COVID-19 and the Sudden Rise of Online Grocery

Unsurprisingly, the confinement measures imposed in recent months throughout the world have accelerated the consumer trend toward online grocery. The 2019 industry projections of 17.5% annual compounded growth over the next five years have been blown out of the water by the likes of big box retailers equipped with the right tools and solutions to overcome the sudden rise in online grocery. Those brick-and-mortar grocers who quickly enabled their operation with e-commerce capabilities have relatively fared better than others.

The high levels of automation in fulfillment centers can only be achieved at the cost of infrastructure flexibility. With a warehouse floor that was never designed for human operators, many companies are likely limited in capacity to adapt to the sudden rise in demand.

This is a good reminder that successful online grocery models do not necessarily depend on high levels of automation.

Aiming for success

To be competitive, an online grocery operation should always strive to meet these four fundamental objectives as much as possible: 

1.      Achieve the lowest total cost to ship each order.

2.       Fulfill the highest possible number of order lines per hour.

3.       Achieve the highest level of order accuracy.

4.       Meet the first three goals while complying with food safety regulations.

The performance of customer fulfillment centers (CFCs) hinges on the high levels of integration that the outside processor achieves between the physical assets and processes, and the technology solutions that support them. But, such levels of integration between an operation’s software architecture — the brains — and its material handling system — the brawn — can be achieved in various ways.

To put it simply, you do not need high level of automation to meet the four fundamental objectives stated above. Nor do you need to invest the kind of capital some solutions demand. A high-performance warehouse management system (WMS) paired with the right material handling system (MHS) can meet the needs of an online grocery operation just as well—and for a fraction of the price.

All the brains and brawn

First, the brains.

A WMS is designed to support an operation’s distribution activities and manufacturing execution. A good WMS will for example:

>         Help monitor production processes.

>         Determine and support efficient picking operations.

>         Coordinate replenishment tasks.

>         Organize outbound processes.

>         Provide granular visibility into stocks.

Better WMS will also include modules to achieve product traceability and help ensure food safety controls.   

There is a large range of WMS available on the market, making it easy to find a system adapted to a specific operation. With the right implementation partner, it is also possible to integrate systems from vendors, third-party logistics providers, co-manufacturers and clients with the WMS. In this way, the system structures an online grocery’s activities well beyond the walls of its fulfillment center, leading to increased operational efficiency.

While a best-of-breed WMS and its implementation can be capital intensive, competition between solution providers guarantees that they remain a far cheaper option than other more proprietary solutions. Competition between providers also entails that e-grocers can avoid “solution lockdown,” meaning that upkeep and upgrades can be implemented at fair market prices. 

And then, there’s the brawn.

What was true of a WMS is also true of MHS. There are many MHS vendors and a variety of available solutions on the market, from shelf and cart picking to pick-to-belt technology. This makes it easy to find a solution that is adapted to an operation’s specific requirements and budget. 

Another interesting advantage of a MHS is that it can be implemented incrementally. This affords grocers a lot of flexibility in how they scale their operation. It also helps them avoid tying up too much of their capital at once.  

The key with a MHS is to find a healthy balance between process automation and system flexibility. Automation fosters greater throughput, but risks making a supply chain’s infrastructure too rigid to adapt to unforeseen situations—like the sudden surge in demand caused by the pandemic. On the other hand, system flexibility allows e-grocers to scale more easily and adapt with agility to seasonal peaks, to new lines of products that require different picking methods and to sudden changes. Too much flexibility, however, and an operation’s throughput capacity suffers.

The takeaway 

The outside processor is not necessarily a poor investment. The largest e-grocers who face very high labor costs may indeed churn out good ROI from investing in CFCs. Chances are, however, that those processors’ relative underperformance in recent months will lead these larger grocery chains to keep exploiting more traditional facilities to preserve some network flexibility. Integrating these facilities with the outside processor could prove difficult. In any event, it will be capital intensive. 

In an industry where seasonality and difficult-to-pick items are the norm —how will automated systems pick a fresh apple and not a bruised one?—, systems flexibility is a critical element of success.

Not only does the right WMS/MHS combination afford grocers that needed flexibility, but it also provides all the brains and brawn to meet their fundamental objectives without tying up as significant a portion of their precious capital.