Businesses face various challenges, from inflationary pressures and geopolitical tensions to growing demands for resilience and digital integration. These forces have intensified cost pressures across raw materials, labor, and transportation, while talent shortages and regulatory shifts compound operational complexity. Every part in today’s supply chain and logistics networks is challenged to become leaner and nimbler.
The warehousing industry, providing critical nodes in supply chain and logistics networks, is shifting from asset-heavy models to intelligent “phygital” ecosystems that merge physical infrastructure with digital innovation.

The Nature of the Phygital Warehouse

Phygital warehouses are a fusion of physical infrastructure and advanced digital tools, prioritizing operational agility over physical capabilities.
This model leverages technologies like Internet-of-things (IoT) sensors for real-time inventory tracking, artificial intelligence (AI) for predictive maintenance and demand forecasting, and autonomous mobile robots (AMRs) for precision in material handling. Vertical storage systems, such as Vertical Reciprocating Conveyors (VRCs), maximize spatial efficiency, while AI-driven warehouse management systems (WMS) optimize inventory placement and restocking processes. Sustainability is embedded through energy-efficient robotics and renewable energy integration, aligning operations with environmental goals.
Collaborative robots (cobots) operate alongside human employees to enhance productivity while ensuring workplace safety. Swarm robotics, where fleets of robots interchange seamlessly, will further optimize workflows by reducing energy consumption and time spent on tasks. AMRs and AGVs handle repetitive tasks precisely, freeing human workers for complex activities. Drones revolutionize inventory tracking by providing real-time visibility into stock levels in hard-to-reach areas.
Solar-powered facilities, energy-efficient robotics, and AI-driven energy management systems will reduce environmental footprints while optimizing power usage and costs. Circular supply chain practices, such as recycling packaging materials and minimizing waste, will align operations with environmental goals. These advancements position phygital warehousing as a driver of operational efficiency and environmental stewardship.

Core Components of the Phygital Warehouse

The phygital warehouse concept thrives on integrating cutting-edge technologies that bridge physical operations with digital intelligence. Automated storage and retrieval systems (ASRS) maximize spatial efficiency and speed up item retrieval. AMRs revolutionize material handling by autonomously navigating complex environments, operating alongside human workers, and performing repetitive tasks precisely, reducing physical strain and improving efficiency. IoT sensors enable real-time monitoring of inventory levels, equipment health, and environmental conditions, ensuring seamless tracking and predictive maintenance.
AI plays a pivotal role in transforming traditional workflows into adaptive systems. The technology improves demand forecasting by analyzing historical data and market trends, optimizing inventory management to align supply with customer demand. AI-driven algorithms also enhance picking efficiency by determining optimal routes for retrieval while enabling predictive maintenance to prevent equipment failures. WMSs integrate these technologies, serving as the central system for coordinating operations, optimizing inventory placement, automating replenishment cycles, and providing actionable insights through data analytics. Cloud computing enables scalability through centralized access to data across multiple locations.
Together, these technologies support phygital warehousing, enabling smarter, faster, and more sustainable operations that meet the demands of the modern supply chain networks.

The Benefits of the Phygital Concept

Phygital warehouses leverage advanced technologies to create more intelligent, more efficient supply chain networks. IoT devices provide real-time inventory visibility, ensuring seamless coordination between warehouse nodes and enabling faster, more accurate decision-making. AI-driven analytics transform this data into actionable insights, automating demand forecasting, route optimization, and resource allocation tasks. This reduces errors, improves efficiency, and helps businesses adapt quickly to changing market conditions.
Cloud computing is the connective tissue of the phygital ecosystem by centralizing data from IoT sensors, WMSs, and AMRs. This hyper-connectivity ensures that stakeholders have access to consistent, real-time information, enabling warehouses to respond dynamically to disruptions or shifts in demand. Predictive analytics powered by cloud-based systems can reroute shipments or adjust inventory levels based on seasonal trends or geopolitical events.
Seamless and safe interchanges between human workers and machines are critical in an automated but human-centric environment.  AMRs transport goods to human pickers, reducing physical strain and increasing productivity. IoT and smart cameras enhance worker safety by monitoring crowded or hazardous environments.
Phygital networks break down silos between departments and partners, fostering collaboration and transparency across procurement, manufacturing, and distribution. By integrating technologies into a cohesive ecosystem, companies can achieve higher operational efficiency, reduce costs, and create resilient supply chains well-equipped to handle future challenges.
AMRs can transport goods to human pickers while IoT sensors and computer vision devices (smart cameras) monitor worker safety by maintaining distances in crowded or perilous environments. Phygital warehouse and supply chain networks break down silos between organizational layers, departments, and partners to foster collaboration and end-to-end visibility and transparency across procurement, manufacturing, and distribution networks.

The Phygital Warehouse at Work: Real-Life Case Studies

DHL: The phygital concept is displayed at the DHL Smart Warehouse in Beringe, the Netherlands. The 128,000 m² top-grade warehouse exemplifies the phygital future: robots pick 600 items/hour, AMRs operate alongside humans, reducing physical strain, and wireless tracking optimizes workflows with the highest safety standards. DHL blends advanced technology with human expertise to maximize efficiency and productivity, while reducing labor requirements, minimizing errors, and enabling 24/7 operations for faster order fulfillment
Peak Technologies: Customers expect faster delivery times, greater accuracy, and seamless service, leaving traditional fulfillment systems struggling to meet today’s expectations. With its deep supply chain management and mobility services expertise, Peak Technologies exemplifies the transformative power of phygital warehouse solutions by implementing end-to-end warehouse solutions that optimize operations through customizable mobility technology, advanced supply chain management tools, and services such as RFID tracking, real-time communication systems, and autonomous mobile robots. Peak Technologies expert teams help customers integrate AMRs without disrupting warehouse operations, helping businesses reach 200–400% productivity gains while reducing labor and improving order accuracy.
Hansgrohe redefined B2B engagement by merging virtual and physical experiences. Contractors explore products via a virtual app before inspecting them in person, with a backend digital warehouse system ensuring real-time stock visibility and logistics coordination. This hybrid approach slashes order processing times while enhancing customer engagement.
The Bigger Picture: Phygital Network Operations
While innovations like AMRs, AI-driven WMS, and IoT sensors are revolutionizing warehousing, they usually yield limited results in isolation. A siloed approach risks creating inefficiencies or missing critical interdependencies across supply chain networks. Deploying robots for picking tasks may improve productivity locally but fail to address upstream issues in demand forecasting or downstream bottlenecks in last-mile delivery. KPMG highlights that seamless integration across procurement, manufacturing, and logistics is essential for customer-centric outcomes. Alcott Global stresses that breaking down silos and fostering collaboration across all supply chain stages drives profitable and sustainable growth. True transformation requires supply chain design experts to take a step back and look at the broader picture, integrating technological advancements into a cohesive, end-to-end, and holistic strategy.
The future of intelligent warehousing is defined by the convergence of advanced technologies, sustainability initiatives, and human-centric and customer-centric innovations, transforming warehouses into dynamic hubs of efficiency and adaptability. Automation will be at the forefront, integrating AI, robotics, and IoT to enable fully autonomous operations. AI-driven systems will optimize inventory through predictive analytics, allowing warehouses to anticipate demand spikes, streamline stock levels, and minimize operational bottlenecks. Machine learning algorithms will continuously refine processes, improving picking strategies, for example, through workers equipped with wearables, automating stocktaking through drones, optimizing route optimization, and overall workflow efficiency.

Challenges in Realizing the Phygital World of Logistics

Implementing a phygital warehouse and network also presents challenges, ranging from financial investment to technological integration, workforce adaptation, and data management.
One of the foremost hurdles is the high upfront cost of automation technologies. These technologies often require substantial capital, making companies hesitant to commit without precise return on investment (ROI) projections. Businesses must calculate ROI by factoring in labor cost savings, efficiency gains, and error reduction. Exploring alternative financing options, government incentives, and turning capital into an operational expenditure can alleviate financial strain.
Integrating new technologies with existing legacy systems is another challenge. Warehouses that operate on outdated infrastructure that lacks compatibility with modern digital tools may face inefficiencies and data silos that undermine the benefits of automation and the phygital warehouse. Companies should consult experienced vendors to develop tailored integration plans, ensuring seamless communication between legacy and new systems. Employing middleware solutions or cloud-based platforms can bridge such gaps while enabling scalability. Proactive maintenance plans and partnerships with technology vendors for ongoing support can mitigate downtime and ensure system reliability.
Workforce adjustment is a pressing requirement. Automation regularly replaces cumbersome and repetitive tasks previously performed by humans, raising concerns about job displacement. Companies should prioritize transparency about the effects of phygital networks and offer retraining programs to upskill employees, for example, for roles focused on managing and maintaining advanced technology and automated systems. Clear communication about the workforce-specific benefits of phygital warehousing, such as improved safety and reduced physical strain, can foster workforce buy-in. Redeploying workers to areas requiring human expertise ensures their skills are utilized effectively.
Data management and security are critical fields as automated systems generate vast amounts of data. Businesses must invest in robust cybersecurity measures, such as employee awareness and training, encryption, and two-factor authentication, while ensuring compliance with data protection regulations like the General Data Protection Regulation (GDPR).
Companies that successfully address these specific challenges can unlock the potential of phygital warehouses as interconnected nodes in broader supply chain networks.

Conclusion: Building Synchronized Systems

Supply chain efficiency and resilience result from digitalization and synchronization for fluidity and flexibility. The true potential of phygital warehousing lies in holistic integration rather than isolated technological upgrades. Companies like DHL, Peak Technologies, and Hansgrohe demonstrate that merging physical infrastructure with digital innovation can streamline operations, enhance customer value and satisfaction, and drive sustainability.
Human expertise remains indispensable even with cutting-edge automation and AI. Erik Brynjolfsson, an American academic, author, and inventor, argues that the focus on algorithms or robots replacing humans is misplaced. Instead, he advocates envisioning how AI can complement human agency and efforts, foster innovation, and improve productivity and performance.
This underscores the importance of leadership in designing phygital networks that should balance innovation with operational cohesion. Research shows that companies adopting a holistic supply chain approach can achieve higher operational efficiency while reducing disruptions. The phygital warehouses are not just about assets or technology; they are about creating synchronized systems where humans leverage the power of machines to redefine what is possible today in global logistics.