The e-commerce boom in Latin America is forcing change upon where and how warehousing is managed. Today the warehouse function is to store and distribute a stock of products from locations, chosen for their low real-estate costs, outside of major urban centers. But e-commerce will come to dominate warehousing needs. When customers expect delivery at home instead of shopping in a store, the products they purchase are handled many-fold more, with each unit subject to its own packaging, labelling and delivery versus shipping containers to retailers. In China, where e-commerce represents 18% of retail, economies of scale have brought down fulfillment costs so digital commerce can compete with brick and mortar retail. In Latin America however, e-commerce is less than 3% of formal retail, closer to 2% of total retail. Fulfillment costs are too high and delivery times are too slow for the delivery of all but hard to find (in traditional retail) products…hence the need to revolutionize warehousing.
The next generation of e-commerce warehousing will move closer to its customers, inside large cities, to help reduce fulfillment times. But it is investment in automation that will transform e-commerce warehousing. Today, ecommerce strains the profitability of providers, in part because sales are bunched into a couple of short periods of the year (Christmas, hot sales, Black Friday, etc.) when labor is already in high demand. Therefore, automation is first and foremost needed to reduce labor usage. Another failing of e-commerce in Latin America is the unacceptably high rate of mishandled product resulting in broken, or erroneous deliveries. Automation and robotics inside the warehouse will reduce such blunders to more business sustainable levels as well as economize space, thus neutralizing the higher real-estate cost of moving to the urban center.
Warehouse operators anticipate that automation will begin with autonomous mobile robots that stack and move ordered items to packers to fulfill orders and increase their productivity. Other innovative tools soon to be implemented will automate the picking process with Warehouse Management Software, hands-free scanning, and voice-directed systems, as well as RFID tagging.
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Next will come automated conveyors, sorters, pick modules, automatic wrapping and labeling machines and other mechanical equipment, which are costly to implement and require either a new facility or significant redesign of existing warehouse space. Once that infrastructure is in place, then installing semi-automated solutions with Automated Storage and Retrieval Systems (AS/RS) and more advanced software controlling equipment will accelerate the flow of products. The fourth level includes fully-automated solutions with industrial robots for layering/delayering and palletizing, truck loading/unloading, together representing investments close to USD 40 million per facility.
Each stage requires significant investments, particularly stage four. Only pockets of Brazil and Chile have the e-commerce demand and labor costs to justify the investment in even the 2nd or 3rd level. Mexico and Argentina will follow suit. It is the classic chicken and egg dilemma. Without warehouse modernization, ecommerce cannot compete with brick and mortar in most product categories. Without enough e-commerce demand, fulfillment players struggle to justify the investment. The bold will be rewarded because other emerging markets, most notably China, provide a test study of the enduring demand growth of e-commerce in markets where brick and mortar never reached their full potential.
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