Warehouse Automation and ROI: 4 Reasons It Doesn’t Always Go as Planned

Realize a positive ROI

Only when warehouse automation systems are strategically selected, integrated with software systems, and work in harmony with people can companies realize a positive ROI.

Warehouse automation is a hot topic for warehousing and distribution center companies. A recent logistics and material handling industry report from Peerless Research Group (PRG), reveals a bullish outlook for continued material handling investments, with an emphasis on newer technologies such as robotics, warehouse control systems software and warehouse execution systems. Among those surveyed, 54% expect closer, more automated tracking of picking accuracy within the next two years and 52% expect to have more automated tracking of their order fulfillment costs.

While there is potential for warehouse automation systems to bring significant benefits to warehouses and DCs (e.g., reduced labor costs, improved productivity, fewer errors), it doesn’t always work out this way. Sometimes, it has the opposite effect.

A Midsized Industrial Distributor’s $3 Million Automation Lesson

Last year, an Industry Week article, “Automation in the Warehouse: Asset or Obstacle,” highlighted a midsized industrial distributor that made a $3 million automation investment comprising carousels linked with an active conveyor. Performance and reliability were so poor that the system was abandoned at a significant loss. A postmortem failure analysis revealed that even if the carousels and conveyor had worked perfectly and the company had been able to reduce its workforce 50% (from 20 workers to 10), it would have still been in the red five years later. Without knowing more details about the company mentioned in the report, one can only speculate where it missed the mark with its automation investment. But, if your company is considering a similar venture, here are four pitfalls you must avoid.

  1. Make Sure You Have the Necessary Space. The idea of end-to-end conveyors is enticing in theory but consider how this would impact your overall storage and operations areas. It’s not uncommon for companies to have to expand their warehouses to accommodate automated conveyor systems, so that needs to be factored into the budget. If you’re already landlocked, you’ll need to reconsider this kind of investment. It doesn’t mean automation isn’t for you, however, it just means you may need a different kind of automation system.
  2. There Are Different Levels of Automation. For some people, the term warehouse automation immediately conjures up complicated (and expensive) “lights out” facilities where RFID technology and autonomous vehicles perform 24/7/365 error-free fulfillment operations with no human assistance. While this could become a reality for some DCs in the future, there are several other levels of automation that are available right now and can provide a much shorter ROI. For example, one level of automation entails using wireless barcode scanners integrated with warehouse management system (WMS) software. The next level of automation adds mechanical solutions that automate horizontal movement and reduce staffing such as conveyors and pick modules. The third level of automation includes automated storage and retrieval systems that boost storage efficiency and minimize travel and manual material handling. You don’t need to implement all of these systems and levels simultaneously; they can (and in most cases should) be implemented in phases.
  3. Your Staff Must Be Trained to Work with Automation Equipment. There are several processes a company must adopt before installing an automation system, starting with assigning a person or team to be responsible for handling the implementation and selecting the necessary functionality. The team should be involved in all aspects of planning and process development. Companies that delay this process are more likely to struggle, making a rushed hiring decision down the road and lengthening the time it takes to realize an ROI.
  4. Factor Maintenance and Repair Costs into the Equation. All machines require maintenance and repairs from time-to-time. Not only do these costs need to be factored into the ROI equation, companies need to determine whether they have the bandwidth and expertise to handle them internally, or if they need to outsource it to a third party. Skipping these details will lead to lengthier periods of downtime — and lost revenue — down the road.

With any technology or trend, it’s often the most extreme examples (e.g., “lights out” warehousing) and biggest failures (e.g., the midsized DC mentioned earlier) that garner the most press. Rather than forging ahead blindly or waiting for a no-risk solution, seek advice from others in your industry who’ve adopted a higher level of automation than your company, learn from their experiences, and do the same.

Our team of project managers, engineers, and analysts can assist and support you through your DC automation evaluation and implementation process from start to finish. Contact us today via phone (+1 856.727.1100) or online to learn more.