Australia’s major grocery retailers and FMCG suppliers are investing heavily in warehouse automation in a fast-evolving technology race.
Peter Jones, founder of Prological Consulting, explains that the pressure comes from a straightforward operational challenge: Moving more stock, faster, while keeping it available on shelves.
“They cannot move the volume that’s required at the speed that’s required with the accuracy required without high-end, sophisticated automation and the accompanying systems,” he says. At the same time, rising labour costs, increasing consumer demands for online fulfilment of online purchases and an in-store intolerance of out-of-stocks are increasing the pressure.
The gains from technology investment extend beyond the distribution centre. Jones says faster stock movement can reduce inventory holdings, while automated pallet building can make deliveries easier to receive and shelves faster to replenish. Better pallet configurations can also fit more product into a trailer.
“The benefit is not just inside the four walls of the DC, but it travels end-to-end in the supply chain,” he says.
Two networks, different strategies
Jones sees Coles and Woolworths as the clearest examples of Australia’s supply chain technology race. Both are making substantial investments, but their distribution networks differ.
“Woolworths, for example, has a national distribution centre in Sydney and state-based distribution centres everywhere else,” he says. Products selected for the national facility are then distributed across the country, while other products still go directly to state-based centres.
“Coles, on the other hand, has more of what you would call a traditional decentralised network, with nearly all product in nearly all DCs.”
Jones estimates that each retailer is investing around $2 billion in infrastructure, automation and associated systems over the decade to 2030. At that scale, he says, the question is how efficiently each business can operate the network it has chosen.
Suppliers feel the pressure
Retailers’ ability to process orders and move stock faster raises expectations for the companies supplying them.
“For suppliers, the challenge is keeping up with retailers’ demand, who, as they continue to evolve their technology, can move more volume faster,” Jones says. That means meeting the delivery date and location on a purchase order, and having stock ready when a retailer’s transport network is scheduled to collect it.
“So, for suppliers, the pressure is to keep up with what is, at a global level, very impressive automation and world-best practice here in Australia.”
Smaller suppliers face a particular challenge if they compete directly with larger manufacturers on similar products. Jones says they need a reason for retailers to stock their range beyond price, while still meeting the required service levels. Using a third-party logistics provider with advanced systems may help, although he says that capability is still developing in Australia.
“They need to be developing a unique value proposition for the retailers that is different to net price point, and be able to offer the same sorts of service levels,” he says.
Plan for scale, not certainty
For all the pressure to invest, Jones warns that large automation projects can fail through overambition. Businesses must understand what a proposed system can do, how its components will work together and where the risks sit.
“The three core areas are: Were we overambitious in what we bought; were we sold to rather than having the internal expertise and peer reviews to make sure what we’re buying will do the job we expect. Second, we need to get future planning right so we scale appropriately for both worst-case and best-case scenarios. And the third one is that the world changes, and it changes frequently.”
He points to a retailer that has spent nearly three years trying to integrate software with multiple hardware systems. According to Jones, delays forced it to fulfil online orders through stores for a year, at nearly twice the cost per order of using its distribution system. His advice is to test a vendor’s promises with independent technical expertise before committing.
Forecasting brings another risk. Jones cites Asos’s investment in North American infrastructure during the Covid-era surge in online sales. When growth slowed, the capacity became harder to justify.
“You don’t need to do an accurate 20-year forecast,” he says. Businesses need a credible estimate, then must test whether the investment works if demand falls short or exceeds it.
“If the answer at 50 per cent of that 20-year target is that the business doesn’t work, we can’t afford it.” At 70 per cent, he says, the business should ask the same question. If demand runs 50 per cent above forecast, it needs to know whether the facility can keep up.
“You go through iterative processes around that framework until you land on the right balance point between something that, in a worst-case scenario, won’t kill us, and in a best-case scenario, will allow us to keep growing.”
The calculation has to include shifts in technology and the economy. “Whatever technology we buy today, next year there will absolutely be a better mousetrap. But at some point, you also have to make a decision, because not having a mousetrap at all isn’t going to work.”
Jones says a downturn could leave a business with excess capacity just as borrowing costs rise. “When you’re sitting on up to $2 billion worth of infrastructure, and it’s financed, these global economic elements can have a very significant impact.”
