Lund University’s Johan Lundin shares his observations about the pros and cons for companies considering automation.
The what, how and why
According to Johan, there are 3 questions to ask when considering investing in warehouse automation. What to automate, how to automate and why automate? While he is an advocate of fully automated warehouses, he sees both pros and cons in the amount of automation companies should take on.
Does large investment equal long-term gains?
"It’s a large investment to make", says Johan, "but automation brings several long-term results. It enables growth, reduces costs, improves customer service, consolidates warehouse goods, reduces picking errors, increases throughput and, as a result of all these, improves brand image".
Johan notes that automation isn’t the right solution for everyone. "Once in place it’s difficult to move, remove or modify, payback is slow, and of course it’s technically involved, so if something goes wrong, the chances are everything comes to a halt until it’s fixed".
When does it work?
Johan explained that automation works best for companies who have long-term stability and growth, and where labour costs, stock volume and stock movement are high. Most labour costs are spent on picking, so products that are uniformly packed and easily moved are the ones that benefit more from automation. Products that differ in size and packaging are more suited to manual picking processes.
The case against:
Of course, full automation isn’t for every company. The problems according to Johan are these:
- Automated processes are difficult to move, remove or modify
- Automation requires a large capital investment…
- …that may lead to a long payback time
- High complexity makes debugging difficult
- There is a possibility that entire systems “go down” and that you have to replace regular warehouse staff with expensive technicians
What factors impact the level of automation?
Automating your warehouse is a long-term investment that can return positive results. But it’s important to study how effective it can be for your business, and where and how much the automation process should be implemented for the best possible returns.
Areas where it makes sense to use manual processes are where you need flexibility, where volatility is high (high changes in demand, business models & conditions), a lack of standardization (products, processes), low capital availability, and of course, low labour costs.
Should you stay or should you go? Considerations for automation
Johan’s checklist for when you should automate covers the following points:
- Is capital in place?
- Are labour costs sufficiently high?
- Are volumes moved large enough to generate payback?
- Is stock flow predictable?
- Is long-term forecasting possible?
And of course the most important point is to have a business case in place that covers issues such as technology and how easy it would be for the organization to handle the change.
As Johan says, "Knowing your business inside out is the first step in making an investment decision, which should be followed by answering the what, how, and why questions on automation".
Johan cites Baker and Halim for his final piece of advice, "Plan it, scrutinize it, criticize it, refine it – on paper before you put it in. One month’s additional planning will save six months post-implementation headaches." (Baker, P. & Halim, Z. (2007). An exploration of warehouse automation implementations: cost, service and flexibility issues. Supply Chain Management: An International Journal , 12 (2), 129-138.)
Three companies, three different levels
3 companies who’ve automated their WMS to different degrees according to their specific circumstances are Absolut Vodka, Tetra Pak and Toys R Us.
Absolut Vodka automated their Åhus warehouse using standardized processes. Moving more than 600,000 bottles a day, with exports of 98% to 126 countries, automation was the right choice for them. Absolut only has about 300 SKUs (Stock Keeping Units - that identify a particular product) of flavours and bottle sizes to pick and pack, making its picking process ideal for automation. Automation brought many advantages, including less requirements on flexibility, being able to standardize products and processes, the ability to cope with steady, increasing demand and savings on the high cost of labour in Sweden.
Tetra Pak Global Technical Support AB supplies its clients around the world with spare machinery part. The company has an unpredictable demand in type and volume. Because of the variety of products needed, there is a high SKU spread inhibiting system standardization, which makes full automation difficult. Their current system deals with 76,000 SKUs in 200,000 storage locations, but they have the ability to cope with 600,000 SKUs as they move towards increasing volume and articles.
Toys R Us is the world’s leading toy retailer, with $13.6 billion in net sales, 150-500 warehouse employees (depending on the season) and 300,000 pallet locations. Christmas means a sales surge, with a 400% increase in workers, shipments and conveyor loads.
Toys R Us needs to increase performance effortlessly and productively once a year. With 7,200 SKUs, and some products in more demand than others, flexibility is the key word. Products that can’t be automated are put close to shipping processing. Processes here can be standardized, even if the products aren’t, because flow is predictable. This pattern helps in the degree of automation the company can achieve. A deciding factor for Toys R us is the inexpensive supply of labour at the times they need it.
About Johan Lundin
Johan is a self-confessed warehouse tourist, looking at warehouses all over the world. In his spare time, he is studying for his Doctorate at Lund University, researching into warehousing and materials handling. Johan’s expertise in warehousing concerns when and to what extent organizations should automate warehouses for maximum effect.