Industry 4.0 and
distribution centers
Transforming distribution operations
through innovation
A Deloitte series on digital manufacturing enterprises
ALAN TALIAFERRO
Alan Taliaferro is a partner with Deloitte Inc. in Canada, and serves as a subject matter expert in the
retail supply chain practice, focusing on automated distribution center design, fulllment center design for
e-commerce, and distribution network strategy for omnichannel clients. He has over 12 years of experience
leading complex supply chain strategy and transformation projects in a variety of industries.
CHARLES-ANDRE GUENETTE
Charles-Andre Guenette is a senior consultant with Deloitte Inc. in Canada, within Deloitte Consulting’s
Supply Chain Management practice. He specializes in optimizing distribution operations using advanced
technologies and supports clients throughout each step, from justication to implementation.
ANKIT AGARWAL
Ankit Agarwal is a senior consultant with Deloitte Consulting LLP’s Strategy and Operations practice, where
he works with clients to identify the need for and implement new advanced technologies that transform their
supply chain operations. His key expertise includes enabling omnichannel fulllment capabilities, operations
management, and service supply chain design.
MATHILDE POCHON
Mathilde Pochon is a consultant with Deloitte Inc. in Canada within Deloitte Consulting’s Supply Chain Man-
agement practice. She has worked on projects to help clients identify the best technologies and suppliers to
optimize their supply chain.
ABOUT THE AUTHORS
Deloitte Consulting LLP’s Supply Chain and Manufacturing Operations practice helps companies
understand and address opportunities to apply Industry 4.0 technologies in pursuit of their busi-
ness objectives. Our insights into additive manufacturing, the Internet of Things, and analytics
enable us to help organizations reassess their people, processes, and technologies in light of
advanced manufacturing practices that are evolving every day.
Industry 4.0 and distribution centers
CONTENTS
Introduction | 2
The evolution of automation | 4
New demands on distribution centers
Going from automated to truly "smart" | 6
Using Industry 4.0 technologies to adapt to changing
DC demands
Integrating the digital and the physical in the
warehouse | 10
DC transformation has ripple eects across the supply chain
Adapting to a brave new world | 12
Making the transition toward increased DC automation
Implementing Industry 4.0 for the distribution
center | 13
Transforming distribution operations through innovation
Introduction
R
ECENT years have seen the rise of connected
technologies throughout the manufacturing
and distribution value chain.
1
This marriage
of digital and physical systems—known as Industry
4.0—has paved the way for increasingly connected
experiences that impact everything from product
design and planning to supply chain and produc-
tion.
2
Beyond the processes of designing and pro-
ducing goods, however, the technologies inherent
in Industry 4.0 can also
impact the manner in
which nished goods
are moved, warehoused,
and distributed.
Industry 4.0 technolo-
gies enable warehousing
facilities to adapt to sig-
nicant changes in their
business. The last sev-
eral years have seen the
migration away from
warehouse-based stock-
piling of inventory to
high-velocity operations,
pushing more products
through the same physi-
cal assets while bringing
down overall costs.
Known as distribution
centers (DCs) rather than warehouses, they are an
important component of the supply chain infra-
structure and are increasingly treated no longer as
cost centers, but rather as strategic facilities to pro-
vide competitive advantage. As the need for greater
order customization, shorter lead times, better
quality control, reduced labor costs, and higher pro-
duction output is increasing, adaptable advanced
technologies are emerging as a solution to achieve
these goals.
The use of advanced, connected technologies in
DCs is not new. In the past, these technologies were
mainly limited to automated systems used to in-
crease material-handling productivity—systems that
had to be kept separate from workers for safety,
3
and
that required high standardization of processes and
products due to their lack of adaptability. This lack
of adaptability—or “smartness”—meant that a great
deal of upfront customization and programming
was required to ensure proper functioning, as sys-
tems could not adapt easily to changing demands.
4
Industry 4.0 technologies
can help pave the way for
the evolving DC, enabling
automated systems to
adapt to their environ-
ment and tackle tasks
more efficiently, while
working with humans.
Technologies such as low-
cost sensors, computer
vision, augmented reality
(AR), wearables, Internet
of Things (IoT),
5
robotic
prehensility, human-ro-
bot safety, analytics, and
high-performance com-
puting—all inherent in
Industry 4.0—are being
used to enhance existing
automation. At the same
time, they are also enabling new types of smart auto-
mation that can help transform DC operations.
In this paper, we examine the evolution in DC
functionality and explore applications of emerging
Industry 4.0–driven technologies to enable a more
exible, adaptive, and productive DC. Finally, we
consider the ways in which these new technologies
will impact talent needs, business strategies, and
data management for DCs.
Beyond the processes
of designing and
producing goods, the
technologies inherent
in Industry 4.0 can also
impact the manner in
which nished goods
are moved, warehoused,
and distributed.
Industry 4.0 and distribution centers
2
DIGITAL MANUFACTURING ENTERPRISES AND INDUSTRY 4.0
The Industry 4.0 technologies that enable digital manufacturing enterprises (DME) and digital supply
networks (DSN) involve the integration of digital information from many dierent sources and
locations to drive the physical act of manufacturing and distribution. This integration of information
technology (IT) and operations technology (OT) is marked by a shift toward a physical-to-digital-to-
physical connection. Industry 4.0 combines the IoT and relevant physical and digital technologies,
including analytics, additive manufacturing, robotics, high-performance computing, articial
intelligence and cognitive technologies, advanced materials, and AR,
6
to complete that cycle and
digitize business operations.
The concept of Industry 4.0 incorporates and extends the IoT within the context of the physical
world—the physical-to-digital and digital-to-physical leaps that are somewhat unique to
manufacturing and supply chain/supply network processes (gure 1). It is the leap from digital
back to physical—from connected, digital technologies to the creation of a physical object—that
constitutes the essence of Industry 4.0 that underpins DME and DSN.
7
Even as we explore the ways in which information creates value, however, it is important to
understand value creation from the perspective of the manufacturing value chain. Throughout the
manufacturing and distribution value network, business outcomes may emerge from the integration
of IT and OT via Industry 4.0 applications.
For further information, visit Industry 4.0 and manufacturing ecosystems: Exploring the world of
connected enterprises.
8
Graphic: Deloitte University Press | DUPress.com
Source: Center for Integrated Research.
Figure 1. The physical-to-digital-to-physical leap of Industry 4.0
1. Establish a
digital record
Capture information
from the physical
world to create a
digital record of the
physical operation
and supply network
2. Analyze and visualize
Machines talk to each other to
share information, allowing for
advanced analytics and
visualizations of real-time data
from multiple sources
3. Generate movement
Apply algorithms and
automation to translate
decisions and actions from the
digital world into movements
in the physical world
2
1
3
PHYSICAL
DIGITAL
Transforming distribution operations through innovation
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