During the last few years, the market and business models have undergone great changes due to the growth of electronic commerce, gradual optimizations of storage costs and distribution and a greater efficiency in urban logistics; all of this partly due to the application of the new technologies to logistics, automated warehouses, semi-automated handling systems and the modernisation of metal racking.
The turnover of electronic commerce is still growing substantially each year and in 2013 the average in Europe was once again more than 13%, even in countries which have been seriously affected by the economic crisis, and with even greater percentage growth worldwide in countries with emerging economies.
The possibility of reaching customers worldwide is transforming business models and especially B2C (Business-to-Consumer) markets which can no longer be restricted to the classical models where the idea was for a reduced number of products to be as popular as possible and, therefore, be sold extensively. Now, in the modern Internet era, online shops, social networks and recommendations between consumers, the sale of many different minority products is demonstrating an economic potential which, in certain sectors, can be greater than the classical mass market model. This phenomenon is what is known as “Long Tail”.
The expression “Long Tail” is an expression which in statistics refers to the portion of the distribution having a large number of occurrences far from the "head" or central part of the distribution. It became popular in the field of logistics and business models in 2004, following an article by Chris Anderson for the magazine “Wired Magazine”, which would later give rise to his book “The Long Tail: Why the Future of Business is Selling Less of More”.
If we look carefully at the graph, in which the horizontal axis represents the different references available in the warehouse and the vertical axis the sales of each one of these references, we can see that a reduced number of references represent the best selling products (blue area), taken into account individually and in general they will also be associated with a greater level of rotation in the warehouse.
On the other hand, the orange area represents the rest of the references which, individually, have a much less volume of sales and, possibly, a lower level of rotation in the warehouse. This is the part which represents the “Long Tail” and which owes its name to the shape of the curve.
The important thing is that if we take into account the fact that the area of the curve represents the total volume of sales, a “Long Tail” can have an area which is greater than the head (blue area). This sums up what is revolutionising the markets.
Implications of the “Long Tail” in the warehouse
It is obvious that the “Long Tail” business models are only viable as long as the storage and logistics distribution costs are affordable enough to get the minority products to the consumer. This imposes much greater demands when it comes to optimizing warehouses and the metal racking systems that are installed.
Handling a wider variety of references and, therefore, features of very different products requires top quality metal racking to be installed, which guarantees giving service to the warehouse’s present and future needs.
A greater number of references means having to optimize warehouse space to the limit, with mezzanines, multi-tier racking or high density storage systems such as self-supporting warehouses and automated warehouses with stacker cranes.
Providing service for electronic commerce sales also implies maximising warehouse productivity in handling tasks both with automated warehouses for pallet warehouses and with miniload for light loads and semi-automated systems which speed up the picking tasks.
Combining storage for few references in great demand and a wide variety of references in small individual demand also means efficiently combining different metal racking systems in the same warehouse, designed to optimize the space according to the product rotation level. LIFO pallet systems such as drive in pallet racks and push back pallet racks save the need for aisle between pallets for those references with a lesser rotation level.
On the other hand, conventional pallet racks ensure direct access to each reference while FIFO pallet racking with systems such as dynamic pallet racks enables aisles to be eliminated without giving up high rotation levels.
ATOX Storage Systems, a leader in the manufacture of top quality metal racking and with vast experience, designs and manufactures industrial racks and storage systems tailor made for each customer’s needs. Being aware of the evolutions of the markets and business models, ATOX is committed to R&D&I to provide new automated and semi-automated storage systems which enable warehouse to successfully tackle the challenges they face in this new era.