Automation Takes a Vital Role in Direct to Consumer E-Commerce
With direct to consumer e-commerce expected to grow in the near future, manufacturers need to consider automation advancements that can help ease the process.
PMMI Business Intelligence, 2022 The Future of Automation in Packaging and Processing
After pandemic-led shifts in warehousing and distribution, nearly half of consumer packaged goods companies expect direct to consumer shipping to increase over the next three years.
That’s according to PMMI Business Intelligence’s 2022 report “The Future of Automation in Packaging and Processing.” If direct to consumer (D2C) e-commerce grows as expected, it will impact the automation needs of consumer packaged goods companies (CPGs) and how they think about automating their production lines.
D2C E-Commerce: Opportunity and a Challenge
CPGs traditionally reach their customers through retailers and distributors. But this means they have no direct contact with customers, so they are unable to harvest consumer data which would enable them to become more responsive to the needs of customers.
For this reason CPGs are increasingly turning to D2C models of retail, offering benefits both to customers and company balance sheets.
PMMI Business Intelligence, 2022 The Future of Automation in Packaging and ProcessingThe switch is not seamless though; shipping D2C requires minimal mistakes as errors incur more costs than other shipping methods. This makes automation a vital tool, and it’s already happening.
“Some of our clients have fully robotic pick-and-pack warehouses and that is just for e-commerce,” a mid-sized OEM says in the report.
The logistics process and packaging required for products destined for stores won’t change significantly, and the demand for shelf-ready packaging will avoid the need for split-case picking for deliveries to brick-and-mortar retailers.
But when it comes to e-commerce retailers and D2C shipping, PMMI Business Intelligence analysts expect to see changes in product packaging and shipping requirements. For products being shipped to e-commerce retailers, the expectation is to see smaller pack sizes with minimal branding.
This is where speed enters the equation. The primary packaging of a product may still proceed at the same speed, but if secondary packaging involves, for instance, packing batches of six rather than 12, this means it needs to proceed at a faster rate. This is one opening for automated solutions.
Split-Case Operations As a Solution
The growth of D2C strategies will require CPG manufacturers to invest in split-case operations. This change will require a fundamental shift in the way products are packaged and handled, requiring significant investment in storage and automation.
Walmart told PMMI analysts that some CPGs are aiming for 10% of their revenue to be generated from D2C channels by 2025, and this will require significant volumes of split-case picking.
Based on PMMI research, it seems likely that CPGs will focus heavily on D2C channels and may leverage their existing direct store delivery (DSD) distribution networks.
PepsiCo has a large network of last-mile facilities with split-case operations for its DSD services, and has rolled out two D2C marketplaces where customers can purchase products online.
A D2C consultant for large CPG manufacturers said in the report that many producers are looking to leverage their DSD networks to fulfill online orders as well.
Within this model, PepsiCo would ship cases to a last-mile DSD location, split the cases into smaller units, and fulfill both DSD and DTC orders from the same location.
An Online Focus Among Manufacturers
While it’s unlikely retailers will demand split-case shipments from CPG producers, it’s certainly true that the manufacturers are developing split-case picking infrastructure for their own D2C operations, if nothing else.
One of the largest global beverage manufacturers told PMMI the company was aiming for 10% online sales by 2030. However, the pandemic has pushed this target forward to 2027.
PepsiCo, for example, launched Snacks.com and PantryShop.com, which are online marketplaces served by the CPG manufacturer, and its D2C sales more than doubled the year these sites were launched.
In February 2021, Reuters reported that PepsiCo CFO Hugh Johnson said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation and a “ramping up of investments in our e-commerce channel.”
The same Reuters article described how other big names in the food and beverage sector, including Kraft, Heinz, General Mills and Kellogg’s, are also intensifying D2C activity.
E-Commerce and Fulfillment Operations
As the demand for e-commerce grows, so does the complexity of the fulfillment operation and the need for it to be supported by automation.
The last mile is becoming more challenging, especially as companies like Amazon are getting customers used to higher levels of convenience such as shorter delivery times and higher levels of order transparency.
Due to the increased complexity of fulfillment, PMMI analysts expect more retailers to use third-party consultants to help design efficient automated fulfillment networks.
Over half of surveyed CPGs state that e-commerce is impacting their company right now. Throughput can be slowed to less than half speed in order to accommodate the added flexibility required in moving toward a setup led by e-commerce.
This may result in third-party warehousing and distribution companies fulfilling D2C orders on CPG companies’ behalf. That could help maintain speed with the added benefit of reduced inventory and storage.
Near Future Outlook
PMMI Business Intelligence, 2022 The Future of Automation in Packaging and ProcessingAs the number of e-commerce and D2C orders continues to grow over the next five years, orders are likely to become more personalized, with the possibility of consumers, for example, choosing their own recipe ingredients or products in a variety pack.
New plants may need to be built with the e-commerce factor in mind and designed for end-to-end automation.
Industry 4.0 could play its part in a retooling of the manufacturing and distribution systems to enable e-commerce to be the standard distribution method, rather than just being an add-on to the wholesale route.
Source: PMMI Business Intelligence, 2022 The Future of Automation in Packaging and Processing
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PMMI Business Intelligence, 2022 The Future of Automation in Packaging and Processing
