In this episode, guest Dwight Klappich, research vice president at Gartner, discusses the growing interest in robotic goods-to-person systems. Robots are hot right now. What makes them the cool technology to have for distribution operations, and in what ways are they being deployed? Klappich shares the latest research Gartner has done into these fascinating and quickly-evolving technologies.
Many companies held on to their cash during the pandemic, and now there is more incentive to move forward on projects that have been kept on hold for the past year. New research predicts how companies will spend their money during the remainder of this year.
And earnings reports came out this past week for the fourth quarter of 2020. Two organizations in particular give us reason to hope that there are better days ahead for the supply chain industry and the overall economy. The United States Postal Service and XPO both showed profits in that quarter, but the challenges for getting back to normal are still enormous.
Articles and resources mentioned in this episode:
Podcast sponsored by Aptean
Other links
In this episode, guest Dwight Klappich, research vice president at Gartner, discusses the growing interest in robotic goods-to-person systems. Robots are hot right now. What makes them the cool technology to have for distribution operations, and in what ways are they being deployed? Klappich shares the latest research Gartner has done into these fascinating and quickly-evolving technologies.
Many companies held on to their cash during the pandemic, and now there is more incentive to move forward on projects that have been kept on hold for the past year. New research predicts how companies will spend their money during the remainder of this year.
And earnings reports came out this past week for the fourth quarter of 2020. Two organizations in particular give us reason to hope that there are better days ahead for the supply chain industry and the overall economy. The United States Postal Service and XPO both showed profits in that quarter, but the challenges for getting back to normal are still enormous.
Articles and resources mentioned in this episode:
Podcast sponsored by Aptean
Other links
David Maloney, Editorial Director, DC Velocity 00:01
Why robots are the hot technology right now. How are businesses planning to spend money this year? And some important earnings reports shed light on the economic recovery.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Aptean. Aptean is a global provider of mission-critical, industry-specific logistics and transportation management solutions. Aptean routing and scheduling delivers the most advanced transportation management systems to world-leading brands, helping to drive operational success, reduce transportation costs by up to 30%, while optimizing delivery routes to meet rising customer expectations. For more information, visit Aptean.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: how have robotic systems become the hot ticket for distribution? To look at that, here's Victoria with today's guest, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:20
Thank you, Dave. Yes, our guest today is Dwight Klappich of Gartner. Dwight is research vice president and Gartner fellow. We asked him here to talk with us today about some recent research he conducted on robotic goods-to-person material handling technology, and how it is expected to grow over the next couple of years. Welcome, Dwight.
Dwight Klappich, Research Vice President, Gartner 01:39
Well, good afternoon. Thanks for the time.
Victoria Kickham, Senior Editor, DC Velocity 01:42
So, I just wanted to say, and start out by saying, this research is part of a recent Gartner report on supply chain technology predictions for this year. In it, you note that demand for robotic goods-to-person systems will quadruple through 2023, largely to help enforce social distancing in warehouses and distribution centers. First off, how do you describe or define robotic goods-to-person systems, and what specific advantages does the technology deliver when it comes to health and social distancing?
Dwight Klappich, Research Vice President, Gartner 02:11
Well, first off, I think there's, if you talk to companies, there's different ways that they could approach social distancing. We look at some of those as being a bit draconian and invasive—you know, basically, the continuous tracking of employees, every movement, ever [hour?], who they socialize with, or whatever. You know, historically, that's not been particularly appealing to labor groups—labor unions and the like—because it's tough, you know, to think that you're being monitored with everything that you do all day long. But, it is a way to potentially address social distancing. What we believe is that the goods-to-person systems is a less draconian way to do that, because what you do is you put the people in one place, and you allow robots to then move goods around, which allows you to, you could put people every 10 feet while the robots to deliver the goods to the people. You've now enforced social distancing without tracking them 24 by seven. And then it also adds some additional benefits, you know, from a, you know, pandemic. It's easier to clean, you know, if you feel like you need to clean the workstations, you can do that, versus, Hey, people wandering around a half-a-million-square-foot warehouse, much more difficult. So, you know, that's why we thought that the pandemic is going to help fuel, you know, demand for goods-to-person systems, because it's a fairly inexpensive, easy way to get there and it is going to be more appealing to most labor groups.
Victoria Kickham, Senior Editor, DC Velocity 03:54
You know, what other factors are driving demand for goods-to-person systems at this time? We've seen, you know, an accelerated demand for our technology in general, but what other things that you're seeing here?
Dwight Klappich, Research Vice President, Gartner 04:04
Well, yeah, that's a great question, because what's interesting is goods-to-person technologies are not new. I mean, many people might remember that Amazon bought a company, Kiva, back in 2012, and that was one of the first kind of robotic goods-to-person systems. There's been other forms of goods-to-person systems. So, there's strong value in goods-to-person systems irrespective of the pandemic, it's just that the pandemic became that additional kind of nudge to kind of move people in this direction. So, what do they do? They improve productivity by reducing the amount of travel that the humans, will let the robots do the movement of the goods versus, you know, people walking. That adds a secondary benefit, which is beneficial to the humans. For example, I was speaking to one of our clients a while back, and they said that their average person's walking seven miles a day in their warehouse today, which, let's be honest, I mean, it's good for your health, but it's exhausting to think every single day, that's what your your lot in life. So, the the robots, in addition to improving productivity in general, are also making it a more appealing work environment for many people. So, the pandemic is just really lighting the match to something that was already started, and that's why we think it's going to accelerate demand. But I think that demand is going to be sustainable once the pandemics gone,
Victoria Kickham, Senior Editor, DC Velocity 05:51
You mentioned a minute ago, you know, sort of the ease of implementation and sort of affordability of robotic goods-to-person systems. I wondered if you could elaborate on that a bit. I wonder, you know, if this is something that may surprise some companies who think of new technology is really complex and costly?
Dwight Klappich, Research Vice President, Gartner 06:08
Well, I think one thing we have to be cautious of—and I actually agree with that, but I just want to want to kind of qualify that—is there are different styles of goods-to-person systems. Some are more costly, and there's more that has to go into this. You know, these might be you know, shuttle systems, like Knapp, an AutoStore, or other systems like that, that we fit what we call "engineered systems." They have huge value, there's hundreds of people using that, there's still a lot of value there. Yes, more costly, a little harder to design. Some of the advantage of those systems is high density of storage speed, and some of those. You know, the goods to the robotic goods-to-person systems that we're speaking of here, their genesis does go back to Kiva, and there are certain solutions now that look a lot like the Kiva solution. And why they're fairly inexpensive is there's not a lot of infrastructure cost, you know? I can introduce those systems for fairly low capital cost. I can introduce, you know, a solution in just one part of my warehouse and continue to run the rest of my warehouse the way I used to. I don't have to spend a lot of money on conveyors and other types of technologies, so I can start small, grow with it. My upfront cost is less, my time to value is less. So, I mean, all those things kind of favor some of these robotic goods-to-person. So, these are the GreyOranges of the worlds, the Geek Pluses, and some others. So, my upfront cost is significantly less, and then even some of them are doing robot-as-a-service, which makes more of an operating expense than a big upfront capital expense. And then clearly, there's some systems integration that has to be done,ut that, again, is not, you know, we're not talking two-year projects to do some of that, so that's why it's a fairly low-cost, rapid-time-to-value type of solution.
Victoria Kickham, Senior Editor, DC Velocity 08:21
Right, thank you. Yeah, that makes sense. Along those lines, what are some of the first steps they may want to take?
Dwight Klappich, Research Vice President, Gartner 08:28
Well, I mean, in any of the robotic or mobile robot solutions, I think one of the first things they need to look at, because it's going to be one of the major advantages, is travel time. Travel is basically wasted time in any warehouse environment, so anything you can do to shift that from, you know, humans to, you know, robots or other forms of equipment has a huge benefit. Now, that might sound like there's gonna be millions of people unemployed, but the reality is that most logistics organizations have been struggling to get enough people over the last couple of years, so it's not so much to use this technology to replace people, it's to use this technology to supplement the people, allow them to get the same amount of work done with the same or fewer people. Let the people do what the people are good at, let the robots do what they're good at. So, travel is certainly one of the first target areas for any of the robotic systems. I think in the goods-to-person systems, then you say, from an e-comm or individual item picking [perspective], you know, how can I you know, actually you improve the throughput, improve the efficiency of those processes, by keeping the person one place, and then letting the robots not only just move goods, but to kind of synchronize the activities that I might be moving multiple things to actually fulfill multiple orders, but instead of the person having to wander around—that takes time and is less efficient—now I can actually get more throughput because I'm kind of letting the robots kind of queue things up and stage things and organize things in a much more efficient way. So, I think those are some of the key targets of some of these types of solutions. I would look at my operations there. I'd look at, you know, what my facilities look like. Certainly, that's going to be both potentially a positive and a constraint, you know, does my facility allow me to do something like this? Will I use my facility efficiently enough? But I haven't seen that become the only thing that keeps someone from moving in the direction of some of this technology.
Victoria Kickham, Senior Editor, DC Velocity 10:54
I just wanted to ask: The broader research that your work was part of noted that, I think it was six in 10 companies are investing or have already invested in digital supply chain strategies, and 72% see technology in general as a competitive advantage. Sort of following up on a point we've talked about earlier, how much has the pandemic accelerated these views and actions—sort of this idea that, you know, technology is kind of where I need to be focused?
Dwight Klappich, Research Vice President, Gartner 11:21
Well, I probably should kind of tell you where the data comes from. So, Gartner's run a study—we call it the Supply Chain Management Technology User Wants and Needs study—for 14 years now, where we've been asking supply chain professionals questions about their strategies, investment goals, and drivers around technology. Now, they emphasize the focus on the end user. Not that we don't talk the IT people; we, of course, talk to IT people. But there are certain things, like this question about, is technology a source of competitive advantage, we wanted to see, would the business users see it the same way that IT. We thought that there might be some bias from IT. That's their life, right? They live IT, so they might see it. What was important here is that the business users also see IT as a significant contributor to competitive advantage, and so that's why we see this level of investment in digital technologies, because they know that to keep pace in the retail world, and even outside the retail world, what do you hear all the time? It's the Amazon effect. You know, "I can't invest the same way Amazon can, but what can I do to at least keep pace with with Amazon?" Or, you know, in other markets, there are other companies that people would say, "I have to stay competitive." So, they're looking at the technology. Now, is the pandemic accelerating this? The pandemic accelerated some of this, in some areas, because companies had to figure out, how do we survive, given the constraints that the pandemic put on them? So like, this whole conversation about the robots was, you know, "Hey, my e-comm business is growing right now, I have to do something now that's gonna allow me to kind of scale up and grow that business. And oh, by the way, I'm starting to have issues—even more issues—with my labor," because people might test positive and not be able to come to work or, you know, other factors. And so, that was the impetus to drive some of the investment in technology. But again, while it's the impetus, right now, I think that's just fueling this, but I don't think it's going to stop post pandemic. And the same thing with other emerging technologies. I think we've seen some of those driven in the short term by the pandemic, but certainly there's sustainability in that.
Victoria Kickham, Senior Editor, DC Velocity 14:14
Yeah, that makes sense, too. We've covered a lot here. I wanted to just close out by asking if there's anything else, any other key points about this most recent research you'd like to mention?
Dwight Klappich, Research Vice President, Gartner 14:25
Well, I think what's interesting, in that same study we just referenced is that—and we've seen this for the 14 years to this study—one of the questions we ask is, you know, technology adoption, and we ask a separate question about what your risk culture is, because that kind of gives us a flavor for where a certain organization might focus when they're looking at investing in technologies. And so, from a kind of technology adoption, many people have heard early adopters, mainstream, conservative adopters. We've seen kind of consistently throughout the life of the study, about 20% of companies—you know, 18 to 22, average that out around 20—are early adopters of technology, and when you look at that, there's these are also the companies that have the most risk-tolerant cultures, and in fact, taking intelligent risk is actually encouraged in some of these [companies]. We call these "risk exploiters," that they see risk as an opportunity for them to again, gain competitive advantage. So, they will be the ones that go out, and they will take raw technology like, they'll go buy raw technology building blocks, like an IoT platform, or, you know, an AI platform, and then they'll build something around that. But they have that culture that can say, "Hey, we'll go out and do that, but if it fails, it fails. We tried." The reality is most companies aren't there. The mainstream represents about 55% of the marketplace, and they tend to wait for more packaged solutions, so there's a change in kind of the way companies look at that, and that A-type company, that early adopter looks for an IoT platform, and they might build a predictive maintenance system around it. The mainstream buyer's looking for a predictive maintenance system that's enabled by AI, or IoT, or something like that. And the good news is, that's where we're at now. We're starting to see some of these technologies that used to be fringe technologies—like AI is a good example—getting embedded inside packaged applications where that mainstream buyer's looking for a business solution. "Hey, I'm looking to drive more work through my warehouse, so I need much more sophisticated work-management type of solutions"—and that's been a hot area in warehousing, by the way, so, you know, vendors like Manhattan and their order stream, or Blue Yonder, and their taskingm or independents like Red Pilot, Cognizant, [inaudible]. You know, it's, "Okay, we've got AI, but how do we use that to actually run a warehouse more effective?" So, that's really one of the exciting things in supply chain, and particularly in my world of warehousing and fulfillment, is we are starting to see those—you know, I won't say they're 100% package apps at this point in time, because they are still relatively new, but they are kind of, you know, pre-built solutions, and that's where, then, you start to see the hockey-stick effect, okay, that's when that 55% really jumps into the market. And we're already starting to see some of that. So, I think that was an interesting observation from the study. So, we actually looked at another area, 10 emerging technologies, you can really see that as to where people are. So, like robots is moving into that mainstream category. You know, they used to be kind of viewed as kind of, you know, kind of early-adopter technology, but now it's mainstream. And so, we've seen a significant increase in just interest on the part of our customers in all things robotics, because of that.
Victoria Kickham, Senior Editor, DC Velocity 18:30
Great, thank you. It will be interesting to see where all of this goes. Dwight, thank you for being here with us today. As I said earlier, we've been talking with Dwight Klappich of Gartner. Back to you, Dave.
David Maloney, Editorial Director, DC Velocity 18:42
Thank you, Dwight and Victoria. Now let's take a look at some of the other supply chain news from the week. Ben, you shared this week newly released earnings reports that show some reason for optimism. What did they say?
Ben Ames, Senior News Editor, DC Velocity 18:55
That's right, Dave. Often February is kind of a slow season after the the busyness of the holiday peak. But today is actually the start of the Lunar New Year, also known as Chinese New Year, as we move from the Year of the Rat to the Year of the Ox. So, there's also the quarterly earnings season. So, it's actually a little bit busier than a typical year for this time. But this week, we heard from two of the biggest players, the U.S. Postal Service and XPO Logistics, and they both fared pretty well for the three months ending December 31. Again, that period included the winter holiday peak, of course, so they had plenty of volume to handle, but it's still significant that they showed some improvement in terms of profitability as the country enters the early stages of getting vaccinations out. So, the Postal Service actually showed a profit for that period, which they call their fiscal first quarter, making $318 million, which is significant, because that has not happened for a long time over there, as the service continues to see sinking revenue from it's largest sector, first-class mail. And that's offset to some degree by growing revenue from parcel volumes, from all the e-commerce that we're all buying. In fact, just in November, the agency said that it had closed its first full year ever that it collected more revenue from parcels than from mail, so you can see there are a lot of changes happening over there. But the numbers certainly don't show that things have quite turned around at the agency yet, because their quarterly results would actually have been a $650 million loss if they hadn't made a temporary surcharge on peak-season package fees. So, in fact, they're not profitable overall on the year, because they lost $9.2 billion for their year that ended in November. So, the post office is still planning to announce what they call a "comprehensive restructuring and financial plan" in the new year—we don't have details on that yet—to try to trim those losses.
David Maloney, Editorial Director, DC Velocity 20:53
Yeah, and hopefully we'll have those details soon. XPO is also planning some big changes in 2021, right?
Ben Ames, Senior News Editor, DC Velocity 21:00
They sure are, as our listeners might remember, XPO has grown over the years, largely through a quick series of acquisitions, including some very large companies: Con-way Freight and Norbert Dentressangle in France. But they had recently announced that they're going to split the company into two parts: a contract warehousing logistics unit and less-than-truckload and brokerage arm. So, despite the pandemic and a big financial hit to their profits in the past year, they say that they're moving ahead with that plan to spin off part of the company. So, to be sure, XPO had a rotten year. They had net income of 117 million [dollars], compared to their profit of 440 million the year before, about four times as much, but they were still profitable, and a lot of that was because of a strong fourth quarter through December 31. They had their highest quarterly revenue for any quarter in the company's 10-year history. So, XPO now predicts that momentum will carry into 2021. They issued an earnings target of 1.8 billion for the new year. That's way above their 2020 earnings, which was 1.0 billion, but it's also above 2019. So, the reason is that XPO's founder and CEO Brad Jacobs said the company has what he called "tailwinds" at their back, and he was talking about industry trends, like e-commerce fulfillment and returns, supply chain outsourcing, and customer demand for XPO's new digital capabilities. Again, those are industrywide trends that he's talking about, for the most part, so if Jacobs is right, then there could be some reason for optimism about logistics and transportation results at many companies in 2021.
David Maloney, Editorial Director, DC Velocity 22:38
Certainly hope so, Ben. Thank you. And sticking with economic news: Victoria, you reported this week on the spending outlook for businesses. What can you tell us?
Victoria Kickham, Senior Editor, DC Velocity 22:49
Sure, Dave, yes, happy to. So, businesses are showing steady improvement in their spending outlook as 2021 gets underway. This, of course, follows a sharp decline in the early days of the pandemic. All this is according to data from spend-management technology vendor Coupa Software, which released its Business Spend Index, Q1 21 Outlook this week. The outlook is based on data from the fourth quarter of 2020, and in it, researchers said business spend sentiment improved for the third straight quarter at the end of the year, and that the first quarter outlook calls for gradual improvement as well. To give you some details, their index grew almost 3% in Q4, but it remained below trend, the researchers said. The gist of it is that businesses are spending more on shipping, technology, and contract or project-based workers. So, year over year, the index tracked a more than 12% increase in business spending for shipping and freight in the fourth quarter. That was bolstered by heightened global demand for e-commerce, healthcare, and consumer packaged-goods industries, as we all saw people buying more and more from home. The index also noted a nearly 12% increase in business spending on technology and a nearly 23% increase on contingent workforce spending. So, to me this all seemed to echo some of the trends we've been tracking in logistics over the last several months. First of all, the increase in shipping due to e-commerce, also rising demand for technology, and also some of the labor issues we've tracked as logistics companies work to maintain staffing levels and implement new protocols for dealing with the pandemic.
David Maloney, Editorial Director, DC Velocity 24:27
Did the data address any long-term trends?
Victoria Kickham, Senior Editor, DC Velocity 24:30
Yeah, well, not specifically, but they did note that businesses remain cautious about the global economic outlook. That's primarily due to the pandemic, as you'd expect. But they also said that while their outlook shows modest improvement overall, as I mentioned, it's still below trend, and that a return to normal conditions is really unlikely until the virus is on the wane. Specifically, they said things won't get back to normal—to trend—until the number of new Covid-19 cases reported daily has been quote "significantly reduced." So, you know, speaking of how the pandemic has affected business, the report also pointed to some, some decreases, and they tracked a 96% decrease in business spending on air travel and a 25% decrease in spending on office supplies year over year in Q4. None of that's really surprising, but I think it helps to put things into perspective. So, it was an interesting look at some statistics as we start the new year.
David Maloney, Editorial Director, DC Velocity 25:25
Yeah, and those two you pointed out were definitely in the industries most affected by the pandemic. Let's hope that improves as we move through the year. Thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 25:35
You're welcome.
David Maloney, Editorial Director, DC Velocity 25:36
And we encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast Notes section for some direct links on the topics that we discussed today. Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 25:51
Thank you, Dave.
Victoria Kickham, Senior Editor, DC Velocity 25:52
Yeah, thank you.
David Maloney, Editorial Director, DC Velocity 25:53
And again, our thanks to Dwight Klappich of Gartner for being with us today. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
We also encourage you to rate this podcast, if your podcast platform allows for that. We do appreciate your feedback.
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We'll be back again next week with another edition of Logistics Matters, when our guests will be Shawn Winter of Descartes, who will discuss super peaks. We'll explain that all next week, so be sure to join us. Until then, please stay safe and have a great week.