The CEP sector has undergone a significant transformation over the past several years. In fact, it’s been in a state of disruption, caused primarily by two key factors: the surge in e-commerce and changing customer expectations. What can we expect in the future for the sector and what are the trends we see in the CEP industry?
By Brian Hansen
The tremendous growth we have seen in the CEP sector in recent years is predicted to continue, representing a massive opportunity for the industry.
While the growth may not be as significant as the growth we saw during COVID-19, some suggest the expected growth to reach US$ 519.6 billion by 2027. Much of this growth has been propelled by the surge in e-commerce. Even before the COVID-19 pandemic, new purchasing behaviour had been emerging – on both B2C and B2B sides.
Both end-consumers and industrial customers have come to expect to receive shipments faster, with more flexibility and at a lower price. This is a CEP trend that we’ll likely continue to see.
On the B2C side, it has become apparent that online consumers don’t care who delivers their goods, as long as they receive them quickly, cheaply and reliably. Consumers have been seeking flexible delivery in terms of when and where they get their shopping items.
It’s been 20 years since Amazon introduced the concept of free shipping which has now become a cornerstone of e-commerce sales. Consumers have come to expect free shipping and are only prepared to pay a premium for faster delivery and high-value items. Dynamic pricing for parcels is unacceptable as customers expect to pay the same for shipping expenses, regardless of the season.
The B2B side has been no different. Industrial customers have been under strain in terms of operational efficiency, profitability and performance. They too have expected faster time-to-market, lower defect rates and customised products. In some manufacturing industries, the pace of changing customer expectations has been even faster than that of the private end-consumer.
There can be no doubt that the pandemic has accelerated this transformation. Customers continued their online buying behaviour and those who rarely bought online made it a common channel.
According to Research and Markets, the 2022 report shows increased consumer preference for shopping online through various e-commerce portals is providing a boost to the market growth. The global cross-border e-commerce is growing, resulting in an increase in the number of parcels shipped around the globe, also driving the CEP market.
The B2C segment also witnessed beneficial impacts as a result of COVID-19, which are projected to continue for the next few years. The development of cross-border trade, especially in emerging nations, has also enhanced the adoption of international trade and B2C shipments.
For the CEP industry, certain players will want to grab this trend of continued growth. But it won’t be without its challenges. Among them are:
The CEP sector needs to operate extremely efficiently to keep up with the demands of the market.
Digitalisation of their processes will be the way ahead for CEP companies to operate with efficiency and accuracy in an increasingly complicated industry.
Digitalisation is an umbrella term for a number of different working tools and structured methodology. In the CEP industry, it involves the capture of data, analysis of data and uses the insights provided by the data to improve parcel processing and operations of sortation systems.
Examples of valuable digitalisation services include:
The CEP sector will be looking to understand and get value from data more and more in order to meet the demands of e-commerce and customer expectations. Industry experts predict, in fact, that digitalisation will change how distribution centres operate and that within 10-20 years, the entire CEP industry will be transformed.
The first step most CEP operators are already taking to start digitalising their operations, is establishing a data-collecting structure. For CEP companies, data collection generally happens through:
Once the data has been collected, CEP businesses will start to apply more advanced levels of data analytics to help refine their operations and reduce costs.
These levels represent different levels of data maturity, although distribution centres will gain benefits from all levels of data maturity. Becoming fully-fledged digital operations will not happen overnight for the CEP sector but will likely be implemented step-by-step.
Taking one step at a time:
As mentioned, the collection of data is the first step in the digitalisation process.
The objective of descriptive analytics is to understand precisely what happened, but not why it happened. It’s a retrospective laying out of all the facts without connecting any of the dots.
If a distribution centre experiences an increase in breakdowns, for example, descriptive analytics will inform it as to where the failures in the sortation system took place, the equipment that was affected, the time the failures took place and the amounts and types of parcels going through the system leading up to, and during, the failure.
Instead of simply stating what happened, diagnostic analytics explains why, by comparing new data with older data, looking at correlations and identifying patterns. A distribution centre might be able to identify, for instance, that a combination of volume, parcel packaging and parcel size is causing specific equipment to falter.
Management teams can then make data-based decisions as to how to better structure sortation processes or allocate operators to maintain specific flows. Operators can also react to when digital predetermined conditions are met instead of responding once breakdowns occur.
Over time and with a collection of data, algorithms can start to predict what is likely to happen, based on trends and activities, such as full chutes, durations, manual handling, dump chutes and lost capacity. CEP operators can shift from reactive to proactive operational processes, moving from a calendar-based maintenance approach to identifying elements and components due for inspection, for example.
By implementing the right feedback loop, the system starts recommending what action to take to eliminate any potential future problems. So, if chutes are becoming full, it will recommend that a chute next door be opened to prevent recirculation or even recommended the priority in which to empty the chutes so that the CEP hub will always know it needs to empty them in this order to be more efficient and avoid as much as possible any shoots becoming full.
Depending on the chosen level of autonomy, the system can either propose an action, inform about an action that has been taken, or simply carry out the action autonomously.
Through data analytics, CEP businesses will also be making more use of ‘digital twins’, or digital copies of their physical systems to perform real-time optimisation. By replicating operations in a digital environment, such as routes, sortation and collection, operators will plan network changes and broader transformations more effectively. Digital twins will also be used to course-correct operations, both in real-time and for predictive purposes.
The digital twin also will enable operators to understand options and scenarios and the likely impact of hundreds of millions of dollars worth of CAPEX decisions before making investments.
The continuing growth of e-commerce and online customer behaviours offer a positive outlook for the CEP industry. But growth is always accompanied by challenges in terms of keeping up with customer demands and expectations. In terms of optimising CEP operations to cope with parcel volume growth while maintaining profitability, BEUMER Group predicts that the numer one trend in the CEP industry will be digitalisation, and it will likely facilitate the way forward. Those players that leverage the data already available to them through their daily processes, will be better placed to optimise their operations in more cost-effective ways.
