Day Two at the Material Handling & Logistics Conference

There are those who say we’re in the midst of a five year transformation of our industry. Ulf Henriksson, Dematic’s global president and CEO, argues that we’re in the midst of a ten year transformation.

It’s Day Two at the Material Handling & Logistics Conference in Park City, Utah. Yesterday’s kick off began with a vote of confidence in their businesses by attendees, with nearly 94 percent responding in a survey that they were planning for steady (20%), moderate (59%) or explosive (14.3%) growth over the next three years. If markets are a zero-sum game, or resemble the proverbial ying-yang sign, somewhere back home there are a similar number of distribution professionals wringing their hands and singing the blues. (PS – for anyone looking for a boost of optimism, and an athlete who will make you proud, take the time to hear swimmer Michael Phelps, last night’s keynote speaker, if he’s at a conference near you.”)

That sense of optimism was echoed this morning by Ulf Henriksson. He offered four reflections on business today that resonated with me, including the state of the materials handling industry.

Reflection Number 1:  We’re still growing: We all know that businesses today are looking to emerging markets for their future growth. Given the aging of mature markets and population and income growth in emerging markets, it only makes sense to target a billion potential new customers in China, India and Africa. The materials handling market is turning that model on its head, according to Henriksson, who says that the industry is seeing growth in mature markets in North America and Europe. Why? Because the way the consumer is ordering the things it wants to buy has changed the infrastructure required to meet that demand. He added that he is seeing three themes emerging: In the U.S., where our industry is struggling to find people willing to work in warehouses, companies are exploring robotics and the lights out warehouse concept. In Europe, where there is a different relationship with labor, companies are more focused on software that will enable people to do more. And in China, as in the U.S., there is a growing interest in automation because people in highly-populated areas where distribution centers are located are no longer willing to work in DCs.

Reflection Number 2 – There is a capacity crisis: Our industry doesn’t just lack people to work in warehouses. We’re also running into a capacity crisis when it comes to the engineering talent, which is one reason that Dematic created a “scalable supply chain” by opening engineering centers in new geographies outside of North America. More importantly, he sees “organic consolidation” going on in our industry, exemplified by Kion’s acquisition of Dematic, Honeywell’s acquisition of Intelligrated and Kuka’s acquisition of Swisslog. As the big get bigger, with more capabilities, Henriksson says large OEMs and integrators are growing at a faster rater than their smaller competitors, who he thinks will find it harder to serve large customers. Expect smaller competitors to concentrate on niche markets. As to the Dematic-Kion matchup, he says it will allow the two to “follow our customers needs from low tech to high tech.”

Reflection Number 3 – It’s all about the software: This is a theme we’ve been writing about in Modern since before the last Promat. Henriksson echoed that today, stating that the speed of automated systems is no longer the issue. Instead, its creating software that allows us to reconfigure existing systems to meet emerging needs without ripping and replacing the hardware; that is as intuitive and easy to use as our smartphones; and that enables real-time decision making with a real-time view into the effects of those decisions.

Reflection Number 4: Think global, but act local ……in your DC: Henriksson argues that in the future, the large regional DC will become subservient to the local warehouse that is close to the customer. That in turn means that manufacturers will have to change the way goods are transported. Instead of pallet loads of one SKU, think totes with lots of SKUs. “We’ll see a large SKU count but little inventory that’s close to the consumer,” Henriksson says. What’s more how we sequence orders will be driven by the best route delivery schedule, which may involve a van or delivery truck, but also a drone, bicycle messenger or unmanned vehicle.

He ended by noting that many see a five year transformation for our industry. “I say: No. I see a transformation lasting at least ten years.”