Warehouse Operations Improved with Logistics Equipment In China

Overview

Modern warehouse operations are improved with logistics equipment, an essential portion of today’s manufacturing and commercial warehouse and distribution center operations, can increase productivity, increase accuracy, and reduce logistics costs. Generally speaking, modern logistics systems can be divided into two categories: those for manufacturing logistics and those for fulfillment logistics in commercial (retail) operations.  Both are seeing rapid growth in China.

Why Companies in China Are Embracing Modern Logistics Systems

According to CLTA (China Logistics Technology Association), China’s market for logistics equipment reached approximately $6.9 billion in 2014, and will likely continue to grow at around 15 percent annually.

Several factors contribute to this strong growth rate:

• Modern logistics equipment and systems help reduce total logistics costs.  This is critical in China, since the ratio of total logistics costs vs. GDP in the country is still much higher today than in the US or Japan; wages continue to rise; and there is significant potential for applying modern logistics technology and equipment.
• China’s government encourages both manufacturing and commercial enterprises to implement modern logistics systems and has issued a series of guidelines and development strategies in recent years.  The “Made in China 2025” strategy released last year is another driver for implementing modern logistics systems.
• The Chinese government is encouraging domestic companies to standardize logistics technology as part of an overall automation strategy, in part to be able to integrate operations with foreign companies that want to integrate Chinese manufacturing plants or distribution centers into their global operations.
• China now has the largest online retail volume in the world, supported by the rapid growth of online retailers and the express delivery industry.

In the manufacturing industries, tobacco, automotive, pharmaceutical, machinery, and food & beverage are the main verticals for modern logistics equipment and systems today. For outbound fulfillment, online retailers and express delivery companies are the main users of modern logistic equipment.  An effective logistics infrastructure is a key competency for both.

Key Applications

ARC has identified three main application categories for modern logistics equipment: automatic storage and retrieval (AS/RS), automated conveying and sorting, and automated guided vehicles (AGV). Among these, AS/RS and automated conveying and sorting are the two biggest segments based on market size; while AGV applications are likely to proliferate the fastest.

AS/RS equipment is mainly used in China’s manufacturing industry, with the top three verticals being tobacco products, pharmaceuticals, and automotive.

Since the penetration rate for this equipment in China is much lower than in many developed countries, despite the good growth for AS/RS equipment over the past 15 years, we’re like to see strong continued growth for at least the next five years. According to CLTA data, this segment reached $2.3 billion and will reach $4.8 billion in 2018.

Automated Conveying and Sorting represents the largest segment of China’s modern logistics equipment market.  According to CLTA, it reached $3.3 billion and will reach $6.1 billion in 2018. Automated conveying and sorting equipment is mainly used in commercial applications today in China, rather than manufacturing, with the main users being large online retailers, express delivery companies, or traditional warehouse service providers.

Automated Guided Vehicles (AGVs) in China are largely used to support automotive, tobacco products, and electronics manufacturing operations.  Currently valued at around $160 million, this is an emerging segment in China, with higher growth potential than either AS/RS or automated conveying and sorting equipment.  It also has more critical requirements for embedded automation technologies. This is why even though the AGV market today is small, this segment has attracted strong interest from sensor suppliers such as Sick and P+F, as well as other automation suppliers, that have developed solutions for AGVs.

Automation Requirements

Modern logistics equipment employ a variety of embedded automation technologies, mostly in the discrete automation space.  These include PLCs, AC drives, motion control, operator panels, sensors, robotics, and industrial communication devices.

ARC estimates that the automation-related expenditures for modern logistics equipment in China is in the neighborhood of $450 million and the market should grow at double-digit rates over the next five years due to the pent up demand for these types of solutions.  Clearly, this offers opportunities for automation suppliers that want to penetrate this space.

Recommendations

While these types of solutions have gained wide acceptance in Europe, North America, and the more developed economies in Asia, Chinese companies have been relatively slow to implement the types of modern warehouse logistics systems discussed here. This is changing and we’re likely to see rapid take-up in the next several years, which should improve logistics-related productivity, reduce cost, and further integrate companies operating in China into global supply chains. 

The need to integrate with these supply chains will often influence supplier and technology selection here, since standardization is almost always beneficial, and often a requirement for doing business.

In addition to the larger global and regional suppliers, there are many excellent domestic suppliers for logistics equipment.  In all cases, end users in China should select suppliers with industry-specific expertise - and  ideally – local service and support capabilities, either directly or through local partners.

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Keywords: Logistics Equipment, Materials Handling, Discrete Automation, Machinery, Automated Guided Vehicles, ARC Advisory Group.