Supply chain tech: How warehouse automation enables faster fulfillment

From gadgets to groceries, “the everything store” has fundamentally reshaped how people shop. In 2021, Amazon accounted for a whopping 57% of online purchases in the US. The company sold over $125 billion in merchandise — three times more than Walmart, its nearest competitor¹. Amazon’s goal to sell as many items to as many people as possible has altered our expectation of how quickly we can obtain a product: Largely due to Amazon Prime, we’re hooked on free two-day delivery.

This expectation is putting pressure on other sellers to deliver. In 2012, online shoppers expected to wait a max of 5.5 days for free delivery. By 2021, the expectation had narrowed to 3.3 days². Delivery times are only speeding up. For products such as groceries, the standard is now same-day delivery.

This new normal may benefit customers, but it poses a threat to businesses that can’t keep up. To stay competitive, more retailers are relying on technology to expedite tedious back-end tasks like sorting, packaging and shipping.

Warehouse automation is no longer a ‘nice-to-have’ but a ‘must-have’ to achieve profitability at scale.

At SVB, we’ve seen firsthand how companies are successfully adopting warehouse automation, and we’ve supported the innovators making it possible. Companies like Locus Robotics, 6 River Systems (acquired by Shopify) and AutoStore have benefited from a wave of investor interest in supply chain tech that began a decade ago and has surged in the last two years. Our data shows that US venture capital investment in supply chain technology peaked at $23.8 billion in 2021, a 27x increase from 2012.

While investment has cooled amid macroeconomic uncertainty in 2022, the demand for faster and low-cost delivery is only growing. At the same time, a reshoring boom is bringing new manufacturing to the US, exacerbating labor shortages domestically. As a result, the need for warehouse automation is high, especially during the holiday shopping season. Locus Robotics told The Wall Street Journal that a third of its customers leased additional robots for the 2022 holidays, up about 25% compared to last year³.

Source: PitchBook and SVB analysis, includes companies involved in logistics, supply chain technology and warehousing

Amazon spurs formation of supply chain tech companies

Amazon’s vast infrastructure is one of its strongest advantages over competitors. The company operates 150 million square feet of warehousing space at 175 fulfillment centers across the world, each bigger than Yankee Stadium⁴. Roaming through these facilities is a fleet of 520,000 robots aiding workers by lifting heavy objects, and scanning and sorting packages. Automation has been a lynchpin for Amazon’s effort to improve profitability while scaling.

The turning point for supply chain tech came in 2012 with Amazon’s $775 million acquisition of Kiva Systems. At the time, retailers like Walgreens, Gap and Staples were using Kiva’s robots to manage inventory. Amazon spun the acquisition into the creation of Amazon Robotics, an initiative that has saved the company billions in operational costs and significantly reduced click-to-ship times. More broadly, the Kiva deal kickstarted a wave of investment in supply chain and warehousing fulfillment technology across the US.

Source: PitchBook and SVB analysis, includes companies involved in logistics, supply chain technology and warehousing

Formations for US supply chain tech companies, as measured by first VC fundings, nearly doubled from 2012 to 2016, peaking in 2018. More recently, global gridlock from COVID-19 has renewed interest in supply chain tech. Formations spiked 33% in 2021, the biggest one-year increase since 2012.

Step-by-step: How warehouse automation works

Amazon’s use of automation has upped the ante for other retailers. VC investments have fueled a wave of promising startups focused on improving fulfillment metrics like accuracy (for customer satisfaction), efficiency (to save labor costs) and downtime (to eliminate waste).

To understand how technology enables this process, let’s consider a real-life example. I recently ordered a new leash for my dog from my favorite online pet store. Clicking “buy” set off a chain reaction of dozens of actions required to get the leash out of a warehouse storage bin in Middle America and to my doorstep here in San Francisco. While the following innovations may not be utilized in every single supply chain, here is an example of how warehouses utilize technology to deliver items on time.

Step 1: Picking

Once the order is received by the warehouse, the first step is to locate the item using its specific SKU number. Autonomous mobile robots (AMRs) are one of the most-commonly used technologies being used to help warehouse workers efficiently find and retrieve items. These systems improve productivity by guiding workers to their next pick location and transporting the items to the next station. An example of this technology is Chuck, the robotic carting system developed by 6 River Systems, and used by brands like Crocs and Crate & Barrel. This AMR guides workers through the most efficient path to retrieve items in a warehouse. In 2019, Shopify acquired 6 River Systems for $450 million.

Another leading provider of AMRs is Locus Robotics. The Massachusetts-based company was founded in 2014. Since then, it has raised $380 million in VC investment and is valued at $2 billion, as of November 2022. The company has over 10,000 robots in service to clients like DHL and CEVA Logistics. Its Locus Max platform has a carrying capacity of 3,000 lbs. That’s a lot of dog leashes.

Step 2: Packing

After our item is retrieved, it is ready to be packaged for shipping. Collaborative robots (also known as co-bots) may aid a worker at this stage by printing labels, folding cardboard boxes or positioning items ergonomically for more natural movements. Onexia, a Pennsylvania-based robotics company, sells a robotic arm system that assembles boxes and loads products on a conveyer belt with little human intervention.

Automated Storage and Retrieval Systems (ASRS) are in growing demand across warehouses, especially in ecommerce and grocery delivery. The Norwegian robotics company AutoStore is a global leader in ASRS systems. Its cube-based system can transport our dog leash from its grid of storage bins to a workstation ready for packaging, or even package it automatically.

Step 3: Sorting

Now that our dog leash is boxed up, it needs to be sorted for shipment. A variety of technologies may help route it to the correct loading bay. Companies like Ambi Robotics and Covariant.ai make artificial intelligence (AI)-powered robotic arms to pick, pack and sort packages to achieve greater efficiency and throughput, as compared to manual labor. The Ambi Robotics system, for example, can sort packages 50% faster than a human worker⁵.

Step 4: Shipping

The last stop in the warehouse is the loading dock. Technologies such as palletizers and remote-operated vehicles offer new efficiencies for this leg of the journey. The California-based company Phantom Auto makes an interoperable platform that lets drivers guide forklifts from remote locations thousands of miles away. For US warehouses facing labor shortages, this tech makes hiring easier by opening new previously-inaccessible labor pools. The technology has the potential to extend to other vehicles such as yard trucks and pallet movers.

The logistics platform Kargo has a smart loading dock solution that controls inbound and outbound freight. Founded in 2019, the company has raised $34 million for its Kargo Tower system that automates data capture from the dock loading door. As our dog leash departs the warehouse for the cross-country trip to my house, Kargo Tower tracks it using its AI visioning technology to help spot faulty packaging and verify package counts.

From here, our package heads onto the open road (or sky) where technologies like autonomous vehicles and drones utilize automation through the last mile of delivery.

Room to grow

Warehouse automation is no longer a “nice-to-have” but a “must-have” to achieve profitability at scale. The events of the past two years have exposed the fragility of our global supply chain. Retailers are turning to technology to help improve logistics costs, meet growing demand for ecommerce and expedite shipping timelines. A McKinsey & Company study found that more than 80% of retailers intend to increase automation investments over the next 2-3 years⁶. New manufacturing facilities are being built at the fastest rate in decades, fueling the need for new warehouses and distribution centers. In addition to these new builds, retrofitting existing facilities will create demand as well. As many as 75% of existing warehouses are not automated⁷, evidence of the massive potential for growth in the space.

The growing need for high-density warehousing and widening labor shortages are pushing further adoption of automation. Considering these tailwinds, supply chain technology is poised for immense growth in the years to come.

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