Dive Brief:

• The use of automation in warehousing could help increase facility productivity — measured by revenue per square foot — by 10% to 20% in e-commerce real estate over the next three years, according to an estimate by Prologis. The model considers a "base" scenario that maintains a slight acceleration in automation and a "stretch" case that has adoption doubling.
• The level of productivity improvement varies across different types of automation, the researchers found. Automated storage and retrieval systems provide the most productivity increases while mobile or semi-mobile automation can lead to more modest improvements.
• "It was really about improving order accuracy, speeding up order processing time, and using your human talents to its maximum potential," Prologis Global Head of Research Melinda McLaughlin said of automation improving productivity.

Dive Insight:

Prologis' research suggests that supply chains could increase capacity by improving productivity at existing facilities without moving into a larger location.

That ability becomes critical with the industrial real estate market expected to remain tight. Over the next five years, Prologis expects the demand for industrial real estate to exceed supply by 140 million square feet.

"There has been a logistic space shortage in most markets across the U.S. for several years," McLaughlin said, noting that it varies by market and supply chain function.

Finding space closer to population centers is more difficult, she said. E-commerce companies have been increasingly looking to develop fulfillment options closer to customers in an effort to execute faster fulfillment and delivery.

But the researchers estimate that greater adoption of automation could reduce the demand for industrial real estate as existing facilities become more productive.

"Under the stretch adoption scenario, new demand would be about 170 [million square feet] above normal levels of supply," the report reads. "In the base case, demand would still exceed supply by 290 [million square feet] using the midpoint of our estimates for cyclical, e-commerce and inventory growth."

McLaughlin said Prologis has heard a few anecdotes of customers who were unable to grow facilities physically and turned to automation to increase productivity.

JD.com recently opened a fulfillment location with automated storage and retrieval for big and bulky goods and said it is "greatly improving efficiency" of handling items. The companies building e-commerce warehouses say these automated storage and retrieval systems are increasingly included in facility designs.

Amazon, the face of e-commerce fulfillment automation, said increased productivity is one of the main benefits of its investment in robotics. Robotics increased the average number of items picked per hour for Amazon from 100 to around 300 or 400 depending on the team and location, according to The New York Times.

But e-commerce companies don't need to acquire a whole robotics company like Amazon did to see the benefits of automation. Some have seen benefits from simply adding conveyor belts, McLaughlin said.

"If you were having people transporting items across a floor over and over and over again, [adding a conveyor best is] a quick way to ... take something out that can easily can be done by a machine," she said.