Most people who’ve heard of Ocado probably know it as a grocery store. In fact, the company claims to be the world’s largest online-only grocery store.
Established in 2000 by former Goldman Sachs bankers, Ocado has been voted best online supermarket for many years in a row, and earned revenues of more than £1.1 billion in 2015.
An increasingly large proportion of that revenue is set to be generated by the company’s in-house technology research and development teams. This is part of the reason it’s repositioning itself as a technology company, and has launched Ocado Technology and Ocado Engineering as separate business units.
Ocado has big ambitions, way beyond being the best online grocer. The company wants to become a provider of technology platforms in several different areas.
Whether it is possible that an online grocer can rebrand itself in that way remains to be seen, but a lot of the success in the technology market depends on how well a company’s products work, rather than superficial changes to its branding.
And Ocado has been developing its technology for many years because it could not find what it needed on the market. Given that its innovations have resulted in the company becoming one of the leaders in its market, if not the outright leader, you would expect Ocado’s technology may well “do exactly what it says on the tin”, to use a well-worn phrase.
The foundation for Ocado’s technological development has been its warehouse operations. So much of the warehouse has been automated by Ocado’s engineers and tech experts that there are many individual innovations which are still under wraps, in prototype, and we were not allowed to film them or take pictures.
Enterprise Management 360º was invited to see for ourselves the Ocado warehouse in Hatfield. We were shown around by Sid Shaikh, Ocado Engineering’s research and development manager, and Alexandru Voica, Ocado Technology’s communications manager.
In total, Ocado has five warehouses in the UK: four for grocery retail and one for general merchandise. The grocery warehouses are in Hatfield, Dordon, Andover and Erith; the first three are operational, while the latter is under construction.
There are about a dozen spokes – small facilities spread around England where the company unloads trucks.
In addition, Ocado Technology has four offices outside the UK: two in Poland – Wroclay and Krakow, one in Spain – Barcelona, and one in Bulgaria – Sofia.
The Hatfield location is where the head office is also sited, and the warehouse part of the business is impressive in both its size and the simplification of what would otherwise be an impossibly complex task.
“We have close to 50,000 different products that we can deliver and are available on the Ocado website,” Shaikh tells EM360 as he leads us through the warehouse.
Online shoppers may imagine that the way a grocer deals with their order is by walking round the aisles with a shopping basket and basically doing their shopping for them, much like they would themselves if they physically visited the store.
This is obviously not the case at Ocado. In a way, it’s exactly the opposite, or the inverse. Your shopping bag is still filled by a human “personal shopper”, but the Ocado warehouse moves the aisles to your personal shopper, who stays fixed in one spot, and just has to pick out the products from baskets that arrive to them along a massively long conveyor – 25 kilometres long to be more exact.
Each one of those baskets – which are called totes in logistics terminology – starts its journey in the warehouse with one type of product, although suppliers deliver at the Ocado warehouse in pallets with all the products mixed up.
150,000 orders a week at this one facility
Shaikh explains: “So, we’ve got pallets coming in from the suppliers. We divide the pallets into totes that are in a format that we can transport around the whole warehouse.
“Trying to transport whole pallets around the warehouse is just not feasible. We’ve got a lot of products.
“If you look down this aisle, you’ll see that each tote contains a single product. So, you’ve got a tote with marmalade in it, you’ve got a tote with bread in it, one with milk in it, and so on, depending on the velocity of a product – how much of it we sell.
“If it’s something that we sell very little of, like a specific battery, we might have only one tote with that battery. If it’s something like milk, we have hundreds of totes full milk.
“This is very different from a typical logistics warehouse, where you might have a very limited number of products, like washing machines, for example.
“Here at Ocado, we complete 150,000 orders a week from this facility, and the diversity and range and volume of products is much higher.”
If those 150,000 orders were completed by personal shoppers walking around a typical supermarket with a trolley, it would probably take all year for the final delivery to be made to the customer – that idea is just not feasible.
Another way Ocado further streamlines the process is through artificially intelligent software systems which can predict which products the company will need to keep in stock and to what levels.
That much would seems obvious, even to someone who isn’t a grocery business expert, but what’s impressive is the result.
99 per cent customer satisfaction
Shaikh claims that the software enables the company to achieve very low substitutions or missing items. “We have more than 99 per cent customer satisfaction – we’re top of the industry.”
Online shopping can be difficult for both the buyer and the seller, and according to a consultancy called Clear Returns calculates that the return of items bought online cost UK retailers some £60 billion a year.
But much of this is in the fashion and other sectors. The grocery sector is different, according to Voica.
“Grocery is a very different segment to the rest of online shopping,” says Voica. “Some people call it the ‘holy grail’ of online shopping because, with groceries, you know that at least once a week you need to buy food.
“With shopping for things like clothes, tech items, shoes and things like that, the patterns are more irregular – if you buy a USB stick today, who knows when you’re going to buy another one?
“Grocery shopping is different because it’s a fairly regular thing, there are patterns, and that’s why it’s important to have good customer service, because week after week, if you don’t deliver, at some point they will move away.”
You would think that with 50,000 products and 150,000 orders a week, the possibilities of making mistakes are many and varied, but Shaikh says Ocado has developed an end-to-end system in which each individual item is tracked from the moment it enters the warehouse to the moment it leaves.
Each tote is packed in a way that optimises the space within, and the thousands of sensors dotted along the entire conveyor system ensure that none of the totes take a wrong turn, and arrive at the personal shopper who is waiting somewhere along the line with a customer’s shopping bag.
The 10-minute rule
If at any point, the conveyor system stops for any reason, Ocado’s control room knows exactly what has happened and where, through a real-time computer simulation of all the products and their location along the chain, and the problem is fixed in less than 10 minutes.
And very few if any of the products moving around in the warehouse are surplus to requirements. “We have a forecasting algorithm which figures out, based on a number of things – such as what people are ordering, seasonality, special offers and so on – what we should buy from our suppliers,” says Voica.
Shaikh adds: “If you went on the Ocado website and ordered a product, we can’t then say, ‘Let’s order that product from our supplier’, because there’s too much of a latency there. That would be way too slow and way too risky.”
A typical grocer – perhaps some of Ocado’s competitors – will likely order products in bulk from suppliers, take those products to a distribution centre, from where they will go to the individual stores. Once there, those products are placed on the aisles in the way most people know about and have seen, and the shop staff go round and pick and place products into shopping bags and boxes and send them out to customers.
The Ocado model takes in the products from the supplier into its warehouse – which is equivalent to about 25 stores, according to Shaikh – and ships it straight to the customer, using the automated warehouse system featuring the “moving aisles”, if one can call them that.
This enables Ocado to reduce the length of a product’s shelf life used up in transit, a key competitive advantage in the grocery market, where fresh produce sells at a premium.
Enter the robot
Ocado wants to go even further by using robots to do some of the picking and placing, but the technology to do this is still in development.
Robots and robotic vision is highly sophisticated, but they are still not sufficiently advanced to deal with the complexity of picking out a product from a box and put it into a bag, simple though that may sound to a human.
Remember, a tote or a bag is typically filled in the most optimum way, with, for example, eggs and bread at the top of a bag rather than at the bottom. Simply identifying the product would be quite challenging for a robot, and the variety of grippers required for the different types of product packaging – from metal tins to soft fruits – is another barrier for the further automation of Ocado’s process.
However, the company is working on a new type of gripper, or end effector as it’s also known – as part of a EU-funded project in collaboration with several universities in Europe, and Disney Research. This end-effector is shaped like a human hand, and the aim seems to be to make it as dexterous and capable as a human hand.
Ocado has so often found itself in a situation where it has bought off-the-shelf technology and built systems using them, but then found that when it wants to introduce a new process which would make its operation more efficient, none of the technology it needs is available on the market.
So it develops its own.
And because it has developed so much of its own technology – both software and hardware – that it seemed inevitable that it would eventually decide to market some of those innovations to other companies.
Hence Ocado Technology and Ocado Engineering.
Picking up items accurately and placing them neatly in a bag, taking care not to put the breakable or squashable items at the bottom, is well within the capabilities of most human shoppers. But this is arguably the single most complex part of the process, and this is the bit of the Ocado automated warehouse where you will find human workers.
But even here, Ocado has developed a technology which takes some of the strain away from the human worker. The company has developed a proprietary system for manufacturing plastic carrier bags and for incorporating them into the automated warehouse’s conveyor system pre-opened and held in place.
We’re not sure how much detail we are allowed to provide about the machine, but it’s still in prototype phase and could be marketed to outside companies in the near future under the Ocado Smart Platform offering.
Bird’s-eye view of peas and everything else
Further up the system, at the highest level, Ocado has built its own supervisory control and data acquisition, or SCADA, system. SCADA systems are quite common in manufacturing and logistics, and there are many companies which design and supply them, but Ocado has gone much further in looking into the fine details of its operation.
Now, Ocado’s high-level control system can see, on screen, tiny little dots representing totes moving around its warehouse.
And if that wasn’t enough, the company has gone beyond that entire system and built an automated warehouse which features robots which can pick and place items, although the entire warehouse infrastructure – previously based around a conveyor – has had to be re-imagined, and now resembles a sort of “hive”, as Ocado calls it.
This, too, is somewhat under wraps.
The company’s Andover facility, in Hampshire, southern England, has been chosen to be the testing ground for much of the company’s latest robotic technology, including an in-house built logistics robot.
Not many companies in the UK are building robots of any description, but then Ocado Technology has its sights set on a global market, where it hopes to tout for business from gigantic retailers.
Ocado might be the biggest online-only retailer, but most people still do their shopping the old-fashioned way, and visit a store. Maybe people like it that way, and wouldn’t want it to change. But they’re probably not all that interested in how the warehousing operation is done, as long as the fruit and veg they buy is as fresh as it can be.
A large and growing market
While it’s probably too early to estimate the potential size of the global automated warehouse market – MarketsAndMarkets reckons the sector will be worth more than $8 billion by 2022 – it seems logical to think that it will grow, and grow fast.
With advances in sensor technologies, radio-frequency identification chips, robotics, automation, internet of things, and many other related tools coming to the market, Ocado Technology is one of the companies which is betting big on the growth of the grocery sector, in overall size as well as the amount of new technology it will want.
But, as Shaikh says, in some ways, much of the technological advancement depends on solving one difficult challenge: how to make the end effectors on robots as competent as human hands.
When you’re talking about a warehouse operation that deals with just one type of product, let’s say bottles, then the grippers required would be minimal – five or six types of grippers for five or six types of bottles. That’s relatively straightforward, says Shaikh.
A complex challenge
What’s not so straightforward is when the robot is required to deal with more than a few products – it would need different types of grippers for the many different types of packaging and products.
“When you look at other automated facilities, gripper technology and gripper development is quite easy,” he says. “With our robotics development, if you want to replace our personal shoppers with robots, for instance, those personal shoppers can identify and pick out any of 50,000 different products. Those products could be in tins, packets, bags, and so on.
“To have one robot replace a human is a different level of complexity and an order of magnitude of development that presents a real challenge.
“If you look at the rate at which the human shoppers are picking and placing, you can’t afford to have a robot with a tool changer on it, and then say, ‘Tin of beans, I need gripper type A’, then, ‘Packet of crisps, I need a different gripper’, ‘A case of wine’, and so on… Our product variant is very, very high and it’s a challenge.”
A challenge it may be, but the company is spending much time and resources on meeting it. Voica says Ocado is developing technologies for both the vision part of the robot, which will help it identify the products, and the gripper part, which is the pick-and-place aspect.
“We’re developing machine learning systems which will enable the robot to identify products as well as how to grip them – where exactly to grip it so it doesn’t damage the product, so it’s a complex challenge.”Ocado sets sights on global markets with its technology platforms Click To Tweet