Know your main drivers before investing in warehouse automation

Warehouse automation is on everybody’s lips. You almost believe automation is the answer to everything. There is of course a natural reason behind the automation hype. McKinsey Global Institute estimates that the transportation-and-warehousing industry has the third-highest automation potential of any sector. Do not get me wrong I am a big fan of technology but behind this hype, it seems like many companies feel they are forced to invest in automation because they fear to fall behind competitors. However, sometimes it seems like companies don´t even know what their main drivers is to automate.

This also applies to companies in logistics business and especially companies that work with e-commerce and omni-channel. However, despite all the buzz talk about automation, many companies are waiting to invest in automation. There are several reasons for that. For example, e-commerce is still a relatively new phenomenon and there is a great deal of uncertainty about how competition will look in the long term. There is also uncertainty about which technical solutions in automation will prevail in the competition. Many e-commerce companies are also relatively new and have outsourced their logistics to 3PL companies. The trend with shorter contracts prevents 3PL companies from investing in expensive solutions, as the time of financial depreciation is longer than the contracts. McKinsey research estimates investment in warehouse automation will have least growth 3PL, at about 3 to 5 percent per year to 2025. That is half the rate of 3PL companies’ customers, such as retail and automotive for example (6 to 8 percent) and pharmaceuticals (8 to 10 percent).

However, if you have your main drivers in place and right expectations, an automation solution can be a great success. By main drivers, I mean what you want to get out of your investment. Is there increased volume efficiency? Increased picking efficiency? How important is flexibility / agility? It is all about cost reduction in some way. The important thing is in what area is the highest potential to reduce costs significantly?

Of course, the main driver is money but on what account do you expect to collect them? Is it on labor costs? Facilities (rent/investments in new building)? Quality/ delivery performance? When I am out networking with colleagues, I often get vague answers when I ask what the main reason is to automate and why they choose the current solution.

If you do not know your main drivers, the risk is you end up with wrong solution for your purpose. Every solution have their strengths and weaknesses. You always have to compromise on something when choosing a solution. Therefore, it is important what your main driver is so you compromise on the right thing.

According to LogisticsIQ´s Warehouse Automation study, Order fulfillment in e-commerce sector is the biggest factor driving the adoption of warehouse automation technologies. After that comes High warehouse rents, shortage of skilled warehouse staffs and increasing staff costs.

My advice is to be careful and think twice before you decide to automate. Is your company in an expansive phase with uncertain order load at peaks it can be wise to stay manual and invest in a competent WMS instead. That can do wonders for both labor costs and how you utilize the facilities. Same for quality. In that way you don’t risk to be stuck in a solution that can’t handle your peaks like Christmas and black Friday for example.

But there is other processes you can automate without using solutions like automated storage/retrieval systems (AS/RSs) for picking. For example automated guided vehicles (AGVs) that move cases and pallets. Between different areas in warehouse or Autonomous palletizers that use robotic arms to build pallets from individual units and cases, often using advanced analytics to determine the optimal placement for each box. These solutions is easy to supplement with manual labor in peaks in workload.

As I have written before regarding automation. Be sure you do not build “monuments” in your flow that is rigid and cannot handle your peaks in workload also consider how easy the solution is to scale up if necessary. If you automate your picking in AS/RS it´s important, you analyze your stock so you do not have a bottleneck immediately. I know it is tempting to put all category “A” products in automation to secure the ROI but it is better to be careful and slowly increase efficiency.

Another very important thing to take in consideration is what warehouse control system (WCS) you should use. Should you use the automation manufacturers WCS or maybe you already have a competent WMS with WCS functionality? Some vendors have begun to implement AI/ML in some functions with great results. That is definitely something to look at before choosing system.

It is a lot to think about but with the right competence, an automation investment can be the difference between failure and success.

Roberth Karlsson