Walmart Launches Logistical Revolution

“I think the upfront cost is significant. Eventually, it’s going to pay for itself a few years down the road.” – John Cui, associate professor of operations and information management, McDonough School of Business at Georgetown University

At least that was the thinking last month as Walmart Inc. announced a partnership with a robotics company promising to revolutionize product distribution by automating supply chains.

The Bentonville retail giant, locked in brutal combat with Amazon for online sales, is counting on Symbotic, an automation firm based in Wilmington, Massachusetts, to overhaul Walmart’s regional distribution network.

Walmart said it will use Symbotic’s system in 25 of its 42 regional distribution centers. “This move will fundamentally alter how products get to stores,” a top executive wrote in a company blog post last month.

Now, shipments arriving at distribution centers are manually unloaded or stored until they’re needed at stores. Then employees have to pack the 53-foot trailers “in a human game of Tetris for transit,” wrote Joe Metzger, executive vice president of supply chain operations at Walmart U.S. “When the truck arrives at the store, our associates unload it manually and get the items where they need to be.”

Symbotic’s system “uses a complex algorithm to store cases [of merchandise] like puzzle pieces using high-speed mobile bots — that speeds the intake process and increases the accuracy of freight being stored for future orders.”

Automation should help Walmart cut costs, said Patrick Penfield, professor of supply chain management at the Whitman School of Management at Syracuse University. “They’ll be able to get things out the door faster, and it’s going to make them more efficient,” he said.

Stanley Lim, an assistant professor of supply chain management at Michigan State University, said Walmart’s move to partner with Symbotic isn’t a surprise. “It’s been in the pipeline for many, many years,” he said. Walmart has worked with Symbotic since 2017 and placed Symbotic’s system in the retailer’s Brooksville, Florida, distribution center. Since then, the companies have worked together on refinements.

Lim said the partnership makes sense as e-commerce sales are soaring. “Walmart can increase the capacity for fulfilling the demand of the consumer and reduce the cost of performing and delivering items to the consumer,” he said.

Walmart’s e-commerce revenue will reach $100 billion in the next couple of years and is projected to hit $200 billion a few years after that, Brett Biggs, Walmart’s CFO, said at a February meeting with analysts. A transcript of the meeting is posted on Walmart’s website.

Walmart reported $559.2 billion in revenue for its fiscal year that ended Jan. 31, up $39 billion from the previous year. Amazon’s net sales in 2020 were $386 billion, up $105 billion from 2019.

Walmart President and CEO Doug McMillon told investors in February that the company will invest “more aggressively in capacity and automation.”

“We are absolutely playing offense here,” he said. “Customers can choose to visit a store, pick up their order, have it delivered, have it delivered into a secure box on their front step, into a garage refrigerator or all the way into their kitchen, even when they’re not at home.”

He said Walmart plans about $14 billion in capital expenditures this year.

System Cuts Labor Costs

Walmart didn’t say in its news release what the Symbotic system will cost, and it didn’t respond to emails seeking comment.

“I think the upfront cost is significant,” said John Cui, associate professor of operations and information management at the McDonough School of Business at Georgetown University. “Eventually, it’s going to pay for itself a few years down the road.”

The main savings from the automated system will come from reduced labor costs. Walmart’s supply chain workers are making $15 or more an hour.

In addition, Syracuse University’s Penfield said, it’s getting harder to find good employees. “So if you’re Walmart and you can automate a process and not have to have an employee, … that’s a huge win,” he said.

Michigan State’s Lim said he expects some job losses to come with Symbotic’s system, but some of the employees could be trained to manage the machines. “There’s a lot of monitoring and maintenance that needs to be put in so that these automations can continue to run,” Lim said.

The systems are interlinked, and if one section breaks down, that causes a ripple effect throughout the whole system, he said.

Keeping Up With Amazon

In 2012, Amazon announced it was buying Kiva Systems Inc., the automated packaging company, for $775 million. The online retailer now has “a lot of those Kiva robots,” and Amazon warehouses are becoming “more and more robotic,” Penfield said.

He said Walmart and other retailers have turned to robots for help in warehouses.

Last year, Walmart announced it was working with Alert Innovation of North Billerica, Massachusetts, to automate grocery shopping for customers who order items online.

In January 2020, the Alphabot micro-fulfillment center began operating at a Walmart Supercenter in Salem, New Hampshire. “Its goal? To revolutionize the online grocery pickup and delivery process for associates and customers,” according to Alert’s website.

The micro-fulfillment center is 9,300 SF inside of a 20,000-SF building addition. It covers five aisles: three of room-temperature products, two refrigerated and one frozen. After retrieving the items, Alphabot delivers them to a workstation where a Walmart employee checks, bags and delivers the order.

“By assembling and delivering orders to associates, Alphabot is streamlining the order process, allowing associates to do their jobs with greater speed and efficiency,” Brian Roth, a senior manager of pickup automation and digital operations for Walmart U.S., said on the company’s website. “Ultimately, this will lower dispense times, increase accuracy and improve the entirety of online grocery. And it will help free associates to focus on service and selling, while the technology handles the more mundane, repeatable tasks.”

Georgetown’s Cui said there’s no question that Amazon, Walmart and other retailers are investing “heavily in their logistics network” because that is their competitive advantage.

Customers can buy the same products at Amazon and Walmart, but the difference for the customer is the price. “If you have a better supply chain, you can offer a better price for the customer,” Cui said.

Five to 10 years ago, U.S. customers couldn’t imagine they could get a product the same day by ordering online, he said. And now that’s normal. “So if you don’t do that, you lose business,” Cui said.

Ken Morris, managing partner for Cambridge Retail Advisors of Boston, said robots that pick grocery items, pack them and ship them or hold them for pickup at the store level are quickly coming to grocery stores.

“From the warehouse to the store, it’s going to be all automated,” Morris said. “It’s going to be automated going from the truck into [a package for the customer] in the store. And it’s going to be automated for a customer to drive by and pick up or for it to be delivered.”

COVID-19 accelerated the migration to automated grocery shopping because shoppers didn’t want to risk going out, Morris said.

Walmart noticed this shift to online shopping. “We also saw major changes to customer behavior last year, including nearly three times the digital growth we were expecting before COVID,” John Furner, president and CEO of Walmart U.S., told analysts in February. “And we believe that represents lasting permanent change. And that’s why we think this is the time to invest more aggressively in our supply chain, in automation, in technology and in our people.”

Morris said he believes the transition to automation will not be years in the making.

“Walmart lined up Alert Innovations at the store level and Symbotic at the distribution level,” Morris said. “So this is happening, and it’s going to happen pretty quickly.”