The Warehouse of the Future

Warehouses are undergoing a fundamental transformation—in response to the explosion of growth in the e-commerce space and worldwide large-scale supply chain disruptions, warehouses have gone from places simply for goods to sit to highly interconnected, automated hubs of activity. Warehouses of the future leverage new technologies in automation and digitalization to enhance precision, flexibility, and efficiency to adapt quickly to changing market and supply chain trends and needs.

In this episode, we're joined by Miguel Rodríguez García, a Postdoctoral Associate at the MIT Center for Transportation & Logistics, and Erez Agmoni, Global Head of Innovation (Logistics & Services) at international shipping giant Maersk. Miguel and Erez take us through the changes and technologies that are transforming warehouses and the ways in which companies are seeking to make these transformations sustainable.

The warehouse of the future signifies a forward-thinking model that aligns operational efficiency with a sustainable approach to warehousing, which is pivotal to the evolution of contemporary supply chains.

For the full white paper, "The Warehouse of the Future," click here.

Host & Executive Producer: Benjy Kantor Marketing Writer & Producer: Dan McCool Sound Editor: David Benjamin Sound Audio Engineer: Kurt Schneider

Episode Transcript

(00:00):
(upbeat music)
- Welcome to MIT SupplyChain Frontiers presented by
the MIT Center forTransportation and Logistics.
I'm your host, Benjy Kantor.
Each episode of Supply Chain Frontiers
features center researchers and staff
or experts from industryfor in-depth conversations
about supply chain management,
logistics, education, and beyond.
Today we're talking aboutthe warehouse of the future

(00:21):
with Erez Agmoni, globalhead of innovation
for logistics and services at Maersk,
and Miguel Rodriguez Garcia,postdoctoral associate
here at the MIT Center forTransportation and Logistics.
First, MIT CTL offers avariety of educational programs
for graduate students, seasonedindustry professionals,
and anyone at any level
looking to learn about the supply chain
and logistics domains.

(00:41):
To find out more about all ofCTL's educational offerings,
visit ctl.mi.edu/education.
Today we're pleased towelcome Erez Agmoni,
global head of innovation,L and S, at Maersk,
and Miguel Rodriguez Garcia,
a postdoctoral associate at the MIT Center
for Transportation and Logistics.
Dr. Erez Agmoni has a wealth of experience

(01:03):
in the supply chainfield, more than 25 years,
supply chain management,freight forwarding logistics,
engineering and digital innovation.
In his current role,
Erez heads the Maersk Innovation Center,
an in-house team of expertsin data science, engineering,
entrepreneurship and thought leadership,
brought together tospearhead new initiatives
and steer innovationin the right direction.
We're also joined byMiguel Rodriguez Garcia,

(01:24):
postdoctoral associate here at MIT CTL.
Miguel works in the omnichannelsupply chain lab at CTL,
where he has the expertisein procurement, warehousing,
manufacturing and transportation,
with a particular focus on e-commerce
and omnichannel logistics,
currently working on research
with the omnichannel supply chain lab
about the future of supplychains and warehousing
in the face of expanding e-commerce

(01:45):
and technology developments.
Erez and Miguel have justcompleted a white paper
exploring the warehouse of the future
and how that can help companies
strengthen their supply chains.
Welcome to the program, Erez and Miguel.
Thank you for joining us.
- Thank you. Thank you for having us.
- Absolutely.
The warehouse of the futureis a pretty broad term.
Let's start with the brass tacks.
What specifically do you meanby warehouse of the future?

(02:08):
- When we refer to thewarehouse of the future,
we think of a highly-automated facility,
an interconnect systemwithin the supply chain
that leveragesdigitalization and automation
as two key aspects forthis transformation.
And this is important
'cause automation anddigitalization together
can bring the required speed, flexibility,

(02:29):
and efficiency that thecurrent market trends
are actually demanding at this point.
So the third key aspect ofthe warehouse of the future
is the sustainability aspect.
There have been many researchstudies in the last few years
suggesting that they'rereal important contributors
to global climate changeand greenhouse emissions.
So up to 3% of all thegreenhouse emissions in the world

(02:51):
can be related to warehousing,
or up to 25% of all thegreenhouse emissions
from the logistics sector.
So really important contributors to this.
- And Erez, this is your opportunity
to argue right off thebat with Miguel, but-
- I'm not gonna argue.
Definitely he brought upan amazing points here
that makes a lot of sense.

(03:11):
And we select those three points together,
of automation, digital, sustainability.
But I think it's importantto mention that warehouses
play important roles in theend-to-end supply chain.
They're in between so many moving parts
and non-efficient work in the warehouse

(03:33):
is bringing our supply chain down
into the level of very low productivity.
Consistency is not there, you know?
You have one warehouse that'sdoing something in one way
and the same goods in the same manners
in a different warehouse,
suddenly you have different people
that acting slightly different,
and then the results is so different.
So in order to improve supplychain, at the end of the day,

(03:55):
you need those elements,each of the elements.
And the warehouse is avery crucial element there
to be consistent,
to be bringing theproductivity up to the maximum
that you can squeeze from that four walls
because at the end of the day,
you don't want to keep openingmore and more locations
every time you're slightly growing.
You wanna be able to have thatflexibility of up and down

(04:18):
because that's seasonality there.
That is a very important element
to talk about how warehouses should look
in the next few years.
I'm not talking about 20years ahead or 30 years ahead.
We're talking about somethingthat is already here
and needs to be completed very, very soon.
- So what's the practical application
within the Innovation Center at Maersk

(04:39):
for this concept ofwarehouse of the future?
Like,
you know, Maersk is a bigthing, it's a big operation.
You know that.- Absolutely.
- And so I'm wondering, like,at a very practical level
or even, like, a simplifiedlevel what that means for you
as opposed to othercompanies or organizations.
- So just two sentence about why Maersk.
A lot of people thinkMaersk is a shipping line,

(04:59):
which is definitely true,
but Maersk is also a global integrator
of supply chains, right?
At the end of the day, it's a end-to-end,
and trying to help customersto improve their supply chains
all the way from the beginning,all the way to the end.
Now, what are we doingin the Innovation Center?
We have three main pillarsthat we are working on.

(05:21):
The first one isautomation and autonomous.
So a few examples is robotics,
robots that doing thingsthat people don't want to do.
There is so many jobs in the warehouse
that you hurt your back, you hurt your,
you end up at the end of the day,
and it's like, "I don't wantto come back to this job."
Right?
You have so many other options nowadays
that you can actually do andcontrol your own schedule,

(05:42):
your own life,
and you actually shift.
Those people shift to those type of roles.
They don't want to come back.
So that is one elementthat we're working on.
The other one is the digital.
So the digital elementsor the digital innovation,
we are working on digitaltwin for our warehouses.
We're working aboutdifferent computer vision

(06:02):
that's supporting bymachine learning and AI
to help improving productivity,
improving the way we're working
and creating a much better way
for how we're workinginside the warehouse.
And the last pillar that we have
in our Innovation Center isactually product innovation,
when we take really theend-to-end supply chain,

(06:24):
and now we're trying tobring it all together
to support an improvementfor the customers
to how you can actually bring goods
in a much more concise transit time.
How do you help themto reduce safety store?
How do you reduce the amount of work
that is actually going to warehouses?
It feel like you'reshooting your own legs,

(06:44):
but I feel that this is,
and I know that the company behind us is
you're actually trying tocreate value for the customers
by improving and reducing the movements.
So you, in one hand, you'regonna get less business,
but it's gonna be much morequality business that you get.
- So how do you contrastor what is the contrast
between the concept of thewarehouse of the future

(07:06):
and how warehouses are currently designed
and operated right now?
- So I think looking back,I don't know, 20 years,
I started working onthis only 10 years ago,
but the transformation,I think, has been huge.
Most of the warehouses in the past
looked pretty much the same.
You had pallets, you had palletizers,
you had forklifts, pallet trucks.

(07:27):
And then e-commerce came.
That was, I think,
the first key driver of the transformation
'cause you went,
or many companies went fromjust moving big unit loads
to actually startedmoving cases and hitches.
So that actually brought a huge change
to the warehouse space.
That, in one sense, meant that
picking became a key processwithin the warehouse.

(07:51):
We include things likedistribution centers,
fulfillment centers, which Ithink is something important
for people to have in mindthat our idea of the warehouse
takes many facilities
into that.
So e-commerce, big transformation
because of the changing unit loads
and also the customer requirements.
The customer expectations with e-commerce,

(08:12):
and because of Amazon mainly,
increased a lot in thelast 10 to 15 years.
So that meant thatcompanies needed more speed,
more accuracy and more precisionand also more efficiency
'cause Amazon was getting bigger,
doing everything cheaper and cheaper.
So that meant that warehouseshad to change and transform.

(08:33):
So I would say that that wasone of the big, big changes
that we saw in the last 10 or 15 years
from the type of warehousesthat we had in the past
that was mainly storage facilities
to what we have nowadays,which are facilities
that add value to the supplychain in different ways,
like more speed, moreflexibility, more efficiency.

(08:53):
- Are you finding thatthings from your research
that apply to these, you know,
you've mentioned Amazon andMaersk, these larger companies,
or that are just touching so many things
that apply to smaller companies
that are much more specific or
individualized I guess?
- Definitely.
I think there's so many thingsthat those small companies,

(09:16):
in order to surviveagainst those monsters,
they need to be much moreefficient than everybody else.
They need to be actuallynimble, reduce their cost,
be able to know exactly whatthey have, where they have it,
how to ship it.
All those elements needs to be even more.
So we see a lot of smallcompanies going in that direction.

(09:36):
But I do wanna add some small,
let's say, painting the picture
of how warehouses used to look
compared to what they're looking now.
So one of my previous roles, I was heading
our warehousing and distributionproduct in North America.
So when I just entered the role,
I ask, "Can I see a presentation
of what we are goingto our customers with?"

(09:58):
And it was a few years back,
and
at that time, most of our warehouses were,
at least North America, used to be
a cross-dock type ofwarehouse deconsolidation,
where you bring goods by containers,
you split them into many DCs,fill up trucks, trailers,
and ship it to those DCs, right?

(10:18):
Today we have all the differenttype of warehouses here.
But what I saw there was shocking
because we were showingpeople pushing carts
and another picture of a personwith a folder in their hands
and, basically, a penciljust, you know, to look
I'm writing something out there.
And I was like, "Doesn'tmake sense," you know?

(10:41):
Even I knew that thereis no much technology
in deconsolidationwarehouses at that time.
I said, "This is not what weshould be proud of," you know?
"It's labor intense.
People don't like this typeof pushing and moving stuff
and unloading things."
But people push me back,

(11:01):
"But we are experts in this.
This is what we know how to do best."
But I said, "How longmore can you do that?"
And luckily we startedto change before COVID
because otherwise, during COVID time,
you won't be able to sustain.
So today's warehouses, yousee a lot of automations
and a lot of robotics and alot of digital aid devices.

(11:22):
It's not there yet. We are notin the final game yet, right?
Definitely we are starting to get ourself
towards the right goal andbe able to see everything,
control everything, knows what's going on.
And of course also, let's notforget the sustainability,
where in the past you have warehouses
that lights all day, all night,
using a lot of old style of lights

(11:44):
because just it's expensive to change it.
People didn't even want to think about,
yeah but you can returnthat change investment
in, I don't know, probably a year, right,
and change it to halogen,change it to a LED,
change it to certaincontrols by movement area
so you don't turn lightseverywhere all the time.

(12:05):
All those type of things actually
you can start seeing themin the warehouse today,
and in many, many places,
you can start see how we're getting there.
I think what we'remissing, the last thing,
is still the constructionof the warehouses.
We are getting there.
There's very few
companies that construct with materials

(12:25):
that make sense for the future,
but we are not there yet.
And of course we haveso many old warehouses,
what you gonna do with them?
So will take probably,
that the element thatwill take the longest.
- It's fascinating to me whenyou talk about automation
because I think to the lay person,
which I consider myselfwith regard to logistics
and supply chain stuff,as an end consumer,
I go into CVS, I go intoWalmart or the grocery store,

(12:47):
and there's my lucky charms,
and I'm like, "Oh, it got here.
The automation worked, no problem.
The robotic arm picked it up,
it moved it over to this part."
But also, at the same time,there's this flip side of
I wonder if it's just amarketing perspective.
I see, like, Amazon commercial,
and you see just peoplerunning up and down aisles
to grab things and package them together.
So it's, like, an interesting,

(13:09):
for the end consumer, Ithink there's, like, this,
it's just a taking for granted confusion,
"Well, it got here,
so it worked,"
but there are actual people
who are operating some of these things.
- I don't think thatyou're taking the people
out of the equation anytime soon.
All those robotic arm
that picking this or picking there,
they're far away from theproductivity of people,
especially in the picking.

(13:30):
They're not there yet.
And especially when you don't have
the same product all the time.
If you can repeat, if it'sthe same product all the time,
that's easy,
easy to define something.
But when a robot needs to start changing,
and now it's this and nowit's that and now it's this,
now it's starting to slow down.
And yeah, there's somegood stuff out there,

(13:52):
but we're not there yet, Ithink, as society in general.
But there's so many other things
that human and people needsto interact in the warehouse.
People will not disappearfrom warehouses anytime soon.
Those dark warehousesthat are being discussed,
they could happen incertain type of warehouses
when you don't have so many movements.

(14:13):
But definitely we're gonna see, I think,
in the next 10 years,
a lot of work and integration of people
and supporting the people towork much more efficiently
because that is the main problem.
You know, in one of the warehouses
that we installed collaborative robots,
so people used to walk20 to 25,000 steps a day.

(14:36):
I remember one of theladies that I met there,
and I ask her, "Well, howmany steps you're doing?"
It's like she show me her watch,
and I'm like, "Wow,
this is a lot."
Then you introduce collaborative robots.
So now they can stay in the aisle,
and the robots
go around and, you know, come to them
instead of the other way around.
Suddenly you drop it down.

(14:57):
So their life is improved dramatically.
Productivity went by double.
You know, everything is goinginto a happy path like that.
- Yeah, you're not walkinghalf a marathon every day.
- Exactly.
And if
you using actuallygoods-to-person robotics,
now it's so much even better
because productivity further goes up,
and then people can sit in one location.

(15:20):
They don't even have tostand and walk all day.
So they can do up and down,
sit and whatever they're comfortable with.
But you reduce those type ofelements quite substantially.
- So I think we agree on the fact
that the most flexibleautomation you can have
is still people.
At the end of the day, thischange and this transition
is going step by step 'causeyou need the flexibility

(15:42):
of having people doing different things.
And the automation is,Erez was mentioning,
for example, this roboticarm like picking arms,
they are not like us yet.
I mean, we adapt to everything.
But the transition is comingfrom that collaboration.
And I think, for example,collaborative robots,
which are these robotsthat work alongside humans

(16:03):
to facilitate picking, thatthey're being implemented
in many different warehouses,mainly for e-commerce,
but also for other types of jobs.
And we see that thattransformation is coming
in bite-sized chunks.
It's not a, okay, I just go from nothing
to a fully automated warehouse,
but instead I'm adopting differenttechnologies, automation,

(16:25):
digital tools to actuallyincrease productivity
step by step.
- Erez, what are the steps one takes
to end up as the Maerskglobal head of innovation?
- Good question.
I think
it's a way of life, way of living, right?
I like to challenge things. Ilike to challenge status quo.

(16:46):
For every role I did in my life,
I always, like, "Whyare we doing this way?
Why are we doing it like that?Can I do it in a better way?"
Basically, in multipleroles actually at Maersk,
my previous role, for example,
as a head of warehousing distribution,
I was like, "What is this old manual work?
Let's change that."
So we started to run a proof of concept.

(17:07):
So here is a small thing that we checked
and here is another biggerthings that we checked
and change that.
And we saw that it'sactually requires a focus.
There was no role like this before
that I was just trying to apply.
We created that InnovationCenter from zero
based on, you know what, weneed to focus on those changes

(17:29):
because nobody can do that
while they do their day-to-day job.
It's very difficult toboth run the business
but also change thebusiness at the same time.
- I want to add this one thought here.
Okay, what about allthese smaller companies
that are not Maersk orthat don't have access
to a lot of capital to investingin this transformation?

(17:50):
So we see in the omnichannelsupply chain lab,
we have been researching
about the new business modelof robotics as a service,
which has been increasing quitea lot in the last few years,
and it's, basically, asubscription-based model.
So if you're a companythat is operating in,
for example, the e-commerce world,
and you need to increaseefficiency in your operations,

(18:12):
and you're looking at an investment
for a new automatic storageand retrieval system,
you might be looking at investment
that is millions of dollars.
As a small company, youmight not have access to it.
So we see a lot of players now
bringing this subscription-based service,
which is, okay, you can havethese collaborative robots
and take them for a monthand see how that goes.

(18:33):
And the implementationis usually really fast,
so capital expendituresgo down quite a lot.
And then if it works,you continue with that.
Of course the operational costsmight be a little bit higher
than if you just did thewhole investment upfront,
but for a lot of the smaller companies,
it's a pretty good solution that we see
that is increasing quite a lotin the last couple of years.

(18:57):
And in terms of how youbring that solution,
the beginning on how you canprove that this has potential,
we also see somethingsometimes called in industry
simulation as a service, which is in this
robotics as a service.
Even before I bring you the robots,
I can actually get data from you
and run a simulation internally

(19:19):
to see if this kind of solution
would fit your business model.
So we see different pathsfor this transformation
that can, hopefully, impactnot only big corporations
but also help smaller companies
to transform their facilitiesin the near future.
- I have to say that I like simulations
but I don't trust simulations.
Because the problemwith simulations is that

(19:41):
whatever you get in,
and if the data is not right
or conclusive enough,
you don't get the rightresult out, you know?
And it happens so many times
that we try to work with simulations,
so we build a fewdifferent sortation system
and we tried to simulate how it's gonna,

(20:02):
oh, how the boxes willmove on the sortation.
And everything worked perfectly.
The moment you turn it on,
and suddenly bam,
something you neverthought about suddenly hit
and everything is falling apart in that.
So my thinking about simulation is really
you need to reach thatthrough a digital twin.

(20:23):
That's the way I'm looking at things.
And I know what I'm saying here,
it's a big deal.
- Quite aspirational still.
I haven't seen any digital twin
working 100%.
- So our method of digital twin
is actually three steps, right?
The first one is creatingthe right visibility.
You need to start with that
because a lot of the time

(20:44):
you don't even have that visibility.
You don't know what you don't know.
So really creating a systemthat can show you everything
that's in whatever environment
you're trying to create digitally,
show you everything that moves,
everything that happensthere in real time,
that's phase number one.
But only by that, you'reonly gonna create savings

(21:05):
because now you know what you know,
and it's not just basedon some historical data,
but come from here or there.
If you talk about warehouses,it's gonna be WMS normally.
So much information is lacking over there.
You don't really see howpeople are moving around.
You don't see how thingsare really happening.
You only see, oh it's here.
It was there, now it's here.

(21:27):
You need that quantities, etc.
The rest of the thing, you're guessing,
and you become, everything iswrong at the end of the day
because you don't guessit correctly, right?
So that's step one, visibility.
Step two is actually optimization.
Try to optimize thingsbased on what you see.
So, okay, maybe first people optimize it,

(21:48):
now let the machine optimize.
There's so many better waysfor machine to do it than us,
looking at all the millions possibilities.
And only the third stepis actually the simulation
and what-if scenarios thatby reaching that level,
you probably solved somany problems already
with step one and step two,
so now you reach to the,

(22:10):
okay, let me introduce somethingnew to that environment,
how it's gonna be look at.
And even that, that newthing, you cannot guess it
because if you push a guessed data,
it's not going to look right.
You need to probablysee it in somewhere else
that it's working,
and that taking some assumption and say,
"Okay, in this environment,

(22:33):
show me multiple ways thatit's potentially gonna work."
I agree with you that it's not there yet,
but I think that a lot of simulation,
you need to be super carefulof what you feed it in with
because otherwise youjust get potential stuff
that maybe not true.
- Yeah, I totally agree with that.
And I would say that also from,

(22:54):
maybe I'm getting too technical here,
but simulation in this kind of,
you know,simulation-as-a-service scenario,
which is, like, if I'm a small corporation
that maybe doesn't haveaccess to those, like,
big digital tools at this point,
doesn't have a big team working on it,
I think it's better than nothing.

(23:15):
I think if you can do, of course,
some stochastic simulation,
which means that you'retaking into consideration
the variability.
So you know you're notgonna get perfect answer,
but at least it's a guide
to what the system can behave like.
'Cause if not, you're going totally blind
towards a new solution.

(23:36):
- As long as they can provide
the data that you're asking for,
which is,- That's true.
- you know and I know, we all know
that's the most difficult element, right,
- Getting the data right.- just getting the data.
Getting the data is the first place,
and getting the right dataand getting it cleaned
or cleaning it, it's, like,
this is a huge project by itself, right?

(23:58):
- We have a whole research line
in the omnichannel supply chain lab,
which is supply chain visibility.
It's just about how to get the right data,
how to get the single sources of truth.
And we haven't seen anycompany solve this yet.
- As far as ROI goes,are you able to quantify
for folks beyond a simulation, right,

(24:18):
which, Erez, you say youhave your doubts about,
are you able to quantifyfor Maersk, for instance,
like, when you implement these things
and it costs us much upfront, this is
what we're getting out of it?- 100%.
That's what we do in theproof of concept, right?
When we're starting
in a scale that is nottoo expensive to try,
basically what we putting all our

(24:38):
hypothesis and all ourdifferent thinking there
and what is the expected result
and what is not gonna makesense if it's a result.
And that's, think of it as running a lab
on a real environment.
So that's, basically, whatwe do as a proof of concept.
And what we ending up with
is actually something that yousay, technology that you say,

(24:59):
"Okay, this is gonna takeme 1.2 years to return.
That technology gonnabe 4.5 years to return."
And now you start to be picky
because you can't run all these projects
and deploy all those things at once,
so you say, "Why would I goon a four and a half years
if I can go, like, I have so many projects

(25:19):
that can go within less than two years?
I'll start there. I'll reach that one.
It's not that I don't care about this
but let's park it for now."
There is a lot, a lot, a lot of things
that actually the return is quite short.
And for 3PL like us, thirdparty logistics provider,
it's important to haverelatively short ROI.

(25:43):
The reasons for that is that
it's not our business, it's not our goods.
We're not running our own supply chain.
It's someone else supply chain.
And the contract landis anywhere, let's say,
for a warehouse is normallybetween 3 years to 5 years,
maybe 7 years, sometimes 10 years,

(26:03):
but most of the time it's 3 to 5 years.
Now, if your ROI is four and a half years
and you have a contract for five years,
why would you even do that?
You don't know what will happenafter that contract ends.
Just to enjoy of thatreturn for half a year,
it doesn't make sense at all, right?
So you do want to have ashort ROI for what you do.

(26:25):
It bring you to that need for flexibility.
So if something change, if your customer,
this customer leaveand that customer come,
and it's slightly different business,
you can't just design forsomething and that's it
'cause otherwise you'restuck with a lot of things
that very difficult for you to move.
So you want that flexibilityof how you do things
that it can take the next customer,

(26:47):
it can take the next changeof behaviors, of consumers.
That helps to convince.
- Are there so manyopportunities for improvement
that you could put them up ona dart board and throw a dart
and say that any of theseare gonna help us next?
Or-- Oh there is.
- are things so prioritized
because we know thisone, two or three things

(27:07):
are gonna have that returnthat's short and sweet?
- What we have been seeing lately
is that that's actually oneof the main pain points,
that there are so many solutions out there
that actually companieshave issues keeping up pace
with all those advancements.
'Cause, like, okay,
how do I look at all these environment

(27:28):
in terms of different warehouse solutions,
different warehouse providers,
and how do I prioritize,as you were saying.
Like, how do I have ateam looking at all these
and actually bringing thesolutions that are gonna work?
Erez mentioned theproof-of-concept approach
that Maersk follows, whichI think is pretty good
in terms of having a standardized method

(27:50):
to go through thisevaluation of solutions,
but many companies arestruggling with this
because of the number ofsuppliers in recent years
has been increasing a lot.
And one of the main reasons for that
is because companies are looking
for more tailored automation too.
The amount of companies outthere that have specific needs

(28:11):
is what has brought all thesenew suppliers into the game.
And that also correlates
with something that Erez was mentioning,
which is okay, at somepoint, you're gonna have
3, 4, 5, 10, 20 different technologies
that you're trying toimplement at the same time,
and that brings new challenges.
And during the roundtable,a lot of the participants,

(28:32):
the roundtable that we talkabout in the white paper,
which was held last year byMIT CTL and hosted by Maersk,
so all the executives were actually saying
that interoperability wasone of the main issues.
'Cause when you have allthese different solutions
and you have to integratethem all together,
you have different platforms,different protocols,

(28:53):
you have different softwares
that you're trying to put together.
And that's a main painpoint for many companies.
And actually, a couple of weeks ago
we had a big CPG, one ofthe largest in the US,
coming to CTL,
and they were actually saying
that this was their number one issue
in their global warehousenetwork nowadays.

(29:16):
And what they're looking at right now
is to build their own interface
to try to integrate all thesedifferent solutions together
and also looking forward 5 to 10 years
'cause they think,
okay, more solutionsare gonna keep coming,
so we need to havesomething that is flexible
and that we can just plugin and out as we need.
So definitely a really big, big challenge

(29:38):
in terms of having thisbroad range of solutions
to pick from.
- Solution wise, absolutelythere's way too many,
maybe not too many, way alot of solutions out there,
but I think also you wanted toknow about problems to solve,
and we still have a lot of that, so.

(29:59):
But we're not just, okay,let's go for this one first,
let's go for that, gambling on that,
We're, basically, what will be the impact
of solving this problem.
So we do prioritizing it,
and we do prioritize basedon the problem importance
but also based on an ROI ofcourse as I mentioned before.
It is important to stay withincertain criterias on that.

(30:23):
And also, how does it impact
the before or after of the supply chain?
'Cause, again, warehousesare important elements
of something much bigger,
and you always have toremember that bigger thing.
'Cause if you justisolate, solve stuff here
without thinking the before or after,
you end up with a differentproblem somewhere else, right?
So you do need that connectivityof the whole supply chain.

(30:47):
- And I think in the whitepaper, we mentioned something
about that multi-criteriaanalysis that Maersk follows
when analyzing or evaluating a technology
'cause you guys considermany things like safety,
throughput improvement
and improvements also in cost efficiency.
So many different aspects thatyou have to bring together
to actually evaluate correctly.

(31:08):
- So what kind of roledoes sustainability play
in the warehouse of the future?
- I think it's definitely
an important, large role, you know?
Because at the end of the day,
the world is going into that direction.
There are certain regionthat is faster than others.
I'm not gonna mention names here.

(31:29):
I still want to be welcome inmany different places, but.
- By the time this airs,
it might be a different list of people.
- Exactly.
So if you're thinking aboutairing it in 10 years,
you're right.
But no seriously,
at the end of the day,
companies are trying,
and Maersk itself also trying to be, like,

(31:50):
a zero-net emission by 2040,
other trying to do it inslightly different pace
and different time.
But this is an important roles to play
when you're looking at theend-to-end supply chain.
You have to become sustainablealso for the warehouse.
And at the end of the day,as I mentioned before,

(32:10):
the sustainability cancome up with savings.
'Cause normally when youreduce your pollutions,
this means that also, in a way,
you reduce either yourenergies or your total moves.
You reduce something else as well
that should be considered together
when you're trying to do that
in order to ensure that,you know, it's much easier
to get the buy-in torun those sustainable.

(32:33):
And another important point
is, of course, the final consumer.
Whoever buy the goods,
if they're demanding goodsto be arriving to them
and shipped to them and created for them
in a much more sustainable way,
you need the warehouse tobe sustainable as well.
- So one quick question,
and this is interesting
'cause do you guys at Maerskhave this perspective?

(32:54):
Are you seeing willingness to pay for that
in your customers?
- I would say we haveabout 5% of our customers
that are willing to pay more for that.
There's probably another, I dunno what,
15% or slightly more than that of people
that they wanna be not the frontier there,

(33:16):
but they're willing tofollow very fast etc.
But still a lot of the majority
are still either on the fence
or doing it because they're being forced.
Again, depend where in the world, right?
It really depends.
Some countries, peoplejust, "Sure, let's do it
because it's the right thing to do."
In other places,
"No, I'm not gonna pay morebecause of this, you know?

(33:37):
Find me another way."
But I think it's also good to do that.
Sustainability needs tobe sustainable, right?
You can't just ask peopleto put more and more money
without getting somethingbenefit out of that.
And I think it's goodthat they're pushing us.
It's like, "Sure youwanna charge so much more
because it's sustainable.
Yeah, good luck on that.

(33:58):
Find me a way that it can be sustainable
and still cost neutralor even cost reduction.
Can you do that?"
I believe that, yes.
At the end of the day, maybenot for everything immediately,
but, you know, I thinkthere's so many things
that you can actually do,
so why not start with those?
- Well, in the research project
that we did last year with Maersk

(34:18):
and a couple of students from MIT,
we actually proved thatmany of the solutions,
the green solutions
that you can bring tothe warehouse nowadays,
they have really, really short ROIs.
So you can have return on investment
for green energy generation,which is one of the aspects
that you can adopt, like, right away.
'Cause, for example,

(34:38):
in places where solar panelscan produce a lot of energy,
you can go to power purchase agreements,
which is a type of agreement
that removes the capitalexpenditure of the company
and just makes some other player
implement those solar panels
and then sell you the energy,

(34:59):
like, later on.
So you can remove the initial investment,
and you can just getcheaper energy right away,
which brings an economic improvement
and, of course, also asustainability improvement
at the same time.
So that's one of the thingsthat we saw in that research.
And then, of course, other ways
of bringing sustainabilityinto the warehouse,

(35:19):
the discussion that we had atthe beginning of the podcast,
retrofitting existing facilities
versus building a new facilities.
'Cause, of course, whenyou build a new facility,
there are a lot ofembodied carbon emissions
in the infrastructure, the new automation.
So the idea of retrofittingexisting facilities
is also important,
and there are a lot oflow-hanging fruits in that aspect.

(35:41):
And then, of course, new,more efficient technologies
like electric forklifts.
Of course there are
some hydrogen technologies now out there.
I don't know if, I thinkMaersk is also piloting
or trying some of those.
I don't know about thesuccess of many of those,
but many different things
that can bring a moresustainable warehouse.
- And I think you can alsodo something even simpler.

(36:03):
You go to your electric provider and say,
"I want to buy onlysustainable energy from you."
'Cause, for example, weopened in the last few years,
like, nine different warehousesin Savannah area in Georgia,
and we wanted to put onall of them solar panels.
But the answer was, "Sorry,you cannot do that."
And we asked why.
They say, "Oh there is an airport nearby,

(36:24):
and, basically, solar panelcan actually blind the pilots
when they're trying to to land,
so it's a risk."
All right, we didn't think about that
when we asked for that.
So they say no and wecannot do that over there.
But then you can still go tothe electric company and say,
"Hey, I wanna buy asustainable energy from you."

(36:44):
And that, they can put those things
doing those things somewhere else
and still sell you the right thing, so.
- Yeah, they offer that toindividuals, to residents
through municipalities now.
- And I don't think it'sso difficult to make it
sustainable,
but again, materials, thosetype of things of all buildings,
it's probably gonna take a while.
- There's a tricky aspect on that,

(37:06):
which is the implications of ownership
sometimes in the facility.
'Cause because of how thewarehouse industry is right now,
you have, of course, 3PLs involved,
but you also have real estate companies
that sometimes own the landand also the infrastructure.
So in terms of bringing a lotof these sustainable solutions
that sometime required afew years to to pay back,

(37:28):
I think companies need to get together
and actually start talkingabout some contract terms
that can benefit
the implementation of alot of these solutions.
'Cause even if you have a lease
for the next few years as an operator,
and you see okay, maybe thesolar panels or whatsoever
takes a ROI of five or six years,
but it still might a good investment.

(37:49):
So you might just wanna go toyour partner in that business
and say, "Okay, maybe we share the cost
and we also share the gains."
So I think the implications ofownership is something tricky
that we have also seen fromthe research perspective.
And yeah, hopefully we'llsee more and more companies
talking to each other toestablish these contract terms

(38:11):
that help bringing moresustainable solutions
to the warehouse.- The good thing is
that there are few of thelarger real estate owners.
The good thing is that there are few
of the larger real estateowners are doing it already.
Of course not all of them.
And it's very fragmented business
'cause when you pick a location,

(38:33):
you don't pick just basedon who is the owner,
you need that specific location.
It could be, like, a mom and pop owner,
and they probably don'thave any interest to do that
unless you're doing it,
and you remove it atthe end of the contract,
which now becomes suddenly
something you don't want to do it.
But yeah,
that direction is already in motion.

(38:54):
- So where does the researchgo next beyond your paper?
What areas of this topicare yet to be explored?
- So at the omnichannelsupply chain lab right now
we have three research lines.
One of them is actuallyrelated to technology itself
because of these risingdifferent solutions
and also

(39:16):
the huge vulnerabilities
that a lot of thesetechnologies are bringing,
and let me explain myself.
Back in the days, most ofthe technology in a warehouse
were closed systems.
So you have a lot of thesesolutions running in softwares
that were on a Windows operating system.
Nowadays, you have, first of all,

(39:37):
a lot of these technologiesrunning on Android,
and also a lot of these technologies
having connections with the cloud.
So you have an open system,
where a lot of stakeholdersmight have interest,
and a lot of your datamight be stored somewhere
that is shared between youand many other clients.
That happens, for example,when you have cobots.

(40:00):
A lot of the collaborativerobots, the way they run
is based on a central AIsystem that is in the cloud
'cause it required so much computer power
that it's really hard to actuallymake it on a local server.
So that brings a lot ofvulnerabilities to the systems.
So one of the researchlines that we have right now
is looking at all thesepotential disruptions

(40:21):
that can happen in terms of cyber attacks
or even an unintentional disruptions
because of the transformation
to more highly-automated warehouses.
Go with the floodings in California,
if you have a facility thatmainly runs on electricity
and you have a grid power outage,

(40:41):
you need something to keep operating.
'Cause at the end of the day, I mean,
that flexibility of havinghumans at the warehouse,
when you're going intomore and more automation,
you lose it, as we werementioning at the beginning.
So this technology transformation
comes with a lot of downsides
that research also has to look at.

(41:02):
So that's one.
The other one is robotics as a service.
I think we also talked a little bit
about this new business model,a subscription-based model
that we believe can bringbenefits to the supply chain.
So we are looking at whataspects of the supply chain,
not just the warehouse,
this type of businessmodel can benefit the most.
And the third one,

(41:23):
and I like this one a lot,
is what we call optionality.
And this term came actually from
the VP of supply chain
of one of the largest retailersin the US a few weeks ago.
And he was sharing this need
of coming up with awarehouse of the future
that is able to adaptto whatever it comes.

(41:44):
Different unit loads,
but also big marketchanges, big disruptions,
how do we create, how do wedesign a facility from scratch
that is able to adapt to different cargos,
to just adapt to volatility,anything that can happen.
So we believe that ideais really powerful.
We have been exploring itfor many months in the past,

(42:04):
but I think this term optionality
is actually somethingcool that is gonna stick.
So yeah, at this point,
vulnerabilities inhighly-automated warehouses,
robotics as a service and optionality
are the three research lines that we have
in the warehouse of the future.
- And Erez,
what did Miguel forget?- Oh, they're doing
many more things for sure.
- There's so many things you wanna do.

(42:25):
So those are great topics.
And there's so many deepdives that you can do
in each of the elements.
For example, Miguel was talking before
about so many different solutions,
so how do you choose?
That could be a great topicto, like, what is actually,
how to choose the righttechnology that fits your need.
But I think somethingmuch bigger than that

(42:46):
is actually is how therole of the warehouse
in the big end-to-end supply chain
is playing and how to improve that.
So how can you make it much smoother?
All the changes that he was talking about,
the largest retailer,etc. are talking about

(43:07):
is not only within the warehouse,
is how do you actually become,
so let's call it elastic,that you can change things
and adopt new ways towork within the warehouse
based on, you know, aproblem that happened
in the Red Sea, for example.

(43:27):
So can that and should it be
connected together?
I believe that, yes, youknow, there is a big deal
on where you're working,how you're working,
what are you doing here and there
based on really thewhole flow of end-to-end,
and what is the end goal, right?
What do you do? Why are you doing that?
In my mind is at the end of the day,

(43:48):
to reduce the amountof stocks that you have
because that's way toomuch waste there today.
And to improve the service level
that you bring to the end customer.
Can you do it together?I believe that, yes.
But it requires a connectionbetween everything
and to work in such a smooth way.

(44:08):
And that's a lot ofresearch requires there.
- And do you think that isgonna be the digital twin
what's gonna help with this,you know, end-to-end vision
of the supply chain?
- Maybe many, many different digital twin
and some control tower on top of it.
'Cause I don't think you cansimulate the whole thing.

(44:28):
It's such a complex thing,
I don't know if we havethe right power today.
Maybe one day but there is somany things that you can do
way before that, you know,
with just the visibilityof optimization levels
that we talked about,
and later, if you need simulationand digital twin really,
okay, you bring it to this next step.

(44:49):
- So people oftendescribe AI and automation
as exciting and terrifyingat the same time.
How will these new technologieshelp warehouse workers
do their jobs more effectively
and help companies be moreproductive at the same time?
- Yeah, so
I can understand why peopleare terrifying from AI,
but at the end of the day,

(45:09):
I see it as a supportive tool, you know?
You can also be terrifiedmany years ago from Excel.
"Oh, it's gonna," you know,
"It's so difficult, it'sso complicated," but-
- To be fair, I'm still alittle terrified of Excel.
- We all are, you know?
There's so many functions there
that you don't even know that exist.
But I think the beauty of AI
and the machine learningaround it definitely can help.

(45:31):
Let me give you an interesting example.
Our continuous improvementteam came to us few years back
and say, "Hey, we are tryingto improve the time it's take
to manually unload containers.
Can you help us?"
Like, "Okay.
Why do you need us for that?
It sounds like a veryeasy problem to solve."

(45:51):
And they said, "No, you'll see.
It's not so easy."
I'm like, "Okay, sure."
So we went to some of ourdeconsolidation centers,
those locations I was,transload I was talking about,
and
we looked into that.
Now,
the number of cartons inside a container

(46:12):
can go from few hundreds to 15,000.
So you had a huge rangeof number of cartons.
A lot of them are coming floor loaded,
some of them you can palletize
so it's easy with a forklift.
It's very simple to do that but
a lot of people tryingto utilize the container
to maximum possible,
so they're floor loading it.

(46:34):
Now, in a deconsolidation service,
you're, basically,splitting it per destination
per instruction from the customer.
So they tell you, "Okay,this queue take 150 cartons
and move them to this DC,
and about 22 cartons go to that DC."

(46:55):
And assume you have 20 DCs now,
that takes a lot of energy
from the people that doing that to just,
"Okay, this is that and this is this
and put it on a cart and push it."
We're talking about manualenvironment right now, right,
which still exists out there.
It's not all automated.
So we started originallyby using an Excel.

(47:16):
We say, "Okay, let's tryto put some assumption
and create something."
We went so off.
At the same time we askalso the supervisor,
"What do you think this container takes?"
So the guy says, "I feel six hours."
We called another supervisor,
"What do you think it's gonna take?"
And he say, "Oh, this isabout nine and a half hours."
I'm like, "Okay, that'sa huge difference."

(47:38):
Call the third guy,
let's see if they'regonna bring us in between.
Threw us even more off.
He's like, "Oh, this is 11 hours.
I'm kind of positive it'sgonna take that much."
Really it's like there's nothing out there
that give you the right insight into that.
So Excel didn't work.
The knowledge of the people,
the tribal knowledge didn't work.

(48:01):
We say, "Okay, what's thenext labor management system?
Let's go with that."
Now, the problem with LMS
is that if you don'thave any input to scan
or to do something, you haveno clue what's going on.
The system have no clue.
So we said, "All right,there's no scanning going on.
It's all manual."
So there's nothingrobotics to count it for us

(48:21):
or to do anything.
You scan only one cart at a time,
and you don't really knowhow many cartons by the scan,
but it's only on a paper.
We put tablets next to the door
of the containers, basicallychecking in, checking out.
I said, "Okay, just to knowhow many people did the work?
Is it one, is it two, is it three?
When did they actually been there?"

(48:42):
So we failed miserably. Nothing.
We couldn't get any knowledge out of that.
It was, like, so off.
Then we said,
"Okay, let's talk aboutcomputer vision and AI here.
Let's understand how can wesolve it in a different way."
So we actually installedcameras in each of the doors,
and those cameras learned,

(49:04):
keep looking at how many peopleare there, what's the depth,
realize what's the depth already completed
into the container.
How do they do that?Do they do it manually?
Do they do it with a forklift?Do they do it with a cart?
So
it started to learn all these elements,
bring it all together,
and the AI and the machinelearning behind the scene,

(49:25):
after seeing tens ofthousands of containers,
started to give us amuch better prediction
on how long it would take.
So we had slightly above80% of the accuracy there.
I don't think we will ever goanywhere above that, you know?
'Cause there's still so manyunknowns that you don't know.
You know, the guy didn't feel well,
or the girl didn't feel well.

(49:45):
Last night they ate too much.- But 0 to 80 is not bad.
- Yeah.
From 9 to 6 to 11,
suddenly you come to an 80something percent accuracy,
now you can incentivize the people,
and say, "Based on 80%,
I'm willing to start giving you incentive
to do it few minutes less than that."
Not only that, you now canstart synchronize the work

(50:10):
between the warehouse and theyard that connected to that,
and bring, get ready the next container
about 10 minutes beforeit's really happening.
Before you never knew whereis that 10 minutes coming.
So AI, in one hand,
scared the people,
"Oh, why do you watching me?
Why are you doing that?"
But we're not watchingyou as Erez or whatever,

(50:31):
or Dan or whoever it's the person,
we're watching the work being done.
We're not putting namesto the people there.
So actually it's collaborating with them,
helping them to earnmore money in one hand,
helping our whole operation
to actually flow in amuch better way there,
and that's,
I believe it's a good example

(50:52):
on how you can actually playwith AI and machine learning
and bring them in tosupport people in decisions.
- And I think, just to compliment on that,
the idea of human/machine collaboration
that Erez was mentioning,
I think is where AI has mostpotential in the warehouse.
We talk about some of thesesolutions in the white paper,

(51:14):
but, for example, exosuitsis something that is pretty,
I mean, has been out there for many years.
It's a wearable device thatusually support workers
to just
heavy items or to just performany kind of manual task.
And AI actually brings what's called
a flexible and adaptable exosuit

(51:36):
that is able to adapt basedon your own movements.
So if I'm just standing and doing nothing,
it's not gonna be actuallyperforming any kind of task,
but if it feels that I'mmoving, I'm lifting something
or I'm actually just pushing a cart,
it's actually gonna supportthat specific movement
based on my muscle position

(51:58):
and how I'm actually movingat that specific moment.
So that's just one example.
But in terms ofhuman/machine collaboration,
a lot of AI applicationsthere, collaborative robots,
it's something, it's another big solution
that actually takes a lot from AI.
'Cause, for example,
in terms of predictivemaintenance for the robots,

(52:19):
in terms of how the robotscan avoid collision,
they learn from each other,they learn where they are going,
and then something cool
that a tech provider actuallyshared with us the other day
is that when you have this collaboration
between humans and robots,
you can even do the robotslearn about the humans.

(52:39):
So when you have, forexample, picking robots
that collaborate with just human pickers,
then the robots can learn,
"Oh, this specific person
actually takes a little bitlonger on doing this task
'cause maybe he's a little bit older,
it's a little bit harder for them,
so I'm gonna, as a robot,I can adjust my timing,
my movement to go maybe

(52:59):
a little bit slower with that person,
or if I'm maybe working at this point
with someone who's a little bit faster,
I can adjust to that too."
So that reinforcementlearning of this kind of tools
is only possible thanks to AI.
So yeah, a lot of possibilities.
I'm pretty sure that we'llsee more and more coming
in the next year 'cause thisfield has a lot of potential.

(53:24):
- Well, our guests todayhave been Erez Agmoni,
global head of innovationlogistics and services at Maersk,
and Miguel Rodriguez Garcia,postdoctoral associate
here at the MIT Center forTransportation and Logistics.
They've just completed a white paper
exploring the warehouse of the future.
Thank you guys both so muchfor spending some time with us.
I've really enjoyed that conversation.
It's good to be inperson, in front of people

(53:45):
talking about this stuff.- Thank you for having us.
- Thank you so much for having us.
It was a pleasure.
- Thank you for listening to this episode
of MIT Supply Chain Frontiers presented by
the MIT Center forTransportation and Logistics.
To check out other episodesof MIT Supply Chain Frontiers,
visit ctl.mit.edu/podcasts.
And for more on the center's research,
outreach and education initiatives,

(54:06):
make sure to visit us at ctl.mit.edu.
Until next time.
(upbeat music)