The value chain of the warehouse automation industry is changing. Highly customized fixed automation solutions are evolving towards more modular, configurable, and standardized systems, such as those presented by Autostore and Opex. This trend will profoundly impact the value chain of the entire industry, eroding the margins of system integration and solution design, but can open up new opportunities for system manufacturers. In this article, we'll dive into the following aspects:
The current structure of the warehouse automation industry and its evolution.
The rise of more modular, plug-and-play systems, and the potential impact of this trend on the industry as a whole.
How companies can position themselves in the current industry trends to capture the most value.
Traditional system integration model
As shown in the figure below, the automation value chain of the warehousing and logistics industry covers multiple links. System integrators play an important role in this, and most warehouse automation system integrators cover almost the entire process from system original equipment manufacturing (OEM) all the way to after-sales service.
One of the reasons behind this vertical integration is due to the high degree of homogeneity of traditional stationary warehouse automation hardware (e.g., shuttles, conveyors, sorters, etc.). For a long time in the past, due to the lack of differentiation and the relatively slow pace of innovation, the decision of warehouse automation system integrators between "buy" and "build" was clearly inclined to choose the "build-you-own" solution. For example, Witron acquired FAS in 2005 and gave itself its own equipment manufacturing capabilities. On the other hand, in order to achieve higher margins in low-margin businesses, equipment manufacturers have also developed integration capabilities. For example, TGW, a system integrator that provides logistics solutions, started out as a logistics equipment manufacturer. All kinds of factors make the system integrator in the core position of the entire warehousing industry chain, and the vast majority of the sales revenue in the industrial chain belongs to the system integrator.
The corresponding position of different types of ** merchants in the value chain of the warehousing industry.
The rise of modular and standardized systems
In recent years, we have seen third-party logistics system equipment manufacturers (OEMs) such as Exotec, Autostore, Dexterity and Berkshire Grey enter the market with highly modular and standardized solutions that are often based on robotics rather than traditional conveyor systems. Due to the rapid update and iteration of these technologies, coupled with the integrator's own lack of expertise in robot applications, between the two decisions of "buy" and "build", today's warehouse automation system integrators are more inclined to "buy".
Against this backdrop, pure-play system integrators that focus on integrating third-party system hardware such as Autostore and exotec and are not involved in device manufacturing themselves have seen significant market share. Taking the top 10 system integrators in the United States last year (2022) as an example, almost all manufacturers with both equipment manufacturing and system integration businesses are losing market share, while pure system integrators who are not involved in equipment manufacturing are gaining share. As a result, even traditional equipment manufacturing + system integrators (OEM+SI) are starting to work with more equipment manufacturing OEMs. For example, Dematic – the quintessential equipment manufacturer and system integrator – has partnerships with Autostore, Dematrity, and Quicktron. Clearly, system integrators are increasingly collaborating with equipment manufacturers.
The new systems developed by third-party system OEMs such as Autostore, Exotec, OpEx, etc., are highly modular and configurable, in contrast to traditional equipment, which is often based on a conveyor system, which is often highly customized for each customer. The shift from "customized" to "standardized" actually shifts value creation from the construction phase to the design phase.
The value chain is changing
Currently, a significant portion of the added value on the chain comes from the integration construction phase, as these systems are often highly customized and require deep software, electrical, and mechanical engineering expertise. Without this knowledge and skills, it becomes extremely difficult to provide a customized automation solution.
However, theseThe relative ease with which new third-party solutions can be "connected" to each other lowers the barrier to entry for system integrators, potentially eroding system integration margins. In addition, companies like SVT Robotics are actively driving this trend – they're making it easier than ever to integrate third-party solutions with a simple and intuitive user interface. As mentioned earlier,This shifts the value from the integrated construction phase to the design phase.
Of course, this doesn't mean that system integration will be "easy", but there's no denying that the trend towards greater standardization means that there will be less customization** needed to integrate various systems, and the "plug-and-play" nature of these modular and configurable systems means that there will be less need for electrical and mechanical engineering expertise.
Value is moving from the integrated construction phase to the design phase.
Note: The EBIT marginal estimates for each activity are detailed in the 2023 edition of the Warehouse Automation study.
As more third-party systems are integrated, the need for system scheduling and execution becomes more prominent, and we anticipate that the process of connecting and coordinating these various systems will create significant added value. However, the use of third-party system equipment also brings a problem: who will make the profit from after-sales service. In general, system integrators are the most profitable part of the value chain, as they dominate the majority of maintenance and repair (MRO) and other aftermarket revenues. However, we may see that this part of the business revenue is increasingly being captured by equipment manufacturers, especially in the spare parts sector.
General trends
The impact of robotics on the value chain is not limited to the warehouse automation market. Across the research areas of Interact Analysis, we observe a common pattern across industries experiencing innovation disruption – value creation is transferred downstream to the best players who develop innovation systems, while vertically integrated participants upstream of the value chain face value erosion.
Take, for example, the automotive industry. In the past, automotive OEMs such as Volkswagen and Volvo typically produced most of the components used in their vehicles, including powertrain systems. However, as the automotive industry shifts to electrification, we are seeing a trend of tier-1** vendors leading the way in innovation and capturing more value through the development and improvement of batteries and motors. As a result, as Tier-1** vendors gain more value, the "value" offered by automotive OEMs will naturally decrease over time.
Value transfer during industry innovation.
Back to the starting point – "vertical integration".
However, nothing is set in stone. At some point, product differentiation will slow down and hardware will become homogeneous again. At that point, we may see two trends: 1) equipment manufacturers developing integration capabilities in pursuit of higher profits, and 2) existing system integrators acquiring equipment manufacturers. The result will be an industry dominated by vertically integrated system integrators, returning to the scene at the beginning of the industry development process and starting a new cycle of innovation.