Hello Omni Talk Fans! The supply chain world just lived through what one industry insider is calling a “vanilla” year. Not vanilla as in simple or sweet, but vanilla as in paralyzed, a year where uncertainty froze decision-making and retailers chose survival over innovation. In our latest Confessions of Supply Chain Executives episode, Kim Baudry, Market Director at Dematic, delivers her customary start-of-the-year frank assessment of the state of supply chain automation investment.
In a nutshell, 2025 wasn’t the year of transformation. It was the year everyone held their breath.
The Vanilla Reality Nobody’s Talking About
“There wasn’t a lot of new innovation,” Baudry explains bluntly. “Everybody’s just treading water, trying to deal with constant change.”
The numbers tell the story. Automation spending in 2025, according to Baudry, grew by just 1%, essentially flat. After years of explosive growth following COVID, the industry hit a wall. High interest rates, geopolitical uncertainty, and supply chain volatility created an environment where retailers chose incremental moves over bold bets.
But here’s what makes this particularly troubling: while executives tread water on investments, customer expectations continue to accelerate. The paradox is stark. Retailers need to deliver faster, more accurately, and more flexibly than ever before, all while being too cautious to make the investments required to meet those demands.
Sounds like a square peg in a round hole situation.
From Just-in-Time to Just-in-Case
Perhaps the most significant shift Baudry identifies is the complete inversion of inventory philosophy. “Before COVID, retailers didn’t want to have a lot of extra stock. They had just-in-time concepts,” she notes. “Now I say they have just-in-case. I need to have this inventory here because I can buy it at this price today versus I don’t know what my price will be in the future, and I don’t know if I’m going to have some kind of interruption to access that supply.”
And we are talking about far more than just holding a few extra units. Baudry says inventory levels in distribution centers are actually growing, driven by two powerful forces: 1) the need to forward-position inventory closer to customers for faster delivery 2) the need to hedge against supply chain disruption and price volatility.
The result?
Warehouses are simultaneously trying to do more with less while holding more inventory than ever. It’s a recipe for operational complexity that most retailers are ill-equipped to handle with their current systems and processes.
Square peg. Round hole.
One-Third of Your Workforce You Didn’t Know About
It gets better.
The most shocking revelation from Dematic’s voice of customer research has nothing to do with robots or conveyors. It’s about spreadsheets. Across major verticals including general merchandise, grocery, food and beverage, and durable manufacturing, one-third of distribution center headcount is dedicated to support functions.
Think about that for a moment.
Not picking, not packing, not shipping but looking at data, managing spreadsheets, planning inventory moves, and making operational decisions. One-third of the labor force in a typical warehouse is dedicated to what Baudry calls “the stuff I was talking to you about, looking at data, figuring out what to do with it.”
For context, this support function workforce dwarfs even maintenance staff. “You would have thought when you talk about support in a building, you’re thinking, ‘Oh, I got a bunch of maintenance people’ around,” Baudry notes. “That wasn’t the case. It was more in the managing the operations type of thing.”
This phenomenon Baudry calls “clunkiness,” a term Baudry references throughout the conversation, and which she uses to describe a fundamental inefficiency in how warehouses operate that has persisted despite billions in automation investment. “There’s still so much room for efficiency gains,” she confesses. “It’s still clunky. Where should I have people? What should I be doing? Where should I be investing in? It’s still not a well-oiled machine.”
Why Warehouses Are Ground Zero For Agentic AI
If there’s a silver lining to 2025’s vanilla year, it’s this: the inefficiency Baudry describes creates the perfect environment for Agentic AI to have a transformative impact, and, as I have mentioned numerous times of late, it’s going to happen faster in warehouses than anywhere else in retail.
“I actually think you’re right,” Baudry confirms when pressed on this prediction. The reason is elegant in its simplicity: warehouses generate massive amounts of measurable data. “We can measure rates and speeds of conveyor. We can measure the throughput of the overall building. We can measure how many people are on staff and what they’re doing. The amount of data that comes through a distribution center . . . I don’t think people understand. There is a ton of information that comes through our systems.”
Currently, that data gets analyzed by teams of people sitting around trying to figure out what it’s telling them and what they should do about it. It’s exactly the type of work that AI can make more efficient, not by replacing human judgment, but by dramatically accelerating it and making it far more accurate.
“When you think about what AI can do to make those people’s work more efficient,” Baudry notes, “there’s a whole lot of good that can come out of that. A huge impact.”
The Strategic Flexibility Imperative
While AI represents the future, Baudry identifies an immediate strategic shift that’s already underway, i.e. the move from massive, bolted-down automation systems to flexible, mobile solutions.
“There’s a big shift where our projects used to be really large, our customers now are buying more smaller spend type projects,” she explains. And it’s all due to the need for strategic flexibility in an uncertain environment.
Mobile robots, automated storage and retrieval systems that aren’t permanently fixed, and robots-as-a-service models allow retailers to adapt as conditions change. Some of these systems can even operate in buildings up to 78 feet high, providing enormous capacity without the commitment of traditional infrastructure.
Combined with the trend toward smaller distribution centers closer to urban areas rather than massive regional facilities, retailers are prioritizing agility over scale, flexibility over efficiency, and the ability to pivot over the optimized solution.
The Timeline: When Will This Actually Matter?
For executives wondering when they need to act, Baudry provides a clear timeline: “I think we’re going to start towards the end of this year seeing some impact, but more into 2027.”
That’s not a reason to wait. On the contrary, it’s a warning to prepare now. The companies that begin integrating AI capabilities into their warehouse operations in 2026 will have a significant advantage when the technology matures and becomes standard practice in 2027 and beyond.
To illustrate why, Baudry drew a parallel with e-commerce’s emergence in the late 1990s. The retailers who invested early, even when the technology was imperfect and the business case uncertain, created advantages that persist decades later. Those who waited found themselves playing catch-up, often unsuccessfully.
Your Next Steps: Breaking Out of Survival Mode
Baudry’s advice for retailers feeling stuck in survival mode is deceptively simple: “Look for ways to improve that clunkiness. Where are the biggest places that are impacting your bottom line and your service level to your customer, and then find companies that can help you work through that.”
Specifically, retailers should:
- Audit Your Support Function Labor: If one-third of your DC headcount is in support functions, quantify exactly what they’re doing and identify which tasks AI could accelerate or automate.
- Evaluate Your Inventory Strategy: Are you clear about why you’re holding inventory where you’re holding it? Have you evolved from just-in-time to just-in-case without explicitly making that strategic choice? Intentionally design your inventory positioning rather than letting it happen by default.
- Prioritize Flexibility Over Optimization: In an uncertain environment, the ability to adapt quickly is more valuable than the theoretically optimal solution. Explore robots-as-a-service, mobile automation, and smaller-scale implementations that give you optionality.
- Establish Your AI Baseline Now: Even if meaningful AI impact is 12-18 months away, you need to establish what you’re measuring today, what you want to achieve, and how you’ll track progress. As Baudry emphasizes: “Understand your baseline data. What are you doing today? What do you want to be able to do tomorrow and next year?”
Confession Time
When asked for the uncomfortable truth Baudry wishes more supply chain executives knew, Baudry again addressed a key theme, aka clunkiness. Despite billions invested in automation and technology, warehouse operations remain fundamentally clunky. Retailers are flying blind more often than they’d admit, managing operations through spreadsheets and manual analysis rather than the intelligent, data-driven systems they claim to have.
But there’s opportunity in that confession. The retailers who acknowledge the clunkiness and act to address it, particularly by deploying AI against that one-third of their workforce stuck in support functions, could create significant competitive advantages.
The vanilla-ness of our current state will end soon. The question is whether you’ll use it as a reason to stay cautious or as motivation to act while your competitors remain paralyzed and you instead get to enjoy a full assortment of 31 flavors of retail at its best.
Listen to the full Confessions episode to hear Kim Baudry’s complete insights on navigating warehouse automation, understanding the just-in-case inventory shift, and positioning your operations for the AI-enabled future that’s closer than you think.
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Because when it comes to supply chain challenges, confessions are almost always good for the soul.
Be careful out there,
– Chris, Anne, and the Omni Talk team
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Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.