergistic functions depend on compatibility and interoperability. Powering these devices and operations can prove a challenge as well, given the shifting energy demands of technological innovation. Becoming more energy-independent can be a boon but requires further effort. 

Smart Warehouse Use Cases

Use cases vary in their specifics but typically not in their results, which prove to be favorable. For example: 

How Ocado Uses Artificial Intelligence and Machine Learning

Ocado, the UK-based online grocery market, enhances its operations with AI and ML. 

At its 53,000-square-foot London installation, robots work across massive grids, each the size of three soccer fields. The robots, powered by Ocado’s ML system, sort orders and help their human coworkers ready deliveries. 

Robots pick 50 items every five minutes, compared to standard conveyor belt systems requiring more than an hour. The AI-and-ML-driven accuracy results in lower food waste. Ocado has 0.5% food waste, compared to the industry average of 3-5%. 

How IKEA Uses Automation

Around the globe, smart warehousing helps IKEA fulfill many of its orders within a single day, thanks to an automated storage and retrieval system utilizing a series of cranes. This swift inventorial action allows rapid access to approximately 10,000 products stored across 100 feet of vertical space.

How Tesla, LEGO Use Industrial Robots 

At Tesla’s mega-factory near Reno, Nevada, self-navigating robots safely roam the grounds, helping the company build lithium-ion batteries. 

Industrial robots also sustain one of the world’s most popular toys, LEGO, at the Billund, Denmark factory. Autonomous bots build 36,000 LEGO pieces per minute, totaling 19 billion per year.

Other Examples of Companies Using Robots 

  • Amazon uses Kiva robots to transport parcels throughout its fulfillment centers. 
  • Alibaba utilizes the Cainiao Smart Logistics Network, relying on automated vehicles and AI to conduct warehouse operations. 
  • DHL relies on the breadth and efficacy of IoT tools to manage its immense stock and forecast future needs.

The Future of Smart Warehouses

Smart warehouse adoption will likely continue to rise due to falling technology prices, increased consumerism, and the proliferation of IoT devices.

These IoT devices are continually becoming more affordable, as their price has dropped from $1.30 in 2004 to $0.44 in 2018. Modern sensors and other tools are more effective as well, with longer battery lives, better ROIs, and plug-and-play accessibility. Computing and data processing prices are also dropping, and low-power wireless networks allow the transmission of IoT-generated data that is cost-effective. 

With SaaS booming, vendors and operators are reaping the rewards of affordable, scalable subscriptions that provide increased connectivity throughout the warehouse and supply chain. Robots, autonomous vehicles, drones, wearables, and AR devices are also becoming commonplace. The potential is immense, as about 80% of warehouses do not have automated solutions. As a result, the warehouse automation market is projected to reach $37.6 billion by 2030. 

A Smarter Industry

The rewards of smart warehouse systems are proven, and those who overcome industrial obstacles can establish and propel a global business.

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