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Just to be clear, your author is not just returned from backpacking in Southeast Asia. Rather less glamorously, he spent part of last week travelling between the UK towns of Milton Keynes and Northampton. Talk to anyone working in logistics and along with Daventry, these three locations comprise the country’s ‘golden triangle.’ Put another way, they are located in a strategically significant spot allowing for optimal next-day delivery to most British consumers. If you want to see logistics in action, this is the place to go.
My host for the trip was GXO Logistics, the largest listed pure-play contract logistics provider in the world. Businesses such as GXO rent warehouses from the likes of Prologis and then populate them with distribution, order fulfilment, e-commerce, reverse logistics and other supply chain services on behalf of their customers. While logistics typically comprises only 2-6% of a customer’s overall cost base as we all unfortunately know, it has a disproportionately large impact on consumer experience. Get the wrong item of clothing delivered or find something difficult to return and the likelihood of you using that company again is low.
The first stop on our tour was to visit a warehouse operated by GXO on behalf of a major global apparel business. It is hard not to be impressed when stepping into the building. It comprises ~70 aisles of products across 400,000 square feet of floor space with multiple mezzanines. Per Jeff Bezos’ idea of the ‘infinite shelf’, 140,000 different stock-keeping units are held in this warehouse. If these numbers are not mind-boggling enough, then consider that GXO’s solutions help this retailer shift around 10,000 units a day, or as many as 72,000 on last year’s Black Friday. How’s it done? Automation provides part of the answer. Picking robots mingle seamlessly with humans among the aisles. We were told that 99% of picking can theoretically be automated. When further automation initiatives come online elsewhere in the warehouse later this year, GXO estimates that productivity at this site could increase by up to 80% relative to current levels.
Around 30 minutes after this warehouse, your author found himself in a different location, an arguably more exciting venue since it was still being kitted out. GXO will go live with operations at this warehouse at the end of July. Operated on behalf of a major DIY business, it will become the company’s sole e-commerce distribution centre. Consolidating various legacy sites, it highlights the potential benefits in transitioning from manual processes to automated ones. GXO estimates that the transition can yield threefold increases in productivity. Looking ahead this is by no means the end of road. Expect even more automation. One of our tour guides suggested to us that “within five years, machines will pick as fast as humans.”
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Originally Posted May 30, 2023 – My trip to the Golden Triangle
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in GXO Logistics and Prologis. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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