February 2020 | Commentary | Checking In

Robot Return Ratios

Tags: Retail, Warehouse Management Systems (WMS), Technology

Keith Biondo is the publisher of Inbound Logistics magazine.

More robots are on the way to Walmart, says John Crecelius, the retailer's vice president in charge of in-store innovations. Walmart will add shelf-scanning Bossa Nova robots to 650 more U.S. stores in 2020, for a total of 1,000 or more by the fall. Either Bossa Nova or Simbe robots will be in "the majority" of Walmart's 4,750 U.S. stores one day, predicts David Wilkinson, NCR's senior vice president, global retail, who will maintain the store robots.

Why more robots? Competition from Giant Eagle, Stop & Shop, Schnucks, Albertsons, and, of course, Amazon. Everyone. Anyone?

Stockouts cause walkouts, right? Walmart has to keep in-store customers happy and buying more, and protect a valuable brand by avoiding a stockout reputation on social media. The impact of Walmart's investment in in-store sales to better match shifting currents of demand to supply will be extraordinary.

Walmart does not provide specific data on the benefits of its demand-driven investment in robots, but we can guess what's at stake. Reporting a total 2019 revenue of $514 billion, Walmart posted phenomenal growth in fiscal year 2019, especially in e-commerce sales—up almost 40% year over year, according to the company. Financial experts estimate Walmart's e-commerce sales at $28 billion. Back that out of total revenue, and we're left with $486 billion.

Removing other non-in-store sales leaves $400 billion or so for all in-store sales. Walmart operates 11,000-plus stores across the world. That amounts to approximately one-tenth of the total retail stores, using Crecelius' 1,000-store target for robots this year. It makes sense to invest in stores that have the highest sales, offering the best robot return on investment. Let's guess that would be approximately 10% of the $486 billion in sales, or $48 billion of in-store sales, amped by stockout-reducing robots.

What is the average loss due to stockouts? This one is tougher. Naturally, Walmart provides no information. Retail industry estimates range from 4% to 8.6% in lost sales due to out of stocks (OOS), depending on how good the retailer is at demand management. Walmart is the world's largest retailer, in great part due to its excellent supply chain practices. So let's peg the OOS losses at 3% in these 1,000 soon-to-be roboticized stores, or $1.5 billion in OOS losses. Let's say the aisle-walking OOS robots are not perfect and only reduce stockouts by 33%.

That's $500 million in doable stockout savings per year in just 1,000 stores. Customer experience and brand protection benefit amounts are anybody's guess. I've run out of space on my back-of-the-napkin calculations.

As Walmart demonstrates, clearly monitoring and better matching demand to supply using robots pays huge dividends.






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