By looking at the cost structure, we’ll establish a framework to help calculate the first part of your automation’s ROI: cost of ownership.
Cost of Ownership
While most companies today know they need to automate to compete better, many also struggle to make a compelling business case for warehouse automation. How much will automation cost me, and what value will I ultimately get out of it?
Many factors impact whether or not a particular automation solution would be a good fit for your business needs. Metrics to consider include CAPEX, warehouse size, workflow, SKU type, …
There is no “one size fits all” approach, but one metric to consider for all automation solutions, is the cost and ROI. If you want to present your board with a sensible business decision, you need a sensible framework to evaluate all alternative solutions, and that’s what I hope to establish with this article.
If you want to calculate the cost of automation, you broadly need to investigate two costs: capex investment and running costs.
Whether you buy a fleet of robots or a traditional automation system, you’ll have to make budget for both hardware and software expenses, with hardware and installation taking up 70%~75% of the total cost, and software the remaining 25%.
Hardware is the foundation
Hardware includes shelves, lift systems, conveyors, robots, storage bins, …
Systems like #Autostore and multi-shuttle systems typically require a total revamp of your warehouse, forcing you to replace all existing hardware with a new custom-made installation. On the other hand, robotic systems like P2G AMR’s (#Locus), G2P AMR’s (#HIKRobots, #Geek+, #GreyOrange), and ACR’s (#HAIRobotics) can often incorporate existing shelves and bins. Given that storage systems would make up for minimum 40%~50% of the total hardware investment, robotic’s rich integration capabilities helps get you a faster ROI.
Software is the magic
The best hardware in the world, doesn’t deliver without fit #software to run on. And while it consists of only 25%~30% of your investment, software does have a decisive impact on the value you get out of your new installation. So here are the major factors to consider before deciding on the right fit for your project.
Most important is the match between your software and your new hardware. Not all software is created for the same purposes, and some software may maximize your hardware’s efficiency, while less compatible software may actually be a bottleneck for hardware performance.
Other software considerations include integration of your new automation facilities with your existing inbound and outbound operations. Is the new software a lever, facilitating your work, or a drag, requiring complex integration mechanisms?
How about data management capabilities ? How does your new software make your operations more intelligible? Data is the new oil, and insightful data will help you earn back your investment faster.
I would define operational costs as the every day expenses, without which your system cannot run.
Operational costs are mainly divided into 3 parts:
- Human labor
In general it seems like the lower the investment, the higher the running cost, as for basic automation solutions you’d need more human participation in the process. The higher the investment, the higher the level of automation, so the lower will be the running costs
Systems like #Autostore and #HAIRobotics automate the whole picking process. SKU’s are stored in boxes, which are stored inside shelves. Boxes are retrieved automatically through robotic systems. The only human intervention, is at the item picking side. Individual totes are brought to work stations, where humans pick order lines. Both Autostore and HAIRobotics systems would allow for integration with robotic arms, so that even this order fulfillment can be automated.
#Locus robots collaborate with human workers who pick orders inside the shelving area, and once a package is ready, the loaded bot will move to the packing station. This system does a great job in alleviating human labor intensity, while at the same time speeding up the picking process. Still, human pickers are a cost you need to factor in.
Shelf AMR systems were first used on a wide scale by #Amazon and #Kiva back in 2012, and bring complete shelves to a picking station. Once at the picking stations, human pickers need to locate the correct bins, and take out the SKU’s for order fulfilment. Compared to Bin2Person systems like #Autostore and #Hairobotic’s ACR system, shelf AMR systems may require about 30% more workstations and FTE’s.
As with cars, maintenance cost tend to increase over the life span of the solution. As a rough calculation, expect service costs to go from 5% ~ 15% of total CAPEX over a five year period.
Autostore and multi-shuttle systems seem to be more complex to repair, and businesses have to rely on third party expert teams for yearly servicing. AMR and ACR systems on the other hand are fairly intuitive and easy to maintain, thus can be done by your in-house mechanical and electrical team.
Overall maintenance costs also depend on the usage rate of your installation, as batteries and other parts need replacement earlier for 24/7 operations than for 8/5 operations. That’s why it makes sence to talk in terms of mileage vs time when looking at the total life cycle.
When talking to an automation partner, make sure to get clarity on the CAPEX and the operational costs.
For CAPEX, focus questions are hardware vs software cost breakdown. Do you need to replace 100% of your existing infrastructure, or can you reuse part of it, like shelves and totes? What is the depreciation and lifetime of the solution?
For operations, focus questions are how many FTE’s are needed? Which skills do they need? How about the annual maintenance costs? How much of it is service, and how much is spare parts? Is it possible to take maintenance service in-house?
A question for you
Did you have any cost surprises with your automation solution?